Tuesday, March 10, 2015

Digital Master Tuning #54: How to Leverage Strategic Frameworks in Crafting a Good Digital Strategy?

Businesses today need to move beyond the notion of a jungle of threats to a notion of the dynamic ecosystem with managing both opportunities and threats effectively.

The world changes and businesses today have become more fluid, uncertain, and unstable in some industries or markets, but the fundamentals are still largely the same. And there have been environmental uncertainties, periods of business disruptions, and technological discontinuities as long as there have been markets, but the speed of change is accelerating. Are those well popular strategy models still relevant? And how to craft a good strategy?


Strategic thinking frameworks are better understood as complements (as opposed to substitutes). Each thinking framework is an abstraction, and as such, it is based on simplifying assumptions - sometimes explicit, usually implicit, and mostly related to the disciplines that the proponents have mastered. Uncovering underlying assumptions produces knowledge, albeit not of the “know-how” type, but more related to “know when” and “know where” perspectives. This type of knowledge has both a descriptive as well as a prescriptive side. Today’s business is hyper-connected and over-complex, more fundamentally, the strategy of the firm must be expanded to include a cross-level analysis of both a local firm and its portfolio of alliances. Ecosystems involve complex relationships based on "coopetition" where members of the ecosystem cooperate to create value and compete to capture value.


Both Porter’s Five Forces and Blue Ocean strategy model are relevant, but have their share of limitation: Different strategy model focuses on different aspects. Porter's Five Forces is an evaluative environment analysis, which is well suited for existing markets. Blue-Ocean Strategy, in contrast, is a strategic approach for identifying new (blue ocean) markets and unique position. Value creation can be viewed as a multi-dimensional approach because they speak two different points of view. Porter's 'Five Forces' discussed environmental assessment and 'Blue Ocean' is a strategy to acquire positioning and competitive advantage. The first discuss to analyze the environment. The second expose the advantage of being competitive by not competing for neck-to-neck . Due to the rapid change and VUCA nature of digitalization, both strategy models have their share of limitations: Both fail to incorporate alliance network and ecosystem platform into consideration. Nowadays, competition is occurring not simply at the level of independent firms, but often at the level of network, platform, and business ecosystem. The strategy needs to be made not only based on the historical pattern, more importantly, it has to leverage the emergent thinking, shifting from descriptive to predictive to prescriptive analysis.


Emergent and deliberate strategies could co-exist: If deliberate strategy dominates the companies running at industrial speed, then, the emergent strategy has the digital tone of strategy making. In order to make the balance of such two speeds, emergent, and deliberate strategies could co-exist. If this is achieved and the organization is able to implement systemic thinking and double-loop learning, then the outcome may be that emergent and deliberate strategies could co-exist in the same organization and that by developing this into an institutionalized element of the organization's culture and values (DNA), it would itself turn into a competitive strength. Organization theorists refer to this capability as ambidexterity. Now, every time business practitioners face a dilemma between opposing objectives, perhaps there are three simplistic scenarios:
a) Focus: the organization which tries to be proficient at the “opposing objectives” is becoming disoriented, losing focus, turning out to be “good at nothing.”
b) Choice: the organization realizes it is aiming at opposing objectives and understands it must choose. According to Porter, this choice is the basis for strategic positioning (“not only deciding what are we going to do but also what we definitely are not going to do”)
c) Shift: This applies to firms that aim to “solve” the dilemma or at least shift the frontier of what is possibly aiming for both objectives at the same time. Blue Ocean provides a way to improve both value and cost drivers by “rearranging” business attributes within the value proposition in response to value gaps in under-analyzed market segments.


Value innovation is more an emergent strategy than a deliberate strategy. Organization’s value propositions are multi-faceted. Value innovation is not immune to competition. Once a value innovation is successfully established, the innovator commits to scaling it up to create economic value. Going from exploration to exploitation increases the firm's commitment to the new successful business model. Its profitability logic becomes ingrained in its management processes and organizational culture. When competitive pressures erode profitability, it becomes difficult for the firm to creatively destroy its business and organizational model because the organization´s “immunological system” attacks and nullify new ideas. Typically that is done by another (entrepreneurial) firm without the burden of being committed to “legacy” models. Managing emergent strategies in well-established firms is hard. Most of the time, value innovations are created by small disruptors. Thousands of experiments are conducted aimed at value innovation. Most of them fail, the fittest survive and then became famous when its story becomes known to business audiences. Large firms hear these stories and think they have the resources to create their own blue oceans. Most of the time, their legacy systems working in exploitation mode do not allow them to do it.


Turning organizational knowledge into strategic intelligence is crucial: All value creation and innovation may be fleeting as the blue ocean turns red and competitors imitate and market convergence erodes first mover or innovation advantage, so transforming knowledge into intelligence is mandatory. More specifically, transforming and harnessing organizational knowledge, turning it into strategic intelligence at the same time as creating a foundation level of capability upon which a flexible modular business established.This organization will be equipped with an operating element that is exploiting and a strategic framework that enables exploration, adaptation and timely response. This will facilitate continual strategic renewal through learning, and, therein, create the inherent ability and agility to respond to evolutionary as well as revolutionary changes and opportunities in the business ecosystem. Such emergent capability helps a firm function at both exploration and exploitation modes.


Businesses today need to move beyond the notion of a jungle of threats to a notion of the dynamic ecosystem with managing both opportunities and threats effectively. From the perspective of the dynamic ecosystem, Porter's five forces can be reframed from competing relationships to cooperative partnerships. You can immediately see the opposite strategies; simultaneously, which is a necessary condition for it to be able to appropriate economic value from its last blue ocean innovation while building the next value innovation in its pipeline, focus on customer-centricity rather than rivals only. The organization will be equipped with an operating element that is exploiting and a strategic framework that enables exploration, adaptation and timely response. This will facilitate continual strategic renewal through learning, and, therein, create the inherent ability to respond to evolutionary as well as revolutionary changes and opportunities in the business ecosystem. Strategy frameworks are just tools, many business concepts and disciplines need to be considered to ensure that not only is a "strategy" produced, but that "strategic management" is practiced.

Digitalization is like a flywheel, and Digital Masters are the one riding above it. Surf more Information about Digital Master:





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