8 Sep 2020


Plotting Strategy in a Dynamic World

David J. Teece, Paul G. Raspin, and David R. Cox

Organizations can never be fully prepared for an unanticipated shock. But the most resilient ones learn to expect the unexpected. They can rebound quickly and take advantage of opportunities that emerge.

A framework developed by the authors offers four sets of activities for companies that want to go beyond traditional forecasting and risk-assessment exercises. First, companies need to develop a set of processes to actively sense new insights that could affect the business. Second, they need to organize in response to those threats or opportunities by reallocating resources where necessary and revamping processes. Third, they must capture value by restructuring their business models and relationships with other players in their ecosystems. And fourth, they need to renew the organizational capabilities that will allow them to continue to monitor and make adjustments over time.

These four sets of activities and capabilities — sensing, organizing, capturing, and renewing — allow organizations to nurture their dynamic capabilities. The activities are not meant to be implemented sequentially. Instead, they are interlinked and allow behaviors and processes to continually adjust.

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The Overlooked Key to Leading Through Chaos

Deborah Ancona, Michele Williams, and Gisela Gerlach

Vision, honesty, and the ability to execute changes are commonly cited traits of great leaders. Less acknowledged but equally critical is sensemaking: the ability to create and update maps of a complex environment in order to act more effectively in it. Sensemaking involves pulling together disparate views to create a plausible understanding of the complexity around us — and then testing, refining, and abandoning that understanding, if necessary, to start again.

Research by the authors shows that while sensemaking is a predictor of leadership success, few leaders model or implement it in their organizations. Less than 4% even recognize it as a key attribute. Undervaluing this practice is a particular problem in turbulent times, when it’s critically needed to plan in the face of uncertainty.

To be more effective at gathering information that points to better solutions, organizations need to plant sensemaking in the minds of leaders and employees, and formalize the practice in the organization. The authors provide examples of teaching, role-modeling, and shaping culture that include sensemaking and recommend including sensemaking activities in organizational processes, and in hiring and performance-management criteria.

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Make Cybersecurity a Strategic Asset

Manuel Hepfer and Thomas C. Powell

Despite costly cyberattacks on major organizations, many of the world’s largest companies remain unprepared. Although executives acknowledge cybersecurity as an important part of IT planning, they misunderstand the strategic character of cyberattacks, both as a severe threat to earnings and operations, and as an opportunity.

The authors studied three companies affected by a major cyberattack. Afterward, executives developed a new appreciation for the strategic value of investments in cybersecurity, not only for mitigating risk or minimizing damage but for strengthening the core strategic capabilities of the company. On the basis of their research, the authors provide a framework for understanding the four key dimensions of cybersecurity strategy along with guidance on how to incorporate each into strategic-planning discussions.

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Disrupt Your Own Business First

Ian C. Woodward, V. “Paddy” Padmanabhan, Sameer Hasija, and Ram Charan

The coronavirus pandemic has reminded business leaders that all assumptions and practices must be continually reexamined and that existential threats can come at any time.

Companies need to strategize in new ways, recognizing the limitations of long-term planning in an unpredictable world. They can do so by mercilessly examining their own weaknesses and vulnerabilities, and by gaming out their own destruction before someone — or something — does it for them.

The authors offer a multipart exercise in creative destruction that they have field-tested with over 1,500 leaders from around the world. While the process ordinarily includes participants from multiple companies and plays out over several days, it is streamlined in this article as an exercise for a single institution and a flexible time frame. The authors call it the Phoenix Encounter Method, focusing not on the ashes of destruction but on the revitalized company that will rise out of them.

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Innovation’s Uncertainty Factor

Rahul Kapoor and Thomas Klueter

A disruptive value proposition moves into the marketplace with its own trajectory and impact. Although innovators wish they could fully anticipate that path, there is significant uncertainty. Some innovations can reach mainstream status in a matter of years, whereas others may take decades. Others, despite their potential, may never reach fruition.

The authors have analyzed the progress, successes, and failures of disruptive innovation efforts in sectors such as health care and energy. They have also surveyed the academic literature and publicly available reports on disruptive innovation in other industries. They write that the importance of factoring in uncertainty to understand the trajectory and impact of a disruptive value proposition on either a startup or an incumbent can’t be overemphasized.

Three key sources of uncertainty — around technology, ecosystems, and business models — turn out to be pivotal to understanding the process of disruption. The authors have found that when companies carefully consider these sources of uncertainty and how to address them, they can better position themselves to manage disruption and achieve superior outcomes.

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Driving Growth in Digital Ecosystems

Ina M. Sebastian, Peter Weill, and Stephanie L. Woerner

When China’s largest insurer, Ping An, realized that its customers wanted not only insurance but also a means of addressing their medical and well-being needs, it created Good Doctor. The Good Doctor platform offers 24-7 one-stop health care services that are provided by pharmacies, hospitals, and about 10,000 doctors. In September 2019, Good Doctor reported serving more than 62 million customers monthly.

This is an example of a digitally connected ecosystem: a coordinated network of enterprises, devices, and customers that creates value for all of its participants. These networks can bring spectacular success: Research by the authors found that companies with digital ecosystems experienced revenue growth approximately 27 percentage points higher than the average for their industries. Their profit margins were 20 points higher, too. This was true in both B2B and B2C domains.

To build such environments, companies need a capability for digital partnering — which often differs from the traditional handshakes, exclusive relationships, and long-term contracts of partnering in the physical world. The authors found that successful companies in this type of collaboration have both digital readiness and thoughtful curation of which products and services to offer.

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How to Reconcile Your Shareholders With Other Stakeholders

Paul Strebel, Didier Cossin, and Mahwesh Khan

How are leaders supposed to manage the trade-offs among conflicting stakeholder interests? Pursuing long-term growth strategies that benefit a broad set of constituents requires them to focus rigorously on a company’s long-term value and assess which stakeholders create — and which deplete — that value.

To help executives do this work, the authors have put together a framework in which long-term shareholders are separated out from other stakeholders to avoid short-term, value-destroying traps. Leaders must determine which stakeholders are victims, subject to value extraction that benefits shareholders, with uncertain risk of a stakeholder backlash; which are free riders, inclined to extract more value than they contribute; which are predators, who destroy company value for their benefit and to everyone else’s detriment; and which are creators of value, driven to promote win-win initiatives for themselves and the company.

The authors identify five common traps: misjudging stakeholders’ potential value, underestimating backlash from weak stakeholders, subsidizing free riders at the expense of long-term shareholders, compromising with predators, and underestimating the role of intermediaries. They advise leaders to shift as many stakeholders as possible into win-win positions — targeting not just those who are already critical value creators, but also targeting victims and free riders that have the potential to contribute and realize greater value.

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Overcoming the Innovator’s Paradox

Jeff Dyer, Nathan Furr, and Mike Hendron

When trying to win support for significant new ventures, effective innovators go beyond conventional tactics such as data analysis, financial forecasting, and strategic planning. They rely on generating attention and credibility for themselves and their ideas (generating what the authors call impression amplifiers) by using the right comparisons and analogies about why the idea will succeed. They also focus on materializing the idea by showing and not just telling, triggering emotional reactions through strong storytelling, building legitimacy through others, and creating a fear of missing out.

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Competing on Customer Outcomes

Marco Bertini and Oded Koenigsberg

Customers who buy products and services want them to deliver meaningful outcomes, whether it’s a particular sensation, a tangible benefit, or some combination of the two.

Technological advances enable companies to track the outcomes their solutions actually deliver to customers, and thus offer new revenue models that can help win customers and drive growth.

The authors detail three revenue models: access models, such as subscriptions and memberships that anchor payments to periods of time rather than physical goods or services; consumption models, which include unbundling and metering and let customers pay only when they use a product or service; and performance models, where customers pay on the basis of the outcomes they achieve, even in complex arenas such as health care, education, and live entertainment.

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Why Social Responsibility Produces More Resilient Organizations

Sarah Kaplan

Corporate social responsibility involves more than “doing good” and charitable activities. At its most robust, being socially responsible means accounting for the varied interests of the diverse stakeholders that surround the corporation — including workers, suppliers, local communities, environmental advocates, governments, and the many others who are essential to the well-being of the business.

But every business model and every strategic choice has stakeholder trade-offs embedded within it. Some groups win (maybe consumers, bondholders, or shareholders), and other interests lose (maybe the environment, vulnerable workers, or communities). Resilient companies manage those trade-offs carefully.

The author details four common mistakes made in managing these conflicts and suggests ways leaders can avoid them and build more resilient organizations.

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This content was originally published by MIT Sloan Management Review. Original publishers retain all rights. It appears here for a limited time before automated archiving. By MIT Sloan Management Review

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