Corporate strategy is about to become the next business function to be transformed by
technology. At most companies, other core functions—manufacturing, logistics,
customer service, finance—have long had to grapple with the disruptive effects of the
increasing power of information technology. But strategy is still done essentially the
same way it has been since Michael Porter laid out the Five Forces competitive advantage
framework in 1980, the year before IBM introduced its original personal computer.
Any responsible executive will think hard before undertaking radical surgery on his
strategy process. After all, corporate strategists form the cerebral cortex of a business.
But the time has come to operate.
No, I'm not suggesting we add a strategy module to SAP's software. What I am saying is
that technology has changed the environment in which businesses set strategy, and that
corporations have yet to revise their methods to keep up. What's needed is a style of
doing strategy that accepts rapid, unpredictable changes as the norm and looks for ways to
harness them.
So far, so good. Many clients accept the basics of this argument, especially when they
think of all the competitors that are using the Internet to come from nowhere and rewrite
the rules in many markets—E*Trade in the brokerage business, Amazon.com in book
selling, Qwest in telecommunications.
The question is how to change. The answer is to focus on the three basic aspects of your
strategy operation—i.e., who develops strategy, how they develop it, and what they
develop.
When strategy specialists produce a plan, it's meant to last two to five years. But, these
days, no plan can last for years. Technology is creating too many opportunities for new
products, new distribution channels, new partners, new everything. Because there's so much
uncertainty about which new ideas will succeed and which will look ludicrous in
retrospect, gathering and analyzing data is too slow and imprecise a way to do strategy.
Instead, strategy requires that a company constantly probe its market with new,
technology-related ideas, and be ready to pounce as soon as one proves promising. That
approach requires that you make strategy a constant part of daily operations and means
just about everybody—not just specialists—must be part of the process.
[To understand the importance of constantly testing new ideas, see this issue's stories on
BMW and Schwab and the British Petroleum example in the book excerpt.]
Transforming the way your business formulates strategy is hard work. But here are three
easy ways to get started:
- First, look at how your company invests in its future. Start with an inventory of your
major investment projects. Then classify them in three ways [covered in detail in Context,
Spring 1998, in the CEO User's Guide column]. They may be Return on Investment projects
(perhaps a software package that's supposed to cut costs). The projects may be Staying in
Business investments (e.g., telephone systems). Or they may be Option Creating Investments
(developing an electronic distribution channel or doing anything else designed to
inexpensively test strategic ideas).
You'll probably find that once you get through your ROI projects you don't have money for
much else. Most companies shortchange both infrastructure (Staying in Business) and
next-generation products and services (Option Creating Investments). By forcing yourself
to classify your investments in this way, you will get a clear view of whether you need to
change how you allocate funds. (We believe you should allocate as much as 25% of your
technology money to creating options.)
- Second, you need to start generating hypotheses for those new options. You can sit down
and look at your company through the eyes of a customer. What does he like or not like?
How can technology improve his interactions with you—by having you learn about his
tastes or reducing the time it takes to find the right product? Then you look at your
company through the eyes of a potential competitor. If you left your company, how could
you use technology to attack it? Could you use the Internet to sell products more
inexpensively or effectively o customers? Could you collaborate by sharing information
with suppliers and distributors?
You should also take inventory of what you know about customers, suppliers,
competitors—all your information assets. Then ask yourself some questions. What
information that's in one spot could be useful to other parts of your business so that,
say, you could sell home-equity loans to credit-card holders? What additional information
would you like to gather from outsiders? What information might you sell to other
companies? To consumers?
- Third, you need to start selling the new approach to your organization. Here, the
biggest issue is to convince people that your tests of new ideas are only tests. Most will
fail. The vast majority will fail. But others will provide thousand-fold returns on
the initial investment. Even those that fail will be useful because you'll have reduced
your risk. You'll know that competitors won't be able to use a particular idea to hurt
you.
This lesson will be hard. On a recent project, for example, the chief executive understood
digital strategy intellectually, and so did his team. They developed a keen awareness of
the possibilities of technology, inside and outside of their industry. They even launched
a prototype to test these possibilities in the real world. But, while the money involved
was inconsequential, no manager wanted to risk owning a failure, so everyone shied away.
Also, the organization could only bring itself to try one prototype, which undid the whole
idea of testing constantly.
The concept of investing in a project, then canceling it and calling it a learning
success, is something senior management, as financially astute as they were, could not
accept. Once the prototype failed at our client, so did the whole idea of digital
strategy.
As information technologies become the core determinants of profitability, market share,
and competitive advantage, we will see companies in every industry gravitating toward the
digital strategy model. But the model will only work if the chief executive delegates some
of his responsibility to people in the line, if managers take more of an experimental
approach, and if strategy becomes part of the daily life of a business. The real issue is
whether corporations will move into the digital era because they were led by their chief
executives, or whether the companies had to be dragged by customers and competitors.
Mr. Rohner is a partner in the strategy practice of Diamond Technology Partners. He is
reachable at rohnert@diamtech.com
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