Plotting Strategy in a Dynamic World
Companies can no longer rely on traditional forecasting exercises to spot — and capitalize on — emerging threats and opportunities.
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Image courtesy of Adam McCauley/theispot.com
To remain competitive over time, a company must be able to move quickly in response to major changes in society, technology, competition, regulation, labor markets, and myriad other areas. Yet the possibility of such changes creates deep uncertainty, making it challenging to identify the most profitable path forward. Although organizations can never be fully prepared for an unanticipated shock, the most resilient ones learn to expect the unexpected, rebound quickly when it occurs, and take advantage of unforeseen opportunities that emerge.
To help with those efforts, we have developed a framework that goes beyond traditional forecasting and risk-assessment exercises. It consists of four sets of activities: First, develop a comprehensive set of processes to actively sense new insights (whether internal or external) that could affect the business, and hence identify threats or opportunities as early as possible. Second, organize in response to those threats or opportunities; this is likely to involve reallocating resources, revamping processes, filling capability gaps, and aligning the company’s structure and governance. Third, capture value by revising business models and restructuring relationships with other players in various ecosystems. And fourth, renew the organizational capabilities needed to create and capture value by continuing to monitor and assess results and making small adjustments over time — while also preparing for the major disruptions that require a more comprehensive overhaul.
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This approach is based on the principle of dynamic capabilities, which holds that companies need to continually adapt their resources to respond to rapidly changing and unpredictable environments. Dynamic-capabilities-based models are the subject of a large and growing body of strategic management literature.1 Our framework synthesizes key lessons from this literature and provides a way forward for managers to revitalize their company’s processes, structures, and business models — and to compete effectively — in a highly dynamic business environment.
The Shifting Innovation Economy
A few decades ago, companies could build a strong business model and apply it more or less unchanged for years. In that era, resilience was based on stability and competitive barriers to entry. Consider that, in the early 1970s, nearly 80% of the most profitable publicly traded companies remained in the top quartile of performance for at least six years out of the previous 10.
References (13)
1. For instance, see G. Albort-Morant, A.L. Leal-Rodríguez, V. Fernández-Rodríguez, et al., “Assessing the Origins, Evolution, and Prospects of the Literature on Dynamic Capabilities: A Bibliometric Analysis,” European Research on Management and Business Economics 24, no. 1 (January-April 2018): 42-52.
2. M. Reeves, K. Whitaker, and T. Deegan, “Fighting the Gravity of Average Performance,” MIT Sloan Management Review, Jan. 9, 2020, https://dev05.mitsmr.io.
Comment (1)
Clement GAVI