Since the volatility of business operating margins, largely static since the s, has more than doubled, as has the size of the gap between winners companies with high operating margins and losers those with low ones. Market leadership is even more precarious. All this uncertainty poses a tremendous challenge for strategy making. Think about it. The goal of most strategies is to build an enduring and implicitly static competitive advantage by establishing clever market positioning dominant scale or an attractive niche or assembling the right capabilities and competencies for making or delivering an offering doing what the company does well.
Companies undertake periodic strategy reviews and set direction and organizational structure on the basis of an analysis of their industry and some forecast of how it will evolve. The answers these companies are coming up with point in a consistent direction. Sustainable competitive advantage no longer arises exclusively from position, scale, and first-order capabilities in producing or delivering an offering. All those are essentially static. So where does it come from? Those that thrive are quick to read and act on signals of change.
They have worked out how to experiment rapidly, frequently, and economically—not only with products and services but also with business models, processes, and strategies. They have built up skills in managing complex multistakeholder systems in an increasingly interconnected world. Perhaps most important, they have learned to unlock their greatest resources—the people who work for them.
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In order to adapt, a company must have its antennae tuned to signals of change from the external environment, decode them, and quickly act to refine or reinvent its business model and even reshape the information landscape of its industry. Think back to when Stirling Moss was winning Formula One car races: The car and the driver determined who won.
But today the sport is as much about processing complex signals and making adaptive decisions as about mechanics and driving prowess. A telemetric innovation by one team can instantly raise the bar for all. In this information-saturated age, when complex, varying signals may be available simultaneously to all players, adaptive companies must similarly rely on sophisticated point-of-sale systems to ensure that they acquire the right information.
And they must apply advanced data-mining technologies to recognize relevant patterns in it. The company found hidden relationships among the variables that were driving churn and launched retention campaigns targeting at-risk customers. This chart shows changes over the past half century in the number of players in the U. Each line represents a company. Comcast and Sirius XM Radio are among those that have adapted. Click here for a larger image of the graphic.
Act. Adapt. Achieve.: Find and Follow Your Path to Success
A similar pattern can be observed in many other industries see hbr. Companies are also leveraging their signal-reading capabilities to make operational interventions in real time, bypassing slow-moving decision hierarchies. The UK-based grocery retailer Tesco continually performs detailed analyses of the purchase patterns of the more than 13 million members of its loyalty-card program.
Its findings enable Tesco to customize offerings for each store and each customer segment and provide early warning of shifts in customer behavior. To put the icing on the cake, instead of being purely a cost center, the rich databases and analytical capabilities produce a stream of direct revenue: For a fee, Tesco allows other enterprises to access its technologies and insights.
Google is another example. The more relevant an ad, the higher the click-through rate—and because advertisers pay per click, this means more revenue for Google. By linking its advertising data directly to its operations, Google can respond to changing ad conditions on a split-second basis, without the intervention of human decision makers. That which cannot be deduced or forecast can often be discovered through experimentation.
Of course, all companies use some form of experimentation to develop and test new products and services. Yet the traditional approaches can be costly and time-consuming, and may saddle the organization with an unreasonable burden of complexity. To overcome these barriers, a growing number of adaptive competitors are using an array of new approaches and technologies, especially in virtual environments, to generate, test, and replicate a larger number of innovative ideas faster, at lower cost, and with less risk than their rivals can.
It uses a walk-in, 3-D virtual store to run experiments that are quicker and cheaper than traditional market tests.
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And by employing Vocalpoint and other online user communities, it can introduce and test products with friendly audiences before a full launch. In alone, 10 highly skilled employees were able to generate some 10, design simulations, enabling the completion in hours of mock-ups that might once have taken weeks. In addition to changing the way in which they conduct experiments, companies need to broaden the scope of their experimentation.
But in an increasingly turbulent environment, business models, strategies, and routines can also become obsolete quickly and unpredictably. Adaptive companies therefore use experimentation far more broadly than their rivals do. Ikea, like Tesco, leverages existing assets and capabilities to experiment with business models. After the company entered Russia, managers noticed that whenever it opened a store, the value of nearby real estate increased dramatically.
So Ikea decided to explore two business models simultaneously: retailing through its stores and capturing the appreciation in real estate values through mall development. It now makes more profit in Russia from developing and operating malls than from its traditional retail business. Finally, experimentation necessarily produces failure. Adaptive companies are very tolerant of failure, even to the point of celebrating it.
For example, the software company Intuit, which has been extremely successful at using adaptive approaches to grow new businesses, launched a marketing campaign in to reach young tax filers through a website called rockyourrefund. The site offered discounts at Expedia and Best Buy and the opportunity to get tax refunds in the form of prepaid gift cards. The campaign was a flop, and practically no one used the site. Signal detection and experimentation require a company to think beyond its own boundaries and perhaps to work more closely and smartly with customers and suppliers.
This flies somewhat in the face of the unspoken assumption that the unit of analysis for strategy is a single company or business unit. With an increasing amount of economic activity occurring beyond corporate boundaries—through outsourcing, offshoring, value nets, value ecosystems, peer production, and the like—we need to think about strategies not only for individual companies but also for dynamic business systems. Increasingly, industry structure is better characterized as competing webs or ecosystems of codependent companies than as a handful of competitors producing similar goods and services and working on a stable, distant, and transactional basis with their suppliers and customers.
In such an environment advantage will flow to those companies that can create effective strategies at the network or system level. Adaptive companies are therefore learning how to push activities outside the company without benefiting competitors and how to design and evolve strategies for networks without necessarily being able to rely on strong control mechanisms.
Typically, adaptive companies manage their ecosystems by using common standards to foster interaction with minimal barriers. If the experience curve and the scale curve were the key indicators of success, Nokia would still be leading the smartphone market. But it was attacked by an adaptive ecosystem. If the experience curve and the scale curve were the key indicators of success, Nokia would still be leading the smartphone market; it had the advantage of being an early mover and the market share leader with a strong cost position. The ability to bring together the assets and capabilities of so many entities allowed these smartphone entrants to leapfrog the experience curve and become new market leaders in record time.
Adaptation is necessarily local in nature—somebody experiments first at a particular place and time. Checkout Your Cart Price. Add to cart. Description Details Customer Reviews Author Dean Erickson reveals tools and techniques to help readers achieve their dreams and greatest potential. An honored athlete, Ivy League graduate, former Wall Street trader and working actor, novelist, and now CEO of investment advisory firm Bionic Capital, Erickson has achieved many of his personal and professional goals.
In this book, he illustrates and details his innovative Idea Circle, a repeatable success process distilled from his experiences. Packed with motivation and information, including his Success Worksheets to help keep you on track, Act. Skip to content Read Stability Uncategorized Act. Free download.
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