Strategy is a competitive game that always develops in response to competition. But the scale of the changes in the technological, social and natural environment is such that the corporate strategy will have to be rediscovered qualitatively for new circumstances. This article discusses six factors that drive these changes: 1) dynamism, 2) uncertainty, 3) chance, 4) connectivity, 5) contextuality, and 6) knowledge.
As early as the 1970s, corporate strategy was largely perceived as investment portfolio management, in which the corporation allocates capital to various business units as efficiently as possible. The idea was, in part, that corporate managers were in a better position to make well-informed decisions about allocating capital between business opportunities than financial investors. And given the thinner capital markets, they had to carefully balance the money-generating business with the money-consuming business.
But since the 1980s, when capital markets became more efficient in financing early-stage businesses, corporate strategy has come to be seen as ‘value management’, with less work for corporate managers. as a proxy investor, and more to extract maximum value from the businesses at hand. In this worldview, investing in new businesses was linked to the concept of synergies – both in terms of real assets and capabilities – between businesses and the responsibility of the corporate center was to maximize synergies in its business portfolio and apply the right style of supervision, from unadulterated owner to practical manager.
But the business environment continues to evolve and places new and different demands on corporate strategists. Six factors drive these changes
Competitive advantages do not last as long as before, as reflected in the acceleration of the competitive rate of decline, which measures how quickly market and operating returns regress to the average, has accelerated significantly in recent years. In fact, the result is that the withdrawal rate of companies on lists such as Fortune 500 has increased significantly.
One consequence of this is that active business portfolio management is again important: companies need to ensure that their business portfolios are constantly rebalanced to maintain growth expectations. A second consequence is that new businesses need to be planted at a higher rate, which requires large companies to behave more like entrepreneurs in part of their business and build the necessary skills and structures to ensure this. A third consequence is that reversal or transformation has become the predominant and strategic ability to repair or renovate businesses that have experienced a break in competition, matured or fallen into disrepair.
As a product of the technological revolution and other factors, business plans have become less predictable. This is expected to continue with further waves of technological disruptions such as AI, washing away the corporate economy. In addition, it seems likely that climate-based technologies and business models will have at least as much effect.
The consequence of corporate strategy is an entirely new logic of scale advantage. In yesterday’s more stable environment, scale has taken precedence by creating efficiency, but in environments with high rates of change, scale can potentially help companies manage risk through superior access to information, maintain operational and financial buffers, and conduct rapid experiments. These capabilities combine to create a new dynamic type of advantage: sustainability that provides long-term performance over uncertain periods.
3. Unforeseen circumstances
As noted, the average business environment has become more dynamic and uncertain. But if we look at the disaggregated picture of companies and industries, the variety of competitive environments facing businesses – and business units – has also increased. Depending on the uncertainty, flexibility, or rudeness of each, corporations need to adopt very different approaches to strategy development, each with its own processes and tools. These approaches include: classic strategy (in which companies compete in size and position), adaptive strategy (they compete in their ability to learn), vision-driven strategy (they compete in imagination, creativity and innovation), strategy for shaping (they compete for their ability to collaborate with partners) or a twist (they compete for their ability to start a business). As a result, the corporate strategy must cultivate the ability to implement and balance these diverse frameworks, choosing the right approach to the strategy for each business and creating a common platform for their operationalization.
Only 10 years ago, the list of the world’s largest companies was dominated by banks and oil companies. The same list is now dominated by digital ecosystem orchestrators such as Amazon, who are creating a proposal in collaboration with hundreds or thousands of other companies. This profoundly changes the role of corporate strategy, as the variety of offers and opportunities that contribute to the creation of company value can now be found outside the company’s boundaries. The goal of the corporate strategy becomes to create a favored position in a favored ecosystem, blurring the line between corporate and business strategy. In a broader sense, the strategy has become more open to external influence and cooperation, even to non-platform businesses.
For most of the last 50 years, business success has been determined by a relatively small set of variables: customer, product, competitor and investor. The sheer size of the business footprint, the size of individual corporations and the growing concern for social and global externalities no longer allow managers to adopt such a simplistic view: corporations must now demonstrate purpose, social contribution, reliability and environmental friendliness. responsibility. This includes not only issues of intent, measurement, compliance and communication, but also increasingly issues of competitive advantage. Corporate strategy must now build trust, social contribution and generate advantage by creatively tackling new social and environmental constraints, as well as providing traditional variables.
Until recently, business strategy consisted mainly of human analysis and decision making. But machine learning has already reached a level of sophistication that rivals or exceeds human expertise for a growing range of tasks. This has profound implications for corporate strategy. To begin with, the cognitive advantage of corporations becomes a potential axis of competition. This is determined not only by its ability to implement AI effectively in any business, but also to shift the focus of the human mind to more uniquely favored areas such as ethics, empathy and creativity. In the same way, companies will compete in the design and orchestration of new types of “bionic” organizations that synergistically combine human and machine knowledge.
Strategy is a competitive game that always develops in response to competition. But the scale of the changes in the technological, social and natural environment is such that the corporate strategy will have to be rediscovered qualitatively for new circumstances.