thriving in turbulence: best practices for...
TRANSCRIPT
THRIVING IN TURBULENCE:
BEST PRACTICES FOR STRATEGY
MAKING IN DIGITAL TIMES
BY CARINE PEETERS AND CAROLINE BAERT
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THRIVING IN TURBULENCE: BEST PRACTICES FOR STRATEGY
MAKING IN DIGITAL TIMES
BY PROF. DR. CARINE PEETERS & DR. CAROLINE BAERT
A JOINT RESEARCH PROJECT WITH PWC BELGIUM
September 2017
We would like to explicitly thank all companies and managers
who actively contributed to this research project, by sharing their
experiences with and thoughts on strategy making in turbulence.
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Table of contents
1. Why is turbulence so hard to navigate? ................................................... 3
1.1. What are turbulent environments? .................................................... 3
1.2. What are challenges related to strategy making in turbulence? .............. 3
1.3. Why is digitization a major driver of turbulence? .................................. 4
2. What is this paper all about? .................................................................. 5
2.1. Research context and objectives ....................................................... 5
2.2. Methodology .................................................................................. 5
3. How does digitization manifest? ............................................................. 7
3.1. Industry disruption ......................................................................... 7
3.2. Uncertainty and ambiguity ............................................................... 8
4. What does this mean for strategy making? ............................................... 9
4.1. A move to continuous strategy making .............................................. 9
4.2. Strategy making as sensing, seizing, and reconfiguring ...................... 10
5. Best practices to develop winning strategies ........................................... 13
5.1. Winning practices to enhance the sensing of change .......................... 15
5.2. Winning practices to enhance the seizing of opportunities ................... 18
5.3. Winning practices to enhance the reconfiguration of a company’s core .. 22
6. What fosters strategy making in turbulence? .......................................... 27
References ........................................................................................... 29
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Executive summary
Why do some companies succeed in developing winning strategies in turbulent
environments characterised by digitization, while others struggle to do so? What best
practices for strategy making can companies adopt to thrive in turbulence?
To gain in-depth knowledge of what it takes to devise and implement winning strategies in
times of digitization, PwC Belgium and Vlerick Business School undertook a qualitative
research project to identify specific management practices that contribute to the
development of such strategies. Drawing from previous research, the researchers’ dealing
with numerous companies facing challenges of digitization, and a range of newly developed
cases on companies in turbulence, the research project was set up with a dual purpose.
First, the research project reconceptualises the very essence of strategy making to
make it match with the challenges managers face when developing winning
strategies in contexts of digitization. Specifically, the research shows that to deal
with turbulent environments, firms develop the ability to engage in continuous
strategy making. In case of continuous strategy making, a strategic direction is
pinpointed, yet the actual strategy to move forward gradually develops as a
company explores, learns and adapts to developments in its environment. To
successfully engage in continuous strategy making, firms proactively attempt to
sense change, seize opportunities, and reconfigure their core business. The
continuous strategy making journeys of many companies explicit the necessity to
recurrently and simultaneously engage in all three of these components.
Second, by comparing practices across company cases, the research pinpoints the
very best practices employed for strategy making in turbulence. Thus, it offers a
comprehensive overview of what management practices can be used to successfully
engage in all three components of strategy making under turbulence.
Hence, this research report offers a new perspective on strategy making in times of
digitization. By presenting concrete practices, it provides actionable insights that
companies across industries can implement to devise and implement winning strategies in
turbulence.
Overall, we hope these insights will positively contribute to firms’ strategic transformations
in these challenging times.
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1. Why is turbulence so hard to navigate?
Turbulent environments change the rules of the game when it comes to strategy making.
Why do turbulent environments require a novel approach when it comes to strategy
making?
1.1. What are turbulent environments?
Turbulent environments can be defined as environments impacted by a combination of
change factors which make strategy making more challenging: a high pace of change, a
high level of disruptiveness of change, and a high level of unpredictability of change
(McCann, Selski, & Lee, 2009; Sull, 2009).
Rapid change requires existing firms to repeatedly adapt to minor evolutions in their
external environment. In contrast, companies facing disruptive change must succeed at
radically changing the way they operate and serve customers. In turbulent environments,
companies must be able to adapt to a constant inflow of new evolutions as well as
reconsider the foundations of their business model as it is being impacted by disruptive
change, all while dealing with increasing unpredictability of change.
Hence, in turbulent environments change is disruptive, extremely fast and it is impossible
to predict what will happen next.
1.2. What are challenges related to strategy making in turbulence?
Strategy making involves processes of both strategy formulation (devising a strategy) and
strategy execution (implementing a strategy). Research confirms what we have observed
ourselves when dealing with companies in turbulence: companies engaging in strategy
making in turbulent environments face common challenges. These challenges are related
to the high levels of uncertainty and ambiguity arising from turbulence. Amongst others,
potential challenges decision-makers encounter refer to:
The need to continuously analyze the environment in search for significant changes and opportunities
The need to revise strategic decisions more regularly than in non-turbulent environments
The potentially difficult communication towards stakeholders regarding revisions or adaptations of strategic decision
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The challenge to align strategy formulation and strategy execution to timely grasp an opportunity or mitigate a threat
The need to evaluate whether changes bring opportunities or risks
The need to recurrently explore opportunities brought forth by change
As numerous managers mention when discussing their strategy making, the actual process
of devising and implementing a strategy has become increasingly difficult.
“We work with yearly strategy cycles. It used to be strategy making in a
traditional business. Questioning what our turnover would be, what would
happen in the markets while actually nothing happened. Today, it is truly not
knowing what will happen. We do our homework, our research, but there is not
much to know. It is becoming increasingly hard, and it has been this way since a couple of
years.”
1.3. Why is digitization a major driver of turbulence?
Digitization and digital technologies represent an important driver of turbulence.
Digitization engenders overall disruptive change, while developments in digital
technologies lead to recurrent, fast-paced change, all in combination with an increasing
unpredictability in terms of the impact of digitization. For instance, in the media and
banking industry, online news offerings and banking services represented a disruptive
change vis-à-vis the industries’ conventional strategies and business models. Additionally,
at high speed digital technologies, including mobile technologies, responsive design
features, virtual reality applications, etc., further accelerated the developments occurring
within these disrupted industries. Travel and logistics, telecom, retail and other industries
are facing similar challenges.
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2. What is this paper all about?
If navigating turbulent environments is so hard, especially in the face of digitization, then
how do firms manage to develop and implement winning strategies? What are best
practices for strategy making in turbulence?
2.1. Research context and objectives
Companies in more and more industries must deal with turbulent environments where the
speed, disruptiveness, and often unpredictability of changes threaten long-standing
business models. Especially the rise of digital technologies and digitization in general are
leading to substantial disruptions in numerous industries. If changes bring opportunities
that the most agile companies can benefit from, the adaptation of existing business models
and strategies is not an easy endeavour, nor is the development of new strategies.
This report identifies good practices for firms to devise and implement winning strategies
in turbulent environments. Specifically, it deals with how senior managers handle the
definition and execution of strategies to thrive in contexts of rising and rapidly evolving
digital technologies. It focuses on the strategy making process senior managers engage
in, thereby concentrating on how strategic decisions are made and implemented, as
opposed to what these strategic decisions exactly involve. Hence, this research project
addresses the following question:
How do senior managers devise and implement winning strategies in turbulent
environments?
At the start of the research project, we gathered and scanned through recent papers on
the topic of strategy making in turbulence. Surprisingly, very few offer insights or advice
on how to actually devise and implement winning strategies in such turbulence. The
practices used by senior managers to come to winning strategies largely remain a black
box. Therefore, we set up a specific research design to gain an in-depth understanding of
such practices.
2.2. Methodology
This project sought to identify good practices for firms to devise and implement value
creating strategies in turbulent environments. This was achieved through a qualitative
study of how senior managers handle the definition and execution of strategies when faced
with rapid, disruptive, and/or unpredictable changes in their company environment.
Desk research
We consulted the most recent and significant literature on the topic of strategy making in
turbulent environments. In addition, we drew from our own expertise in dealing with
numerous companies in turbulence, for instance during advisory projects and teaching
activities.
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Case study research
Complementing the desk research, the researchers opted to use a multi-case theory
building approach to gain in-depth knowledge on the definition and implementation of
value creating strategies in turbulent environments. Such an approach entails the induction
and development of theory using multiple case studies (Eisenhardt, 1989). Case study
research is particularly suitable to tackle how and why types of questions, and to study
contemporary problems for which theory is lacking (Eisenhardt & Graebner, 2007).
The study favors depth over breadth. Thus, in addition to cases which we were already
familiar with from previous advisory projects or teaching activities, we opted to develop a
limited number of new company cases. The company cases were selected from different
industries, ranging from the financial services industry to the media industry. We also
made sure to develop cases for all stages in terms of the manifestation of digitization in
industries (see also section 3. How does digitization manifest?).
For each case, the researchers interviewed between 3 and 5 key informants involved in
the definition and execution of their respective company strategies. Given the topic of the
study, relevant profiles to interview included the CEO, CFO, COO/CIO/CTO, Director of
strategy, and depending on each company specific situation, other senior managers
involved in strategy making in changing environments.
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3. How does digitization manifest?
As digitization reshapes entire industries, firms rethink their strategies. But that is easier
said than done, as ambiguity and uncertainty rule in turbulent contexts.
3.1. Industry disruption
Digitization engenders overall disruptive change, while developments in digital
technologies result in recurrent, fast-paced changes that are often unpredictable in terms
of the impact of digitization. Hence, digitization transforms entire industries, including its
companies, its customers, and its competitive dynamics. Importantly, while digitization
and developments in digital technologies result in change, such change is not necessarily
purely technological: change may ultimately be related to supply chains, ecosystems,
sociological patterns, organizational processes, etc. That is why so often digitization has a
clear impact on business models and company strategies, not mere operational
repercussions.
We observe that different industries currently find themselves at different stages in their
digital transformation. For instance, the media industry was one of the first industries to
be radically transformed by digitization, both in terms of disruptiveness and pace of
change.
Depending on the extent to which digitization has penetrated an industry, incumbents (i.e.
established companies) are increasingly forced to reinvent their business model and
company strategies if they mean to survive in the changing industry. Firms must engage
in strategy making to adapt to the overall industry digitization and align their strategy with
industry-specific manifestations of digitization. Drawing from our experience and the cases
we studied, we can identify three stages in an industry’s transformation:
At stage 1, an industry and its companies are not yet fully impacted by digitization,
resulting in strategy making on digitization which is still ‘early stage’. Early adopters
are starting to embrace new business models developed by innovative start-ups.
Stage 2 balances somewhat in between stage 1 and 3, as digitization has started
impacting the industry and its firms, yet the industry is still in the process of being
reshaped. Advanced incumbents are starting to adapt their business model.
At stage 3 an industry and its companies have been fully disrupted by digitization,
digitization has fully reshaped the industry, leading to strategy making on
digitization which is more advanced. Incumbents that have managed to transform
survived, the others have disappeared. Mainstream customers are adopting and
embracing new digitized business models, which requires incumbents to now take
the lead in such digitization if they mean to thrive.
Stage 1 takes most time, as it starts when trends emerge up until the adoption of new
business models driven by digitization by early adopters. Stage 2 and 3 have a shorter
time span. Therefore, once stage 2 has been reached, it is up to advanced incumbents to
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buckle up and quickly move towards adequate business models and company strategies to
remain competitive in the changing environment.
3.2. Uncertainty and ambiguity
Research shows that turbulent environments are characterized by uncertainty and
ambiguity, aspects which unavoidably accompany disruptive, fast-paced and unpredictable
change. Specifically, such uncertainty and ambiguity manifest as follows (Courtney,
Kirkland, & Viguerie, 1997):
A range of potential futures can be hypothesized, for which a set of scenarios can
be developed, based on a range of variables expected to define the future. However,
these scenarios are so diverse that they do not provide enough concrete direction
for strategy development.
It is impossible to hypothesize potential outcomes. It is not even possible to pinpoint
what variables will define the future.
Correspondingly, our cases show that strategy making occurs under circumstances where
strategically relevant information is limited or lacking. Instead of relying on forecasts,
market research, and other standard strategy tools and instruments, the high levels of
uncertainty and ambiguity in turbulent environments warrant a different approach.
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4. What does this mean for strategy making?
If turbulence brings forth specific challenges related to strategy making, then how is
strategy making in turbulence different from traditional strategy making? How should
strategy making in turbulence be conceptualized?
4.1. A move to continuous strategy making
Traditionally, the strategy making process is defined as the linear process of analyzing the
competitive environment, generating strategic options, deciding on a strategy, executing
the envisioned strategy, revising the strategy and its execution as new information
becomes available.
The main assumption underlying linear strategy making is that by carefully analyzing a
context, managers can accurately predict and anticipate the future, which allows them to
then develop a clear strategic path. In case of linear strategy making, in line with the
strategic direction that is pinpointed, a strategy is formulated, planned, and implemented.
Thus, a strategy is designed and operationalized based on standing assumptions and in
accordance to a strategic vision.
However, our case study research indicates that in turbulent environments it is often
impossible for companies to engage in a straightforward linear process of strategy making
because of the many change factors impacting it. Change factors interfere on a frequent
basis with preset plans and worked-out strategic choices. Managers explain that more and
more often modifications and revisions of strategic choices are needed, and strategies must
be ‘updated’ to correspond to the changing environment. All while keeping an eye on new
developments that might become the next best thing.
Hence, a continuous strategy making process is warranted, whereby a strategy is devised
and executed through a process of continuous adaptation to changes in the environment.
Our research shows that in case of continuous strategy making, a strategic
direction is pinpointed, yet the actual strategy to move forward gradually
develops as a company explores, learns and adapts to developments in its
environment. Continuous strategy making allows for opportunism, flexibility,
learning and entrepreneurial behavior, whereby a strategy is in fact gradually
shaped through continuous strategy making efforts including strategy
adaptations and revisions.
What does this then mean for key components related strategy making? In accordance to
previous research on the matter, our company cases confirm that key components related
to strategy making change as decision-makers engage in continuous strategy making
under turbulence (Grant, 2003).
Instead of using scenario planning to create a range of concrete strategic plans,
under turbulence the aim of scenario planning becomes to establish a mode of
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strategic thinking whereby implicit assumptions of the environment are questioned
and challenged.
Under turbulence, strategy making authority often migrates and decentralizes from
corporate level to business unit level, as flexible strategy making becomes key to
seize new opportunities or mitigate new threats.
Under turbulence, the frequency of strategy making cycles increases and the
associated strategy making horizons become shorter.
Instead of evaluating outcomes based on forecasts or strategic plans, under
turbulence strategic evaluation becomes more goal focused and performance
outcomes gain importance (e.g. financial targets, milestones indicating a general
strategy is on track, safety objectives, environmental objectives, etc.).
If continuous strategy making is better suited in turbulent environments, and key
components of strategy making change when dealing with high levels of ambiguity and
uncertainty, then how should such continuous strategy making process be conceptualized?
4.2. Strategy making as sensing, seizing, and reconfiguring
In times of digitization, the overall strategic direction is often set, yet the actual pathway
and steps to engage in the realization of such a direction are unclear. It requires a
continuous strategy making journey, whereby a company needs to develop opportunity by
opportunity to grow or adapt.
Building on our case studies and existing theory, we posit that continuous strategy making
in turbulent environments can be conceptualized as a three-fold approach. This three-fold
approach focuses on sensing change, seizing opportunities, and reconfiguring a company’s
core business. The continuous strategy making journeys of our case companies highlight
the vital importance of recurrently and simultaneously engaging in all three of these
components.
Sensing. Sensing change entails that changes are spotted,
evaluated, and shaped in terms of the potential opportunities and
threats they hold (Teece, Pisano, & Shuen, 1997). In our research,
we observe that for many case companies, the ability of managers
to sense incipient external change is crucial. Sensing is an
entrepreneurial ability that involves scanning, exploring, probing,
testing, searching, listening, learning, interpreting and
hypothesizing.
Noticeably, an emerging opportunity may result from the mere
adaptation to external changes, but it may also be rooted in an alteration of the firm’s
environment to deal with such changes, such as with Apple’s iTunes ecosystem that altered
the relations with content owners and thereby fostered the diffusion of digital content
distribution models (Schoemaker, Teece, & Leih, 2016). The latter aspect can specifically
be referred to as shaping an opportunity. In fact, research shows that the ability to link
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and leverage specific changes to detect opportunities and threats is a factor which
differentiates successful from less successful players. All in all, sensing requires that
leaders be in a mental state of constant alertness, i.e. mindfulness, to spot emerging
opportunities and shape the environment in accordance (Grove, 1996).
Seizing. Seizing relates to the strategic answers to identified
opportunities. Seizing refers to addressing an opportunity and
capturing the value it brings about (Teece et al., 1997). It involves
making timely and flexible investment decisions (Day &
Schoemaker, 2005), developing new competencies, and devising
and executing an appropriate market strategy to reap the benefits
of the opportunities (Teece et al., 1997). Thus, to seize an
opportunity, resources and competences must adequately be
accessed and orchestrated. In doing so, a company ought to rely,
build and benefit from its ecosystem, including suppliers, complementary third parties, and
customers.
However, seizing also means being able to not change or address opportunities when it is
better to wait (e.g. Burgelman & Grove, 2007), for instance until more strategically
relevant information becomes available, or because the impetus for change is built on fads
and fashions more than a real misfit between a firm’s changing external environment and
its existing focus and competences (e.g. Schreyogg & Kliesch-Eberl, 2007). In that case,
seizing (in the sense of waiting to change) then includes the option to reserve the right to
play under uncertainty and ambiguity.
Reconfiguring. Reconfiguring a company’s core entails the
renewal of the company’s activities in alignment with a new and
sustainable strategic direction, apt to tackle the changing
environment. The aim of reconfiguring the company’s core is to
re-align the organization with the current market conditions and
thus build competitive advantage (Teece et al., 1997). The
reconfiguring component in strategy making consists of creating
strategic ‘fit’ on multiple levels: aligning a company’s core
activities with the changing ecosystem, aligning the company structure with an overall
strategic direction, aligning resources and competences to implement a new strategic
direction, etc.
All in all, reconfiguring centers on the adequate implementation of specific strategic
decisions to realize the company’s strategic vision. As we observe in our case companies,
reconfiguring activities can be devised and implemented at large, across an entire
company, or they can first be established in a separate structure where a new core business
can grow autonomously.
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Ultimately, by recurrently and simultaneously engaging in all three components of
continuous strategy making, we find that decision-makers succeed in managing the
uncertainty and ambiguity in turbulent environment and, more importantly, steering their
company towards a renewed strategy.
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5. Best practices to develop winning strategies
We understand how digitization manifests and why it represents a major driver of
turbulence. And we posit that strategy making should be reconceptualized in terms of
sensing, seizing and reconfiguring efforts to efficiently deal with increasingly digitizing
environments. Yet to render these insights actionable we must pinpoint the actual building
blocks underlying such sensing, seizing and reconfiguring efforts. What are winning
practices to engage in each of these three components of strategy making in turbulence?
We learned from our case study research that companies in turbulent environments can
effectively boost all three components of continuous strategy making if they adopt a range
of specific practices. These practices are described in the following chapter.
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Overview of practices to boost strategy making under turbulence
Sensing
Seizing
Reconfiguring
Sensing change entails that changes are spotted, evaluated, and interpreted in terms of potential opportunities and threats.
Seizing an opportunity refers to capturing the value it brings about by making timely and flexible investment decisions, and creating winning business models.
Reconfiguring a company’s core business entails the renewal of the company’s activities in alignment with a new and sustainable strategic direction.
Take off the blinds Think in
customer journeys Excel in ambidexterity
Think in scenarios Entrepreneurial
fast-response teams Lead by paradox
Scan the periphery Select and time wisely Empower
Reframe Agile resource
orchestration
Realign
your workforce
Bring in
industry outsiders Identify core capabilities
Celebrate milestones
and early victories
Reward
change recognition
Experimental learning
capability A strong story of change
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5.1. Winning practices to enhance the sensing of change
Take off the blinds
When it comes to practices related to sensing change, leaders we talked to pinpoint that
they know that major changes are ahead and that they are adopting specific practices to
spot such changes. In many companies, forecasts are being made about when digitization
will hit, when turbulence will start impacting a firm’s performance, and how. Nevertheless,
the majority of managers we interviewed referred to recent changes leading to significant
drops in revenues that they did not see coming. Or changes for which they cannot explain
why they started impacting their performance at a specific point in time.
“Why now? It has been around for a while, yet now it is suddenly picking up.
Who knows?”
Therefore, companies developing winning strategies take off the blinds and assume
changes will hit their industries faster than predicted by consultancy firms, industry
associations, or business experts.
For example, several managers shared with us their concern for the impact of blockchain
technology on their industry dynamics and, hence, their company’s competitive position.
Elaborate reports exist on the impact of blockchain technology on different industries,
including estimations regarding the time of impact of such technology. However, as has
happened with numerous innovative technologies, these estimations remain to be
confirmed. Often times, it only takes one innovative industry player or one application
using such technology to build and boost its introduction and prevalence in traditional
industries.
Think in scenarios, but do so efficiently
Our research shows that alternative scenario thinking, whereby the aim is to engage in
strategic thinking about possibilities and assumptions rather than to develop concrete
strategic plans, is a vital element of strategy making under turbulence.
A pattern we discerned across the companies we studied is the following:
- Management teams often limit themselves to the creation of four or five alternative
scenarios. If too many scenarios are contemplated, the distinction between
scenarios becomes smaller. Hence, the more scenarios, the less the added value of
each and every one of them in terms of the strategic implications they point to.
Moreover, the complexity of dealing with all scenarios increases.
- Managers have pinpointed that scenarios should have specific and preferably far-
reaching implications for strategy making. As such, scenarios truly instigate
managers to adapt their strategic thinking to the turbulence in their environment.
- Not every scenario should be able to solve all possible challenges the company faces
at once. Scenario thinking entails the development of scenarios that each tackle a
specific challenge or a selection of specific challenges. It is by considering all
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scenarios together and combining pieces of each of them, that a company can
adequately prepare for its future.
- Whereas extreme future situations and ditto scenarios should be considered and
are worth contemplating, detailed scenarios should only be developed for the most
probable future situations.
Overall, managers engage in scenario thinking because it allows to assess the relevance
and risks associated with existing strategies, the potential of new strategies, and a
company’s competitive position if specific changes do occur (Courtney et al., 1997).
Scan the periphery
“We have identified a small network of 15 to 20 employees who have the
outside dimension. They observe what the outside world is doing, they are able
dissect and grasp what is happening, and they develop recommendations for
new initiatives.”
Another way for managers to sense change is to scan the periphery. This requires
companies and their leaders to look for early signs of change at the periphery of their
industry. What is happening at the boundaries of an industry? What are outliers (customers
or industry players) doing? What are indirect competitors doing? What is happening in
other industries?
Thus, to boost a company’s awareness of potentially important changes, leaders explain
they engage in steered peripheral scanning. This requires the contemplation of a range of
questions in combination with scenario thinking. Across the cases we studied, we found
that these questions include the following ones:
- What are interesting examples of companies in other industries that were able to
grasp an emerging opportunity?
- How did analogous markets develop, what were key characteristics of winners and
losers in those markets, what strategies did they roll out?
- What companies in your own industry are skilled at picking up changes or
novelties and successfully acting upon them?
- Can you name three signs of early stage changes in your industry and develop three
extreme scenarios based on these changes?
- What opportunities would peripheral customers and competitors be interested in at
this moment?
- How would you attack your own company if you would be a new entrant?
How firms organize such steered peripheral scanning differs among firms we studied. In
some cases, it is an attitude that is being built across the organization. Managers then
describe it as the organization of ‘a sort of wake’ or ‘a sort of virtual radar’ that allows
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them to spot what is happening. In other cases, networks of researchers or teams of
visionaries are set up. As an innovation manager we interviewed explains in the quote
above, management then identifies such network.
Reframe
From talking to managers operating in turbulent environments, we learned that the way in
which they frame a change or a new development impacts the extent to which they are
able to grasp and shape such change, including the opportunities and challenges brought
forth by such change. For instance, one and the same new digital technology may be
framed as a potential threat or as a potential opportunity by different individuals. Framing
thus refers to the assignment of meaning and connotations to a specific event, change,
development, etc. Depending on what framing is used, the consequent handling of the new
digital technology might differ.
Our research shows that managers can engage in reframing exercises whereby the advent
of a change needs to be framed in different manners.
- As an opportunity, as opposed to a threat
- As a legitimate change, as opposed to a change that is rejected
- As an opportunity for which new competences must be searched and developed, as
opposed to an opportunity for which only existing competences can be used that fit
with the current company strategy
- As an opportunity that requires truly blending the change into a new company
strategy, as opposed to merely adding the change into the current company
strategy
Such reframing pushes managers to reconsider the impact and potential of a change, as
well as potential pathways to deal with the change. Hence, it forces them to readjust their
understandings and “think out of the box”.
Bring in industry outsiders
Almost all our cases pinpoint that bringing in industry outsiders offers fresh views on a
current business and its competitive environment. Companies developing and
implementing winning strategies were spotted bringing in outsiders for short assignments
and strategic workshops, but also on a more permanent basis, especially at top
management level. In several of our case studies, Chief Strategy Officers or Chief
Transformation Officers were brought in from the outside, often from large consulting
firms, with the main purpose to instigate changes to a company’s existing business model
and strategies.
Reward change recognition
Managers looking to reinforce their company’s sensing ability are seen to raise employee
and team accountability for sensing and even shaping weak signals. This can be achieved
by clearly assigning who is responsible for searching for change, making sense of change,
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and reporting relevant change. Also, managers can create specific incentives or visibly
reward those who develop and use a wider perspective when contemplating the corporate
strategy, when dealing with new developments, etc.
5.2. Winning practices to enhance the seizing of opportunities
Think in customer journeys
“We think strategy is setting targets and then these excels translate into actions
to achieve the targets. But we need to do it the other way around. Look at the
market, understand what is in the market. And that will create the strategy. []
It is a very pragmatic model, a pragmatic way, of looking at the customer and
the business model will follow. Instead of looking at the business model as if you were a
consultant.”
When attempting to seize relevant opportunities, one way to grasp where the value in an
industry is moving towards, is to adopt a customer-centric way of thinking, as a marketing
director explains in the quote above. More specifically, in numerous companies dealing
with turbulence, leaders select and pinpoint opportunities to further develop based on in-
depth understanding of customer journeys.
“A lot is driven by these customer journeys, because they are the customer
voice, we let them [those responsible for a customer journey] innovate, they
have carte blanche. We put our best people on it. They form communities. []
They create projects, specifications for projects. They will ask for new value-added services
for customers, which we might not be able to build but we then need to partner up with
start-ups.”
Entrepreneurial fast-response teams
The seizing of opportunities requires entrepreneurial behaviour. To ensure a specific
opportunity is efficiently and effectively explored, the assignment of an entrepreneurial
fast-response team is crucial. Those taking the lead regarding a specific opportunity can
be senior managers, a dedicated taskforce, an organically grow consortium of managers
from across the organization, etc. Therefore, all different types and combinations of
employees and teams can be embedded in such an entrepreneurial fast-response team in
charge of seizing an opportunity. Often, the nature of the opportunity will determine the
fast-response team’s composition.
Importantly, thick hierarchical layers or bureaucratic structures should not become
obstacles for such teams. Enough autonomy and decision-making power ought to be
granted to these individuals, as multiple managers explained to us.
“Because these are turbulent times, management cannot possibly steer
everything that is happening. You have to trust those at the front lines, you
have to explain them that they decide, they know best what is happening, so
they must decide.”
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Also, these entrepreneurial fast-response teams must be held accountable for seizing an
opportunity at hand. However, in case the opportunity evolves, tasks can be passed on to
other individuals or teams within the organization. It is vital to enable the swift and flexible
involvement from those relevant for the seizing of the opportunity, while releasing those
who have become less relevant from their responsibilities related to the opportunity at
hand.
Ultimately, to reinforce the role of fast-response teams and underline their relevance for
the entire organization, fast-response team members must be recognized and rewarded
for their efforts.
Select and time wisely based on strategic value
“It is about not just deciding what you are about to launch but also what impact
you want to have and what you are going to focus on financially wise, because
it is very nice to have something innovative and sexy, but if the margins… [] It
is about the right implementation of the right cases, of a new technology, to
make sure we extract the value out of it.”
When seizing opportunities, leaders are often required to make a selection out of different
opportunities or initiatives to further develop. In the cases we observed, successful
selection often depended on whether the potential of a business opportunity was fully
understood or not.
Moreover, when acting upon an opportunity or threat, at times companies overreact and
commit too many resources too quickly, or they commit too much money before knowing
how the market will develop. When grasping an opportunity, often an entry timing decision
must be made. A careful trade-off must then be made between reaping first-mover
advantages and a business activity’s viability. Is the emerging market sufficiently
developed yet? What should we do to help grow the market? What about cannibalization
of our existing business activities? Are we able to deliver a product of sufficient quality at
this stage? Are we operationally ready to launch the new business and service our (new)
customers?
“We are no pioneers. That is not always a bad thing. Being too early isn’t good
either. The difficulty is to come up with the right technology at the right
moment. Too early can be catastrophic, too late as well.”
In sum, to select and time wisely, firms that develop winning strategies appear to
contemplate the strategic value that can be gained - not just the financial value, but also
value in terms of competitive positioning and customer lock-in - and whether the market
is ready to already extract such value from it.
Agile resource orchestration
An inherent element of timely seizing opportunities is the flexible orchestration of resources
and capabilities to develop new business models. Resource orchestration refers to the
processes by which managers accumulate, combine, and exploit resources (Sirmon & Hitt,
2003). As such, managers structure and rearrange resources and competences across a
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company’s units and entities to engage in the exploration of market opportunities they
have identified.
The swift and efficient mobilization of new and existing resources and competences can be
ensured via agile resource orchestration (Baert, Meuleman, Debruyne, & Wright, 2016;
Sirmon, Hitt, & Ireland, 2007). The cases we studied allowed us to identify four best
practices that firms use to orchestrate their resources in an efficient and effective manner:
- Sharing existing resources and competences across the organization by either
multiplying them, for instance by creating easy to copy resources and
competences, or by redeploying a specific resource or competence from one unit
to another.
- Growing existing resources and competences, either by making minor incremental
improvements to existing competences or by significantly enriching existing
competences with new elements.
- Pioneering new competences inside the organization
- Acquiring new resources and competences through partnerships, suppliers, open
innovation, ad hoc deals, joint ventures, etc., as one manager explains.
Our research shows that by engaging in agile resource orchestration, managers foster a
company’s overall abilities to timely and effectively launch experiments with new business
models to seize opportunities. Importantly, thick hierarchical layers or bureaucratic
structures slow down agile resource orchestration. Across cases we observe that in times
of digitization, it is vital to speed up budgetary and other decision-making processes
regarding resource orchestration.
Identify new core capabilities
In parallel to agile resource orchestration, firms developing winning strategies take a closer look at the capabilities they can currently access, and the capabilities they should be able to access to compete in the future. Numerous managers mention such review of existing capabilities, while most of them also pinpoint the absolute necessity to reflect closely on the new core capabilities that are needed for a digital future.
“You must realize you will probably need new capabilities. So take the initiative to evaluate your portfolio of capabilities.”
“Building capabilities is not something you do overnight. But I think that if
someone takes the time to think about what you need as a company, which
capabilities you need to be successful… [].”
Importantly, our cases show that for experimental initiatives, when seizing an opportunity, companies often seem to source new capabilities from the outside. Outsourcing as many elements of new initiatives then becomes the default mode. Hence, potentially core capabilities for the future are thus not brought into an organization, as the quote below illustrates.
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“You make a project out of it, without thinking that it might be important for
the company, that this should be a core capability. Let’s not put those millions
into another company, but acquire the talent to develop this. Or perhaps have
a joint venture with an external company, or have a stake in that external
company. Those decisions, those options,… It’s the lack of putting these options
on the table, and discussing and considering them [that may hurt a company].”
All companies we talked to clearly identified data management capabilities and integration capabilities as key components for their future capability portfolio.
Build an experimental learning capability
“We should go more into start-ups, to understand how they develop,
technologies, how they do business models and customer stuff, to understand
that very well and infect our company with those capabilities.”
“The same goes for technology. Test learn drop. Play with technology. We can
easily survive by waiting, but the thing is that we do not learn a lot. That’s why
on the technology part it is not only observing but also doing.”
The reason for having an experimental learning capability is… to learn. Not to grow
successful experiments. And a firm learns by launching new initiatives and probing
potential markets for quick feedback, by combining a willingness to “try small and fast”
with an openness for trial-and-error behavior, and… by learning from mistakes and
misinterpretations. Firms who fail to develop such a learning capability may be playing it
safe for a while, yet in the long run they lack a specific capability to move forwards in
turbulence. In times of digitization, this is especially vital when it comes to learning how
to develop technological competences.
As we learned from our interviews, different options allow a firm and its managers to
develop such a capability: getting closely involved in promising start-ups, engaging in
playful tests with new technologies, etc.
Overall, companies mastering an experimental learning capability are likely to seize
opportunities more successfully than their rivals. They will likely develop the most adequate
new initiatives that allow them to successfully compete in the digitizing environment.
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5.3. Winning practices to enhance the reconfiguration of a company’s core
Excel at ambidexterity
“Everybody at every level has to do two jobs. That is the reality.”
Ambidexterity is a necessary ingredient for reconfiguration. Ambidexterity enables a
company to build new businesses while simultaneously managing the existing core
business and progressively reconfiguring it. O’Reilly and Tushman (2013) define
ambidexterity as “the ability of an organization to both explore and exploit—to compete in
mature technologies and markets where efficiency, control, and incremental improvement
are prized and to also compete in new technologies and markets where flexibility,
autonomy, and experimentation are needed”.
Our research shows that a company that masters ambidexterity takes several elements
into account when setting up new businesses while simultaneously managing the existing
one. Hence, ambidexterity entails balancing entrepreneurial actions and business-as-usual,
managing tensions arising from combining the old and new businesses, and reconciling the
company legacy with its future. It may also entail the gradual reallocation of resources and
competences to the new core business provided that milestones are attained (development
phases of a product, the creation and shaping of an emerging market, the identification of
a new customer base, etc.).
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In one of the cases we studied, a new Strategic Director was brought in with the purpose
of initiating the transformation of the existing core business. To achieve this goal, he and
his team first developed a new unit that initiated a range of experiments and ultimately a
new and sustainable core business activity. As such, this new unit took the lead in the
company’s transformation, showing the potential way to go for the existing core business.
Following transformational decisions and actions focused on transforming the existing core
into a new core modelled after the new business unit’s business model.
Overall, in turbulent environments, at the same time a company must outperform its
competitors in the existing business and move into a new strategic position. As digitization
hits industries increasingly hard, over time core businesses are often be fully transformed
or merged with new businesses.
Lead by paradox
Our cases show that rolling out and nurturing a new core business while also managing an
existing core business, may lead to strategic tensions at multiple levels. We observe that,
as a response to these challenges, leaders engage in paradoxical leadership. Paradoxical
leadership entails that managers understand these strategic tensions as well as the ways
in which to cope with and even benefit from such strategic tensions (Lewis, Andriopoulos,
& Smith, 2014). Paradoxical leadership requires managers to engage and answer to
competing demands of both the old and new core business simultaneously, rather than
focusing on one at the expense of the other.
According to Lewis et al. (2014), and these insights are confirmed in our study, managers
adopting a paradoxical leadership approach engage in specific practices:
- Managers utter their commitment to succeed in both the old and the new core
business, thereby highlighting the financial and strategic rewards that come along
with such ambidextrous strategic focus. Managers thus strive for high performance
in both businesses.
- Managers communicate a both/and vision to explain and motivate specific strategic
choices and potential strategy revisions. Managers thus block off feelings of anxiety
and defensiveness by underlining to what extent a reconfiguration of the core
business will allow for sustainable competitive advantage in the future. Both short
term success, through the old core, and long term success, through the creation of
a new core, matter.
- Managers allocate discrete efforts to both the old and the new core business, as
both quotes below indicate. Managers opt for separate discussion time, separate
leadership, separate balance sheets, separate KPI’s, separate metrics, etc.
“The way not to do it, is to have the transformation as an agenda point
during your committee, because there will always be business as usual
that is more urgent. [] The only way you can install a sense of urgency,
is by separating all strategy making with regards to such transformation
by organizing separate weekly board meetings. In such meetings the portfolio of
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transformation efforts is assessed. [] The same people [the board] in a different
meeting.”
“We have two CEO’s. One is fully on board with the transformation, the
other wants to make sure it is realisable in terms of personnel and firm
structure. It is a wonderful balance.”
Empower towards action and implementation
Ultimately, a company strives towards the actual implementation and realization of a new
strategic course. However, specific (all too heavy, hierarchical, bureaucratic, etc.) decision-
making structures may impede the necessary agility and speed required under turbulence.
Hence, it is key to avoid such paralysis and delays by revising, clarifying and streamlining
decision making and executive power throughout the organization (McCann et al., 2009).
We observe that by empowering employees to make specific decisions themselves, by
decluttering and facilitating decision making procedures, by decentralizing decision making
power, by enabling rapid and dynamic budget allocation processes, an organization may
optimize decision making and execution of decisions regarding the new strategy under
turbulence.
As a c-level manager states, “People come into my office and ask what to do, what to
decide. But why? That is not my responsibility. My responsibility is to provide a vision,
guide the transformation, coach and support, and make sure everyone is on board.”
Realign your workforce
Firms that devise and implement winning strategies appear to gradually realign their
workforce according to their new strategy and core capabilities. Specific challenges arise
at such point, which requires them to engage in strategic workforce planning. As one
manager explains, “Strategic workforce planning, the planning of the evolution of your
workforce, is a very important element of the strategic plan. It is the evolution of your
capabilities.”
Our company cases illustrate that strategic workforce planning entails the following
processes:
- Adding digital competences to all departments and in all projects, as “even within
finance new competences are needed to understand and budget digital projects.”
- Searching for new profiles that combine technological and business development
competences, and are able to fully rethink business processes. As a manager
explains, “The technology allows you to rethink the process in another way. [] We
have people understanding the technology. We have people understanding the as-
is way, the process of executing. But finding people able to combine both, and
imagine how it could be totally different, that is a skill that is not that common.”
- Identifying employees open to change and offering voice to them, because “there
is a part of the crowd that wants to transform, maybe 20%, that wants to make a
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twist. If you play it well, you can give to that 20% of the people, an 80% voice. You
can try to create a climate where those other 80% either jump to the 20%, or they
will be isolated one day.”
- Translating the new strategy to specific job content, all while making clear that job
content can be flexible in times of digitization, because “the time is there to be very
flexible with job content. [] You must make sure you fit into the company culture,
the values and the things we do. But a job can change. The job can be anything.
You need a flexible mindset.”
Celebrate milestones and early victories
“Besides showing the how and the why, and developing a culture of
communication about the change, it is important to celebrate successes. To
celebrate small steps forward.”
“Do not always celebrate the big successes, but the very small steps; instead
of presentations, let people show in their true environment what they have
done. []. It makes no sense to have a dry presentation about robotics. Bring
them to the workshop floor []. That is how you make people excited about change, that is
the human aspect of change.”
The creation of a positive crisis to illustrate the need to change, as well as straightforward
company-wide communication regarding new goals and new strategies, can be reinforced
by setting clear milestones and celebrating early victories. Milestones refer to intermediate
objectives (such as the introduction of a new product, the launch of a new business model
to test its market traction, the transformation of an IT system to support the new company
core business, etc.) and highlight that a company is well on its way to realize a strategic
objective. Highlighting early victories (such as important first steps in reconfiguration
processes) enhances company-wide beliefs and commitment to new strategic goals.
Without exception, leaders pinpoint such need to celebrate milestones and victories.
Develop a strong story of change
As turbulence hits an industry, we observe that companies are forced to reconfigure and
abandon their former strategic position within the industry. The reconfiguring component
in strategy making is highly defined by the extent to which a company can rely on its
organizational cohesion. The development of a strong story of change appears vital to such
cohesion. We found that the development of a strong story of change, a clear overall
strategic vision and direction explaining “where the firm is going”, facilitates and
coordinates decisions and actions in turbulent times. Ultimately, it nurtures the
organization-wide development of involvement and participation in the new strategic
direction, even if this new strategy is regularly up for revision. Our case companies
illustrate that a few guidelines apply:
- Leaders developing successful strategies for digital times create commitment for
the new strategy by telling a compelling story of change
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“If you do not tell a compelling story, your strategy will no stick! It’s like
marketing. If you come up with a well-thought of plan but it is full of
numbers and no story, it will not stick.”
“Year after year after year, the tone of voice about the need for
transformation has been increasing. Our CEO is really creating this
burning platform to make decisions and changes, and it works really
well. []. He creates this momentum of change. [] He has created a platform to
change whatever he needs to change.”
- In companies facing turbulence, leaders create a sense of shared responsibility
among employees, “We are all part of this new strategic direction”
“People know where we are going, understand why, understand how
their job contributes to it. It works. [] It is important that people
understand where you want to go and how they contribute to it, to get
energy out of it. To move forward.”
- Our cases show that a sense of endorsement and passion is developed among
employees, “I’m proud of this company’s new strategic direction”
“We developed the story, it took about one and a half years to get it
right, and we started sharing it. [] 95% of our employees, year after
year, say ‘yes, we believe in it’. [] When we hire new people, we share
the story, and everyone goes ‘wow’. When we tell the story to the board they say
‘wow’. It is a beautiful story.”
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6. What fosters strategy making in turbulence?
Our research shows that to deal with turbulent environments, firms must develop the
ability to engage in continuous strategy making. Firms should proactively attempt to sense
change, seize opportunities, and reconfigure their core business if they wish to remain
competitive in the changing context.
This report identifies a range of best practices that help a firm boost each of the three
components of strategy making in turbulence. From reframing the situation, over the set-
up of entrepreneurial fast-response teams, to the creation of a strong story of change.
Does the adoption of such practices then guarantee a successful transformation in times
of digitization? No, it is more complicated than that. While our case study research clearly
shows that to devise and implement winning strategies firms better adopt these practices,
two concluding remarks apply.
First, when engaging in a digital transformation, the sense of urgency and
willingness to change the strategic direction of the company must be embedded
within the entire c-level suite.
Our case companies show that c-level suites often change significantly during such
endeavour. Outsiders are brought in, bringing in new capabilities and a fresh perspective.
And the mindsets of those in charge must often times change radically, as the quotes below
illustrate. Overall, digitization and technology at large must be brought to the core of the
company, and thus the core of the c-level suite. Our cases show that visionary CEO’s lead
such change in composition of c-level suite.
“We will not make it, if the whole board is not convinced that we have to make
it. All big decisions are taken together. All c-levels of this company meet once
a week, only to talk about transformation. And it is the plan, but also the
execution. Because… If they are not convinced that we need to do it, then it will not work.“
“He needs to change some people at some key places in his organization, that
I am convinced of. Because you have blockers, they know the business for too
long, they are too focused on current KPI’s, they are out of ideas, whatever.
Some key people you need to change, some evolve in their role, but others do not.”
Second, it is important not to lose yourself in one of the three components of
strategy making.
Strategy making in turbulence requires the continuous absorption and contemplation of
new information, for instance as new technologies and their applications become more
straightforward or as new markets emerge. However, even with limited information,
companies must make strategic decision and engage in experimentation and
transformation actions. Yet, when engaging in strategy making, some companies are
inclined to lose themselves in its different aspects – sensing, seizing and reconfiguring.
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Strategy makers who lose themselves in the sensing aspect of strategy making tend
to focus on excessively analysing all changes (and their implications) in their
environment. Instead of also engaging in the seizing or reconfiguring aspects of strategy
making, they spend most of their efforts asking, reaping or waiting for more information
to come. Also, they spend an enormous part of their efforts analysing, contemplating, and
discussing such newly available information. Potential partners are approached, yet no
concrete steps or alliances are prepared. Potential customers are approached, yet no
concrete value propositions are being developed nor are new markets actively shaped.
While worthwhile in itself, an exaggerated focus on sensing change and shaping the
competitive environment accordingly, may lead to paralysis as no concrete steps are taken
to also seize identified opportunities or reconfigure a company’s core business.
Strategy makers who lose themselves in the seizing aspect of strategy making tend
to excessively focus on the pursuit of potential opportunities. This may result in a
lack of focus as too many experiments are launched. It may also divert the attention from
the existing core business in a harmful way. More importantly, often it results in the fact
that no decisions are taken in terms of whether to abandon a specific experiment or to
scale up specific experiments. All options are kept open, yet none are truly selected for the
development or overall reconfiguration of a business core, thus leading to an overall
strategic status-quo for the company.
Strategy makers who lose themselves in the reconfiguring aspect of strategy
making tend to transform for the sake of transforming their company’s core. While
worthwhile in itself, too much focus on such transformation may lead to two distinct
situations. On the one hand, it may result in an overcommitment to a specific strategy,
although turbulence inherently requires regular revisions of strategy based on information
obtained through the sensing and seizing facets of strategy making. In case strategic
adaptation is required, such companies are not able to accommodate for it as specific
reconfiguring processes are being implemented and are not up for any new changes. In
contrast, companies can also lose themselves in the reconfiguring aspect of strategy
making by excessively engaging in all sorts of changes – business process, human
resources, sales systems, etc. – resulting in a loss of strategic focus, an organisation that
is fully out-of-balance, unclear corporate values, etc.
In sum, both concluding remarks on strategy making in turbulence reflect the
difficulty to balance both the essence of ‘what is’ and ‘what will be’, as well as
the strategy making process to develop such new future for the firm. By
identifying the best practices companies in different industries use to devise and
implement this new future, this research hopes to provide concrete pointers for
those ready to embark on such transformational journey.
Our solution to your specific needs 29
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