Which Strategy When?
Deliberate VS Emergent Strategy: How your company can be innovative and efficient at the same time
If you type “How to choose the right strategy for your company?” on Google, you will find around 902,000,000 results. I can immediately assure you, none of these results will tell you exactly the same.
You might think the hardest part is knowing how to find, choose and execute the right strategy for your company but today I am here to tell you there is an even more important question that should come first:
“Which process of strategy formulation should I use to develop the right strategy?”
That’s it.
There you have it.
It is not about choosing one strategy that fits your company and follow its steps. It is about focusing on the process of strategy development without forgetting that there is a process for each different stage in business development.
Strategy depends on how the company’s resources are used. In every company, there are two different but simultaneous processes from which strategy should be defined:
1) The Organized Student At School
Let’s compare the first strategy, Deliberate Strategy, with the responsible kid in class when we were at school. This first student is the one that keeps classes up to date, hands homework on time and keeps a calendar to never forget a deadline. This first strategy is the formal one too. It refers to a planned and intended strategy focused on where the company is going and has expected outcomes.
It is a “conscious and thoughtful organized action. Generated from continuous analysis of data on market growth, segment size, customer needs, competitors’ strengths and weaknesses and technology trajectories.”
Once the company’s internal and external factors are analysed, the best strategy becomes clear and it is followed by everybody step by step. The roadmap of where the company is leading is explained to all employees who have to understand and to whom it has to make sense so that they will work in that direction too. The effective execution is usually seen as the difference between success and failure.
2) The Spontaneous Student At School
In the other hand, this student is less organized but reaches to finish everything at the last minute. This kid doesn’t follow a study-calendar yet manages to do his homework right before the deadline. We will compare this methodology to the Emergent Strategy.
This second strategy is based on unplanned actions from internal initiatives of the organization. Let’s describe it as the result of “spontaneous innovation, day-to-day prioritization and decisions made by people who aren’t typically visionary nor strategic.”
Sometimes, it is hard to be futuristic and you will not see the right strategy to follow clearly. Maybe because it is a new company, you are launching a new product, your competition is growing faster or the market is changing.
In this case, the strategy is not implemented top-down. Here, employees are empowered to surface and elevate new ideas for the organization’s trajectory.
Decide Who To Be And When
Do not think the company has to choose one or the other. These two strategy processes should be simultaneous. Managers should allow emergent opportunities to happen while keeping the deliberate strategy final goal. Sometimes managers can be too focused on their goal and have to change the dominating strategy depending on the stage of the business development.
There are three phases of business growth. Let’s take a quick look at them:
- Market creating Phase: early stages where the company is focused on the development of the product/service to meet the customer’s expectations.
- Sustaining Phase: once into the market, the company wants to improve the product/service to beat its competitors.
- Efficiency Phase: same customers with lower prices. The company finds a business model that increases profitability by selling a more mature product/service.
Each phase has its own challenges and opportunities that make a specific process strategy right for it. Do not forget that both process strategies are complementary, which means one should be more dominant over the other while being simultaneous.
Market creating Phase: emergent strategy.
During this stage, the strategy to follow is exploratory and has to be flexible enough to allow quick changes. As new entrants, it is hard to predict the future and choose the right strategy. In the market creating phrase, the management team should focus on emergent strategies as the market is not clear.
Sustaining Phase: deliberate strategy.
As the product grows, sustaining innovation makes good products better. During this second stage, you will be defining your competition to try to beat it. Your final goal is clear so managers should be switching from emergent ideas to a growth opportunity that meets all the criteria. All resources should be focused on growing the process and implementing this deliberate strategy that is going to be successful.
Efficiency Phase: both strategies.
Now that your product/service is successful and growing, resources should still be focused on growing the business even more. On the other hand, during this stage it is important to keep in mind the next wave of growth. Managers believe they have to focus on making the core business more profitable and efficient but they cannot forget to look for new emergent ideas.
It is a complicated and delicate phase as the core business needs to be managed through a deliberate strategy but at the same time you have to keep cultivating emergence of new opportunities. The success will depend on this balance.
Let me give you a quick example by explaining Netflix’s business model.
Netflix’s CEO, Reed Hastings, immediately recognized DVD as an emergent opportunity seeing the giant Blockbusters’ success. So he set up a DVD-by-mail service instead of having to go to a Blockbuster store rental and customers would pay the same price as at the competition. Netflix and Blockbuster both found themselves in a world that requires an emergent strategy process.
Blockbuster didn’t make much money from the simple movies rental. They earned their profits by charging fees to customers when returning late a movie. What makes more sense for a customer: to be charged late fees or to have a subscription?
Netflix made changes as emergent opportunities arose and decided to move from a pay-per-DVD business to a monthly flat-rate subscription. Netflix saw the customers’ needs as an opportunity and changed from a deliberate process to an emergent strategy.
We can definitely highlight Netflix’s ability to pivot and use emergent strategy as more market information became available.
To wrap it up!
The main takeaway is that managers must simultaneously yet separately manage deliberate strategies and emergent strategies depending on the company’s stage. Managing both is the real challenge companies should focus on.
At Enterprise Strategy IBM we can help you implement an ambitious business strategy by building an adaptive organization that delivers, experiments and thrives.
Thank you for your time. Please, feel free to give your opinion or contact me on Linkedin.
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