Top 5 business strategy concepts

At the end of 2015 HBR published a summary of their most popular infographics of the year. What catched my attention was a list of strategy frameworks invented since 1958. The picture presents 81 ideas on how to draw a business strategy, in chronological order with additional mark on the type of each framework (classical, visionary, adaptive, shaping, renewal). It was build upon the works of P. Ghemawat, L. Freedman and Boston Consulting Group.

I decided to dive into it, as this set seemed to be a starting point of a shortcut to the whole history of strategy thought of the bright minds. As I was sailing through HBR and BCG archives and wikipedia, I discovered a lot of those frameworks resonate very strongly with my private view on what is strategy, and what’s more interesting — with my personal preferences and judgement on which of those should be seen as a mandatory knowledge for leaders, and which are just ideas to be forgotten during the business world evolution.

This article is meant to highlight the history of business strategy from the first decade of 21st’ century practitioner standpoint. We’ve used lots of those frameworks, sometimes not even knowing we did. On the other hand we, as a beginners, were often having hard times because of inevitable market realities, consumer behaviour or cracks we haven’t seen coming. Those could have been avoided if we’ve understood different perspectives on how business works. Now I see those perspectives on this list. To make it simple, I’ve picked 5 of frameworks I see most resounding. My selection was loosely based on two aspects:

• how important a framework was for my peers’ reality. That means how big was the impact it made on our business life, how it shaped the world we were operating in
• how romantic the framework is. I’m tired of those “simple yet ingenious” silver bullet strategies that cures all of the world problems. I don’t believe they work, but I’m sure they can hurt business rookies. Therefore, I look for more reflective ideas, sometimes more abstract, those having depth and, by making use of chronology, that took part in shaping other ideas I came upon through the last decade.

It should be stated clearly, that this text isn’t any kind of a roadmap. It’s purely reflective, or even sentimental in some parts. If you look for a roadmap, I suggest reading “Your Strategy Needs a Strategy”, a great book on this topic, that could be very useful for leaders and managers.

5. Blue Ocean Strategy — neverending cruise

Why on the list? Destructive weapon for lazy dreamers.

I’m not quite sure what was so revealing that the book written by INSEAD people in 2005 called “Blue Ocean Strategy” brought to the table. The big idea was already known — instead of competing find or create a new, uncontested market and exploit it. What was special on our local playground when the book came out, was its impact on perception of doing business in IT. I’ve heard “blue ocean” so often, I became deaf for those words, just as if they were below my hearable spectrum. This strive to create new markets was a beginning of a local distortion, that for some companies I knew eventually ended up with shutdowns. The reason for that was ease of using references to blue ocean strategy whenever managers lacked skills to compete, were unwilling to compete, or couldn’t create a value that could be interesting for their clients. It was harder to make a company better, when deep inside we were in a constant state of looking for something completely new. The promise of a great, blue ocean (this metaphor also did its job I suppose) where we wouldn’t have to cope with all those silly mortal problems like market mechanics, economy or client needs was so attractive, that lots of people rejected to care about operations and, basically, became indifferent for any strategic management. Those days of dreamers were influenced strongly by the concept of blue ocean strategy described in 2005. And although I still don’t know what was so catchy about it, it made a lot of harm few years ago.

4. Red Queen Effect — the coolest business theory out there

Why on the list? It’s ingenious, comes from biology, and has its name taken from Alice in Wonderland sequel. How cool is that?

Red queen effect is a biology hypothesis based on coevolution, described by Van Valen in 1973. The gist of the idea is that, in tightly coevolved interactions, evolutionary change by one species could lead to extinction of other species, and that the probability of such changes might be reasonably independent of species age. I’ll leave all those evolutionary theories behind (although, they’re in fact a precise topic of this work), and get to the point that concerns business strategy the most. What red queen effect means, is that species has to evolve in order to just stay in the same place (in sense of the extent). Some understood it as an invitation to hypercompetition, gaining skills to get even stronger, and to run even faster. But now, for me it sounds silly. What the hypothesis actually suggest, is that maybe the way is to stop running. Maybe then the good things are going to happen. Now we could delve on what does it mean to move and to stay still in modern day of accelerating change, but it’s a material for a completely different talk. However, regarding this hypothesis and its business connotations, I find it deeply philosophical, tricky and very inspiring. And, last but not least, the name comes from the book “Through the looking glass”, a sequel of Alice’s adventures in Wonderland. The queen is a character who Alice seeks in her dream. Alice goes through and adventure with Red Queen, who finally sums up moral of this story:

“Now, here, you see, it takes all the running you can do to keep in the same place”. Beautifull.

3. Delta model — true hippie-style business strategy approach

Why on the list? Lightweight, not forcing anything, well balanced and still valid. Seductive like a New Age Guru.

Delta model has its name taken from change and transformation, represented by a delta sign in mathematics. So far, so good. The model is customer centric, and focuses on a relationship between customer and the product. It was first mentioned during a discussion between MIT alumni. The authors explain, that they felt a need for something new because of emerging role of internet, and the difference that the age of information made. They felt it’s time to stop focusing on competition, and put more effort on creating a bond with customer, as the changing world brought more communication possibilities to the table. The model is of course very detailed in economical mechanics description that explains correlation between customer solution, best product and the entire system economy (that is the whole market). Delta model goes beyond single product or customer sector, describing the customer-product bond in holistic context of the whole economy. I would say this model is very mature and modern. It fits well each time i try to challenge it.

But the best part about this assumption is Delta model conceptualization framework, a set of principles suggested by the author, Arnaldo Hax, called.. Haxioms. Just have a look:

• The center of the strategy is the customer
• You don’t win by beating the competition. You win by achieving Customer Bonding
• Strategy is not war; it is Love
• A product-centric mentality is constraining; open your mindset to include the customers, the suppliers and the complementors as your key constituencies
• Try to understand your customer deeply. Strategy is done one customer at a time.
• Reject the two truisms:”the customer is always right” and “I know the customers need and how to satisfy them”

Those Haxioms are brilliant in context of business strategy, and it’s impossible to overestimate their adequacy to modern world dominated by IT and information. But moreover, they are adorable. If you refine those Haxioms, you can read the message: Build the bond. Make love, not war. Open your mind and your heart to your whole ecosystem. Treat people individual and try to understand them. Respect everybody and everything.

And on top of that, Arnaldo Hax is so charismatic, you can watch his lectures with your close ones during dinner.

2. Axis of dark force — the complex, the bad and the ugly

Why on the list? Three strategies that changed the world for more than a decade. Changed in a way I don’t recollect with pleasure.

The business world of the 90’s was about power in its classic, old school meaning — growing, scaling, competing, automating. It wasn’t about love as Haxioms were. It was a place full of people running fast, and faster than others. The big companies like Honda, Sun, Wal-Mart etc. were striving to gain more market share on every possible markets they could imagine. They were bloating. While rummaging through the HBR’s business strategies review I’ve noticed three consecutive and consequent approaches that probably took part in formation of this unfriendly, cold world made out of glass and steel.

In 1987 and 1988 BCG published a series named Perspectives, which introduced the concept of Time-Based Competition, that was later published in a form of book “Competing Against Time: How Time-Based Competition Is Reshaping Global Markets”, the seminal work by BCG’s George Stalk and Tom Hout. The book became famous again thanks to Apple’s Tim Cook, who is known to give his employees copies. The idea was to treat time similar as quality or costs, shorten the product development cycles and reduce variety-related costs by making manufacturing more flexible. This conception allowed corporations catch up with accelerating change, and helped them survive the growing importance of customer demands.

Business process reengineering was a kind of derivate from TBC. This strategy focused on mechanics of organizations, that is processes that were conducted, aiming to help organizations fundamentally rethink how they do their work in order to cut costs, improve customer service, and — yes, do things quicker. Those are obvious for a CEO, and there’s nothing wrong in taking care of time and money. But with business process reengineering the focus on human being was reduced, and along came the whole industry of process management. Notations (BPMN), frameworks, enterprise software, orchestrators, and many more. IT became a focal point for most of large companies operations. Now we see a retreat from the corporate style and control obsession, and with them the role of process management is dropping. In the same time, the complexity, as always, increase. Now we can conclude, that maybe those tools and strategies weren’t optimal solution for challenges we’re still facing, but now mostly with completely different assumptions.

The third bad guy, competing on capabilities somehow extended time-based competition, mostly by making use of business process reengineering. The four basic principles of capabilities competition are:

1. The building blocks of corporate strategy are not products and markets but business processes.
2. Competitive success depends on transforming a company’s key processes into strategic capabilities that consistently provide superior value to the customer.
3. Companies create these capabilities by making strategic investments in a support infrastructure that links together and transcends traditional SBUs and functions.
4. Because capabilities necessarily cross functions, the champion of a capabilities-based strategy is the CEO.

And as the author supplements this list, a capability is a set of business processes strategically understood. So in short words, this strategy tells us that it doesn’t matter who are our customers, what we’re good at, what people need etc, what’s important is to divide our company in pieces and do (fast!) most profitable we can out of those splitted blocks, because good corporation can do whatever can be done, if only it raises the bars.

I just don’t like it. I wouldn’t like business to be so ruthless and cold. Even if sometimes, somewhere that’s the way it is, hopefully not in our colorful, optimistic world of entrepreneurs and idealists.

1. Disruptive innovation — the smartphone of business strategy

Why on the list? This concept is like a professional american sports leagues — it’s easy to catch, but when you dig deeper you discover it’s more and more interesting and amusing that you thought.

Disruptive innovation is more of a way of perception, systematics categorizing some phenomenons. It cannot be called a strategy or a strategy framework, since it doesn’t really designate a value to particular business behaviour, nor does it give any clues how to reach goals.

Disruptive innovation as a term, is defined as a specific kind of innovation, the one that creates a new market and value network (a business surroundings grown around a market) and eventually disrupts it by changing status quo and causing a societal impact. As a concept on the other hand, disruptive innovation and the rest of Clayton Christensen’s work forms a systematic division of what is innovation, how it changes business and the whole world around us.

This theory serves a great role in modern technology dominated business world. When technology emerged, it was a must to somehow constitute a guide for the impact new inventions could make. Still, the theory doesn’t judge, it’s only a language of description. Not every new product has to be disruptive to generate income, and not every revolutionary product/service is disruptive. This clue of Christensen’s work did a great job for a generation of post-Apple entrepreneurs. More than a decade ago it wasn’t obvious for us, that not everybody have to chase the rabbit of creating a new smartphone. On the other hand, disruptive innovation theory helped people originating from IT to realize that our possibilities in changing the world are limitless. A disruption is strongly connected with societal change, therefore we understood that to create new ground-breaking things, we often have to go beyond technology.

21 years after Christensen’s publication, disruptive innovation is still resounding through the thoughts of business leaders. For example, Robin Chase, co-founder of ZipCar wrote very interesting polemics with Clayton Christensen’s concept rediscussed in HBR’s article from December 2015. Chase suggested that the definition is missing the idea of excess capacity as a disruptive factor, referring Uber as a model example of disruption.

Honourable mentions

Why on the list? Those didn’t make it on Top5. Not so beautiful, less influential but still very interesting.

Leading change — John Kotter’s book about changing organizations. Very comprehensive, clearly a words of a practitioner. Although it has very narrow scope, as it regards specific, temporary state of organizations, the book’s usefulness is growing, as change is something we have to get used to occur almost constantly. Moreover, I personally used this book as a reference through a few organizational change projects, and it works damn well.

5p — Henry Mintzberg’s 5p states for Plan, Ploy, Pattern, Position, Perspective. All of those are different approaches to developing a strategy. Again, I wouldn’t call 5P a framework or a strategy, it’s rather a meta knowledge about strategy, that helps in understanding what it is. It’s not a process to follow, rather a set of viewpoints you could consider thinking about your own strategy.