In an exponential world, it stands to reason that our traditional, linear approaches to strategy will need to be re-thought from the ground up. One way to characterize the big shift in strategy is that we are moving from strategies shaped by terrain to strategies shaped by trajectory. What do I mean by this?
Strategies of terrain
If you think about traditional approaches to strategy, they were profoundly shaped by the current landscape. The job of the strategist was to look across the surrounding terrain from the vantage point of the company and determine what were the most favorable positions to occupy – where could the company build positions of sustainable competitive advantage? Sure, there was a dynamic component to the strategy – your actions could alter the landscape and any good strategist would need to anticipate the likely actions of existing competitors and potential new entrants. But the starting point was always your current position and the current landscape surrounding your existing position.
But as the world changed, so did strategy. As the terrain become more unstable, evolving at a faster and faster rate with increasing uncertainty as to potential outcomes, the horizon of the strategist began to shrink in two ways. First, strategists shifted from a view of the external terrain to a view of the internal terrain. Rather than looking at the structure of markets or industries, the strategist began to focus on “core competencies.” Strategists started to look inward, at the terrain within the company, in a systematic effort to identify the existing capabilities that were world-class and focus on approaches to strengthen those core competencies even more.
In parallel, there was a move to strategy as “hustle”. Since the external terrain was evolving more and more rapidly with increasing uncertainty about outcomes, this school of strategy argued that those who could sense and respond most quickly to the near-term events would be the ultimate winners. The only terrain that mattered was the terrain immediately surrounding the company and the relevant time frame was today, not tomorrow.
But here’s the problem. In a world that’s more rapidly changing, there’s a significant risk involved in focusing on a narrowing terrain today. The core competency approach can be easily blind-sided if it turns out that the capabilities that are creating great economic value today suddenly become obsolete. We may be focusing on making better and better buggy whips while missing the fact that the market is shifting from horse drawn carriages to cars.
The hustle approach has a different problem. First, it runs the risk of spreading the resources of the company way too thinly across too many fronts as the company races to respond to all incoming actions without any ability to prioritize which of these events are really enduring versus one-off distractions. Second, day to day hustling as a hard time dealing with fundamental disruptions that require more than an incremental, short-term response. If we are moving from horse drawn carriages to cars, we may need to respond with more than hustle.
I would suggest that our efforts to evolve terrain-based strategies to cope with an exponential world are yielding rapidly diminishing returns. If you want evidence of this, check out our analysis of the collapse of return on assets for all public companies in the US since 1965.
Strategies of trajectory
What we need to do at this point is to step back and reassess at a more basic level our approach to strategy. Rather than focusing on terrain, however narrowly or broadly defined, perhaps we should shift our attention to trajectory.
Here’s the paradox. At precisely the time that change is accelerating and uncertainty increasing, we need more than ever to have a clear view of the trajectory of change and how it will reshape the business landscape in the decades ahead. We also need to assess carefully what degrees of freedom we might have in shaping these outcomes through our actions, rather than simply taking them as a given. We then need to develop strategies that will put our companies on a trajectory to compete more effectively on a rapidly changing terrain.
Rather than looking from the present out to the future, we need to look from the future back to the present to determine which actions will have the greatest impact and create the most economic value over time. As Yogi Berra famously observed, "You've got to be very careful if you don't know where you're going, because you might not get there." The winners in a more intensely competitive world will be those who know where they are going and accelerate their movement in the most promising direction.
Position in the future, not the present
As I indicated in a couple of earlier blog posts here and here, strategies of position still matter, but I didn’t sufficiently emphasize that these new strategies need to focus on the most attractive and advantaged positions in future landscapes, not the current landscape. If we just focus on position in the current landscape, we risk being blindsided as the landscape rapidly evolves into something quite different. What looks like solid high ground today can quickly become quicksand, dragging us under.
Perhaps even more importantly, the most advantaged locations in the future landscape often are not even part of today’s landscape and they will tend to emerge and be shaped by significant economies of scale and network effects that will play out very quickly once critical mass has been achieved. Playing a wait and see game in the hope that things will become clearer over time can be very dangerous. By the time you see what’s happening, it may be too late to do anything about it. Fast followers in an exponential world will increasingly find that they are on a path to the grave.
Anticipating the future
But I can already hear the pushback. “John, the future’s just too uncertain. We can’t possibly know what the landscape is going to look like a decade from now.” There’s no question that there’s a lot of uncertainty, but part of the problem when we shrink our time horizons is that we get more and more buffeted about by surface events and lose our ability to distinguish what is lasting versus momentary change. As a result, the more we shrink our time horizons, the more uncertain the world looks. It’s easy to get overwhelmed and fall into a vicious cycle where the more we shrink our time horizons, the more uncertain the world looks and then we shrink our time horizons even more.
It helps to know that we don’t need a detailed blueprint of that future landscape – all we need is enough detail to give us a sense of direction and to help us make some difficult choices in the near-term. In fact, by moving away from a perceived need for a detailed blueprint and focusing instead on the broad outlines of the future, we now have greater incentive to identify and understand the fundamental forces that are shaping the business landscape, rather than getting lost in the details. This greatly simplifies our task since the long-term forces shaping the business landscape are more predictable in terms of their broad direction than the swirling surface events that emerge unpredictably and just as quickly disappear.
So, what are the winning strategies of trajectory to replace the strategies of terrain that are getting us into more and more trouble? I’m afraid I’ll have to leave that to my next post because this one is already reaching a length that will prove challenging for those of you who are struggling to keep up with the surface events that are competing for our attention on a daily basis. I assure you, there is more to come so be sure to carve out the time to explore this with me.