Tuesday, December 11, 2012

Attributes governing emergent strategies

Academics and practitioners of strategy distinguish between a firm’s deliberate strategy and its emergent strategy. As the names imply, a deliberate strategy is what top management arrives at based on its understanding of market needs and the firm’s ability to make adequate return on investments while satisfying that need. Creating a deliberate strategy includes asking fundamental questions such as what markets to operate in and how to position a firm. An emergent strategy, on the other hand, is what a firm adopts as strategy based on its interaction with the ecosystem that it builds around itself. This ecosystem includes customers, suppliers, partners, regulators and employees. In a competitive setting where rapid changes in the business landscape are driven both by innovation and a challenging macroeconomic environment, it is fairly straightforward to conclude that successful firms will be ones that have the ability to seize a promising emergent strategy, quickly align operations to that strategy and increase the return on investment via flawless execution of that strategy. But are emergent strategies equally likely in all industries? Are such strategies to be expected with equal probability from all players in a firm’s ecosystem? 

In this thought exercise, I have attempted to list the factors that govern emergent strategies.What follows below is the list and the reasons why each factor plays a role in shaping emergent strategy.

I. Rate of change – Industry wide innovation: The quantum of innovation that drives industry-wide changes in products or services in a specific industry is a reasonably strong indication of the presence or absence of an emergent strategy space. The greater the intellectual activity, the larger the space available. Firms can use metrics such as patents filed per year, new processes for quality improvements, new target segments etc. for this purpose.

II. Rate of change – Creation and termination of firms: In the absence any fundamental structural changes in the industry, the frequency with which new firms come into existence and existing firms fail to survive is an indicator of firm-specific emergent strategies that are either exploited successfully or left unexplored. A firm witnessing the growth of some of its rivals and the demise of others in the same time period can infer that the emergent strategy space has not been fully searched and exploited. Such rapid changes will serve as both signals of hope and despair to the firms operating in that particular industry.

III. Product/Project Life-cycle: Strategies derived from product innovation are one of the most common sources of emergent strategies for a firm. But firms operating in an industry with long product build cycles are far less likely to discover an emergent strategy. The nature of such long-cycle products prevents the rapid creation, experimentation and selection of prototypes. Rapid prototyping capabilities, with the objective of selecting the most viable alternative among competing product innovations are a key determinant of the frequency of emergent strategies.

IV. Partner Ecosystem Complexity: The success of a firm’s emergent strategy will largely depend on how receptive the firm’s partners are. Emergent strategies by their very definition require that a firm make quick unplanned changes to its deliberate strategy in it at least one of its functional areas. If that functional area involves the firm’s partners, then the agility of the partner ecosystem will play a predominant role in the success of the emergent strategy.

V. Employee feedback channels: Employees at all levels have the potential to discover information or create actionable ideas that can influence a firm’s strategy. In such a scenario, firms that operate in rapidly changing environments increase the probability of uncovering new strategies if they setup channels through which employees can communicate new ideas. Most companies have employee feedback channels in place. The companies that are open to radical ideas from employees across different functions, create and respond through channels that are specifically tuned to watch out for ideas and suggestions that can be used to derive an emergent strategy.

VI. Customer feedback channels: Every organization worth its balance sheet collects customer feedback in one or more ways. While the diligent ones among these use the feedback to shape the customer experience, the excellent ones use it to shape the organization itself.

VII. Frequency and strength of feedback: Unlike deliberate strategies, emergent strategies are more likely to lack specific signposts that can vouch for their validity. Deliberate strategies that are in the process of being executed offer the luxury of clear signs of their success or failure. In many cases, past outcomes of deliberate strategies might indicate that a few quarters of losses are worth accommodating to make the strategy a success in the long run. But in the case of a emergent strategy, no such reassuring milestone might be available. So in scenarios involving multiple competing strategies, the one with a higher frequency and strength of feedback about the success of the strategy should receive a higher weighting.

VIII.Organizational agility and the O in VRIO: Assuming all other factors that govern emergent strategies are positively aligned for an organization – through a combination of past decisions and propitious present conditions – the decisive factor that will ensure successful exploitation of an emergent strategy will be the agility with which the firm exploits the opportunity. This agility cannot be acquired in the short term but can only be built into the culture of the firm over a period of time. In the context of agility, a parallel can be drawn with the ‘Organization’ component of the VRIO framework. Just as a firm should organize itself to exploit its VRI resources and capabilities, it should also build capabilities to exploit emergent strategies without letting past ways of thinking and execution scuttle the opportunity.

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