Where Do You Stand? The Shifting Ground of Strategy

We’re all trying our best to remain standing, but the ground beneath us is shifting at an accelerating rate. The implications for strategy are profound, but few have explored this terrain.

Strategies of position are back

Strategy was once all about position – all that mattered was where you were located and whether there were barriers to entry. As structural advantages eroded, this view of strategy fell out of vogue. In its place, we heard all about strategies of movement and capability – it was all about your “core competencies” and how quickly you could move across a changing landscape. Now, it looks like strategies of position will reassert themselves with a vengeance.

What do I mean by that? There’s no question that the ground is shifting – for more on that, see our Shift Index. But, here’s the paradox, at the very same time that the ground is shifting, it matters more and more where we’re standing.

We’ve just released a major new research report at the Center for the Edge – The Hero’s Journey through the Landscape of the Future – which focuses on one fundamental shift that will impact an increasing array of businesses. Specifically, we look at trends towards fragmentation and concentration in the economy. What parts of the economy are fragmenting into smaller and smaller entities and what parts of the economy are concentrating into larger and larger entities? The answer to this question is vitally important to executives yet few are explicitly asking this question, much less answering it in any systematic way.

Position shapes growth potential

If you’re an executive in a large company under pressure to achieve more growth or if you’re an executive in a smaller company seeking to achieve high rates of growth, where you stand matters hugely. If you’re in a part of the economy that’s fragmenting, growth will become increasingly challenging. Ultimately you’ll find yourself trapped in a spiral of shrinking share and eroding economics. On the other hand, if you’re in a part of the economy that’s concentrating, growth can be amplified and sustained by riding the waves that are driving concentration. Position suddenly matters big time.

So, the choice of ground that you’re standing on matters. But there’s a second way that position is becoming more important. In our research, we discovered that winners in the concentrating parts of the economy are increasingly determined by the ability to connect with, and build strong relationships with, the participants who are operating in fragmenting parts of the economy. Look at Amazon. Its increasing growth – both in its online retail business and its newer cloud platform - has been driven by an ability to attract and support a growing array of smaller players who can benefit from the economies of scale and scope offered by Amazon. Or take Google. Its core economic engine – its advertising network – critically depends upon the value it provides to smaller merchants and smaller content websites.

This suggests another dimension of position which will increasingly determine the ability to generate growing economic value. Where you’re positioned in expanding business ecosystems matters a lot. If you’re on the periphery, with few connections to players in the fragmented part of the economy, good luck. If you’re at the center of a growing cluster of relationships where more and more participants are seeking to connect with you, now you’re in a great position to drive the economies of scale and scope that will make you one of the winners in concentrating parts of the economy.

Position within ecosystems drives leveraged growth potential. In a world of mounting performance pressure, growth alone is not sufficient. The key is how much investment is required to drive this growth. The two conventional approaches to growth – organic growth and growth through acquisition – are very resource intensive, requiring significant upfront investment, long lead-times and uncertain rewards. Far better to explore leveraged growth, a third path to growth – connecting with, and mobilizing, complementary resources and capabilities that can add significant value to your customers.

And let’s not forget those who just want to make a living

By the way, position also matters if you have more modest aspirations and simply want to build a small and successful business that will support you in pursuing your passion. Far better to be thoughtful in picking a part of the economy that is fragmenting and that will support and reward smaller businesses providing distinctive and focused value. If you pick a part of the economy that is concentrating, watch out! You'll soon be run over by larger companies that will have distinct advantage over the small fry they crush along the way.

And, just as with larger businesses, you also need to be systematic in picking and participating in broader ecosystems that will help you to amplify the value that you deliver to the market. Just look at the growing array of small, niche product business that are emerging from platforms like eBay, Etsy and YouTube – part of their ability to sustain themselves comes from their participation in these platforms that help them to find and connect with customers around the world. Few, if any, of these businesses will grow to become large, public companies, but that’s precisely the point – they are homesteading fragmenting parts of the economy that will be fertile ground for small businesses but at the same time that make it challenging to grow into very large companies.

What about core competencies?

So, am I suggesting that position is everything and that movement and “core competencies” don’t matter? Far from it. All I’m suggesting is that position is a pre-requisite for success if your goal is to deliver sustained levels of high growth. If you’re not positioned in the right places in the economy, you’ll find growth more and more challenging, no matter how smart and agile you are.

If you’re focused on parts of the economy that are concentrating, there’s a fundamental challenge: concentration implies that there will be fewer and fewer winners over time – it’s a “winner takes all” proposition. So, how do you prevail against all the others that have their eye on the same spot?

Here’s where core competency comes in. You’ve got to be really, really good – distinctively good – at the skills and practices required to succeed in concentrating parts of the economy. But I take core competency to another level (see my article in Harvard Business Review on “Unbundling the Corporation”) – you’ve got to be so focused on your core competency that you would be well advised to shed all other activities from your company. If you try to hold onto things that you’re just good enough in or even where you have parity with others, you’ll just consume resources and attention that could be better used in deepening and broadening your core competency.

One of the great things about our evolving economy is that you can increasingly find and connect to companies that are world-class in whatever business activities you need to support your business. If that’s the case, why would you ever continue to do things that others can do better?

And what about movement?

Here’s another reason to maintain a ruthless focus on your core competence. In our exponentially changing world, core competence is never static. If you’re not totally focused on accelerating learning and performance improvement in your core competence, you’ll soon fall far behind, no matter how good you are at it today. As I’ve discussed elsewhere, scalable learning becomes the key requirement for continued success.

This is where movement becomes central to success. You can’t just stand still. But, on the other hand, you’d better not fall into the trap of random, reactive movement that’s so tempting in a time of rapid change – simply sensing and responding to the latest event on the horizon. The movement must be directed by a clear view of what capabilities will be critical to success and how those capabilities are likely to evolve in a changing business landscape.

That provides the context for driving learning, both within your organization and across a broader ecosystem. And, make no mistake about it, if all you do is focus on learning within the four walls of your firm, you’ve already lost. The key to scaling learning is to be able to reach out beyond your enterprise and find ways to connect with world-class participants in a broad array of complementary domains in ways that will help all participants to learn faster.

And, that’s again where position matters. If you’re not positioned centrally in a broad array of relevant ecosystems, you’ll be at a disadvantage relative to those who are. But you need to do more. You need to build relationships that will make it easier for you to access the tacit knowledge that others have and then focus those relationships on addressing really challenging performance issues. This requires movement, but it’s focused movement, driven by rapid iterations of effort and frequent pauses to reflect collectively on what’s working and what’s not working from the performance improvement initiatives. In an exponential world, if you’re not constantly moving in this fashion, you’ll soon die.

So, in the end, movement and core competency still matter. But they’ll only matter if you have picked the right position on the business landscape – a position that will foster and amplify growth. Position is a pre-requisite for everything else. Ignore it at your peril.

Bottom line

Here are four questions that should be on every CEO’s agenda:

• Am I focused on portions of the business landscape that are concentrating or fragmenting?
• Am I participating in ecosystems that will help me to amplify the value that I am delivering to the market?
• Am I sufficiently focused on the (few) core competencies that will drive competitive success?
• Am I doing everything I can to accelerate and scale learning so that I won’t be blindsided in an exponential world?

For a lot more insight into why these questions matter and into approaches to addressing these questions, please see our working paper available here.

This posting originally appeared on my Edge Perspectives blog available here.