Reframing Growth Strategy in a Digital Economy
Digital technology is radically changing the behavior of individuals, corporations, and entire societies, and disruption seems to be the new normal. CEOs are faced with the dual challenge of protecting their backyards from upstarts and incumbents while simultaneously devising strategies that will guide their growth for the next five years.
For most, this is a daunting task. If you are a senior executive faced with these challenges, how do you ensure the continued growth and sustainability of your company? Or, to put it another way, What’s your play?
Some Fortune 500 companies are doubling down on defensive strategies, promoting cost efficiency and productivity to protect their core business. Others are attempting to “future-proof” their business model through acquisitions. For instance, following a five-year acquisition spree, Walmart’s $ 3 billion deal with Jet.com signals a serious commitment to competing with Amazon.com. General Motors Co. is clearly thinking about the future of car ownership with its (unsuccessful) attempted acquisition of Lyft.
None of this is wrong, and the logic makes sense. But is either approach sufficient to sustain the growth and health of your business and demark you from competition longer term? We believe not.
When challenged by a host of disruptors who are exploiting traditional market dynamics, finding growth opportunities in increasingly onerous regulatory and competitive conditions is hard these days. And harnessing the power of constantly evolving digital technology to break down well-established barriers to entry and devise new business models is a complex endeavor. To rise above the fray in this challenging context, you need to find ways to fight a battle you’re well positioned to win. For leaders of big companies, this means capitalizing on an ability to do things the disruptors simply can’t — set an ambitious vision, plan globally, invest strategically, and mobilize considerable resources to assert digital dominance. In other words, elevate above the level of the disruptors and transform your scale from a liability into an asset.
This may sound easy, but it isn’t. Too many companies are still formulating their growth strategies based on traditional growth planning approaches — yearly cycles, historical analytics, and incremental thinking. With the velocity and uncertainty that characterize this new digital economy, traditional growth planning has reached the end of its useful shelf life. It just won’t get you there.
Companies need to reframe the way strategy is formulated around three fundamental truths, and plot their next steps by embracing and owning these truths:
Truth 1: You can’t analyze your way to the future; you need to invent it.
Traditional analytical models that have been the bedrock of strategic planning for years are important as a means of establishing a foundational understanding of the world that exists today and the current opportunity areas. However, if you are looking to define a strategy that will enable your company to achieve disproportionate growth and create competitive advantage, you need to push beyond pure analysis.
What if the razor industry, dominated in the United States by giants Gillette and Schick, had looked beyond known competitors to anticipate the value in a direct-to-consumer subscription service? Would the e-commerce razor delivery company Dollar Shave Club have had such a meteoric rise? And would powerhouse Unilever, which acquired the startup in 2016, have expanded as meaningfully into the shaving business?
What’s your play?
Successful digital strategy requires a blend of deductive analysis and the type of inductive reasoning that powers the creative leaps that anticipate, and often open, fundamentally new markets. To help your organization see into the future, focus on creating an organizational culture that values a mix of inside-out and outside-in thinking.
Think about what the world will look like five to 10 years out — across a range of different industries, not just your own. In this future world, how do the needs of your current consumer change? Are there new opportunities outside of your existing consumer base or current product offerings?
Next, imagine removing your company’s existing business and economic restraints from the equation. How would you use digital technology to overcome barriers and capture these opportunities? Run this exercise with a tiger team of out-of-the-box thinkers from across your organization. Let these inputs form the basis of your strategy formulation process.
Truth 2: Competitive evolution is no longer linear — it’s exponential and disruptive. Your strategy needs to reflect these dynamics.
Defining a destination point that’s three to five years out is critical for focusing resources in a manner necessary for scale. However, the strategy can’t just be a fixed game-plan that serves as marching orders for the foreseeable future. Strategy needs to take the form of a living, breathing process. Much like software development has evolved from traditional waterfall models to agile development, strategy formulation must embrace an approach that adjusts to rapidly shifting conditions in the market. Without dynamism and nimble capacity for adjustment, companies find themselves in situations where they simultaneously miss opportunities and create attractive windows for disruptors to attack.
Consider that as late as 2008, former Blockbuster CEO Jim Keyes stated that Netflix, the video rental company that started out by mailing discs through the postal service and now streams media and video direct to consumers, was not “even on the radar screen in terms of competition.” Yet within two years, Blockbuster, which built its name on brick-and-mortar video-rental shops, was bankrupt. Netflix, meanwhile, was on pace to acquire over 65 million global streaming subscribers. The decision of Netflix CEO Reed Hastings to go all-in on streaming was a strategic bet against Blockbuster. Hastings knew that Blockbuster’s traditional advantages — retail network, inventory, and sales staff — would quickly become unsustainable liabilities in the digital world.
What’s your play?
We’ve reached the end of the well-defined strategic planning cycle. You and your team must design a process through which you can continuously assess market dynamics, monitor the impact and opportunities presented by business and technology changes, and adjust direction to ensure you are constantly moving toward the goal. Don’t make digital strategy a slave to your budgeting process. Create a dynamic series of sprints with a clear endgame in mind — and build flexible investment capacity to respond.
Truth 3: Ambition for growth isn’t the problem. Your biggest hurdle may stem from an inability to catalyze the organization into action.
Big companies don’t lack ambition. More often than not, their primary challenge is getting leadership to put sufficient tension on the company to start the digital transition. Many organizations believe that defining the goal will be enough to spark the action required to capitalize on the opportunities. In reality, many of today’s Fortune 500 companies are not designed to make bold moves. Multinational companies are optimized for efficiency, which makes it challenging for fundamentally new initiatives, ideas, and processes to gain traction. In keeping with the desire for operational efficiency, many companies are staffed with employees who are focused on performance excellence, implementation, and mitigating risk. Compounding these inherent challenges, capital flows to the lowest-risk ventures. Within public companies, this is exacerbated by the need to report quarterly earnings and manage earnings per share.
Barnes & Noble has grappled with these challenges for years — first failing to invest aggressively in online bookselling during the early rise of Amazon, and then playing the laggard in the e-reader race. Reeling from a series of brick-and-mortar closures over the last five years, the book retailer is struggling to galvanize action behind a solid growth strategy.
What’s your play?
From Six Sigma to agile development, strategies within today’s modern organizations are devoted to constant process improvement. While there is value in these models, if your efforts are entirely focused on the perfection of an established process, it is difficult to devote time, energy, and investment to new digital plays. Provide space and acceptance across your teams for experimentation and ideation. Build time to explore new approaches into your organization’s key performance indicators (KPIs) or objective and key results (OKRs).
And remember, for any growth plan to succeed, you must have a plan to catalyze action across the company. This isn’t plain sailing, so how do you go about it? Give your team a common enemy to rally against. Create a persona of the competitor-of-the-future likely to disrupt your business — where will it happen, and how? Socialize this personification widely; make sure that every department knows what kind of competitor the company is up against and why their department’s input matters to win the battle.
Business leaders focused on generating sustainable growth are right to be concerned about potential disruption. But planning for the future by focusing exclusively on the realities of today is a shortsighted approach, and one that may result in the eventual demise of leading global companies. Big corporations can use their scale to fight back. To achieve the desired result, your digital growth strategy needs to be future focused, dynamic, and should provide a rallying cry that unites your entire business.