Two of the most important trends impacting the business environment are the increasing importance of organizational purpose and the rapid development and application of technologies.
The rationale for organizational purpose
In a previous blog post, “Collaboration is the New Competition,” we discussed the changing paradigm by which companies can create and sustain a competitive advantage based on collaboration. That point of view adds to the strategic schools of thinking that don’t see competition as a zero-sum game (e.g., the Delta Model) and proposes other more impactful ways to succeed beyond winning by beating the competition.
Increasing environmental and social concerns make it very clear that a company's responsibility is not only to create value for shareholders but also for the ecosystems (communities and environment) in which they operate. Companies operate in ecosystems, and as Prof. Michael Porter implied, companies cannot succeed in societies that fail, and societies cannot flourish where companies fail12. Their success is intimately intertwined.
The impact of AI and new technologies on value creation in business
Much is being said about how new technologies, perhaps most notably AI, are revolutionizing how companies create, deliver, and sustain value. In the last few years, we have witnessed essential shifts caused by the emergence of technological advancements. We have seen, for instance, a shift from a product push to a customer pull. It is no longer about how to sell products or services but about understanding the customer’s problems and providing a solution.
The power has shifted from companies to consumers who, thanks to technology, have access to a wealth of information about products and services, as the internet has torn down the barriers of asymmetry of information. From a company standpoint, nowadays, they have an abundance of customer data and the technology to make sense of it (unthinkable in the industrial age), enabling them to understand customers' needs better and identify new opportunities for value creation.
The paradigm shift in business strategy
The impact of technology and the ecosystem approach on business is evident, especially when we see that five out of the ten largest companies by market capitalization worldwide are platform/ecosystem organizations, underscoring the importance of the paradigm shift for value creation.
A critical foundational concept in the age of platforms and ecosystems is that no company can deliver all the value that customers expect on its own. It makes sense for companies to seek to partner with other organizations that can complement their products or services and amplify the value they deliver to the customers.
In that regard, the new focus demands that organizations see the business strategy from the standpoint of a facilitator of the different actors in the ecosystem (where the company is only one more of them) to create more value and where all the members benefit.
A new set of executive skills is required
Value creation, grounded in technology advancements and organizational purpose, demands modern executives to develop and nurture new skills to be successful. In some cases, those skills are very different from the practices that made organizations successful in the industrial age, such as the idea of competing and collaborating simultaneously (for more on this we recommend this article from HBR).
Successful executives in the industrial era were “hard-wired” to apply approaches and methodologies that, even though they were the right ones for the time and competitive environment, would provide little help in the modern world. Let’s think, for instance, about the idea of beating the competition vs building relationships as described above. It is challenging for executives who based their success on defeating the competition to see how collaboration can help their business.
What skills do executives need to develop and nurture to succeed in this new business environment? Below are the ones we consider the most relevant.
Using as a metaphor the ability to use the right and left hands equally well, executives will need to be able to manage seemingly opposing ideas simultaneously.
Some examples of this include:
- Embracing change and creating stability: the ability to create organizational stability to execute strategies with the current products and services and, at the same time, continuously scan the business environment and explore new opportunities even outside the industry boundaries.
- Competing and collaborating at the same time.
- Adding value for customers and reducing costs simultaneously.
- Creating economic, social, and environmental value simultaneously.
Executives are being bombarded with information about technology. However, it is not easy to separate the signals from the noise. In other words, it can be challenging for executives to understand how to leverage technology advancements to create more value for their customers.
The problem with a lack of technology literacy is that it creates a series of risks for organizations since it increases the likelihood of making substandard digital investments that will add little or no value, which is probably one of the main reasons why only one-third of technology initiatives delivered the expected value.
Some examples of this include:
- Launching technology initiatives irrelevant to your business.
- Failed technology transformation initiatives
- Overlaying technology on top of old business processes without refreshing the business models and missing the opportunity for value creation.
It is not about executives becoming technology experts but developing their capacity to understand technology from a business point of view and creating a team with the technology skills required to provide sound advice and develop and implement the initiatives.
In a digital and ecosystem business environment, value is created when the organization works with partners and customers. Success largely depends on the ability of organizations to build relationships with key stakeholders.
In this regard, organizations need a much broader lens to assess the environment, competitors, and with whom the company should partner to create more value for current and future customers.
Another important consideration is that companies need to look not only within their industry boundaries but beyond them to identify key trends that could impact the organization and relevant stakeholders such as new potential partners or competitors.
Leaders must develop the capacity to become ecosystem players or orchestrators by building relationships with actors within and outside the traditional company’s value chain. This will enable organizations to provide a solution that the company acting in isolation wouldn’t be able to do.
More frequent and profound changes in the business environment demand that organizational leaders develop the ability to respond rapidly and adjust course if the chosen strategic path is blocked or proves to be disadvantageous. In other words, they need to be more agile.
It is necessary, however, to consider that introducing constant change could harm organizations, leading to inefficiencies and churn. To mitigate this effect, leaders need to adopt an approach where the long-stretch goals remain the same, but strategic choices leading to those goals can be altered according to changing circumstances. How leaders see strategy formulation and execution must be consistent with their business environment.
The typical business strategy formulation and planning process in the industrial age was sequential. In very basic terms, the three key steps included formulating the strategy, implementing it, and reviewing it at predetermined intervals. Typically, different teams in the organizations were responsible for the formulation and execution of the strategy.
In the digital age, the availability of data and technology is making it possible to test strategic hypotheses much faster, in some cases in real-time, enabling companies to be more agile in responding to the results of the strategy implementation. Strategy planning and execution are becoming an integrated exercise where planning is informed by the feedback provided by the execution based on data.
We are moving into uncharted territories, and as such, past recipes for success may differ from those required to face these new challenges.
Today’s leaders should develop the ability to be constantly curious and open to experimentation. They must also create a business environment that promotes experimentation and learning by embedding these ideas into their organizational structures and management systems.
If your organization is facing challenges with any of the topics discussed in this article, or even if you cannot clearly identify the issues, we will be happy to hear from you and discuss how we can help you succeed. A strategic refresh considering emerging trends is a good place to start. Stratford Group is a multidisciplinary team of highly experienced professionals committed to creating value for the clients we are privileged to serve by drawing from an extensive track record of dealing with similar problems and developing tailor-made solutions to address specific needs.
Carlos Duran is a senior professional with over twenty-five years of experience in strategy formulation and execution. He helps organizations globally to design and implement strategies and business transformation initiatives across various industry sectors. His areas of expertise include digital transformation and the integration of ESG considerations into core business strategies. Carlos also possesses in-depth experience in business process improvement, quality management systems, and project and business performance management. He holds an MBA from Newcastle University in the UK, a Master in Quality Management and Process Improvement from Cologne University of Applied Sciences, Germany, a Civil Engineering degree from UNT, Argentina, and a specialization in Digital Strategy from MIT, USA. As senior Advisor at Stratford, Carlos helps organizations create and sustain long-lasting value.