Just look at the numbers. Since the volatility of business operating margins, largely static since the s, has more than doubled, as has the size of the gap between winners companies with high operating margins and losers those with low ones. Market leadership is even more precarious. All this uncertainty poses a tremendous challenge for strategy making. Think about it. The goal of most strategies is to build an enduring and implicitly static competitive advantage by establishing clever market positioning dominant scale or an attractive niche or assembling the right capabilities and competencies for making or delivering an offering doing what the company does well.
Companies undertake periodic strategy reviews and set direction and organizational structure on the basis of an analysis of their industry and some forecast of how it will evolve. The answers these companies are coming up with point in a consistent direction. Sustainable competitive advantage no longer arises exclusively from position, scale, and first-order capabilities in producing or delivering an offering. All those are essentially static. So where does it come from? Those that thrive are quick to read and act on signals of change. They have worked out how to experiment rapidly, frequently, and economically—not only with products and services but also with business models, processes, and strategies.
They have built up skills in managing complex multistakeholder systems in an increasingly interconnected world. Perhaps most important, they have learned to unlock their greatest resources—the people who work for them.
In order to adapt, a company must have its antennae tuned to signals of change from the external environment, decode them, and quickly act to refine or reinvent its business model and even reshape the information landscape of its industry. Think back to when Stirling Moss was winning Formula One car races: The car and the driver determined who won. But today the sport is as much about processing complex signals and making adaptive decisions as about mechanics and driving prowess. A telemetric innovation by one team can instantly raise the bar for all.
In this information-saturated age, when complex, varying signals may be available simultaneously to all players, adaptive companies must similarly rely on sophisticated point-of-sale systems to ensure that they acquire the right information. And they must apply advanced data-mining technologies to recognize relevant patterns in it.
The company found hidden relationships among the variables that were driving churn and launched retention campaigns targeting at-risk customers. This chart shows changes over the past half century in the number of players in the U. Each line represents a company. Comcast and Sirius XM Radio are among those that have adapted. Click here for a larger image of the graphic. A similar pattern can be observed in many other industries see hbr. Companies are also leveraging their signal-reading capabilities to make operational interventions in real time, bypassing slow-moving decision hierarchies.
The UK-based grocery retailer Tesco continually performs detailed analyses of the purchase patterns of the more than 13 million members of its loyalty-card program. Its findings enable Tesco to customize offerings for each store and each customer segment and provide early warning of shifts in customer behavior. To put the icing on the cake, instead of being purely a cost center, the rich databases and analytical capabilities produce a stream of direct revenue: For a fee, Tesco allows other enterprises to access its technologies and insights.
Relevance of intellectual property for business
Google is another example. The more relevant an ad, the higher the click-through rate—and because advertisers pay per click, this means more revenue for Google. By linking its advertising data directly to its operations, Google can respond to changing ad conditions on a split-second basis, without the intervention of human decision makers. That which cannot be deduced or forecast can often be discovered through experimentation.
Of course, all companies use some form of experimentation to develop and test new products and services. Yet the traditional approaches can be costly and time-consuming, and may saddle the organization with an unreasonable burden of complexity. To overcome these barriers, a growing number of adaptive competitors are using an array of new approaches and technologies, especially in virtual environments, to generate, test, and replicate a larger number of innovative ideas faster, at lower cost, and with less risk than their rivals can. It uses a walk-in, 3-D virtual store to run experiments that are quicker and cheaper than traditional market tests.
And by employing Vocalpoint and other online user communities, it can introduce and test products with friendly audiences before a full launch. In alone, 10 highly skilled employees were able to generate some 10, design simulations, enabling the completion in hours of mock-ups that might once have taken weeks.
In addition to changing the way in which they conduct experiments, companies need to broaden the scope of their experimentation. As Fellow in Strategy and Entrepreneurship, he continues to teach on custom programmes for Executive Education clients and the Entrepreneurship Summer School for Masters students. He received his BSc from Nottingham University in Following a sales career in the scientific equipment and pharmaceutical industries in the UK and Africa, he graduated from Harvard Business School with an MBA with high distinction in Mr Bates then became a Marketing Manager for International Paint now part of AkzoNobel , launching the highly successful Interpon range of solvent-free coatings worldwide.
He was invited back to Harvard as a lecturer on the MBA programme in , before joining the London Business School faculty part-time the following year. Since then he has balanced a career as an entrepreneur, educator, investor and investment manager. He is an investor, director or board advisor of a number of early-stage ventures and growing businesses in the creative and technology industries in London. Professor Julian Birkinshaw was ranked 46th in the Thinkers50 list of the top global management thinkers.
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Consultant and executive educator with companies all over the world. Rupert teaches on Executive Education programmes around the themes of entrepreneurship, owner management and the management of growth. Rupert works with ambitious entrepreneurial businesses around the world helping to plan and implement their strategies and growth plans.
Rupert is both a chartered accountant and a qualified HR professional, so has an unusual mix of experience when it comes to advising on the implementation of strategy. Previously Rupert was a partner of BDO for 16 years. He is the author of 7 books on growth, governance and management, the latest of which, Growing a Business , was published by The Economist in He currently sits on 3 boards as a non-executive director.
Co-founder of several start-ups, his entrepreneurial work includes helping on the expansion of the retail chain Gap. Please apply using the online application form. For more information please email: lbs. Leverage the flexibility of our suite of online courses to build expertise, insight and the leading-edge tools to drive innovation today and tomorrow. Gain the tools to ignite, manage and sustain innovation in your team, department or business unit.
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