The Big Shift in Strategy - Part 2

In my last blog post, I suggested that we’re going through a big shift in strategy from strategies of terrain to strategies of trajectory.  In that blog post, I made the case that strategies of terrain are increasingly dangerous in times of accelerating change, but I left you hanging in terms of what strategies of trajectory might look like.

Most strategies (strategies of terrain) tend to look from the present out to the future. Strategies of trajectory start with a view of the future and work back to the implications for action in the present.  

Here’s the paradox: strategies of trajectory become more and more essential in times of rapid change and uncertainty, while at the same time becoming more and more difficult.  But that’s exactly what makes strategies of trajectory so valuable. Most of us tend to fall back into our comfort zone and just focus on the present, leaving us vulnerable to the changes just ahead.  Only a few will venture beyond their comfort zone. Those few who craft strategies to focus action today based on an anticipated future that’s quite different from today will be in the best position to reap the rewards of a rapidly changing environment. They will stand out from the rest of us who are scrambling to respond to the latest event and, in the process, spreading our limited time and resources more and more thinly.

So, what’s required to craft these strategies of trajectory? Five elements can help to make these strategies successful:

• Challenging
• Shaping
• Motivating
• Measuring
• Learning

Challenging

In a world of accelerating change, one of our greatest imperatives is to "unlearn" - to challenge and ultimately abandon some of our most basic beliefs about how the world works and what is required for success. But, how do we challenge ourselves when these beliefs are often so deeply held that they are often never even articulated, much less questioned?

I’m a proponent of scenario development as a tool to identify, assess and ultimately achieve alignment around potential futures. One of the great elements of scenario development is that it explicitly starts with the proposition of alternative futures. That in itself helps to pull us out of our comfort zones and challenges our preconceptions about where the future is headed. But, from my experience, this needs to be combined with two other elements to really challenge our most deeply held beliefs about the world around us and about the actions that will lead to success.

First, we need to find people who are deeply creative but from very different domains. Give them a deep dive into our current business and market arenas and then ask them to participate in the scenario development exercise with the specific task of imagining some potential futures that could disrupt our company’s business. It’s important that the scenario development includes people who will challenge the thinking of the leadership team.

Second, integrate the scenario development process with another key question: given the most likely future, what are the two or three business initiatives that we could take in the next 6 – 12 months that would have the greatest impact in accelerating our movement towards the kind of company we need to be successful in that future – and do these initiatives have a critical mass of resources and funding today?

One of the common traps of scenario exercises is that it’s often easy to get senior leadership to sit around a table and nod in agreement to a likely scenario when it is viewed as a theoretical construct with no implications for what one would do differently today.  By adding the question about near-term initiatives, it makes clear that this scenario will have significant near-term implications. In my experience, this surfaces all kinds of disagreements that would have been shoved under the rug if the participants believe it will make no real difference to what they do tomorrow. For more exploration of this FAST strategy approach, click here.

Strategies of trajectory can only succeed if the participants are aligned around a shared view of the future. In an exponentially changing world, that future is likely to be quite different from the present. The challenge is to ensure that the participants have escaped from the prison of the present and have a view of the future that is likely given the forces at work on the global business landscape. The good news is that view of the future doesn’t need to be (and, in fact, shouldn’t be) a detailed blueprint. It should be a high level view of key elements that can help us to focus and make difficult choices today.

Shaping

Here’s another potential problem with scenario exercises.  They tend to put us into a passive mindset – we can assign probabilities regarding alternative futures but, at the end of the day, we’re put into the position of analysts on the sideline, simply trying to assess how the future will play out.

What about the opportunity to materially alter the probabilities regarding potential future outcomes? Rather than just focusing on which future is most probable, ask which future is most attractive to the company in terms of positioning it to capture a disproportionate share of economic value. Then ask what actions the company might take to increase the likelihood of that future and to ensure that it is positioned in the most attractive part of the market.

In times of rapid change and growing uncertainty, we actually have far more degrees of freedom to restructure entire markets and industries than in more stable times. Yet, senior executives often fall into a passive, reactive posture in these kinds of environments, rather than exploring how they might proactively shape the future. Shaping strategies are classic strategies of trajectory – they begin by defining a desired market or industry structure and then focus on mobilizing third parties to invest to support the shaping strategy.  

I’ve written extensively about the opportunity to pursue a shaping strategy and the three key elements that are key for the success of these strategies, including a Harvard Business Review article summarized here.

These shaping strategies are particularly powerful because they’re highly leveraged on two levels – they mobilize the resources of a large and growing number of participants and they create a rich opportunity for distributed innovation so that everyone learns faster as more participants join.

Motivating

People tend to magnify risk and discount reward when faced with rapid change and high uncertainty, prompting them to delay action or, at best, to make very modest and tentative moves.  Successful strategies of trajectory need to find ways to motivate people to overcome risk averseness and to take bolder action.  

Scenarios can be helpful in this regard, but they’re unlikely to be sufficient.  Scenario planners tend to emphasize the value of framing scenarios as stories that can emotionally engage participants. I would take it one step further. There’s an opportunity to craft a powerful narrative, one that highlights a compelling opportunity out in the future and that provides a call to action for others to help achieve that opportunity. (For those who aren’t familiar with the key distinctions that I make between story and narrative, check them out here).

Narratives are tailor-made for strategies of trajectory.  They focus on defining a future opportunity and then work back to the present by making clear what choices and actions today will help to achieve that longer-term opportunity. Some of these choices and actions are clearly specified, but most are left open to the people we’re trying to reach so that they have room to experiment, improvise and innovate in terms of approaches to achieving that longer-term opportunity.

These narratives become particularly powerful if they’re framed as an opportunity for many others beyond an individual company.  They can become a significant source of leverage by motivating others to invest to support and amplify the efforts of a single company.

Measuring

As the name suggests, strategies of trajectory are ultimately about measuring movement in a particular direction.  Any strategy of trajectory must therefore be explicit about the metrics that will indicate whether we’re on track to establishing the desired position in the future.  

Two important points about metrics.  First, resist the temptation to focus on financial metrics.  These are lagging indicators telling us how we have done. Wherever possible, identify operating metrics that are effective leading indicators of the kind of performance you are seeking to achieve. And focus on operating metrics that are specific to the desired position in the future even if these operating metrics are marginal to your current business performance. For example, if your strategy is to become a “trusted advisor” to customers in a particular domain, focus on the number of proactive recommendations you provide to relevant customers and the response rate of these customers.

Here’s the second point. Forget about performance snapshots that focus on your performance at any specific point in time.  Strategies of trajectory focus on acceleration – they’re about performance over time. Is your performance stable, increasing linearly or accelerating? If it’s not accelerating in an exponential world, something is wrong.  So, strategies of trajectory are relentlessly focused on patterns of movement over time.

Learning

In a time of accelerating change, learning is essential to success. Whatever we know today is depreciating in value at an increasing rate. Strategies of trajectory are ultimately about how to accelerate learning at scale. In fact, the four elements explored above each contain a strong learning component.

No matter how fast things are moving, there’s a paradox: the more time we take to reflect on our experiences, the faster we’ll be able to move. But this only works if we have a destination in mind. Without a destination in mind, we will surely learn from our experiences but the learning will be random. If we have an idea of where we’re headed, then we can profit much more from reflecting on our near-term initiatives and assessing how effective they are in accelerating our movement towards our destination.

And, by the way, we’ll also learn a lot more about the destination we’re striving to reach. Part of the learning process is to continually step back and ask how we might refine our view of the destination to help us make even more progress.  That’s the power of the “zoom in, zoom out” approach in the FAST strategies discussed earlier – we’re constantly striving to learn more about the nature of the destination and about the approaches that will accelerate our progress. The key is to carve out the time to reflect on what can be learned from the progress (or lack of it) that we’ve achieved and to adjust our actions accordingly.

Bottom line

Forget about the path in front of you, no matter how familiar or well paved it might be.  First, figure out where you want to be, then craft the path that will be most likely to get you there quickly. The terrain around you today is important, but only to the extent that it provides resources to support you in the journey to the terrain that’s already taking shape under the surface.

If you’re not continuously operating on two horizons simultaneously – a five-ten year horizon and a six-twelve month horizon – and rapidly iterating back and forth between these two horizons, you’ll quickly get sidelined. But just remember, there’s a very big upside: in an exponential world, small moves, smartly made, can set very big things in motion.

Some additional resources

In my quest to craft strategies of trajectory, I’ve been influenced by the following books, many of them ironically written over a decade ago:

Hugh Courtney, 20/20 Foresight
Gary Hamel and C. K. Prahalad, Competing for the Future
Bob Johansen, Get There Early
Peter Schwartz, The Art of the Long View

Comments

[Sewa Laptop]

this is a great article , thanks for sharing admin, keep it up!

[Rhughesjones]

Great articles John.
Can I offer up another perspective... it relates to a belief of mine that we, as strategists, need to think more deeply about how we might more constructively help disruptive technology startups with their strategic thinking in the earliest iterations of their businesses.
The challenge is this: traditional corporate strategy has focused on strategy in relation to the execution of an already proven business model. But, as Steve Blank tells us, "startups are not small versions of large companies". So would it be logical to assume that startup strategy should not be a small version of large company strategy?
What I'm getting at is that startups must first develop an effective strategy to help them validate their business model before they can shift to something wholly execution based. Arguably a disruptive startup embodies a strategy of trajectory, yet they must prove their business model in the present not the future. Resources such as The Lean Startup are truly excellent but it is not a book on strategy per se, 'Lean' being a methodological concept rather than 'a strategy' (an important point often missed by less experienced founders).
I'd be interested to know how you, and others, believe such early stage strategy should be best considered.
Thank you.

[Katherine Warman Kern]

I'm just speechless. Can't add a thing to improve on this. Ask anyone who knows me how incredible that is.

Here's a story about an event we partnered with others in business, education, and the arts to demonstrate your vision: http://youtu.be/t3_04BtkzVA

We are planning another with bi-partisan government representatives. I plan to share these posts as background information to "prime the pump".

[Fenia Petran]

John,

Here is my vision for the future.

There is a very bright side in the new Information and Communication Technologies (ICT).

Bio-nanotechnology, genetics, medicine, bio-chemistry, bio-physics, bio-robotics, artificial intelligence-based systems, smart transportation and renewable energy - are now part of the Information Technologies.

Information and communication technologies are everywhere today, and new, more sophisticated technologies are just around the corner.

I believe that over time technology will become more and more ubiquitous and intelligent.

And that people can change the world through learning technology that empowers people to do outstanding useful things and ultimately to make the world a better place.

What inspires and motivates me is the passion to learn new things with focus on new technologies and to understand how they work.

I want to make a difference in learning and development, to do meaningful work and to develop new applications and products that can help you learn faster and better and do great things.

This is a critical time for learning. As technology evolves, we must evolve with it, and make sure we are fast learning all the new things, in a way that will enable others learn from us and do great and useful things.

The opportunity forward requires us to re-imagine the way learning is thought.

We can harness the power of e-learning software and deliver it through devices and services that empower individuals and organizations. We can expand our platform and ecosystem to create new and broad opportunities. The future depends on us.

We need to do our best work to drive real change and make things happen. And we must harness others to move us and move together with us forward.

We must believe that we are going to succeed, because our work is not only meaningful work, but something that can improve and change other people's lives, and this is a great opportunity that drives each of us.

We already built this foundation. Let's now expand it together.

Do we have a vision for e-learning systems on smart communication, intelligent computer networks, smart robots, mobile, contextual, wearable devices, connected cars, smart homes, renewable energy, home automation, connected healthcare, artificial intelligence-based devices and all the other issues in the Internet of Everything?

Considering that my company is a longtime insider in technology, learning and development, the answer is definitely:
"Yes, we have. We have the experience, the expertise and the skill sets needed".

We can provide a very high standard for the science and technology curriculum.

We have a modular, flexible, scalable, standards-based learning platform and development environment which enables us to deliver customized training systems on-demand, just in time.

We can provide a high-level of technological integration thanks to the use of dedicated educational software and hardware developed according to industry standards and to world-class technologies and devices - fast speed Internet, smart computer devices, laptops and smartphones at cutting edge of world technology.

We want to be pioneering leaders in the e-learning tech industry.

We want to make the development of e-learning for the new technologies a part of the world professional big league play.

[Gmh_upsa]

Thank you John for you contribution to strategies that help enable where the magic happen. As you are aware, I rapidly applied your suggestions in what I distributed in the following tweet:

Jose A Vanderhorst S @gmh_upsa - Can my answer to @jhagel's 5 elements of strategy of trajectory to the new world order move http://bit.ly/681GMH to version 1.0? #EuropeIN

[Fenia Petran]

John,

My comment focuses on the Narrative subject in your article.

Successful strategies of trajectory need to find ways to motivate people to take bolder action.

"Narratives are tailor-made for strategies of trajectory. They focus on defining a future opportunity and they work back to the present by making clear what choices and actions today will help to achieve that longer-term opportunity".

Let's see how the Microsoft narrative has evolved over the years.

a) Bill Gates' narrative was: "Microsoft is a company whose software all people should use on their PCs".

b) Steve Ballmer changed the narrative to "Microsoft is a "devices and services" company.

This was an Apple-like philosophy, one that hasn't paid off for Microsoft.

c) The narrative shifted when Satya Nadella took over as Microsoft CEO.

Hardware took a backseat to what he called a "mobile first, cloud first" vision of computing, which actually means that he wants Microsoft's software and services to power everything, even competing products.

“The core products of this company are Windows, Office 365, and Azure,” said Nadella. “From a business model, those are the three big things we are focused on".

In other words, everything else beyond Windows, Office, and the Azure cloud business is just hooks to pull those who may not use Windows devices into the Microsoft ecosystem.

This definitely means the coming back of Microsoft to its software-oriented vision and narrative.

[Fenia Petran]

John,

I want to comment now on your brilliant analysis of "Shaping Strategies".

Shaping strategies are typical strategies of trajectory.

They begin by defining a desired market or industry structure and then focus on mobilizing third parties to invest to support these strategies.

There are three key elements in a shaping strategy:

1) A shaping view intended to provide a top-level image of what an industry or market could look like and which identifies where the opportunities lie.

2) A shaping platform defining a set of clearly defined standards and practices that helps organize and support the activities of many participants and enables participants to do more with less.

3) The acts and assets of the shaping company which can attest the credibility and the trustworthiness of the shaping view and platform.

I think that Microsoft is by far the best example of a winning company with a winning shaping strategy.

Microsoft was a vision Bill Gates had on what a company developing quality operating system software could become.

It was the concept that you could acquire PC computers from a lot of hardware corporations and they will work exactly in the same way, with Microsoft software.

In order to stay ahead of the challenging tasks and output deadlines, in the earlier days of Microsoft, Bill Gates and his team worked very hard, round the clock.

It has been considerably thanks to Bill Gates' talent as a software designer and developer and his determination in finishing tasks and keeping up promises that made the company succeed and grow fast.

Microsoft developed the operating system as a platform, not as isolated products.

Bill Gates made certain that he can maintain Microsoft operating system flexible enough in order to be able to build on it a wide collection of products.

And that all software is backward compatible.

In the world of platform developers, Microsoft was the "winner-takes-all".

Not only Microsoft developed its operating system platform that connects between developers and users, but it also developed a vast array of applications on this platform.

Microsoft Windows is the industry-standard PC operating system which works as the manager of the environment in which all other computer programs work and as the server of user applications.

Windows defined the standard for all the applications that are launched from it, the hardware-independence of the Windows environment and the standard way application programs work with Windows and ask for standard services from it.

Microsoft succeeded much beyond expectations exactly because it promised and carried out that all PCs will work just in the same way, independent on their hardware configuration, independent on the manufacturer, under any version of their Windows operating system.

1) The extraordinary long-term view of Bill Gates about what a high-quality operating system should be and how it should work,

2) The creation of Windows operating system as a software platform on which a vast collection of software applications can be created and

3) The acts and assets by which Microsoft demonstrated their commitment and trustworthiness

Can be exactly mapped to the three key elements of the shaping strategy you talked about.

This enabled Microsoft to mobilize a huge mass of participants, and transformed their strategy to a best-seller winning strategy of all times.

[Fenia Petran]

John,

This is a great, very important and smart article which deserves an open discussion.

In the current exponential world, the traditional linear approaches to strategy need to be redefined from the ground up.

We are moving from strategies shaped by terrain to strategies shaped by trajectory.

In the past, the starting point was always your current position and the current landscape surrounding it.

Today, the horizon of the strategist began to collapse in two ways:

1) Strategists shifted from a view of the external terrain to a view of the internal terrain within the company, in an attempt to identify the existing core capabilities and new capabilities that could strengthen them.

2) There was a move to strategy as a hustle. This kind of strategy advocated for picking up the immediate next opportunity for the near-term event available today.

There are two problems with this concept:

1) The core competency approach which was suitable yesterday will not be appropriate tomorrow.

2) Hustling is a time-consuming and energy-consuming strategy. It tends to spread the company resources in too many directions, and too fast. And it is also not enough to win.

We need a new strategy concept today.
Companies need to build the businesses that will replace their legacy offerings. They must build a competitive advantage, develop new capabilities and use them to expand and accelerate their core capability.

Nowadays, product and service value increasingly relies on creativity, which means companies' ability to find innovative ways of capitalizing on new knowledge and skills, new materials, technologies and processes and new business models.

There is a need for a different mindset in development.
There is a need to start thinking differently.

Successful forward-thinking companies develop platforms, not isolated systems and products.

Platforms are essential to enable and take advantage of the value of connection, communication, collaboration and compatibility.

The power of platforms was already greatly demonstrated in the digital world, if we just think of the huge range of powerful apps on our smartphones.

A powerful platform can facilitate the compatibility of applications in the industry by collecting and analyzing data from a larger set of industrial assets, allowing applications to be adapted and adopted across different sectors, making it easier for developers, engineers and data scientists to collaborate on a wide range of industrial solutions.

A hardware-oriented company in the past, General Electric has become one of the major software companies in the world and has achieved this by investing in smart software and analytics.

Combining software skills with data science and engineering experience in the industrial businesses, enabled GE to work seamlessly all over the company’s industrial divisions from Oil & Gas to Transportation, from Aviation to Healthcare, while ensuring the compatibility and adaptability of software solutions across industries.

General Electrics is today on the leading edge of software solution providers for the industry, bringing together advanced industrial engineering with sensor technologies, smart software and big data analytics to create intelligent industrial machines.

GE has developed Predix, a proprietary software platform and software systems for the Industrial Internet of Things.

Predix is designed specifically to meet the requirements and characteristics of industrial systems: it guarantees data security as well as mobility, it is optimized for machine-to-machine communication and it supports distributed computing and big data analytics.

Predix also supports the rapid development of a growing number of applications for a wide range of industrial sectors and it allows customers to get more and better out of its products.

Elon Musk, the chief executive of Tesla Motors has started to build Gigafactory, a massive manufacturing facility which will be the world's largest battery-making facility, producing more lithium-ion packs than the entire world's capacity today.

That will be used not only for Tesla's car. The excess will supply some of its car making competitors, and also power sources as backups for electrical grids and cell phone towers.

Not only Tesla's Gigafactory could be the turning point in making electric cars more competitive, but it also provides a major turning opportunity in renewable energy storage.

According to Goldman Sachs Clean Energy Analysts, Gigafactory is a decisive factor in making residential solar power to become competitive with existing electric utilities.

Elon Musk takes his electric vehicle company to the open source market.

The idea behind this major change in the way Tesla conducts business is " that a community of organizations and individuals work together to make a potentially good product or platform a great one.

The technology is then open and available to anyone who wants to use it or build upon it", said Elon Musk.

Opening his company’s technology to all will ultimately drive the supremacy of electric automobile industry, he hopes.

"Technology leadership is not defined by patents, which history has repeatedly shown to be small protection indeed against a determined competitor, but rather by the ability of a company to attract and motivate the world’s most talented engineers,” he explained.

At Tesla, software takes the driver's seat.

Tesla's platform provides a direct-sales approach, unique for the industry where the automaker, and not dealers handle customer service issues.

And that's where the advantage of having an integrated software platform comes into play.

[Ralf Lippold]

h/t John for another brilliant thought provoking article on strategy.

Makes me wonder whether Toyota executives have read your article as "target pricing", long-term and future-driven present actions are embedded in their culture for decades, not so say almost a century.

On the other hand reading through reminds me of system dynamics, the field that RAM inventor Prof. em. Jay W. Forrester created in 1957. When working at BMW while they were scaling up the production in Leipzig (from scratch) what you write pretty much came into play. Dealing with challenges in the production by chance I found my way into system dynamics, and started to learn about the forces within the organization that halted or accelerated positive outcome. From that, some IT-tools I could help to create during my time, and some you'd see when going for a plant visit, focused to bring up transparency in real-time, in order to accelerate the feedback and learning cycles.

However in organizations with hierarchical structures that takes a complete culture change, as the creative mind on the shop floor (perhaps even not having a Bachelor or Master degree) could initiate the learning and take appropriate action to excel the quality/time of the production.

The chance for organizations and especially for their executives (from middle to top) is that the potential of doing things (slightly) different is HUGE!

Small things can set up big change into motion :-)