Change
is all-pervasive in every sphere today. In the realm of
business, the strategic challenge thus, is to manage change.
Change can be managed by strategizing at three levels, i.e.,
at the levels of reacting, anticipating or leading change.
But these are not three watertight compartments that can
be resorts for managing change. ‘Competing on the edge’
is a suitable strategy, which blends together all these
three levels of managing change.
Competing on the edge assumes that rapid, unpredictable
change is occurring in industry. The goal of any organization
in this scenario is to generate continuous flow of advantages.
The performance driver in turn is the ability to change.
So, put simply, the strategy here is to gain the ‘edges’,
time pace and shape semi-coherent strategic direction. This
will result in continuous reinvention of the business.
A semi-coherent strategic direction is unique by virtue
of its being unpredictable, uncontrolled, inefficient, proactive,
continuous and diverse. But surprisingly, companies such
as Microsoft are thriving by resorting to it, though not
in an explicit way.
A semi-coherent strategic direction is essentially analogous
to ‘where you want to go’ of conventional strategy.
Three concepts capture the ‘how do you get there’
question - the edge of chaos, the edge of time, and time
pacing.
The edge of chaos falls somewhere in between the two extremes
of order and chaos. This is the intermediate zone where
all systems are most vibrant and flexible. This lends to
the structure (the organization) a profound ability to generate
complex adaptive behaviour.
The edge of time is also akin to striking a balance between
the past and the future, being firmly rooted in today’s
realities. Organizations should focus on today but should
always keep in sight the experiences of the past and the
coming future.
Time pacing requires changing based on the passage of time,
rather than on making change a function of the occurrence
of events. This is a very important concept that creates
a self-sustaining rhythm in organizations like 3M.
The
Edge of Improvisation
Today’s organizations face the challenge of achieving
adaptive innovation and consistent execution. ‘Improvisation’
is an edge-of-chaos process that helps overcome this challenge.
Improvisation is a dissipative equilibrium between structure
and chaos. It helps in attaining a balance between the structure
that requires that schedules and budgets be met, with the
flexibility to
create innovations that cater to changing market needs.
Nike uses improvisation to create an unpredictable and complex
strategy.
Improvisation rests on extensive communication in real time
between managers and on a few, but very specific, responsibilities,
rules, priorities and deadlines
What are the extremes like? The focus on only being creative
and innovative leads to the ‘chaos trap’ of too
little structure. This trap is signaled by rule-breaking
culture, loose structure and random communication.
Even though the plus points of chaos are the excitement
present and the creativity that brings about innovative
products and services, the minus points such as confusion,
delayed products or services, unrealized strategy, and lost
market or technical potential, far outweigh the business
sense in going in for too little structure.
On the other hand, the focus on structure and process leads
to bureaucracy. Bureaucracy is characterized by a rule-following
culture, processes & rigid structures and channeled
communication.
The drawbacks of loss of flexibility, stunted innovation,
wrong products and a predictable strategy may far outweigh
the benefits of process control and efficiency.
So, improvisation is based on adaptive culture, semi-structures
and real-time communication. Management enhances improvisation
by fostering a culture of frequent change in the context
of few strict rules. It keeps most activities loosely constructed
but relies on critical structure points of priorities, targeted
measures, real deadlines, and responsibilities for major
outcomes. Management also creates channels for real-time,
fact-based communication within and across groups. Improvisation
thus results in self-organized behaviour, well positioned
and sometimes surprising products, and a complicated and
unpredictable strategy.
Synergies
across Businesses
Competing across multiple businesses poses a fundamental
challenge. It involves achieving collaborative synergies
and individual success. The resolution of this challenge
lies in co adaptation, another edge-of-chaos process. Co
adaptation allows collaboration on a few areas of mutual
gain but not on all areas of gain. But this too is a dissipative
equilibrium and managers have to walk the tightrope to achieve
this balance.
Dissipative
Equilibrium
A system is made up of matter and energy that are in
a constant state of flux. When such a system is driven
to order, dissipative equilibrium occurs. Technically,
the system is not in equilibrium but rather in a state
of orderly disequilibrium. There is a continous exchange
between matter and energy. This creates order. There
is a lot of work in maintaining this order |
On one extreme, too much of collaboration leads to the lockstep
trap. Lockstep is the result of the focus on coordination
and synergies. A skybox perspective signifies this, i.e.,
senior-level managers, who do not understand the dynamics
of collaboration, taking decisions on how to collaborate.
Lockstep leads to collaboration on everything. Senior managers
also treat all businesses in the same manner.
The advantage of too much of collaboration is that some
synergies between diverse businesses are created. But then
the overriding disadvantages are turmoil in the middle-management
levels, rigid response to changes, indistinct strategies
and lost competences.
Too little collaboration, on the other hand, leads to the
star trap. When the focus is on adapting to unique market
demands, the result is the star trap. Star trap can be made
out when no one is in charge; collaboration is random, i.e.,
without any purpose, and when every business is a star.
Even though too little collaboration may lead to a good
fit with markets and strong motivation, the downsides are
duplication of effort, lost opportunities, uncoordinated
strategies and rise of fiefdoms.
Disney has effectively used co-adaptation, i.e., multibusiness
collaboration. Co-adaptaion exhibits a few common traits.
First is that it is carried out by middle-level managers
who are at the nexus of broad strategy and day-to-day operational
tactics. Collaboration is also focused and restricted to
about 20-30% of all the possible collaborative opportunities.
Every business is also treated as being unique. Co-adaptaion
thus leads to lower costs, faster speed, enhanced resilience,
unique business strategies and dominance in high-potential
markets.
Co-adaptaion requires that middle managers from various
businesses work both as a team and at an individual level.
Some of the tactics that are useful in making this happen
are arranging for regular meetings between these managers,
creating a common goal of collective success for this group
of managers, and focus on collective problem-solving based
on concrete data rather than on politicking.
Back
to the Past
Firms also face the challenge of exploiting the old while
exploring and creating from the new. This can be met with
an edge of time process, regeneration. Using regeneration
tactics, the old can be utilized in building new business,
while the new can be used to refresh the old.
Let us understand what happens at the extremes. Firms that
are stuck in the past fall into the overconnect trap. These
firms focus on the past and its successes. The overconnect
trap can be discerned when there is too little novelty,
repeated layering, i.e., piling new product features or
capabilities onto old ones that already have been in vogue
for a long time, and tight configuration in the elements
of whatever model of business they follow.
Even though focusing on the past does help the firm develop
highly synergistic business models, the flip side is that
it slows down the pace, makes employees unhappy, makes the
firm lose modularity of operation, leads to a static strategy
and steals the future.
On the other hand, ignoring the past, just like General
Motors did while launching its Saturn project, leads to
the disconnect trap. Focusing only on the new and its opportunities
characterize this. This trap is evidenced by the presence
of too much novelty, no critical mass of people from the
past to avoid repeating mistakes, and a huge divide between
the old and the new.
The attractions of ignoring the past are that the firm is
not constrained by legacies of the past and established
businesses are left untouched. But the negatives about this
are that mistakes that are avoidable are committed, there
is duplication of effort, the pace is slow and the costs
are high, diversifications might fail, and many growth opportunities
are missed.
Regeneration on the edge of time can be accomplished by
managers to enhance the profitability of established businesses
and to carry out effective diversification into new opportunities
for growth. Some of the practices that managers should adopt
for achieving regeneration are suitably mixing elements
of the past with something that is new, taking forward a
critical mass of experienced people, optimizing risk-taking
by rearchitecting and recombining, and finally, achieving
modular divisions of strategies, customers, resources, and
products.
Rules
for picking probes
1. Both short-term and long-term low-cost probes should
be developed
2. Since there is a lot to be learnt from failures,
probes that might fail should also be picked
3. Probes that require implementation and the measurement
of results should also be chosen, since this kind of
actual experience leads to higher learning
4. More probes are needed when the market is volatile
5. Bigger probes should be broken down into smaller
ones
6. More probes should be placed in the future which
has maximum likelihood of unfolding
7. Random probes that throw up surprises should be picked
8. Results of the probes should be built on to devise
strategy
9. Probing should not be endless. A course of action
should result from probing |
Tomorrow
in Today
Another important challenge facing managers is striking
a balance between making a commitment to a future and providing
flexibility for the future. This challenge can be successfully
met by another edge of time process, experimentation. The
key words in experimentation are small, fast and cheap probes
to create a strategy based on insights gained about the
future.
The traps that businesses tend to fall into, first. The
foresight trap is the result of too much of planning. The
focus here is on creating plans. The foresight trap is characterized
by one industry vision, plans that are tightly configured
to suit this vision and paying attention to the future in
fits and bursts.
Although too much of planning does lead to emphasizing the
symbolic importance of planning and helps to effectively
manage the allocation of complex resources, it possesses
negatives such as generating incorrect plans, placing only
one bet on the future and strategic drift.
Too much of reacting and focusing only on current operations
results in the no-sight trap. The no-sight trap is signified
by lack of any vision about the future, reactions to events
instead of their anticipation, and being blissfully unaware
of the future.
Even though reacting may help the firm concentrate on tackling
immediate competition, it finally ends up in frustration
among employees, late products and services in the market,
strategies that are reactive, and opportunities that are
missed.
Experimentation provides glimpses of possible futures, thereby
helping the firm take anticipatory steps. It enables a firm
to build in flexibility in its strategy. Experimentation
can be practiced by conjuring up a vision for the business
but not for the industry. A wide variety of low-cost probes
should be used to test the waters in order to understand
the future. This should be done across multiple time horizons.
The results of these probes should be utilized in drawing
out suitable strategies. The future should thus be visited
time and again without investing too much of effort into
this exercise.
Time
Pacing
Intel demonstrates the power of time pacing. They invented
Moore’s law - that the power of the computer chip would
double every eighteen months. The effectiveness of time
pacing stems from various reasons. It allows managers to
regularly survey their situation and modify their strategies
accordingly. They are enabled neither to change too little
nor to change too often. Changing too little and that too
late is a product of inertia. This is a bigger problem than
changing too often. Some managers would like to keep changing
at a breakneck pace without assessing where they are heading.
This may lead to not fully tapping the potentials of a market,
customer segment or technology. Time pacing helps avoid
this tendency.
Time pacing goads people to search for and latch on to natural
rhythms that lead to more synergies at work. And since time
pacing brings out a sense of urgency to achieve a given
objective in a given time frame, it helps ease managers
into this natural rhythm.
Choreography of transitions, e.g., between engineering and
manufacturing, from product to product, etc. is an important
aspect of time pacing. But it may tend to get a bit too
subjective and arbitrary.
Rhythm is more important since it leads to synchronization
between the marketplace and the internal capabilities of
the firm. Whenever choreographed transitions are repeated
at regular time periods, rhythm emerges. Rhythm leads to
the build up of focus, confidence, self-control and a sense
of urgency in the firm.
How
the Strategy should be Grown
There is a fundamental difference between businesses that
can successfully develop a competing on the edge strategy
and those that cannot. The successful ones consider it as
a process of growth, one of evolution of a living being.
The ones that fail tend to take a mechanistic view of the
business and rest contented with just assembling it and
then waiting and watching for it to run.
Growing the competing on the edge strategy requires that
the business be grown over a period of time, and not assembled.
The start has to be with something simple, developing the
capability to execute this well, replicating this capability
in other spheres, and then adding on more capabilities.
So, the take off has to be an essentially simple point and
not something fancy. There is an ordered way in which this
strategy evolves. A solid foundation for the business is
first laid, growth opportunities are then built on this
foundation around a vision of what the future will be like,
and a suitable rhythm is generated. There are missing links
in this growth process that serve as learning points that
help avoid repeating mistakes.
Leadership
in this Strategy
Unpredictable and fast-changing markets pose three main
challenges to managers. The first one is that staying on
top requires that the edges of chaos and time be balanced.
The second one is the necessity to cope up with constant
change. The third one is of course the ever-present competition.
In the face of these three challenges, the concept of leadership
has to undergo a change. Strategies will have to be made
at the business level rather than at the board level. The
leader’s role will be to orchestrate the various products,
services, or businesses that the group is involved in. The
leader will thus be a synthesizer of the semi-coherent strategic
directions that are the hallmark of the business that follows
the competing on the edge strategy.
The
Rules of the Game
As can be seen from the preceding discussion, competing
on the edge is best practice in this era of constant change.
There are ten laws or rules that characterize firms that
use this strategy.
Rules one to three are in the realm of strategy. Rule one
is that any advantage gained is temporary. So there is a
need to constantly aim for newer sources of advantage. Rule
two states that this strategy should be diverse, emergent
and complicated. There is an element of surprise in this
strategy. Rule three prescribes reinvention of the business
as the goal.
Rules four to seven are in the sphere of organization. Rule
four urges managers to live in the present. This is the
most important time frame. Rule five requires that manager’s
stretch out the past to learn from it. Rule six cautions
managers that even though the present is the most important
point of time, and learning from the past have to be incorporated
in it, the future is also important and hence has to be
reached out to. Rule seven talks about time pacing change
so that businesses can achieve the all-important rhythm
in their functioning.
Traditional
leadership
1. Group executives break the span of businesses for
enhancing control.
2. Strategy is the forte of corporate leaders.
3. Corporate leaders do development of strategy.
4.
Strategic planning is done on the basis of analyzing
complex situations.
5. Detailed strategic planning is necessary for competitiveness.
6. The secret of success is proper planning followed
by great execution.
|
Competing
on the edge
1. Group executives carry out patching of businesses
onto changing markets.
2. Businesses lead to the emergence of strategy.
3. Corporate leaders use the learning from businesses
to strategize.
4. Patterns in data across time frames are used to help
strategy evolution.
5. Competition evolves in real time, with surprises
thrown in.
6. Success is a product of skilled, real-time moves
at the business level, smart patching at the group level,
and the ability to convey
a simple vision at the
senior level. |
Leadership is the theme for rules eight to ten. Rule eight
outlines growth of the strategy. It points out the necessity
of growth rather than of mechanical assembly. Rule nine
urges managers to drive strategy from the business level
rather than from the corporate level. Lastly, rule ten highlights
that repatching businesses to markets and articulating the
whole is the hallmark of the leader in the competing on
the edge strategy.
These rules make sense in rapidly changing, uncertain industries,
notably in the world of computers. Even though competing
on the edge results in a semicoherent strategic direction
that may
be somewhat unpredictable, uncontrolled, maybe even inefficient,
it is also quite robust and effective. This strategy makes
sense in organizing the businesses of today.
The
above article has been condensed from “Competing on
the edge - Strategy as Structured Chaos”, by Shona
L. Brown and Kathleen M. Eisenhardt, published by HBS Press,
1998. All rights of the authors and publisher are reserved.
