Developing Strategies in the Era of Ephemeral Advantages

“You’ve got to be very careful if you don’t know where you are going, because you might not get there.” 

Yogi Berra

On the Concept of Strategy

Strategy is one of the most scrutinized and heavily used terms in the business and management jargon. It may be seen as a long-term high-level plan of an organization that precedes actions. From this perspective, strategy is a choice to perform different activities or similar activities differently than competitors do (Porter, 1996). On the other hand, strategy may be viewed as “a pattern in a stream of decisions or actions” (Mintzberg and McHugh, 1985). In this case, it represents the retrospective view (a view into the past). Thus, strategy is not formulated. It is formed in a manner that blurs the conceptual distinction between its formulation and implementation. Rather than being distinct processes, formulation and action (i.e., implementation) are viewed as constantly co-evolving: following and affecting each other through a process of strategic learning and control (Farjoun, 2002). According to Zweifel and Borey (2014), strategy should be seen as “the marriage of strategy formulation and execution in a process that thrives on change and unintended consequences, feeds them back into the process, and reformulates strategic objectives based on the action.” 

No matter which of the two perspectives one assumes, strategy is a sort of interaction between an organization and its environment, thus affecting the results made by an organization. “Strategy is simply a bridge between vision and action/results/winning.... [It] is a moving target, it must constantly change in response to the new landscape given by the action, and it must be systematically and regularly challenged to stay relevant.” (Zweifel and Borey, 2014) 

Rumelt (1974) was among the first to notice that strategy ought to be matched to the opportunities inherent in the organization’s environment. But the environment, as well as the organization’s own capabilities, are subject to change, which indicates the need for permanent adjustment between these two entities in order to maintain or even enhance the performance of the organization. In other words, organizational performance indicates the quality of the organization’s continuous co-alignment with the environment (Chakravarthy, 1986), which is made via strategy. Following this line of argument, strategy is a long-term cumulative of day-to-day activities. Integrated day-to-day activities in the longer period converge into one seamless set of actions that drive the organization forward. 

From Sustainable to Temporary Competitive Advantage 

Complexity and instability of contemporary global environment have caused a significant shift in the manner in which organizations build and maintain their competitive advantage. It is no longer possible for an organization to establish a competitive advantage with one innovative business model or unique resources at disposal, and then to expect to make a strong entrance barrier as a result that other organizations, no matter if they are newcomers or incumbents, will not be able to break down in the longer period. These days, entrance barriers are becoming more porous.

Therefore, the new management paradigm ought to be based on the idea that in a fast-changing and complex global environment, sustainable competitive advantage of organizations is a thing of the past. It is becoming rare and declining in duration (Ruefli and Wiggins, 2002). The new circumstances have shifted the focus from sustainable competitive advantage towards the temporary competitive advantage (D’Aveni, Dagnino and Smith, 2010).

A good example of an organization that lost its dominant competitive position due to changes in the environment is Nokia. In the year 1998, Nokia overtook Motorola to become the best-selling mobile phone brand. Only two years later, Nokia had a market share of 30% in the global mobile phone market, which was almost twice as large as Motorola’s share. Even though it achieved a great success in the market and became a favorite brand in mobile phones, it suffered a severe blow from competition due to its inertia and inability to adapt to new circumstances in the environment. In the midst of the upheaval caused by newcomers such as Apple, Google and low-cost competitors, Nokia’s bet on Symbian operating system proved to be fatal. In only several years, Nokia will have traveled the journey from the undisputed market leader in mobile phones to the decision to sell Nokia's devices and services division to Microsoft due to the fact it felt far behind Apple's iOS and Google's Android.

The Nokia’s case is a good example of how competitive advantage cannot be taken for granted. It needs to be reassessed continuously, especially now when technologies and business models are changing faster than ever, new competitors are coming from the unexpected industries, and customers are becoming more sophisticated and demanding. 

A Fresh Perspective on Strategy Development

When competitive advantages don’t last very long, the framework and process of strategy development need to be different compared to situations where sustainable competitive advantage is achievable. Hence, what are the characteristics of strategy development process when competitive advantage is ephemeral?

Let’s start with a citation from Gunther McGrath (2013) who claimed that “one of the most significant differences between the assumption of sustainable competitive advantage and more dynamic strategy is that disengagement – the process of moving out of an exhausted opportunity – is as core to the business as innovation, growth, and exploitation are.” In other words, in highly complex and dynamic environment, a strategy is continuously morphing and changing an organization. All its competencies and resources are permanently being reconfigured, which not only means acquiring and developing new competencies and resources, but also disengaging and disposing the old ones that could hinder performances in the future. Therefore, the whole lifecycle view on the portfolio of the competencies and resources is a necessary condition for developing dynamic strategies.

Even though this kind of strategy needs to be highly adaptable to the circumstances at hand, it seems that an appropriate level of strategic consistency is still a necessary condition for organization’s survival. Lamberg et al. (2009) have noted that strategic consistency means “that a firm’s actions conjoin both with changes in the business environment (necessitating adaptation) and with the firm’s own history (necessitating continuity). In a stable environment this would usually mean stable (unaltered) competitive behavior over time, whereas in a dynamic environment, an appropriate level of consistency would refer to the most efficient change in competitive actions in accordance with new, intentionally identified strategic objectives and direction” (p. 46). Strategic consistency is to a large extent manageable by making interrelated strategic decisions over time (Mintzberg, Raisinghani and Théorêt, 1976). Thus, the optimal level of strategic consistency means a balance between being fully consistent with the past on one hand and being fully adaptive with environmental change on the other.

Hax and Majluf (1988) emphasized that strategy should be formed in cognizance of the past heritage of the firm but, at the same time, be forward looking. Consequently, strategy making becomes a delicate balance between learning from the past and shaping new courses of action to lead the organization toward a future state, which might include a substantial departure from its past conduct. On the other hand, in high turbulence environments success comes to organizations which use strategies that are discontinuous from their historical strategies (Ansoff and Sullivan, 1990). In these cases, organization must unlearn their routines and start experimenting and learning all over again.

Experimentation is one of the biggest factors affecting innovation and resulting in strategy modifications and adjustments. Experiments are sort of pathways for making major changes while controlling risks and associated costs through manageable environment in which the new concept can be safely tested (Zweifel and Borey, 2014). Therefore, top-down approach to making strategy must give way to models based on biological principles of variety (generate lots of options), selection (use low-cost experiments to rapidly test critical assumptions), and retention (double down on the ideas that are gaining the most traction in the marketplace) (Hamel, 2012). SubbaNarasimha (2001) compared the capacity of organization to change itself rapidly in order to adapt to environmental shifts with the capacity of the immune system of biological organism for recognizing a variety of antigens and for generating a variety of antibodies as and when required. But, it should be mentioned that, while the immune system can only respond to its environment, organizations can proactively create and control their environments.

In line with this argument, it should be mentioned that Brown and Eisenhardt’s (1997) study of six computer firms emphasized the role of “limited probes into the future” that involve experimentation, strategic alliances, and “time-based transition processes” that link the present with the future. Perrow (1984) suggested that a sequence of trivial choices can generate unexpected consequences, and that tightly coupled actions frequently produce results that could not possibly have been predicted, as is often the case in strategy.

Implications for managers

More than ever before, organizations must stay alerted to the changes and intricacies of the environment. Organizations lose their relevance when the rate of internal change lags the pace of external change (Hamel, 2012) or when their inner complexity is no match for the external complexity of the environment.

Since the environment is in constant flux with rapidly evolving complexity, sustainable competitive advantage really becomes a weapon of the past. What matters now is not merely an organization’s competitive advantage at one point in time, but its evolutionary advantage over time (Hamel, 2012).

With competitive advantage becoming ephemeral, strategy may no longer be formulated in advance and then only incrementally modified during execution if necessary. Strategy needs to be broadly defined, but the “limited probes into the future” must provide the necessary feedback that will shape the decisions and actions. Therefore, there is a need to have a strategy that directs all the actions within an organization, but at the same time is flexible enough to match the shifts in the environment. This is consistent with a view of strategy being formed as the fusion of deliberate managerial intentions (often in the form of strategic choices), the subsequent implementation efforts and the unanticipated emerging developments and learning (Mintzberg and Waters, 1985). Thus, contemporary strategy must be viewed as a set of guidelines that influence decisions and behavior (Levy, 1994), but does not prescribe the specific course of action. More specifically, it must be thought of as a deliberate set of guidelines within which more specific actions are allowed to emerge. It means deliberateness in overall direction without precise specification of pattern, which leaves room for emergence of detailed actions. Thus, while individual actions may appear on ad hoc basis, the overall pattern among them is not a coincidence; it is guided by a broader force (Mintzberg et al, 1987).

Thinking about the concept of strategy in this way will help managers realize the level of agility their organizations must achieve in order to support the development of highly dynamic strategies. But flexibility in strategy is not enough. All other organizational components must possess the same level of flexibility, while the alignment between them and the strategy must be seamless. In other words, the overall organizational design needs to have a high level of congruence and simultaneously match the dynamics and complexity of the environment. 

References:

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