Strategy Chessboard

The A.T.Kearney Strategy Chessboard A broader perspective on strategy development and formulation petitors’ moves or macroeconomics — and can nies’ willingness to adapt to or shape an industry have a major impact on strategy development. The question is. Forecast confidence can rise and fall — positioning whether in terms of market size. and formulation. is not guaran- that a company’s primary focus is adapting its teed. The 1980s were dominated by Michael Porter’s thinking. we have seen a staggering number of strategic schools of thought and frameworks. regulation. Kröger and Zeisel in Winning the Merger Endgame. Kearney 1 . the right starting point for strategy development These assumptions are being challenged. At the same time. With mum competitive advantage. the A. Kearney Strategy Chess. business models. meaning the ability to forecast an industry assumptions: that industries are predictable and over the medium and long term.t. Many companies this in mind.F or the past four decades. first. and second. • Lays out the Strategy Chessboard and its use of technology development.T.T. kearney strategy chessboard | A. ment one another? that a company’s primary strategic challenge is Based on our extensive work in strategy to adapt successfully to that industry for maxi- development we have concluded the latter. • Outlines how to use the Strategy Chessboard in The Santa Fe Institute argues that economists strategy development in the early twentieth century who emphasized the a. the 1990s had multiple contributors (Prahalad and Hamel stand out in Competing for the Future). Dozens of schools and frameworks claim to be the Predictability Versus Adapting and Shaping most widely applicable and useful for strategy Early schools of thought were commonly based development. while discussing compa. the Santa Fe Institute has contributed valuable insights on the economy as a “complex adaptive system” and its associated strategy implications. that an industry is predictable. and the early 2000s saw noteworthy contributions from Kim and Mauborgne in Blue Ocean Strategy and Deans. are these strategy on two assumptions about strategy development: schools universally applicable or can they comple. The Santa Fe Institute’s recent work with This paper does the following: complexity theory argues that industry predict- • Challenges two common but often flawed ability. com- industry predictability. and managers today root their strategies in these board was designed to help corporate leaders select two assumptions. however. T. With economy is more like a complex adaptive system— this in mind. the dramatic certain periods of time may prove more stable. impact of collateralized debt obligations (CDOs) Considering the sheer size and vast com. deterministic and equilibrium-based systems were to predict at the granular level as described in using the wrong science analogies. an effective strategy framework dynamic. and other new financial instruments on the plexity of the modern economy. global patterns may be predictable. and nologies on the utilities industry. in line with the spirit of the 20th Examining projects A. Rather. non-linear. as the rapid technology cycles and consumer fads only model inherently will be a simplification. Kearney . our conclusion is that some to generate predictions accurate and granular industries at some time intervals are reasonably enough for classic strategic decision making. and must include the level of industry predictability populated by agents that use inductive reasoning as a main dimension. the models based on complex adaptive systems. to draw generalized conclusions and that learn The top half of figure 1 highlights some and adapt over time in a co-evolutionary manner. The trick Figure 1 Two common “mis-assumptions” impede strategists Two common assumptions… …are often proven wrong • Real estate and finance: bubbles burst in 2008 • Utilities: renewable energy and regulatory uncertainties confound investments Industries are In • Pharma: blockbuster drugs stall 1 ppredictable • Emerging markets bounce back in 2009 • Telecom: adoption rates soar for smartphones and related apps • Internet: Rapid adoption takes hold • Southwest and Ryanair create low-cost carrier segment Companies always C • IKEA convinces customers to assemble furniture 2 aadapt their position • Microsoft/Wintel are kings of de-facto standardization within an industry w • GE becomes aggressive acquirer targeting top-two position • Apple with iPhone affects all handset markets Source: A.t. kearney strategy chessboard | A. These events underscore the model (even focused on one industry) will never challenge of predicting an industry’s future devel- fully explain all of the characteristics and dynamics opment. increasingly of the “real world” at any given time. Kearney has participated century science-based models. the impact of “green” tech- However. the above model paradigms have This does not mean that all industries are different views about predictability. in during the past decade. unpredictable at the local. impossible to predict: the growth rate of smart- tion. Specifically. major events that were arguably difficult or even These complex adaptive systems are. Kearney analysis 2 the a.T. increase volatility. particularly as globalization.T. granular level. while other indus. Based on always highly uncertain — many can be analyzed real-life experience. rarely at equilibrium. by defini. an economic banking industry. strategic predictability tries at certain time intervals are extremely hard was achievable in a majority of the cases. predictable. phone technologies. need and ability — to shape many rivals in a wide range of industries—from its industry’s overall development. deconstructing value approaches (see figure 2 on page 4). articulating whether the company intends to Instead. This strategic approach than an evolutionary one. Being an industry competition to grow at a faster-than-market rate. Two Dimensions. in a predictable industry: nology base. However. and redesigning business models are all Position and conquer. critical adaptation to) current industry developments— assessment of the industry’s predictability. leading firms challenge industry assump. adapt its position within the industry or to shape tions and shape them to their own advantage— the industry.is to determine early during the strategy devel. gies have for future development. companies typically ing acceptance among critical customers and have the following strategic options as they adapt stakeholders and developing the necessary tech. By build. many companies have more shaping power than Identify and capture a leadership position in the the a. In underscores the possibilities that shaping strate- revolutionary environments. dynamic and uncertain environments. predictability music business and took a commanding lead in differs significantly over time and among indus- a new market structure. Within this quadrant. environment clearly requires a different upfront can have a large impact at the end. new entrants with little to lose are usually more ment may have an impact on all other players. perceived as somewhat riskier. while Apple was the first to put all the industries is a traditional comfort zone in strategy pieces together in the twenty-first century digital development. A revolutionary. the two success stories rely on reactive acceptance of (and main tasks are conducting an honest. enforcing better conduct by four distinct “umbrella strategies” and strategic customers and competitors. Rarely do the biggest corporate growth As strategy development begins. some leading com. Position to build competitive advantage.t. Shaping strategies are often the current competitive environment. For example. Kearney 3 . An attractive aspect of undergo evolutionary or revolutionary change in complex adaptive systems and their sensitivity to the coming years. or unpredict. But as noted earlier. meaning that pany’s actions in shaping the competitive environ. cor- panies challenge the assumptions and shape their rectly estimating the consequences of actions is industry to their advantage. kearney strategy chessboard | A. DNA to adapt or shape results in mapping Consolidation. Strategic analysis ways to shape an industry to one’s long-term helps determine what industry position a com- advantage. the “initial condition” is that small changes able.T. and especially in more revolutionary environments. not every company has the Kindle created a new e-reader market andleft right DNA — desire. Amazon’s revolutionary tries. willing to execute them than incumbents. “shaper” is particularly important in highly This is a classic approach to strategy development. Four Approaches nance in the movie-rental industry nearly over. rather than adapt to a true challenge. and perhaps to the overall industry’s advantage. At the same time. and can be done with some precision pany should pursue and how to outmaneuver in a predictable industry. chains. Netflix usurped Blockbuster’s domi. they realize — something that could create a huge opment processes whether your industry will competitive advantage. One com. infrastructure and key competencies. Devising adaptation strategies for predictable night. book sellers to consumer electronics makers— Combining predictability and a company’s scrambling to catch up. Anticipating shifts in industry profit pat- tial contributor in the position and conquer area terns will also guide a company in effectively has been Michael Porter. share through tactics inspired by battle strate. Growing the core business is a natural Redefine the industry. four “umbrella strategies” and strategic approaches Company’s desire. Why are these four options used the most? gies.T. Sun Tzu. the company becomes an indus- 4 the a. Adrian Slywotzky Strategy focuses on positioning for competitive has authored several books on profit opportunities advantage. has gic moves to use to adapt to a predictable industry inspired many corporate strategists. and craft the industry and the company. Kearney analysis predictability predictability for a relevant time horizon industry. Figure 2 Two dimensions. Maintain foresight Position and conquer and flexibility Use analysis to determine the Institutionalize a strategic Adapt “within” company’s optimal position process focused on pursuing the industry in the industry and develop a portfolio of strategic initiatives a plan to pursue that position. The most influen. two options). Through analyses and move for any company. Increase market of profitability” in a competitive environment. ments can shape their industries to their own Identify and adapt to profit patterns. without bringing major industry change. a role for the company to play. to capture emerging profit opportunities in new In this approach. for example.t. areas. adjacent businesses and step out. whose book Competitive adapting to new opportunities. map the route industry be shaped to benefit both to make it happen. and outlined how to identify and capture “pockets Deploy battle strategies. that accelerates learning and provides flexibility with limited investment. Comp- Grow in core. Kearney .T. High analytical Low analytical Industry predictability Source: A. companies in predictable environ- adjacent areas with excellent chance for success. or pursue sible strategic positions along with well-designed step-out strategies (often leading back to the first battle strategies that best grow relative market share. or an attractive niche. easily defen- Move into businesses adjacent to the core. Military strategy is often used to meet the Because they help companies decide the best strate- competitive challenge. as is seeking expansion in simulations. Adapt benefit and possibly that of the entire industry. kearney strategy chessboard | A. need and ability (DNA) to: Redefine the industry Reinvent the industry Use analysis and simulations to Conceptualize an attractive Shape the determine how the industry can industry future. anies in this quadrant seek attractive. Again. and suit. Kearney 5 . The four main dimensions of redefining the Why these options not others? If you seek to industry are: challenge and shape an industry. Reconfigure industry value chains. convergence and deconstruction to change the Companies in this quadrant often have powerful business news industry. these four Pursue global industry endgame consolida. value chains also affects how an industry works. new opportunities. Reconfiguring industry company can act as a powerful industry architect. avenues are the most common. but it also technology (IT) industry into hardware. boundar. typically higher return levels while also spurring ally. Execution suggested by Aurik and Willen in their book. players to act—within the industry and also in a useful goal for many companies is to reinvent neighboring industries. Pursue attrac. If predictability is low. Redefine Scenarios are often used as a basis for crafting what is core and non-core in an industry. For example. Deans. to increase the likelihood the industry moves able to one company. conduct and performance of the industry in This will allow new third parties to enter the a favorable direction and captures a leading role market. reconfiguring the industry will develop in that direction. Industries can con- will typically spur its main competitors to follow verge both in terms of supply and demand. ies. tioning—for example. a distinctively different industry landscape with tive industry convergence opportunities. reduce or off-load “slicing” strategies can improve competitive posi. the a. As an attractive preferred industry future. and new moves by competitors. tactics and scope— Create and pursue a preferred future.t. ArcelorMittal’s win-win situations — will significantly impact pattern of acquisitions demonstrates how one industry profitability. Launch and mold their conduct into something more big initiatives complemented with smartly focused beneficial for all members. one company’s actions will likely trigger other Reinvent the industry. and customers. added value. Alternatively. or Bloomberg’s use of leaders to guide others in a favorable direction. Through extensive research. effective the industry to gain advantage. then focuses on ways to increase the likelihood Rebuilding the Corporate Genome. rules. new ways to collaborate with competitors in its future. Actions taken by one company globalization of the industry. from a product and technology perspective. imaginations. strategies will broadly impact all PARTS—short The four strategies in this quadrant include: for players. software opens up significant opportunities for visionary and services sub-industries.try architect that redraws the structure. further accelerating the pace of consolidation. risk. or create new capabilities and resources. agenda can reshape the industry structure to a Changing industry conduct — introducing more company’s advantage. then globally. Kröger Shaping convergence trends to your advantage and Zeisel have shown natural consolidation is a critical task. kearney strategy chessboard | A. Well-conceived game theory toward this vision. Alter the way the attractive future vision and a shaping agenda industry conducts business in a direction favor. often pursued using alliances patterns in industries and how an ambitious M&A and joint ventures for risk-mitigating shaping. Seek to consolidate the industry through M&A creates a consolidated playing field with mergers and acquisitions (M&A)—first region. Aggressive industry tion. splitting up the information Uncertainty makes prediction difficult. they’re able to develop both an Change industry conduct. initiatives to shape an unpredictable industry.T. value chains in an innovative manner can create Converge or slice the industry. T. strategies are best for dealing with unpredictable fine the industry” section. 6 the a. capacity and markets to add a financial perspec- vative value propositions. we believe their thinking is in line and to prepare a broad set of strategy options. Revisit the create such transformational strategies.t. written by Kim and Mauborgne. well-known because of the pioneering work of Create Blue Ocean opportunities. When major growth investments in Maintain foresight and flexibility. Use creativity and big are frequently used for long-term. egy. tive on dealing with uncertainty. uncertainty. conduct the right ventures and quickly realize what The four main strategies within this area are: works and what doesn’t is crucial to success. Such methods Think big and lateral. broad base of experiments. flexible strategic planning. visionary and situations — when position-and-conquer moves imaginative leaders will seize the advantage. Evaluate Strategy. then various adaptation strategies The Origin of Wealth. In their book Competing for the Future. Use an evolutionary approach that empha- strategies to get the mass market to embrace inno. In his by Doz and Kosonen. Geoffrey Moore outlines cess. mobilize. based on a vative products used by leading-edge adopters. kearney strategy chessboard | A. core and adjacent businesses cannot hold up to the panies unwilling or unable to reshape an industry. It that accelerates learning across the company. Develop alter- Prahalad and Hamel envision and argue for new native scenarios about the future to gain a better value propositions. such as in Fast Strategy ics to capture new market opportunities. books Crossing the Chasm. Inside the Tornado and Implement an evolutionary strategic pro- Dealing with Darwin. while is often wise to focus on learning and preparing for pursuing a portfolio of strategic initiatives that different possibilities while ensuring that the com- offer flexibility with limited investment. pany can adapt quickly—and cost-effectively— pany may encourage strategic experimentations in once the future becomes clearer. Bernd Schmitt introduces new ways to Pursue dynamic strategies. companies may instead benefit from the key is to institutionalize a strategic process flexible and risk-mitigating strategic approaches. Several schools of thought about “dynamic Apply smart ecosystem building and vertical strategy” stress the importance of frequent and market segmentation. sizes fast learning and adaptation. The ability to order to prepare for different futures. attractive customer value propositions paring for uncertain or risky industry futures. and initiate return dynam. Kearney . outlines strategies as real options for business models. assumptions and premises of your current strat- Cross the chasm with innovative products. are no longer applicable while you are hesitant Why these strategies and not others? These about the more aggressive strategies of the “rede. big-investment thinking to develop out-of-the-box strategies to situations (for example. such as Eric Beinhocker’s book of uncertainty. Our with how we have worked with clients to find clients frequently request scenario development — a preferred future. prove too risky. that open up new market spaces. The com. Strategy. In his book Big Think capacity manufacturing plants). Here. new technologies and new understanding of potential development needs. Several important Why these strategies and not others? If you strategy contributions have been made to the choose to shape your industry amid a high degree evolutionary field. and get there first. approaches for developing new and more inno. For com. Prepare for multiple scenarios. Blue Ocean Deploy real options-based strategies. Develop Royal Dutch Shell — as an effective means of pre- innovative. capabilities. for utilities or large- transform an industry. as these could create a complementary portfolio of schools are more about identifying leading management for its strategic development and formulation. products (Porter. various consultants) need and ability (DNA) to: Converge or Create Create and Pursue global slice industry “Blue Ocean” industry endgame pursue opportunities consolidation (Pennings and “preferred future” Puranam. provide a complementary and valuable strategic In creating the Strategy Chessboard we perspective. Moore. de Geus. and the Learning Organization. Ghemawat. Lind. strategies multiple competitive and step out scenarios advantage (Doz et al. Lindblom. (Kahn. Arms) Holland. (Porter) Zook. Aurik and Willen.The Strategy Chessboard tends to emerge. When deciding during a strategy. Salancik) Grow in core. Quinn. however. (Schmitt.T. (Arthur et al. Clausewitz. Kröger et al. Carpenter et al.) Markides) Adapt “within” the industry Deploy battle Deploy real Implement an Identify and evolutionary adapt to strategies options-based strategies strategic process profit patterns (Sun Tzu. Kearney analysis predictability predictability for a relevant time horizon the a. A clear choice a short summary of the 17 discussed in this paper. (Moore. believe that most of the strategy schools are familiar development exercise which strategy schools to to our readers. along with the portfolio strategy that is applica.. Again. Pursue dynamic Prepare for Position to build adjacent business. Remember that schools of thought are not com- ble in most situations — combine to make the pletely mutually exclusive.. Arthur) Pfeffer. Christensen. de Bono) J. (Kim and Mauborgne. Built to Last. (Slywotzky) El-Kadi) Beinhocker. Luehrman. Schwarz. We practices. Portfolio strategy (Ansoff matrix. GE matrix. Wilkinson) Deans. (Andrew. selected what we consider the most useful and The maturity and scientific depth differs complementary strategy schools of thought. von Hippel) Kratzert) Shape the industry Change Reconfigure Cross the industry conduct industry “chasm” with Think big value chains (von Neumann. with Michael on our work with clients. those selected should A. kearney strategy chessboard | A. Figure 3 The A. McNeilly. Kearney Strategy Chessboard Company’s desire.T. based on a company’s The strategic options listed in this paper — DNA and the predictability of its industry. Kearney 7 . (Hamel. Wernerfelt.. Welch. (Myers. Chussil. Kearney Strategy Chessboard (see figure 3). based substantially across the schools. Viguerie et al. Prahalad. innovative and lateral Morgenstern.T. Wack. In Search of Excellence.t. From Good schools were selected based on how well a company to Great. Christensen) Oriesek and Schwarz. Stieglitz. Christensen. including comprehensive and best-known school. but the appendix on page 14 includes apply. nothing is black-and-white. (Kröger) Rosenberg) Schumpeter. We excluded more Porter’s Competitive Strategy likely being the most general leadership schools of thought.T. Gell-Mann) High analytical Low analytical Industry predictability Source: A. changes. GE: #2 in Rose R se n Rosenberg)berg) breaking Schu chumpovernight mpeteterr. The company’s DNA is determined by when they may prove most useful for a company assessing a company’s desires. kearney strategy chessboard | A. Ch C ristensen. e. stra ZARA: Bertelsmann: ateegie gies strategies multtip ple multiplee niche ompeetitiveautomotive ccompetitive andd sstep teep oout ut move new scenarios media scenaar arioss advan adv d annt nntage tage advantage Dozzwith (Doz (Do ett al. Industry predictability and strategic theories may argue that their ideas is determined by a high-level first assessment are more broadly applicable and should not appear of industry drivers. Luehrma an. Welch. Christensen. Aurik aand ndd Willen.. de Bon Bono) o) J. auborgne.. (Hamel. Kearney analysis predictability predictability for a relevant time horizon 8 the a. pr massive roducts products growth Fighter ikkinnovation (Porter. how they complement each other.z. ms)systems Beinhocker. h. Quinn. (Schmitt (Sc mitt. (Por rter) Carrefour:Zoo (Porter) ter) ok. oppportravel opportunities coonsol solidation idation manage- consolidation (Pennings (P (Pennin nin ing nngs gs andd “preferr preferre preferr iPhone. von Hippel) Schumpeter. strate- While such claims have merit. eus. al. Carpenter (Kahn. Ch Ghemawat. PMalaysia: Prahalad. Chussil. such as potential demand as a mere square on the Strategy Chessboard. n. needs (both posi- based on its individual situation. fads (Andrew. supplier behavior. and actions. Q Shell: Wack. ell- l-Mann) Gell-Mann) High analytical Low analytical Industry predictability Source: A.. industry. Arms) Hollan Ho and. (Kim aand nd MMauborgne... and a company’s own projects. Chris hristense nsen)) Christensen) Orie riesek sek and Oriesek d Sc Schw chwarz. (Schmitt. picking a strategy school ing where on the two axes of the chessboard is akin to selecting the right tools for a job. (Slywotzky) (Slyw (S wotz wo otzky) ky ky) El-K Kadi) El-Kadi) Beinh einho hockker. Christensen. tz. sports Purrsue ddy Pursue dynamic ynanamic i Prepare Prepa Preparre for for ossitioncar Position P ildbroad to bui build adjace cennt bbus adjacent sine i ss. (Moore. the chessboard gies for established and potential new competi- summarizes how these different schools of thought tors. lt.T. Schwarz. Portfolio strategy (Ansoff. iPad (Kröger) (Krö Kröö ger) mentLind monopoly Lind. ((Moo orre. to understanding a company’s unique strategic Strategy development begins with identify. G Holland. d. K röge et al) röger rö Kröger Kühne a Mark Ma rkkid ides) Markides) Google: energy & Nagel: dynamic future the industry strategy Würth: logistics Implement Imp mpllem ment an an Id nticonnector Identify Ident iffyy and and Deploy Dep eploy l y battle battl tle Deploy De D eploloy o real strate str ateegie giess strategies opt tiion onss-base based options-based evolu ev lut utiionaary evolutionary addachampion adapt pt to Microsoft: strat ategg strategicic c prrocess process prrofitt patterns profit ppat paatttterns atteterns strate ateeg eggie gies strategiesiess multiple ((Sun Su Sun Tzu. Arthur) Arthur) Pfeffer Pfeffer. r “preferred e ed d future f futu uture” uture re” re future” rollup Puranam. business. lausewitztz. Wernerfelt.t. Welc elch. (von ( Neumann. C hus uss ssil. McNeilly. rahalad.. In this case.MTG: S Stiiegli eglitz. Salancik) l k) Porsche: BMW:Gro Grow Gr w in in core. ri C hFedEx: Christ stte tensen. S Pfeffer. operating (A (Arthur Artthur et al. various consultants) need and ability (DNA) to: Arcelor Converge Con Conve ISS: rollup. Arm Luehrman. Wernerfelt. Ghemawa Ghem awaaat. The creators of individual schools of thought a company is located. new technologies and offerings. Nee eu uma inn noYouTube: vative innovative laateral andJoint lateral Strike aging Morgenste en ern. This high-level analysis enables you to egy development and addresses an important but select the most appropriate quadrant. Carpeenterr et al.. Lindblom. nverge e e or Create Cre Cr eate Ryanair: Pursue P ur urssuee gl globa global obalcreation Create Creat Cre atee anand nd Mittal: slice sli c in of nd ndustry industry “B Ocean”” Apple: Bluulow-cost “Blue e O iindustry nduuM&A stry eendgame ndgam ameefacilities pursue pur pursue rtunities iTunes. (And ndrew ew. C oo Moore. Morgenstern. SSchwarz. Vigu Zook. Selecting rarely discussed element: the selection of strategic a specific strategy within a quadrant comes down frameworks to be used for a particular effort. situation.T. Kearney . Stieglitz. Figure 4 Different strategic situations land in different quadrants on the chessboard Company’s desire. Krat tcyber zert) city tz Kratzert) Shape the each mail delivery Grameen industry industry Change C haange Reconfigure Rec R con onf nnfigu gure Cro Cr oss the Bank: micro Lockheed Cross indust ind stry conduct industry Wal-Mart: connduuct inddust industrystryyIKEA: massive “chhaassm” with credits “chasm” ThinkkMartin: big val lue ch value aipack- cchains hains ins discountingann. McNei cNeilly lly... Viguuuerie erie Viguerie e eett al aal. chwwarrz. Kr Deans. dde eGGeus. W ilkin kinson) Wilkinson) n) Adapt “within” retail Dean ns. The chessboard tive and negative). (Myers.. and ability to shape its provides a multi-dimensional perspective on strat. core o . future environmental have proven useful in a wide sample of strategic and regulatory impact. GE.t. Moore. C Clausewitz. Lind dblomm. It’s worthwhile to keep in mind some typical If you’ve survived one consolidation push. niture production to retail signifi. M&A — its revenues grew at a16 emerging market banking market the a. no collateral requirement deliver outstanding growth in the the steel industry and securing it a and other innovations that have now right situations. either by altering the exist. For example. honing its competitive the 1960s. The question for you: you would be wise to investigate your industry. Its revenue grew at a com. Its net income has more development initiatives to identify try. IKEA’s flat packaging been exported to more than 60 Position and conquer. it’s industry evolution patterns to help determine in a good bet that your competitors are thinking up which quadrant you want to play. which focuses cantly shaped the furniture industry Leaders in this quadrant are ready to on finding an attractive industry landscape.t. emerging markets. If your industry’s future is 20 percent — companies often launch aggressive uncertain. preferred — direction. Bill Gates vowed to put a costly area of exploration. A prime example is Microsoft advantage. benefit from multiple potential out- position and building a competitive Reinvent the industry. books. left behind. and rather than be Examples). Porsche is an excellent common theme here is imagination in the late 1980s. ally over the past 15 years. lead position. 20 years approaches in the uncertain and pound annual growth rate (CAGR) later. In industries with lackluster companies’ strategies and how they might appear performance. sometimes-competing business M&A within and outside the indus. Kennedy’s “man on ibility. Maintain strategic flexibility. industries. This stands out today—its iPods.” Apple its revenues grow 10 percent annu- Redefine the industry.Figure 4 illustrates several examples of different shaping options. half of all companies pursue strate. The comes. with its focus on microcredit. then it is likely that a few major players M&A strategies to consolidate the industry and will lead the industry in a new — and for them. Kearney 9 . American space industry. using multi- ing business model or pursuing and mobile phones to PCs and ple. strengthen their own roles. than tripled from 2007 to 2010. competitors are surely conjuring on the Strategy Chessboard (see sidebar: Quadrant ways to reinvent the industry. you’ll want to lead from the front. in stable industries with low consolidation — you can hedge your bets by identifying opportu- those in which the concentration ratio for the nities to reinvent your industry and shaping these top three companies (CR3) might be less than to your advantage. If you suspect this. success stories show how each can ArcelorMittal used M&A to reshape women. gies in this quadrant. from music distribution exploration approach. ISS reshaped the facility manage. kearney strategy chessboard | A. promising business opportunities ment by incorporating “integrated Bangladesh’s Grameen Bank and quickly increase the scale of the facility management” and pursuing (founded in 1976) reinvented the most promising. “computer on every desk. yet the percent CAGR from 1997 to 2009. In initiatives to maintain strategic flex- segment. It has seen of 13 percent from 1993 to 2010. Shell is well known for using advantage to a level few competitors the moon” vision overhauled the scenario. Perhaps innovation and its control from fur. Google quadrant offers plays to change the iPhones and iPads reinvented many has deployed an effective dynamic industry. Are you content with following and adapting to Quadrant Examples Each quadrant is different.T. and courage—creating something at least a half-dozen operating system nance in its customer and product novel and making it happen. iTunes. when it engaged in example — it has built global domi.and real-option-based can reach. new ways to reinvent the industry. In this case. Portfolio strategy (Ansoff matrix. (Porter. Quinn. Christensen. von Hippel) industry industry industry conduct value chains (von Neumann. Gell-Mann) High analytical Low analytical Industry predictability Source: A. Pursue multiple Deans. Lindblom. (Hamel. Adapt “within” (Doz et al. El-Kadi) strategies strategic process (Slywotzky) (Myers. and companies should do what- relationship.. Schwarz. opportunities “preferred future” (Kröger) Stieglitz. Kratzert) Shape the Reconfigure Change Schumpeter. Additionally. Holland. Salancik) (Moore. Arthur) (Schmitt. their direction.) dynamic scenarios strategies (Kahn. Arms) Beinhocker.. we Redrawing the Chessboard have found that in highly uncertain situations. de Geus. Wack. (Arthur et al. predictability. it doesn’t mean all other schools To capture this link. if the company is influential enough. Lind. Cross the “chasm” Ghemawat. Carpenter et al. Morgenstern. massive shaping strategies by those leading your industry forward? one company could affect the predictability of an Once a starting point and umbrella strategy industry. Kearney . advantage and step out (Porter) (Andrew. Clausewitz. are determined. Viguerie et al. we revised the Strategy Chessboard ever is necessary to influence industry develop- to become the playing field as outlined in figure 5. Prepare for Zook. products and lateral Pfeffer. GE matrix. McNeilly.T. Luehrman. Kearney analysis predictability predictability for a relevant time horizon 10 the a. Furthermore. (Kim and Mauborgne.. de Bono) Position to build Grow in core. Kröger et al. Rosenberg) Christensen. Prahalad. the Observant readers will note a weak link between opportunity to shape an industry is usually too the two axes of the chessboard. kearney strategy chessboard | A.t. Chussil. we can redraw the chessboard of thought are ignored. with innovative Think big J. Wilkinson) the industry Deploy battle Markides) Identify and strategies adapt to Deploy real Implement an (Sun Tzu. competitive adjacent business. ment in the direction most beneficial to them. A case in point is the approach rants moves left when there is desire to shape an by which companies develop alternative scenarios. Applying several different in such a way that the vertical midpoint between schools can often help generate additional strategic high and low predictability when selecting quad- insights and options. Christensen) Oriesek and Schwarz. various consultants) need and ability (DNA) to: Pursue global Con- industry endgame verge or Create Create and consolidation slice industry “Blue Ocean” pursue (Pennings and Puranam. options-based evolutionary profit patterns Welch. or would you rather be among For example. Figure 5 A redrawn “strategic playing field” for hypothetical top-five players Illustrative Company’s desire.T. industry. To account for this good to pass up. Aurik and Willen. Wernerfelt. we can move the bottom half of the vertical line somewhat right. Moore. to illustrate the typical Most shape-the-industry strategies can be used to distribution of industries with high versus low create scenarios. and schools related to maintaining fore. Perform entry-lens analysis. Strategy develop- and conquer.T. Kearney 11 . cost producer or a premium brand.T. Also. Evaluate strategic options against DNA analysis appropriate create options company DNA umbrella and Consider Adapt or “entry lens” shape • Desire. Establish governance model shape Predictability Includes: B. A particular strategic framework will when the industry is relatively stable. Conclude A. such as M&A. you may find despite a high degree of industry uncertainty. Finalize strategy recommendations key opportunities “entity”) • Need • Ability Adapt or C. Perform company C.t. sight and flexibility will be more applicable. Kearney analysis the a. while this new playing field may provide shaping should move to encourage shaping. there is a preference to position Strategic lens problem. to apply when. at the end point of the adapt area. including (per relevant B. and against company DNA. ment efforts can unintentionally be influenced by the willingness to shape could be so high that which “lens” companies use to analyze a strategy a company is prepared to reinvent the industry even problem. Perform industry • Implementation plans predictability B. the horizontal line between adapting and Still. Lastly. often predispose teams toward certain solutions. it difficult to consider more visionary strategies Figure 6 Chessboard-based strategy development Determine DNA and industry Perform industry analysis.Hence. at the top section of shaping. Develop “enriched” industry perspective and options portfolio • Resources analysis Predictability • Monitoring. the need to stake Avoiding Strategic Flaws out a clear direction and target position becomes The Strategy Chessboard helps tackle three stronger—meaning that even in uncertain indus. discussions. kearney strategy chessboard | A. Evaluate strategic options context and appropriate umbrella generate options. feedback and control Consider Adapt or • Steering responsibilities shape • Environment • Demand • Technology and offerings Predictability • Competition • Suppliers • Own actions . we suggest the standard Strategy then there will be a preference for being extremely Chessboard as a good starting point for strategic adaptive. strategy and “entry lens” develop an “enriched” finalize strategy and (per relevant business entity) industry perspective establish governance A. synthesis. a company may seek to launch investment-heavy If a Porterian model suggests you can be a low- redefine-the-industry options. a better-calibrated perspective on which strategy If your company is low on the vertical axis.Industry reaction Source: A. common flaws: try environments. A. Alternatively. has the a critical first step in the strategy-development right focus. similar but act on different levels of granularity: ing potential strategic options downplays a com. various consultants) need and ability (DNA) to: Converge or Create Create and Pursue global slice industry “Blue Ocean” industry endgame pursue opportunities consolidation (Pennings and “preferred Renewable future” Wholesale Puranam. Luehrman. (Kim and Mauborgne. Wilkinson) Markides) print in emerg. Lindblom. Arms) Holland. Applying additional and complement. Chussil. von Hippel) Smart distribution e-mobility Change Reconfigure Cross the industry conduct Sitewith home. kearney strategy chessboard | A. (Hamel. services products (Porter. GE matrix. Christensen) Oriesek and Schwarz. and that enough time is spent on process. It also ensures that the entry lens (or strategy school and framework) is analysis utilizes appropriate frameworks.t. (Schmitt. Kearney analysis predictability predictability for a relevant time horizon that would allow you to deliver a superior prod. Schwarz. as solar. (Slywotzky) El-Kadi) Beinhocker. It makes increases options by helping to compare and little sense to have different approaches to devel- validate the analysis. Ghemawat. corporate strategy deals with a collection of pany’s integral role in the industry. (Andrew. Considering business units. generation (such Lind. (Myers. Kearney . (Arthur et al. Portfolio strategy (Ansoff matrix. Kröger et al) Wack. Classical (Porter)power Zook. business-unit strategy deals with 12 the a. energy innovative and lateral Morgenstern. Quinn.T. and trading (Kröger) Christensen. industry analysis while you devise strategic options. de Geus. the most important aspects of the industry. Prahalad. Clausewitz. Viguerie et al. Aurik and Willen. many of the however. ary lenses enriches industry understanding and Different approaches problem. has many advantages. generation foot.Deans. try — generating reactions from major competi- Selecting an umbrella strategy and an tors and stakeholders. Conducting a strategies. oping corporate. as a company’s adaptation-biased strategy schools close the door strategic initiatives can often have a material to industry-shaping options that may be more impact on the development of the future indus- attractive. Welch. McNeilly. The issues and concepts needed are very comprehensive industry analysis before generat. (Moore. Stieglitz. business unit and even product Sequencing bias problem. uct and lower cost. Carpenter et al. industry “chasm” Think big value chains (von Neumann. strategies multiple competitive Domestic and step out scenarios transportation advantage (Doz et al. Christensen. Moore. Pursue dynamic Prepare for Position to build adjacent business. de Bono) J. Domestic ing markets fossil fuel Deploy battle andDeploy nuclear real Implement an Identify and evolutionary strategies power options-based adapt to generation strategic process profit patterns strategies (Sun Tzu. Wernerfelt. (Kahn. wind) Kratzert) Rosenberg) Schumpeter. Gell-Mann) High analytical Low analytical Industry predictability Source: A.T. Salancik) Grow in core. Generally. Arthur) Pfeffer. Figure 7 Different entities within a company can require different strategies Client example from 2010 Company’s desire. Figure 7 demonstrates understood. so we typically use our own (per relevant business entity).Figure 8 Using a point scale to understand a company’s DNA and its industry predictability 100 Company DNA Desire (max: 35 points) • Long-term motives • Willingness to take risks Shape the industry • Appetite for change • Ability to foresee attractive opportunities in challenging the status quo Needs (max: 20 points) • Level of satisfaction with current industry situation • Level of satisfaction with company performance and growth • Looming threats. kearney strategy chessboard | A. fit into different parts of the chessboard. Determine DNA and industry context and structured determination of industry predictability appropriate umbrella strategy and “entry lens” are vital for its success. such as rising competitors • Stakeholder expectations • Need to create more growth space Adapt • Need to use key assets and capabilities across a broader arena “within” the • Expectations as an indutry leader to show the new way industry Ability (max: 45 points) • Market power and influence to be a shaper • Network of allies • Financial strength and core capabilities • Imagination High analytical Low analytical 100 predictability predictability Industry predictability Environment (max: 15 points) Demand (max: 20 points) Technology and offerings (max: 20 points) • Macroeconomic situation • Market size development • Technology’s impact on new offerings • Regulatory actions • Key customers’ intent and strategies • Products and services in demand • Other external trends • New unmet or latent needs • Competitive advantage and differentiation Competition (max: 25 points) • Customer needs and development Own actions (max: 10 points on more.t. you may Winning on the Strategy Chessboard need to break down your business into units. understand- select the appropriate entry lens for the more ing your key competitors’ strategic approaches detailed industry and company analysis that is used helps determine which umbrella strategies and later to determine strategic options. and our Chessboard-based approach a utility company whose different business entities is helpful in avoiding common strategic flaws. and product-area starts by identifying your company’s DNA and strategy deals with a collection of products. • New competitors from Suppliers (max: 10 points) depending on the type of initiative) adjacent sectors • New strategies and behaviors • How your shaping moves would affect • Competitor strategies • Vertical integration the rest of the industry and behaviors • Structure and concentration • Supply availability Source: A. but the preliminary DNA analysis and 1. Kearney 13 . The approach uses the following three steps to Well-known techniques are used for this develop the right strategy (see figure 6 on page 11): analysis. To understand your DNA and industry conditions properly.T. This first step helps frameworks (see figure 8). Kearney analysis a collection of product areas. the a. likely industry predictability.T. The approach entry lens to use for a more detailed analysis. In addition. which An effective strategic process is explicit and easily may require different lenses. where help determine which umbrella strategy and strat. he can be reached at michael. the Strategy Chessboard gives other players’ likely responses is not very useful. we typically use a more parallel process to ensure sufficient focus Honing the Craft and granularity where it really matters. In most cases. Develop enriched industry perspective 3. 14 the a. Therefore.com. tor and adjust the implementation as necessary. kearney strategy chessboard | A. Authors Thomas Kratzert is a partner in the European strategy and communications and high-tech practices. Kearney . gies are available. we make significant efforts to ensure DNA This phase provides a rich foundation for analyz. Evaluate strategic options against com- and potential strategic options in parallel.” but is then customized according to not desire. evaluations. need or have the ability to pursue.T. Hence. strategic options are matched against company egy school to examine more deeply in step two. Devising Just as skilled craftsmen control which tools to use an ambitious M&A strategy without considering at the right time. the company’s unique challenges and objectives.broquist@atkearney. a com- It makes little sense to perform a detailed prehensive governance plan will help steer. he can be reached at thomas.com. help them succeed into the future. The pany DNA. com- applying additional lenses to the analysis will panies can design and implement strategies that help you better understand your industry and align with their desires. Even in predictable industries. the industry and the strategic in addition to the standard financial and risk-based options. The final step is always validation. DNA. Based in the Stockholm office. Using the chessboard. Michael Broquist is a principal in the communications and high-tech practice.kratzert@atkearney. finalize strategy and establish gover- results of the high-level analysis in step one will nance.t. schools of thought. compatibility with the strategic recommendations. moni- industry analysis without considering what strate. Based in the Stockholm office. a structure to the toolbox of available strategic so an alternative approach helps. needs and abilities — and potential strategic options. 2. ing the company. No company should implement a strategy The strategy school is identified this way for prime that the leadership team and primary owners do “inspiration. T. new tant adjacencies before pursuing diversification. For each horizon approach has proven to be an excellent comple. sive thinker. target group. adjacent business and step out and segmentation) and business strength (market Growth for a company can come from many share. midrange and dis- forces—suppliers. quality and talent). regardless of which approach is used to ment driven by scale-based competition. entrants and industry competitive intensity— Kröger and Deans emphasize getting operations companies can identify their strategic positions and the organization in good shape by exploiting and the strategic moves that will strengthen these various strategic levers and then stretching to positions. kearney strategy chessboard | A. analyzes risk and return for various types and The main strategic thrusts have varied over time. significant and mathematically driven and increasing market share. speed. the a.APPENDIX Portfolio strategy Numerous authors followed Porter by pub- At the border of the chessboard is portfolio strat. Kearney 15 . brand. advantage. The GE niches to pursue depends on the industry’s level of multi-factorial model evaluates industry attrac. price. Patrick Viguerie conquer quadrant of the chessboard because one defines three horizons of growth: extend and of its preliminary assumptions is that a company defend the core business. and counterniches. This ness and create viable options. before attempting to enter new businesses. This thinking is in the position-and. Identifying these contributions have been borrowed from finance sources is an important task of business strategy theory. competitive dynamics Grow in core. The current prevailing wisdom Position to build competitive advantage favors making sure a company’s core is in order A pioneer of strategic thinking and a comprehen. customers. tum. including the niche-based egy. tiveness (based on multiple factors. margins. Kearney’s Fritz Kröger of businesses or products is a fundamental strate. and Michael Moriarty. innovation. build the emerging busi- should define its position within its industry. including market size. sources. achieve extraordinary growth. cooperation. consolidation. M&A or share gains. identify- develop strategy. Through an analysis of five industry Chris Zook models close. growth. Igor Ansoff ’s product. from a diversification trend in the 1970s and 1980s to a move toward focus and globalization Position and Conquer in the 1990s. based on the view that managing a portfolio competition work of A. develop and which to eliminate. all companies ing and conquering niches is its own strategic must decide which products to keep. combinations of assets. product-market growth matrix is one of the first market splits. new products In addition. His original framework centers on be used to generate and capture new business conceiving and building sustainable competitive opportunities. lishing refined models. Harry Markowitz’s modern portfolio theory and has drawn the attention of many theorists. brand strength. Niche types include regional.T. The appropriate frameworks in strategic management. Michael Porter has been enormously The core capabilities and competencies can then influential. In an industry environ- gic task. which to task. three approaches can be used: portfolio momen- ment to other approaches.t. substitutes. particularly new markets. On a regular basis. time industry analysis by Kröger points to clear economic theory. a strong shaping agenda. govern thinking about war.T. panies to benefit from breaking up monopolies using speed and preparation to overcome compe. value chain. a company can become a more Even though some business theorists argue that forceful competitor with additional profit gener. Kearney . using alliances and strategic control points strategies or full-scale industry fragmentation. and oligopolies. try’s concentration ratio plotted against time—that demonstrates how all industries move from a frag- Deploy battle strategies mented opening phase. Strategies for attack. seven families of patterns: mega.. Identify and adapt to profit patterns to shape opponents and make them conform. Redefine zation. M&As are imperative for any company with ble in marketing and general business strategy. by understanding consolidation patterns across all industries. kearney strategy chessboard | A. channel. Major Carl von Clausewitz. and transfer military insights into competitive action. product and organi. by globalization and the opening of financial mar- gopoly rent. flanking and guerilla competition can be applica. Some strategies allow attacking com- to maximize the power of business intelligence. Slywotsky outlines should see a steady flow of new entrants and hence 22 models that. 16 the a. Similar “islands this is generally not the case in practice. Such ideas had an et al. Adrian Slywotsky. defense. and In a changing world. driven supply and demand. In addition. to a scale phase where Business competition is often analogous to war. including Jack Welch in lines 30 strategic prediction models divided into his approach to building General Electric. This pattern arises as an S-curve — an indus- capitalizing on market failures. industries can return to such as capturing a market without destroying it. consolidation begins. fully consolidated. about 80 percent of the market. either through aggressive niche tition. impact on many CEOs. any industry that generates above-average returns ating capability.t. Over their life cycles. are likely to generate profits. in The Profit Zone and Profit Patterns. sought to replace the established view of mil- which means it’s possible to develop skills and itary strategy with a set of flexible principles to techniques to recognize them. to a focus phase of rapid fare. maintain an even rate of consolidation over time. knowl- edge. tion. By correctly understanding and applying Pursue global industry endgame consolidation these patterns. Long- of profitability” can be identified through micro. Because of this. customer. a Napoleon contempo- trends create similar effects across industries. with three main players owning ment literature. ability to predict the future and act on it. using knowledge and deception regulation. for example. depending on industry and situa. and numerous attempts have been made to industry concentration (ratios of 70 percent). capturing monopoly and oli. Tzu’s work leads to some basic business principles. earlier phases in the consolidation pattern — per- avoiding competitors’ strengths and attacking haps because of a new innovation or government their weaknesses. using information advantages and kets. out. finally a balance phase in which the industry is Sun Tzu’s Art of War has served many as manage. rary. a company’s ability to be developing leadership character to maximize successful and generate profits may depend on its employees’ potential. can occur in several dimensions. tactics and scope). For repeated games. globalization and deregulation can analyze a broader set of situations than standard have made it easier for companies to interact. where interrelationships among industries. Industry defini. In ure their capabilities. thrives in competition with other ecosystems. Simulation games in which groups of has led to more “horizontalization. Michael Porter also tit-for-tat. Slicing if the number of suppliers is too low. but not with the same up the value chain or breaking down entry barri. Typically. which technology (IT). disintegration or outsourcing.T. added value. the split of to create a new supplier for downstream activities ground services from airline companies. but there are also cases parts of the value chain. partnerships between competitors can businesses develop. industries converge capture economies of scale in non-differentiating and form new industries. Or a company can decide in which they are sliced—for example. in which simulation tools are used when type of disintegration. namely: always defect. vengeful. A company with a shaping agenda can take analogy is an ecosystem — different players take active part in transforming definitions. chains and hand off noncore parts to suppliers. As Game theory is a well-known tool for analyzing convergence occurs. breaking activities are mapped out. creating different roles in sustaining the ecosystem and it a new and hopefully stronger position. game theory can identify will go to those with the best capabilities for the the best actions to take in specific competitive sit- new environment. the analytics become overwhelmingly difficult. changing the business logic. information Related to this is business wargaming. A biological ers. the dynamic interaction between competitors.t. the companies that operate reconfiguration. uations. industry conver- gence can be driven by technology or products. since become an important part of both operational rules. Reconfigure industry value chains always cooperate. for example A related concept to the value chain is the through separating products that create new value network. integration. simpleton. This game theory. sequential layout as the value chain. Success in the marketplace strategy development.Converge or slice an industry Some strategy frameworks put additional An industry is defined by the types of products emphasis on more radical and creative value chain and services it delivers. there are strategies with different benefits. Game theory is also a powerful tool for developed the concept of the value chain. Kearney 17 . kearney strategy chessboard | A. Change industry conduct and driven by substitutes or complements. As Nils Stieglitz showed. and strategic thinking. For tions change over time as technology changes and example. A similar mathematical concept is the Monte Carlo The outsourcing trend within IT is typical of this simulation.” by which people act out different business situations can help companies focus on core parts of their value identify which strategies work and which do not. companies need to reconfig. the a. fair and In addition to his five forces. where questioning the rules of the game — developing the activities of an organization are placed and strategies to gain advantage by affecting different analyzed in logical order. Over time. Value chain analysis has PARTS (an acronym for players. and not just forward or backward within it and their resource base. Kearney . different actions. it is difficult value: eliminating factors below the industry to move away from it. and raising factors above industry companies operating in this environment.K. the product’s increas. creating factors the industry has a major impact many years down the line. called the bowling alley phase.T. Chan Kim and Renee Mauborgne focus on cycles different from traditional products. Cross the chasm with innovative products Reinvent More products today — often those with high Create “Blue Ocean” opportunities technological content — are experiencing life W. in Porter’s strategies). development. For never offered. crossing of the chasm. companies can make compe- ception. which means that Four actions can offer a new type of customer once a new state is established. tary offerings). It starts at product or technology in. being standards. so segments help increasing usage. as different phases require a new market. conquering a new supply source. buyers (redefine ing returns skyrocket. Instead of competing directly with by Geoffrey Moore attempts to describe this competitors and identifying the correct position (as dynamic. kearney strategy chessboard | A. The strategy stresses next step. Prahalad say Finally. In the beginning stage and at the and creating a new industry organization. positive feedback loops — shaping in nature. small standards. at the forefront of these events and determining Innovation schools also emphasize new oppor- the best way to take advantage of them is vital tunities. then gets to the crossing of a chasm in tition irrelevant by conceiving new market space. opening tant over the life cycle. The identifying new business opportunities in Blue “inside tornado” product life cycle outlined Ocean Strategy. the pool of buyers).t. in the last stages. introducing a new production method. concept of path dependence. the Create and pursue a preferred future ecosystem must allow a company to address many Generating and capturing new business opportu- different niche markets efficiently. native industries). create and dominate emerging opportunities. In the end. In the or so-called value innovation. In the bowling alley. in the tornado phase. the ecosystem needs to make the product whole. vertical significant step-outs from current offerings. tegic groups within the industry). This 18 the a. while in the nities is essential in industries under constant tornado it needs to enable rapid volume growth. which it is very difficult to increase usage. eliminating those that the industry events at the start of a product life cycle can leave takes for granted. Gary Hamel and C. functional-emotional orientation Apple’s iPod is a classic example. scope (focus on complemen- pany (the gorilla) often comes out dominant. Joseph Schumpeter outlines five main for success. economic innovations: introducing a new good. There are six avenues to explore which amplify a system’s changes — are typically for such step-outs: industry (look across alter- at work beyond the simple cost of manufacture. the ecosystem can be that competing for the future means fighting to a caretaker until the end of life. strategic group (look across stra- Lastly. (rethink the orientation of the industry) and time Related to increasing return economics is the (participate in shaping external trends over time). Creating and managing ecosystems is impor. In the chasm and strategies developed in this fashion are clearly bowling alley phases. a single com. In other words. del- the a. begins by building supplier networks. from resource allocation. preempting competitors. migration paths must be man. assemble and tools for big thinkers who evaluate the ideas and manage the necessary coalition of industry partici. Mason Carpenter with ambition to shape an uncertain industry and William Sanders outlined a number of ques- should attempt to steer development toward the tions that a company constantly needs to ask itself preferred future and then take the necessary in order to keep its strategy in order. such as arenas actions to reach that future. from corporate- think” and says the strategies that truly make sub-unit planning processes and one-to-one CEO a difference are the result of bold. A preferred future is (where will we be active and with what empha- reached through a thorough. turn them into strategies. benchmarks outside the industry. sis?). frames and bearish strip strategies — that serve as aged to build core competencies. the about the evolution. Think big and lateral Yves Doz and Mikko Kosonen outline the Traditional business strategy is incremental in mindsets that separate strategy from fast strat- nature: improve products. crafting To think big. open and sensitive to signals from the sur- To support this thinking is Thomas Kratzert’s rounding environment. In addition to this strat- pants. competition for market share the strategies across the organization. the organization should One way to address an increasingly uncertain know what its core competencies are.” In this vision. advantage. a good deal of creativity is positioning. and ready and responsive “Preferred Futures. and what it should then do to Truly dynamic strategies are under constant strengthen these competencies.t. scenario-based under. differentia- standing of how it might evolve and what impact tors (how will we win?). Kearney 19 . egy development is a leadership flow that executes tion paths. capture markets. niques by Edward de Bono. the tools and tech- efficiency and managing competitive interaction. Pursue dynamic strategies To make this possible. restructured time architecture. “big think” decisions to collective commitments by the top ideas from completely different angles.can be done through intellectual leadership: gain.” are useful. egy — from foresight-driven strategic planning to develop channels. staging (what will be our it would leave on the industry. vehicles (how will we get there?). which of environment is to shorten the time horizon by these competencies give it a unique competitive conducting more frequent strategic planning. and then arriving at a strategic elimination of sacred cows. rather it should Maintain Foresight and Flexibility be engrained throughout the whole organization. Lastly.T. developing a creative point of view ble areas. Bernd Schmitt calls this “small insight-based strategic sensitivity. kearney strategy chessboard | A. Big think strategies can originate from several ing industry foresight by probing deeply into sources — combinations of seemingly incompati- industry drivers. maximizing needed. creator of the term Hamel and Prahalad also argue that strategy “lateral thinking. speed and sequence of moves?) and economic logic (how will returns be obtained?). review. and new business development should not solely emanate from the CEO’s office. a company to quick action when redefined. and force competitors to take longer migra. Next. management team. For such purposes. Even though the future A fringe benefit of real options analysis is it forces may be difficult to predict for a certain industry. stop or shutdown. it users to examine their assumptions about risk. 20 the a. scenarios can outline the solution space for what the future could look like. contracts. but benefits from being a very good follower. and call-option calculation theory can help with Constantinos Markides points out that a capital budgeting. Typical options penalties of innovating and opening up new mar. Implement an evolutionary strategic process With the adapt mindset. reduce the risk to executing the portfolio. In net present value (NPV) company that is flexible and sensitive to its sur. amplifying those and help understand industry development. resource fluidity in redeployment and sharing. and regularly filling the portfolio of experiments that Deploy real options-based strategies fit with the lessons of past trials. An exam- Prepare for multiple scenarios ple is a capital investment decision by an energy Royal Dutch Shell is frequently credited as a pio. identifying which ini- of unpleasant surprises. uncertainty. company about whether or not to mothball a plant. tiatives gain market traction. create a flexible strategy. with a general management ambition. Once the portfolio best approach is to adopt an evolutionary process has been developed it becomes important to track that develops a portfolio of experiments aligned its development and enable timely adaptation. operating scale. neer in scenario analysis. This way. kearney strategy chessboard | A. increase the level of foresight. strategy development here would come down tive. is often analytically possible to understand indus. are abandonment. Kearney . expansion. sequencing and project scope. the most likely outcome is usually mod- roundings can run a deliberate strategy of being a eled. the company would then If the economy is a highly unpredictable complex develop a business portfolio that would work in adaptive system — in which it is nearly impossible all scenarios and a set of options to execute if to predict networks and interrelationships — the a given scenario proves true. deferment. The art of Scenarios used like this can broaden the perspec. The rigor applied in the process could also uncover try drivers and put boundaries on the level of new possibilities. By contrast. it doesn’t face the the flexibility of having the option. process kets. analysis. egated subunit execution and staff control to theory is a powerful tool for viewing investments. In these cases.t. real options valuation also values fast second. real-options conditions. Learning and In some business situations. the success of an feedback loops are particularly vital for reeval- investment is highly dependent on a number of uating positions and adjusting to new market uncertain events. that work and killing off those that don’t. In this scenario.T. flexibility. EUROPE Amsterdam | Berlin | Brussels | Bucharest | Copenhagen 1 312 648 0111 Düsseldorf | Frankfurt | Helsinki | Istanbul | Kiev | Lisbon email: insight@atkearney. A. Illinois 60606 U. Inc.T. permission achieve sustainable results. AMERICAS Atlanta | Boston | Chicago | Dallas | Detroit | Mexico City Marketing & Communications New York | San Francisco | São Paulo | Toronto 222 West Adams Street Washington. Kearney.T. . we have been trusted advisors on to reprint or translate this work. A. Kearney Korea LLC is a separate and independent legal entity operating under the A.A. Inc.T.S. tailored solutions and a collaborative working style to help clients additional copies.atkearney. CEO-agenda issues to the world’s leading corporations across all major and all other correspondence. Kearney name in Korea.com Ljubljana | London | Madrid | Milan | Moscow | Munich www. D.C. All rights reserved.com Oslo | Paris | Prague | Rome | Stockholm | Stuttgart Vienna | Warsaw | Zurich Bangkok | Beijing | Hong Kong | Jakarta | Kuala Lumpur ASIA PACIFIC Melbourne | Mumbai | New Delhi | Seoul | Shanghai Singapore | Sydney | Tokyo MIDDLE EAST Abu Dhabi | Dubai | Johannesburg | Manama | Riyadh & AFRICA © 2011. Chicago. Kearney is a global management consulting firm that uses strategic For information on obtaining insight. industries.T. A.T. Kearney’s offices are located in major business centers please contact: in 38 countries.T. Since 1926. A. Kearney.A. ATK.0311.167 .