The Red Queen is a character from Alice in Wonderland. Do you remember her? She’s the one who runs faster and faster but stays in the same spot. She serves as a fitting metaphor for many organizations that realize they need to change because technologies evolve, markets shift, and customer expectations rise. But change to do what? Transform, of course (a buzzword for investing in digital, innovation, IoT, AI, or whatever the latest trend may be). Why? Because everyone else is doing it.
And therein lies the problem.
Let’s get real. If everyone is investing in the same technologies in similar ways, what will be different in three years’ time from a Red Queen perspective?
Our competitive landscape has changed for good — as measured by existing or new competitors nibbling away at our customer base, competitive position and/or profitability. If this isn’t rough enough, consider two data points:
- Economic profit accrues to the top quintile in a “power-curve” pattern, leaving well over 85 percent of organizations to wrestle over incremental improvements in an ever-worsening position vis-à-vis market leaders in an increasing winner-take-all world.
- Digital transformation, a hoped-for solution to change one’s competitive position, struggles over 75 percent of the time to meet its objectives.
Simply put, what helped organizations succeed in the past is not what they need to be effective in the future. A senior executive at a national insurance company understood this, leading to an enlightening moment for him. He recognized that the main asset (set of skills) of an insurance company has been its ability to price risk. “What happens,” he wondered, “when our main asset moves from pricing risk to preventing accidents?” He admitted that “What has always provided value to our customers will change… because the skills needed to price risk are very different from those required to prevent accidents.”
One quick point to take away from this anecdote is that doing more of the same, just faster and cheaper, isn’t going to work over time. Trying to outrun everyone else who are also investing in digital transformation and the newest, ever-changing technologies of the day traps you into running the Red Queen race, premised on “We’ll out-execute” everyone. It’s a strategy that can work for awhile, but not over time.
So, what do you do?
You look at the lessons of high growth companies, those who’ve cracked the code not only of high growth but, more importantly, of high economic profit and multiple multiples that far exceed their competitors.
Apply these four lessons from high growth companies:
- Ask (and answer) the new strategic question. Our competitive landscape has changed for good. A new competitive landscape requires a new strategic question. The new question changes how you look at your competitive environment. And how you look at something changes how you make sense and take action on it. This is what bold leaders are starting to pay attention to and starting to execute around.
The question?
Where is the value being created — and destroyed — in the ecosystem in which we, and our customers, are engaged, and what do we do about it?
Asking this question forces you to look at your competitive landscape from an ecosystem perspective, rather than that of your business and even your industry perspective. Doing so logically leads you to ask: What is my ecosystem? How is it changing? What is driving those changes? What role do we play within it, with what implications on where we focus and how we execute within it? Which leads to the second lesson.
- Plant a flag on a “problem” to own… and own it! Explosive growth has always come from identifying points of friction, non-consumption or market breakdown. Tackling these is the key to figuring out where to “plant your competitive flag.”
Note that planting a flag has little to do with refining your existing set of products and services, which is an “inside-out” perspective. Instead, it requires starting from an “outside-in” view regarding what are critical points of friction, non-consumption or market breakdown, and what’s required to tackle those. And then, and only then, figure out what products and services are needed, including the ones you have today.
In essence, figuring out where to plant your flag will determine new sources of value you can deliver, which has material implications on how you engage with customers, the products and services you deliver and, consequently, how you both extend and create new revenue streams.
The first two lessons help you figure out where to play in a changed competitive world. The final two lessons help you figure out how to execute on it. So, pay attention!
- Clarify — and mobilize around — your new 20 percent. Capabilities (skill sets, behavioral profiles and technology assets) are the infrastructure of execution. No capabilities, no execution. No execution, no customers. No customers, no business. Pretty straightforward. Until it’s not.
Twenty percent of an organization’s capabilities drive roughly 70 percent of the value they deliver. (Try this exercise and you’ll see). A changed competitive world requires a new 20 percent of capabilities critical to capturing the 70 percent of new value that you want to deliver. The question becomes: What is that new 20 percent, and what do you do about it? Which takes us to the fourth lesson.
- Orchestrate your ecosystem. Ecosystem has become the hot word of the day and, for that reason, mostly devoid of meaning, or simply a different word for partner network. But that’s not what this lesson is about.
A changed competitive world requires a new strategic question — answers to which take you logically to a new business model (merely a fancy word for how you orchestrate your capabilities to deliver value): an ecosystem-centric one.
Orchestrating your ecosystem involves figuring out what is the new 20 percent — not only yours, but those of your partners — and figuring out how to harness, or orchestrate, all of these capabilities to capture new sources of value in new ways.
These are the lessons of the growth leaders of tomorrow that you can take today. My suggestion? Use these four lessons to “stress-test” where you’re focused and how you’re executing today.
What’s in your strategy today?