Playing on the New Strategy Chessboard

Hiring a consulting rm often means access to the hottest and most innovative strategies in the marketplace. Improving a companys performance, however, means using approaches targeted to the companys situation rather than applying the strategy theory du jour. The Strategy Chessboard gives structure to the different schools of thought on strategy, by providing a toolbox of approaches.

A.T. Kearney

EXECUTIVE AGENDA

SINCE THE 1970S, weve witnessed a bewildering array of strategic schools of thought and frameworks. The 1980s were dominated by Michael Porters positioning for competitive advantage. The 1990s had multiple contributors, with Prahalad and Hamels Competing for the Future standing out. Kim and Mauborgnes Blue Ocean Strategy and Deans, Krger and Zeisels Winning the Merger Endgame were noteworthy contributions in the early 2000s. Throughout these decades, the Santa Fe Institute has painted the economy as an Evolving Complex System, which has significant strategic implications as the institute suggests that managers often assume certainty where there is none. Dozens of schools of thought claim to have the most widely applicable and useful framework for strategy development, yet most strategists are biased toward the theories and frameworks with which they are most comfortable. At A.T. Kearney, we believe that a single strategy school is not universally applicable; strategies and their frameworks are complementary. Based on our research and work in this area, weve developed a Strategy Chessboard that enables us

to articulate clear choices in strategic approaches and pick the right starting point for developing and applying a particular strategy. This approach is critical for dealing with two assumptions that are often flawed but accepted: (1) that an industry is predictable and (2) that a companys strategic focus is always concerned with adapting its positioning within this presumably predictable industry.

Predictabilitys Role in Adapting, Reshaping

Should your management teams goal be to adapt the companys positioning within the industry or to play a major role in reshaping the industry (which may include creating new sub-industries)? Taking the time at the onset of a strategy development to assess how predictable the industry is likely to be will help answer this question about which frameworks to use. The Santa Fe Institute challenges the assumption that industries are predictable. The institute suggests that the world is more difficult to predict than most managers assume.

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 Pharma: blockbuster drugs stall Auto: demand shock follows the financial crisis Telecom: adoption rates soar for smartphones and related apps

In Industries are predictable p

C Companies always adapt their position a within an industry w

Southwest and Ryanair create low-cost carrier segment IKEA convinces customers to assemble furniture Microsoft/Wintel are kings of de-facto standardization GE becomes aggressive acquirer targeting top-two position Google with Android affects all handset makers
Source: A.T. Kearney analysis

PLAYING ON THE NEW STRATEGY CHESSBOARD

Figure 1 highlights some events that have had enormous impact and arguably were difficult or in some cases impossible to predict: the growth of mobile and Internet services; the rapid recovery of emerging market demand in 2009; and the impact of CDOs (collateralized debt obligations) and other new financial instruments. These and similar events underscore the challenge of predicting the future development of an industry at certain points in time. During the past 25 years, globalization, increasingly rapid technology cycles, and consumer fads have meant that unpredictability and volatility have only increased. The trick is to assess early in the strategy development process whether your industry will go through an evolutionary or revolutionary change in the coming years. In revolutionary environments, some companies choose to challenge assumptions about the industry and shape it to their own advantage rather than adapt to the competitive environment. The actions of one company in shaping the competitive environment might have an impact on other players; for example, all partners in an ecosystem. Even if your firm is content to adapt to the competitive environment, and is not attempting to reshape the industry, competitors could be making reshaping attempts that will have consequences for your organization. Netflix, for example, changed Blockbusters dominance in the movie-rental industry almost overnight. Apple, similarly, reshaped the relationship between phone application developers, content owners, operators and customers, leaving a trail of destruction in its wake for less-adept competitors. Industry-shaping leadership is even more important in highly dynamic and uncertain environments. First movers, such as Apple which was first to get all the pieces of the twenty-first century digital-music business

right have dramatically changed market structures. Network equipment manufacturer Cisco has an explicit strategy of investing in markets at transition points in their life cycle so that it can shape the industry with its enormous financial and technical resources. Consolidating an industry, enforcing better conduct by customers and competitors, deconstructing value chains, and redesigning business models these are all ways to shape an industry to your long-term advantage. A company that wishes to shape an industry must first have the right DNA desire, need and ability to mold the overall development of the industry. Industry shaping and restructuring doesnt normally occur automatically or accidentally. Its driven by visionary CEOs with strong leadership, exceptional timing, consensus-driven approaches, targeted business models and an evolvable value chain. Incumbents, often content with their own success, may not be sufficiently motivated to create the next-generation industry structure. Smaller players, with less to lose, will often be far more likely to experiment and can emerge as surprisingly potent competitors.

Two Dimensions, Four Approaches

Using these two dimensions predictability and a companys ability to shape or adapt to its industry we can map four distinct strategic approaches (see figure 2 on page 8): Position and conquer. Strategic analysis is used to determine which optimal position in the industry a company should pursue and how to outmaneuver competition in order to grow at a faster-than-market rate. This is a classic approach to strategy development. The most influential contributor in this area has been Michael Porter with his book Competitive Strategy, which focuses
A.T. Kearney

EXECUTIVE AGENDA

on positioning for competitive advantage (price, premium and niche strategies). Military strategy analogies are often used for approaching the competitive challenge; Sun Tzu, for example, has inspired many authors. Adrian Slywotzky has authored several books on profits and has outlined how to identify profit patterns (pockets of profitability) and capture those in a competitive environment. Redefine the industry. Through analysis (and simulations) we deduce the optimal ways to shape the industry to benefit both the company and the industry. Using this approach, the company becomes an industry architect, moving the overall industry structure, boundaries, conduct, and performance in a favorable direction while capturing a strong role in this redefined industry future. Pursuing an ambitious M&A agenda clearly shapes the industry structure.

Oracles pattern of acquisitions demonstrates a company that acts as a powerful industry architect. Through extensive research, Deans, Krger and Zeisel have shown natural consolidation patterns in industries. Reconfiguring value chains, such as suggested by Aurik, Jonk and Willen in their book, Rebuilding the Corporate Genome, also affects how the industry works. Redefining an industry is also possible through convergence and deconstruction of the value chain as Bloomberg has done in the business news industry. Finally, through game theory, it is possible to mold the conduct of an industry into something more beneficial for its members. Reinvent the industry. If predictability is low, a useful goal for many companies is to reinvent the industry to gain advantage, reduce or off-load risk, or create new capabilities and resources. Uncertainty makes prediction diffi-

FIGURE 2

Two dimensions, four strategic approaches

Companys desire, need and ability (DNA) to:
Redefine
Shape the industry Use analysis and simulations to determine how the industry can be shaped to benefit both the industry and the company.

Reinvent
Conceptualize an attractive industry development, map the route to make it happen, and craft a role for the company to play.

Position and conquer

Adapt within the industry Use analysis to determine the companys optimal position in the industry and develop a plan to pursue that position.

Maintain foresight and flexibility

Institutionalize a strategic process focused on pursuing a portfolio of strategic initiatives that accelerates learning and provides flexibility with limited investment. Low analytical predictability

Source: A.T. Kearney analysis

High analytical predictability

Industry predictability for a relevant time horizon

PLAYING ON THE NEW STRATEGY CHESSBOARD

cult, but it also opens up significant opportunities for visionary industry leaders to guide others in a favorable direction. Companies in the Reinvent quadrant have powerful imaginations; theyre able to develop both an attractive future industry vision and a shaping agenda to increase the likelihood of the industry moving toward this vision. In their book Competing for the Future, Prahalad and Hamel envision and argue for new value propositions, new technologies and new capabilities and we believe their thinking is in line with how to find a preferred future, mobilize, and get there first. We often use scenarios as a basis for crafting an attractive preferred industry future for our clients. Execution then focuses on ways to increase the likelihood the industry will develop in that direction. The Blue Ocean Strategy, written by Kim and Mauborgne, outlines approaches for developing new and more innovative value propositions. In his book Big Think Strategy, Bernd Schmitt introduces new ways to create strategies that will transform an industry. In his books Crossing the Chasm, Inside the Tornado and Dealing with Darwin, Geoffrey Moore outlines strategies to get the mass market to embrace innovative products being used by leading-edge adopters. Maintain foresight and flexibility. For companies unwilling or unable to reshape the industry, the key is to institutionalize a strategic process that accelerates learning across the company, while pursuing a portfolio of strategic initiatives that provides strategic flexibility with limited investment. A company may encourage strategic experimentations in order to prepare for different futures. Several schools of thought about dynamic strategy stress the importance of frequent and flexible strategic planning, such as in Fast Strategy by Doz and Kosonen. Our clients frequently request scenario developmentwell-known because of the pioneering work of Royal Dutch Shell as an effective

means of preparing for uncertain industry futures (or risky potential futures). Evaluating strategies as real options for business models, capacity and markets adds a financial perspective to dealing with uncertainty. This method is frequently used for long-term, big-investment situations (for example, for utilities or largecapacity manufacturing plants). Lastly, several important strategy contributions have been made to the evolutionary field, such as Eric Beinhockers book The Origin of Wealth.

The Strategy Chessboard

In creating and organizing our Strategy Chessboard, we selected what we consider to be the most useful and complementary schools of thought based on our work with clients (see figure 3 on page 10). When deciding during a strategy-development exercise which strategy schools should be applied, nothing is black-andwhite. A clear choice does tend to emerge, however, based on a companys strategic intent and the predictability of its industry. Remember that schools of thought arent completely mutually exclusive; those selected should provide a complementary and valuable strategic perspective. Creators of individual schools of thought and strategic theories may argue that the applicability of their ideas is broader than whats presented in the Strategy Chessboard. While such claims have merit, the chessboard summarizes how different schools of thought have proven useful in a wide sample of strategic projects, how they complement each other, and which strategies may prove most useful depending on the companys situation. The chessboard provides a multi-dimensional perspective on strategy development and addresses an important but rarely discussed element: the selection of a strategic framework or frameworks to be used for a particular effort.
A.T. Kearney

EXECUTIVE AGENDA

Strategy development begins with identifying where on the two axes your company is located. Industry predictability is determined by analysis of industry drivers, including demand, offerings, competition, suppliers and your companys actions. Strategic intent is determined by an assessment of a companys desires, needs (both positive and negative), and ability to shape the industry. Once a starting point and an initial framework are determined, it doesnt mean all other schools of thought are ignored. Applying several different approaches can often help generate strategic alternatives. Its worthwhile to keep in mind some typical industry evolution patterns to help determine in which quadrant you want to play. In stable industries with low consolidation

where the concentration ratio for the top three companies is below 20 percent, for example we often find companies launching aggressive M&A strategies in an effort to consolidate the industry and thus strengthen their own roles. If you suspect this, you would be wise to investigate your industry-shaping options. In industries with lackluster performance, competitors are surely conjuring ways to reinvent the industry. Rather than be left behind, youll want to lead from the front. If youve survived one consolidation race, you can surmise that competitors are thinking up ways to unsettle the industry via a major reinvention strategy. You can hedge your bets by moving first to identify reinvention opportunities and shaping these to your advantage. If the future of your industry

FIGURE 3

The A.T. Kearney Strategy Chessboard

Companys desire, need and ability (DNA) to:
Portfolio strategy (Ansoff matrix, GE matrix, various consultants)
Pursue global industry endgame consolidation
(Krger)

Converge or slice industry

(Pennings and Puranam; Stieglitz; Lind; Christensen; Rosenberg)

Create Blue Ocean opportunities

(Kim and Mauborgne; Christensen; Schumpeter; von Hippel)

Create and pursue preferred future

(Hamel, Prahalad, Kratzert)

Shape the industry

Reconfigure industry value chains

(Porter; Jonk; J. Moore; Christensen)

Change industry conduct

(von Neumann, Morgenstern; Ghemawat; Chussil; Oriesek and Schwarz; Pfeffer, Salancik)

Cross the chasm with innovative products

(Moore; Arthur)

Think big and lateral

(Schmitt; de Bono)

Position to build competitive advantage

(Porter; Krger)

Grow in core, adjacent business, and step out

(Andrew; Wernerfelt; Zook; Viguerie et al.; Deans, Krger et al.)

Pursue dynamic strategies

(Doz et al.; Carpenter et al.; Lindblom; Quinn; Markides)

Prepare for multiple scenarios

(Kahn; de Geus, Wack; Wilkinson)

Adapt within the industry

Identify and adapt to profit patterns
(Slywotzky)

Deploy battle strategies

(Sun Tzu; Clausewitz; Welch; McNeilly, El-Kadi)

Deploy real options-based strategies

(Myers; Schwarz; Luehrman)

Implement an evolutionary strategic process

(Arthur et al; Beinhocker; Holland; Gell-Mann)

Source: A.T. Kearney analysis

High analytical predictability

Low analytical predictability

Industry predictability for a relevant time horizon

10

PLAYING ON THE NEW STRATEGY CHESSBOARD

is uncertain, then a few major players will likely step up to lead in a preferred (for them) direction. The question for you: Are you content with following and adapting to their direction, or do you want to be among those leading your industry forward? Figure 4 offers several examples of different companies strategies and how they might appear on the Strategy Chessboard, based on our knowledge of the different strategic situations and goals of each company.

Avoiding Strategic Flaws

Our Strategy Chessboard is helpful in avoiding three common flaws: 1. Strategic lens problem: a project starts

with a framework that may limit the company to certain solutions 2. Sequence bias problem: a project begins with industry analysis and is then followed by company analysis and options development 3. Different approaches problem: a different process is used to develop strategy at each level Strategic lens problem. Strategy development efforts can unintentionally be influenced by which lens we choose to use to analyze a strategy problem. A particular strategic framework will often predispose teams toward certain solutions. If a Porterian model suggests you can be a low-cost producer or a premium brand, you may find it difficult to consider more visionary strategies that would allow you to deliver a superior product and lower cost.

FIGURE 4

Different strategic situations land in different quadrants on the chessboard

Companys desire, need and ability (DNA) to:
Strategize the portfolio (Ansoff, GE, various consultants)
Converge Con Co on nverge or ISS: rollup, Pursue e glob global ob bacreation ba l slice ce e in ind nd n dust ustry ry y industry of indust stry st ry y endgame endg end e ndgame industry facilities (Pennings (P (Pennin nin i n ngs gs and d MTG: c con o on nsol lida idatio i tion i n manageconsolidation Puranam; ; Stieglitz; monopoly GE: #2 in mentLind nd; ; Christensen; Chri C ristensen; Lind; (Krger) (Kr ger) breaking each Rose Ro R senberg) Rosenberg) industry Change nge ge Reconfigure R econ nfi igu ure e in ust ind u ry conduct industry Wal-Mart: indu ust try y industry massive (von (vo (v on Ne on Neumann, eumann, eumann, , value chains chains IKEA: ( orgenstern; rgen Morgenstern; discounting packaging M Ghem em mawa awat; Chussil; ; Ghemawat; (Porter; (Porter r; Jonk; r; Joninnovation
J M oore; oore ;C Ch hrist ristens e n) ense J. Moore; Christensen)

Shape the industry

Toyota: new Grow in c Grow G Gr core, ore re, drivetrain Pursue Pursu sue ed dynamic dyn dy ynamic Position to build bui ui ild adjace adj ja ace ce ent n bus sin ine i ne ess, s adjacent business, s str trate trate e ZARA: egies strategies move with compe etitiv ve ve competitive and nd s st tep out ut t step fads advan d nt ntag ge Carrefour: advantage (Doz (D Doz et al; Doz Do retail (Andrew; (Andrew w; Wernerfelt; w; Wer W er rne nerf rfelt; elt; Carp pe ent n nt ter te t r et al; Carpenter
(Porter; Krge Krger) ger er) er r)

Orie esek se ek k and d Schw warz ar arz; Oriesek Schwarz; Pfef Pfe eff fer, S alanc nci nc cik ci k) k) Pfeffer, Salancik)

Lockheed Create C re eate Martin: Ryanair: Create C Cre Cr reate e and B lue Ocean O n Blue Ocean Joint low-cost Google: purs sueStrike pursue o pportunities pport pp tunities opportunities within travel preferre preferre eFighter ed d future future preferred mobile (Kim Kim m and M Mauborgne; au uborg borgne; (Hamel, P Prahalad, rahalad, Malaysia: devices Ch Chri hrist sten tensen; ten te sen; Christensen; Krat tzert) city tz Kratzert) Cyber Schumpeter r; von Hippel) Hipp Hip ipp ppel) el Schumpeter; FedEx: overnight Cross Cro Cr ro oss th the mail c chaYouTube: ch sm m with delivery chasm Think nk k Apple: big big massive i nnov vative innovative la ateral for and lateral iTunes pr p rogrowth ducts products legal music (Schmitt; (Schm (S mitt m itt; de Bono) download (Moore; (M (Moo Moore; e; ; Arthur) A thur) Arth ) Shell: Prepare P re repare for energy mult tiple multiple future scena arios arios scenarios
(Kahn; d de e Geus G Geus, eus, us, s, Wilk W i kin kin nso son) Wack; Wilkinson)

Adapt within the industry

; Viguerie Vig Vi V gu gu uer ue er erie et al; Zook; Dean ns, , Krger Kr Kr rgSkanska: rg er et al) Deans,

construction

Li L Lind blom om m; Qu Q inn; Lindblom; Quinn; Mark kides des) ) Markides)

Bertelsmann: new media

DHL: Identify Id dentif fy and logistics ada a d pt to da adapt profit prof fit f it i t patterns pa pa atterns tt rns tte tterns s
(Slywotzky) (Slyw wotzky) wo k )

Deploy y ba battle b attl ttle e strate egie ie es strategies

(Sun Tzu; C Clausewitz; lausewitz; McNeilly, Welch; McNeilly, El-K Kadi) El-Kadi)

Implement Implem lem ment en an Deploy Deplo oy real evo olu uti ut ionary io evolutionary options s-based options-based strategic gic c pr p ocess process Microsoft: strate egies egies strategies multiple (Arthur (Arthu u r et e t al; al; (Myers; S Schwarz; chwarz; z; ; operating Beinho ho ock cker; Beinhocker; Luehr rman) Luehrman) systems Holland; d; G Gel el ell-Mann) lGell-Mann)

Source: A.T. Kearney analysis

High analytical predictability

Low analytical predictability

Industry predictability for a relevant time horizon

A.T. Kearney

EXECUTIVE AGENDA

11

Selecting an entry lens (or strategy school and framework) is a critical step in the strategydevelopment process. Applying additional and complementary lenses enriches our industry understanding and increases our options by helping us compare and validate the analysis. Sequencing bias problem. Conducting a comprehensive industry analysis before you generate your companys potential strategic options downplays your companys integral role in the industry. Considering industry analysis while you devise strategic options, however, has many advantages, as a companys strategic initiatives can often have a material impact on the development of the future industry generating reactions from major competitors and stakeholders. Different approaches problem. It makes little sense to have different approaches to developing corporate, business unit and even product strategies. The issues and concepts

needed are very similar but act on different levels of granularity: corporate strategy deals with a collection of business units; businessunit strategy deals with a collection of product areas; and product-area strategy deals with a collection of products. An effective strategic process is explicit and easily understood. Our recommended approach is outlined in figure 5. The first step identifies, on a high level, the companys strategic intent and assesses the likely industry predictability. This step will help you select the appropriate entry lens for the more detailed analysis you will conduct to determine options. The strategy school is identified this way for prime inspiration, but is then customized according to the companys unique challenges and objectives. It makes little sense to perform an industry analysis without considering the various strategic options. Devising an ambitious M&A strategy to consolidate the industry without considering

FIGURE 5

Three-step approach to strategy development

Define strategic intent, industry context and appropriate entry lens

A. Perform company analysis Consider Desire Need Ability C. Perform competitor analysis Identify rivals strategic positioning (in chessboard) Develop view of the future and ambitions D. Conclude appropriate entry lens

Perform industry analysis, generate options, and develop an enriched industry perspective
A. Perform entry-lens analysis, synthesis; create options
Adapt or shape

Evaluate strategic options against company DNA, finalize strategy and establish governance
A. Evaluate strategic options against company DNA B. Finalize strategy recommendations C. Establish governance model Includes: Implementation plans Resources Monitoring, feedback and control Steering responsibilities

Predictability

B. Perform industry analysis

B. Develop enriched industry perspective and options portfolio

Adapt or shape

Consider Adapt or shape Environment Demand Offering Competition Suppliers Predictability Actions (your own)

Predictability Source: A.T. Kearney analysis

12

PLAYING ON THE NEW STRATEGY CHESSBOARD

other players likely responses is not very useful. In most cases, additional lenses enrich your understanding of the industry and increase the number of potential strategic options. The final step is always validation, where we match and test strategic options against the companys DNA. No strategy will ever be implemented that the leadership team and primary owners dont feel a need to pursue or dont have the capabilities to implement. Even

in predictable industries, a comprehensive governance plan will help steer, monitor and adjust the implementation as necessary. Just as skilled craftsmen control their tools and know when and how to apply them, the Strategy Chessboard gives structure to the toolbox of available strategy schools of thought. Strategy teams can design and implement change projects that are aligned with the companys position, uncertainties and aspirations.

Consulting Authors THOMAS KRATZERT is a partner in the European strategy and communications and high-tech practices.
Based in the Stockholm ofce, he can be reached at thomas.kratzert@atkearney.com.

MICHAEL BROQUIST is a principal in the communications and high-tech practice. Based in the
Stockholm ofce, he can be reached at michael.broquist@atkearney.com.
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EXECUTIVE AGENDA

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