Professor Markus Paukku and professor Liisa Välikangas argue, that by shifting our attention to the fringes of our industries and attuning ourselves to novelty we can stand tall and learn from outliers and discover new strategies – strategies that stand out from the average.
“Your main priority is not to do anything that would get you sued.” This was the candid perspective regarding corporate board membership one of the world’s foremost strategy scholars. (No wonder the field suffers from the occasional identity crisis!)
This account of corporate leadership describes a world of tempered ambition where safe decisions, supported by an overabundance of data preferably grounded in precedent are the foundations for strategy. Trying something different, unproven or even new is not only seen as dangerous but even potentially litigious.
The Genius of Strategy
This perspective, however, does not make for a fertile ground for strategic novelty. Differentiation from the competition, the very purpose of strategy requires some risk and stretch beyond shared best practices and the current conceptions of the possible. Strategy requires more than talent. Schopenhauer was quoted as saying, “Talent hits a target no one else can hit. Genius hits a target no one else can see.” Novel strategy imagines a business in a way that others did not see or think possible or probable. In today’s Cambrian explosion of new business models and organizational forms it is this imaginative genius that leads to success. Boards need the courage and perspective to look for novelty beyond known strategy.
Novelty is, unfortunately, often seen as all too dangerous in present day corporate strategy. Today’s management innovations, big data or evidence driven decision-making, are still often constrained by Taylorist ideals of quantified control – if you can’t measure it you can’t manage it.
However, today we find ourselves drowning in metrics and data, yet parched for management ideas. Our limited exposure to truly novel business strategies is odd considering of the wealth of information constantly available across a global diversity of contexts, the complex dynamics of evolving markets, and the daily attempts at disruptive entrepreneurship. All too often we cannot imagine a future beyond the comfort of the seemingly comprehensive numbers generated by our current management. We hide in the safety of numbers which likely hide the innovative new business frontiers out there.
We find ourselves drowning in metrics and data, yet parched for management ideas.
The Frontiers of the Possible
So where to find this imaginative genius of the improbable? It is at the far-away frontiers of the possible where novel strategies are attempted, tested and ultimately found. It is here that outliers characterized as far from the industry norm are pushing the boundaries of strategy and experimenting with novel business models.
The search for strategic novelty need not be a question of aimless foolhardy exploration. The search for outliers and learning should be a systematic mapping of your organization’s strategic boundaries and the options beyond. This search is not blind but guided by the vanguard organizations that we shall call outlier organizations (Strategic Innovation, Pearson/Financial Times Press, 2015). We aim to learn to identify experimenters increasingly different from our known practices and closest to the origin of what may well become future best practices. The discovery of this novelty alone does not make it important – finding it first, before the novelty fades is strategically important. Thus, this article challenges board members to not only learn but to outlearn the competition.
Dare to learn from something incomprehensible, improbable or even impossible. Learning from the ordinary is not sufficient to gain a strategic advantage. Uncovering a novel insight, such as a radically new business model that can disrupt your industry, can lead to the development of a truly differentiated strategy all while the competition is still left perfecting yesterday’s strategy. Standing apart does distance you from perceived safety of your peer group – isn’t this the point of strategy?
The Illusion of Security
“A little bit cheaper or a little bit better” presents your business as safe, not too far out there and easy to analyze and invest in. However, shouldn’t we also ask how risky is adopting generic, boilerplate strategies if they are shared by all? Upholding similar strategies as your competitors will at least ensure you will not be the only company to fail.
Strategists need to dare shift their perspective from the admittedly important competitive dynamics at the core of their industry to the fringes of where the industry is headed or from where disruptions may arise. The risk of strategists becoming overly focused can cause myopia on a firm level but and also lead to systemic vulnerability on an industry level. Instead why not learn to increase the chances that you exposed to information, and dare to tune your mindset to the opportunities that may well allow you to make breakthroughs that the competition is still blind to.
So what is holding back leaders from reimagining strategy and discovering novel, truly groundbreaking business models? How does one go about looking for and learning from strategic novelty? How to break free from the gravity of stale, stifling strategy? The challenge for meaningful learning with strategic benefit is twofold: a question of scope and the challenge of timing.
Tune your mindset to the opportunities that may well allow you to make breakthroughs that the competition is still blind to.
First, a question of misdirected focus. Strategists have developed rigorous tools and mechanisms by which to extract statistically, and indeed, sometimes strategically, significant correlations from large samples of firms. However, the data for the future does not yet exist. As a result, strategic management research has become skilled at studying past averages at the expense of future emerging categories. To compound the problem the existing data all too often examines typical results hoping to unlock the mechanisms that enable atypical performance –examining with great rigor that what we find under the proverbial streetlamp.
Instead, we argue that we can take steps to return to first principles of strategic innovation and learn from exceptionally different businesses that we consider Outliers. By definition outliers are by some measure different in their approach to strategy compared to the typical firms in their industry. Sometimes they are the beginnings of an altogether new industry; sometimes their organizational designs and business models remain merely that, an interesting if unsuccessful experiment. Yet even when they fail, Outliers signify new opportunity frontiers. Outliers are often quickly followed by others who may succeed where the pioneers failed. (Digital music hardly faded with Napster)
Avoid Immunization to Novelty
Many organizations have developed so-called corporate immune systems to protect a company’s internal cohesiveness from potentially disruptive practices. However, the dogmatic focus on existing strategy and dismissal of new types of data can lead to some catastrophic surprises. For example, despite their tremendous resources Cold War western intelligence organizations were largely blindsided by the collapse of the Soviet Union. Agencies found themselves handicapped by their analytic tools. The blindness by which organizations clung onto their models did not allow for the analysis of a rapidly changing world. We were surprised by the largest geopolitical tumult of the last half-century. Economies such as Finland’s plunged into recession as an export market collapsed almost overnight.
Some changes may initially seem inconsequential. Unnoticed technologies and businesses may well be sequestered, yet thriving at the fringes of industries until conditions change that tip the balance and disrupt industries.
The next game-changing strategy is likely to surprise us again.
Commit to Learning
Committing time and resources to learning anew does require courage and entail some risk. When the world is preoccupied with hard facts it is risky to look at unproven business models and technologies on, or even beyond, the horizon. Industry and academic strategists have often scoffed at the statistical insignificance of a outlier firms with difficult to recognize practices. A study of the Venture Capitalist industry found a similarity bias resulting in investors arriving at overly positive evaluation of targets with which they shared familiar characteristics. This inherent bias combined with the corporate conservatism has often led to the belittling of business practices that are seen as too “out there” – or simply too geographically far away – to be quickly and conveniently understood. They are thus all too easy to dismiss.
When Does an Outlier Become Mainstream?
As an example, when did Airbnb become strategically significant? Before the company surpassed its first billion of its current twenty-five billion dollar valuation? Today it is clear that Airbnb’s different business model is not just “a little bit cheaper or a little bit better” than its incumbent competition but radically different. It is one of the world’s largest accommodation providers yet does not own the rooms (or their costs) that it provides. Before it became common knowledge throughout the industry and beyond, the sharing-economy business model required business acumen to execute, and to strategize against. Indeed, such is the impact of its disruptive business model that the competitive dynamics sometimes surpass the bounds of current analytical tools. Thus, the challenge is to gain an competitive advantage by updating the strategy tools themselves. Business leaders can then not only focus on the minutiae of current competitive dynamics but also capture the emergent non-average strategies and businesses that are, with the substantive objective of developing and understanding of strategic novelty in the process.
Novelty’s Limited Shelf-Life
A second strategy challenge is novelty’s limited shelf life. Just like Airbnb’s strategy, which rapidly progressed from idea to well-known business case, the novelty of strategies is fleeting. Those who can identify newness in the strategies of outlier companies are in a position to gain a first learner advantage. However, once vetted even the most disruptive business models are available for all to see. Yesteryear’s once innovative best practices of M-Form multinationals and matrix organizations may now seem quaint and distant. Indeed, one has to face the fact that today’s cutting edge strategies also have a limited future relevancy. It is impossible to do a Microsoft again. Learning from Apple’s resurgence is highly questionable: Should we become like Steve Jobs? Strategy is not a finite field of expertise that can be mastered for once and all. Instead, strategy is a competitive, relative game that keeps evolving. After all, not everyone can gain an advantage from the same best strategy, and the next game-changing strategy is likely to surprise us again.
In the pursuit of strategic novelty we must remember the words of futurist Gibson as quoted in The Economist, “The future is already here – it’s just not evenly distributed.” It is up to the Board Members and their company’s executive leadership to determine when this future, already populated by outliers, become strategically visible .
Be Different, Stand Tall
Too many organizations reheat stale business models and strategies and, in doing so, confuse a basic underlying premise of strategy. The objective is to be different, successfully. We argue, that by shifting our attention to the fringes of our industries and attuning ourselves to novelty we can stand tall and learn from outliers and discover new strategies – strategies that stand out from the average, all while those with the same “secure” strategy race each other in eroding their profitability.
Teema-artikkeleita julkaistaan liittyen Directors’ Institute of Finlandin ajankohtaisiin teemoihin. Ensimmäisen vuosineljänneksen teema oli Hallitus ja asiakas. Toisen vuosineljänneksen teema on Hallitus ja innovaatiot. Teema-artikkelit julkaistaan kokonaisuudessaan Boardview-lehdessä kesäkuussa. Kirjoittajat ovat DIF:n valitsemia asiantuntijoita.