Economics lacks meteorology’s scientific basis, although many economists make their money forecasting where the business cycle is headed (albeit with less success than weather channels). This economist has little faith in economic predictions today as they are based primarily on past trends and relationships, captured through rigorous econometric models. The depth of this recession, its causes and its global impact in a world far more interconnected than any of us understood suggest that the present will be a distinct break from the past. Time to throw out the models, as the author of Black Swan advises.
If uncertainty reigns, what are we to do as leaders and recommend as their advisors?
This is the subject of a blog-conversation I will be sharing with two other blog authors whose insights I admire. Hopefully others will discover and join our conversation.
Bill Welter is one of the most well read consultants I have ever met. His book, The Prepared Mind of a Leader: Eight Skills Leaders Use to Innovate, Make Decision and Solve Problems, written with Jean Egmon is very timely as the quality of leadership decision making is paramount in today’s uncertain world. His blog on leadership is a must-read.
Fred H. Schlegel is managing partner for JSMI Consulting (a strategic business consulting agency) and Vice President of Business Development for GenUs BioSystems (a biotechnology contract laboratory). He is the kind of marketing thinker I wish I’d known when I was a marketing director. He aims to change the conversation companies have with their customers and create a more meaningful organization for customers and employees alike. His blog reminds me of the power of marketing concepts and why marketing-thinking should be infused throughout an organization.
Brad Shorr a wonderful web, blog and marketing consultant who reads all three of our blogs suggested we hold a conversation on line. Bill, Fred and I chose the topic “The Uncertainty Paradox.”
My role in this conversation is to write about strategy in the context of escalating uncertainty. On one level this assignment feels very straightforward. After all, strategy at its core is about dealing with uncertainty so as to invest organizational resources in the best option(s) going forward given that uncertainty. Scenario-based planning is one of the tools strategists use to help leaders prepare for and make decisions when the return on investments depends upon what outcomes emerge for key uncertainties. (For more background see “Anticipating an Uncertain Future: Scenario Based Planning”, a PDF you can find on my business strategy publications page.)
The first question that comes to mind then is “How do business models and business model innovation change in a world of escalating uncertainty?”
The business model carves out the scope of the business you are in. In a more uncertain world it’s important to define the scope of your business more broadly – around a purpose more than product or service categories – to take into account that industry boundaries may change or that you may want to change them. In a market where obesity may wreck the US economy, for example, would Coke be better off with a business model scope of
- carbonated sodas
- beverages or
- refreshing breaks?
The business model also carves out the basis on which you want to win customers, what I call the value promise. In a more uncertain world, your people need a sense of direction more than ever. A value promise provides that, although how you deliver on the value promise, the customers you sell to and how you reach them may all change.
I’ve argued in other posts that your business model must evolve as your external environment changes and competitors copy your good ideas. Just as a product or service can become commoditized, so can a business model. Companies that are flexible – that are willing and able to evolve their business models will have an advantage in more uncertain times.
Finally business model innovation becomes more important as uncertainty grows. Uniqueness, relevancy and defensibility are important attributes of a strong business model. Changes in the external environment can alter any or all three very quickly, demanding a response on the part of your leadership team.
If your company’s been basically doing operational planning under the guise of strategy, it’s time to take a time out and learn what strategy is all about – business model innovation.
How do you think strategy changes as uncertainty increases?
For insight on business model innovation and business model differentiation, read my recently released book, Beyond Price.
Brad Shorr says
Kay, Perhaps as a combination of uncertainty and the nature of the internet, strategy today seems to lean in the direction of greater specialization, “long tail” search marketing, brand extensions into ever narrower niches, etc. Do you think uncertainty is a driver in all this? It seems that it would feel more comfortable to master a small, well defined market segment rather than do battle with shadows in the vast and chaotic whole.
Kay Plantes says
Interesting insight Brad. I understand there is a lot about long tail, give away for free and ask the long tail to pay for premium, etc. innovations in marketing. But then you see the IPhone and this whole idea of everything must be niche seems a bit of a cliche. If you are going up against a giant. Yes, win on niche. I think the way through the uncertainty is to declare an aim, know true north and then be flexible for the different wind shifts along the way. Remember, the future is NOT defined. It’s not a maze and we need to find our way through it. It is an uncharted field. We create our future in the context of the larger containing system of which we are a part. It’s taken me a lifetime to learn this, often the hard way. –Kay
Bill Welter says
Getting an organization to shift its thinking from product/services rendered to “purpose” is a serious leadership issue. I’ll make sure to touch on this in a subsequent post.
Kay Plantes says
Yes Bill it is a huge leadership issue. Strategic leaders think of their company from the perspective of its skills and competencies and purpose and a very broadly defined frame of reference for what it does. You cannot be strategic with narrow thinking. Kay
Fred H Schlegel says
Building the flexibility to deal with massive uncertainty into the core of your strategy is a neat trick. Your post got me thinking (again) about the news industry and the way technology has completely disrupted their monetizing strategy – now most of the financial rewards of their work is passing to Google, broadband suppliers and computer mfgs. They are now caught between a model that is failing fast and a new model that appears to pay pennies on the dollar with loads of questions around how that revenue will be received in our new ‘link’ economy. The path forward has to be an enterprise wide strategy of some sort that questions past industry ‘truths’ and finds value from multiple sources, or we’ll end up with another round of brands sold off simply for the value of the letters in their names.
Kay Plantes says
Being in the newspaper industry today must be how one-of-one book printers felt when the printing press arrived. Ultimately the change will be good, we hope, but not easy.
I’ve seen a # of business model innovations. One– Newspapers copywrite their original material and they get a share of ad revenue when their material shows up on other websites. This will require legislation. Two–free and premium subscriptions which is what Harvard Business Review, McKinsey and Wall Street Journal appear to be doing. Three–non-profit foundation based for investigative journalism. But like health care, we can’t assume that a capitalist society will generate what’s best when a public good (like health care or news) is involved. We need government policy to set incentives that advance national versus personal interests.
One observation: Newspapers used more and more “purchased” content and less and less original content over the last decade. That made them in some ways into distribution channels rather than news sources. The internet changed the distribution channel. The loss of an ad-sponsored distribution channel is the newpapers’ revenue problem. ESPN plans to move into on-line local sports (including high school). This I fear will be the kiss if death for any newspaper without original content in other sections of interest to readers.
For me, I adore newspapers, so I find this entire thing sad. We will lose newspapers before we have websites build the credibility (editors, principles) that enable us to separate fact from fiction on line. Credibility is what the newspapers have as an asset–can they leverage it fast enough into a new business model? Thanks Fred. Kay