What’s Next for Strategy?

Snow melts fastest from the edges. How do you get out to those edges and put yourself in a position where you can actually see what’s going on?

Rita Gunther McGrath

Author and Columbia Business School Professor

Rita Gunther McGrath is a world-renowned thought leader and a professor at Columbia Business School, where she directs the Leading Strategic Growth and Change program. She is a premier expert on leading innovation and growth during times of uncertainty. She regularly contributes to Fast Company, the Wall Street Journal, and Fortune, and is one of the most published authors in the Harvard Business Review.

 

My latest book, Seeing around Corners: How to Spot Inflection Points in Business before They Happen asks the question: How do
you think about your brand strategy in a world that no longer has sustainable competitive advantage to rely on?

Put simply, what do we do when we can’t rely on the strategies that used to work for us?

In all markets, innovations happen. These innovations allow companies to create something new – after which they can enjoy a commercial advantage, for a while. But then something changes – it could be a shift in the environment, technology, regulation, or customer’s needs.

That’s a strategic inflection point – it makes the “taken for granted” assumptions in your business less relevant.

Any business is born at a particular point in time, when some things are possible, and some are not. An inflection point changes assumption around what is possible: the digital revolution and the direct-to-consumer revolution are familiar examples. Understanding this pattern of transient advantage is critical.

Over the years, what happens to excellent businesses is they optimize around things that are success recipes. An inflection point shifts that success recipe. Sometimes it can take a company by surprise – because it feels as though it came  out of nowhere, yet if you had been paying attention the signals had been building up more and more strongly over time.

Let’s take an example: When YouTube emerged as an innovation, was Gillette’s CMO worrying about whether it threatened the investments made in brand equity and management? Possibly not. We all believed that YouTube was just cat videos. When Facebook emerged, we believed it was just pictures of college students. Gillette executives had built their brands (and done an excellent job) based on what was possible at that time. No one thought that Internet information companies were going to create changes in a business, like Gillette. And yet…

Back then, if you wanted to get a piece of film to hundreds of millions of people, you used to have to buy media; you used to have to have a whole creative department to get a message out. Today that is no longer necessary. The pathways to growth have seen radical democratization – and the barriers to market entry have been significantly lowered. The inflection points have changed the assumptions we held to be true.

So, Michael Dubin of disruptive, cut-price competitor Dollar Shave Club gets his video up on YouTube and Facebook, and uses Amazon Web Services to do the back-office operations. And many, many customers preferred it. Not the product itself, but the experience.

In the wake of smaller, more agile start-ups like Dollar Shave Club, Gillette’s market share has gone from 70% to 59%. What’s an incumbent brand to do?

When these inflection points are upon you, they feel as though they happened instantly, but they actually take a very long time to build up. The nature of a strategic inflection point is that if you get ready for it, it can take your business to new heights. If you put your head in the sand and say, ‘well, I’m not happy about this event,’ though it can be problematic. So how do you see those early warnings?

A major hypothesis is that if as an organization you can start placing small bets in advance on something that could be important down the road, that can help you from being blindsided by changes in your environment.

A good example of this would be Nike. If you look at the direct-to-consumer revolution, Nike started theirs in 1990 with Nike Town in Oregon – a small shop where they had built direct relationships with customers – and by 2006 they had started Nike+. They were connecting with customers directly, and today around a third of all Nike sales come from their direct-to-consumer channel. I would argue that it’s because all along they were investing in options that allowed them to benefit from this new way of doing business with customers. It’s a great example of how to get ahead of the game very early.

Similarly, Netflix has survived at least three major inflection points.

The first was the original concept – little red envelopes with DVDs in them. But you could keep the DVDs as long as you wanted, and when you returned one they sent you  the next one. That was a brilliant innovation because the insight they had about customers was that they didn’t necessarily need to watch the movie right away, they needed to know that there was a movie to watch when they had time.

The second major insight was that you didn’t have to deal with a physical movie. Netflix actually started with that idea back in 2000, even though the technology and the ecosystem wasn’t there at that point.

Then they decided it wasn’t enough just to distribute other people’s content, they rose to the challenge and started making original content which won awards and also upended the traditional sequencing model that underpins the broadcast business.

Now, though, ESPN Plus, Hulu, Disney and more are pulling their original content from Netflix and saying “now you can get it through our channels.” It’s going to be a very interesting battle to see who’s going to actually hang on to the consumer…

This is their next inflection moment and it will be interesting to see how a business that has traditionally dealt very well with changing market forces responds to new competition.

Andy Grove, the former CEO of Intel said something that I thought was wonderful. He said, ‘If you want to know where Spring is making itself felt, you must go to the periphery because that’s where the snow is most exposed.’

The way that I frame that is ‘Snow melts fastest from the edges.’ How do you get out to those edges and put yourself in a position where you can actually see what’s going on personally?

There are no answers in the building. You have to get out of your building and see what’s really going on. It’s so easy, especially the more frantic you get about e-mails and deadlines and meetings and global travel, to forget that that’s not reality. That’s not where your customers live – that’s where you live.

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