Strategy Innovation and the Quest for Value
Profound change in the competitive environment has produced a Cambrian explosion of new organizational forms, institutional relationships, and value-creating possibilities. Schumpeter’s gale has become a hurricane. Whether you call it the “digital” economy, the “knowledge” economy, or just the “new” economy, it seems clear that we are on the cusp of an industrial revolution as profound as that which gave birth to the modern age. But, of course, we already know this. We’ve all read Alvin Toffler, Nicholas Negroponte, and Wired. The deeper question is, who will profit from this sea change? Which companies will sail on the new winds of change and which will be driven onto the rocks of irrelevance? I believe that only those companies that are capable of reinventing themselves and their industry in a profound way will be around a decade hence. The question today is not whether you can reengineer your processes; the question is whether you can reinvent the entire industry model — as Amazon.com has been attempting to do in book selling, as Enron has done in the energy business, or as (TC)2 hopes to do in the clothing industry.
In industry after industry, it is the revolutionaries — usually newcomers — who are creating the new wealth. Of course, there are examples of incumbents like Coca-Cola and Procter & Gamble that are able to continually reinvent themselves and their industry, but all too often, industry incumbents fail to challenge their own orthodoxies and succumb to unconventional rivals.
The point seems incontestable: in a discontinuous world, strategy innovation is the key to wealth creation. Strategy innovation is the capacity to reconceive the existing industry model in ways that create new value for customers, wrong-foot competitors, and produce new wealth for all stakeholders.1 Strategy innovation is the only way for newcomers to succeed in the face of enormous resource disadvantages, and the only way for incumbents to renew their lease on success. And if one redefines the metric of corporate success as share of new wealth creation within some broad opportunity domain — e.g., energy, transportation, communication, computing, and so on — the innovation imperative becomes inescapable.
Today, many companies are worrying about EVA (economic value added), but EVA — earning more than your cost of capital — is just the starting point.
References
1. I first introduced this concept in:
“Strategy as Revolution,” Harvard Business Review, volume 74, July–August 1996, pp. 69–82.
2. “Strategic Planning,” Business Week, 26 August 1996, pp. 46–52.
3. S. Kauffman, At Home in the Universe: The Search for the Laws of Self-Organization and Complexity (New York: Oxford University Press, 1995)
4. I will leave the terribly profound question of where the “rules of order” come from to others. My personal belief, though, is that since the rules of order drive the system, they cannot emanate from within the system.
5. M.M. Waldrop, Complexity: The Emerging Science at the Edge of Order and Chaos (New York: Simon & Schuster, 1992), pp. 241, 242.
6. C. Langton, in Waldrop (1992), p. 279.