The Strategy of Change
A fundamental assumption underlying traditional approaches to strategy is that industry boundaries and economics remain broadly stable over time. This assumption is no longer realistic, given that digital technologies and other factors have caused the average age of the companies in the S&P 500 to decline from more than 60 years in 1958 to less than 20 years today. This has reduced the relevance of tools such as the GE/McKinsey matrix and the BCG Growth-Share matrix, the diagnostic power of which relies on relatively stable industry structures.
A second dimension on which strategy development has become more complex is the requirement that companies show that they are actively contributing to the broader society rather than simply serving as financial entities seeking to maximize their return on capital. The current emphasis on corporate purpose and environmental, social, and corporate governance are manifestations of the intense pressure companies are under to demonstrate their social legitimacy.
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As a result, business leaders need to evolve how they think about strategy in two important ways to be relevant in today’s dynamic and complex environments:
- First, their focus needs to shift from what is stable to what is changing — and specifically how these changes may neutralize historical sources of advantage and how they may give rise to new opportunities.
- Second, they need to broaden the number of stakeholders whose needs and potential contributions are evaluated during the strategic planning, review, and refinement process.
In our previous article, “Changing How We Think About Change,” we outlined a framework to help business leaders evaluate the relevance and sustainability of their current strategy and identify what form of strategic adaptation is appropriate to their situation:
- Magnitude: “We need to strengthen our execution of the current path.”
- Activity: “We need to adopt new ways of pursuing the current path.”
- Direction: “We need to take a different path.”
The MADStrat framework uses two perspectives to determine what form of change (magnitude, activity, or direction) is appropriate in a given context:
- Fit to purpose evaluates your market context and involves assessing the closeness of fit between your offering and the needs of customers (both now and in the foreseeable future), and how your business model also delivers value for other stakeholders.