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 / Fourth Quarter 2001 / Issue 25(originally published by Booz & Company)


The New Strategy and Why It Is New

Now, competitive advantage is so transitory as to be meaningless. The accelerating pace of technology transfer, the velocity of communications, and the speed of global capital flows require companies to do much more than defend a static definition of the enterprise; they must continuously evolve from strategic position to strategic position. So, in addition to strategizing to capture value from the company’s current position, companies also must base their strategies, at least in part, on creating options to occupy future positions that may have value.

The Nokia Corporation, for example, was a small Finnish industrial conglomerate that transformed itself into the world’s leading mobile telephone company. But, even as it was solidifying its lead in the mobile market in the late 1990s, Nokia’s management was fully aware of imitators that could unseat the company. It’s no surprise that Nokia has been focused for several years on laying the groundwork for winning the next game — which it believes is 3G (third-generation) mobile communications technologies.

Navigating Value Constellations
Strategy also has its spatial dimension. When a company (or its business units) operated within a linear value chain, it was a relatively simple matter for a single firm to identify, secure profit from, and protect its value-added activities.

Now, the information and transaction costs that historically led firms to vertically integrate have declined to the point where firms, and even entire industries, have an impetus to dis-integrate. The linear value chain is, in many industries, developing into a three-dimensional value web or constellation, where both threats and opportunities can arise more easily in almost any one of a firm’s competencies or capabilities. Companies are thus changing from self-contained value-creation and -capture mechanisms into members of interdependent ecosystems wherein the responsibility for value creation and the right to value capture is continually negotiated among all participants.

In an economy of value constellations, companies increasingly must build extended enterprises, because competition is no longer between individual enterprises. For a contemporary example, consider the airline industry, where increasingly the battles are not between individual carriers, but among alliances of multiple carriers and the suppliers who support them.

As the constellation model indicates, there often is opportunity in moving from protecting the existing business franchise to creating and capturing new sources of value along the entire chain and across the total customer life cycle. There also is risk for a company in ignoring noncompetitive parts of its value chain, even though they may be distantly upstream or downstream from the company’s own operations. Simply knowing with whom you directly compete is not enough; understanding the defensibility of strategies along each of the value chain positions is important. The real war will be fought and won in the trenches of the value chain; from one situation to the next, the enemy may be the same or completely different.

Strategy + Transformation
Because strategies must be more dynamic than ever before, companies must mobilize their organizations to execute new strategies, often in situations where the risk–reward ratios are very different from those to which executives have been accustomed. At all times, a company should be in the process of transforming itself to occupy a new strategic position.

The experience of change-habituated industries like airlines and telecommunications will undoubtedly be replicated even in today’s more stable sectors. The three forces of upheaval will allow no reversion to the more leisurely tempo of earlier years.

Take, for example, the aircraft-engines industry. For years, engine manufacturers competed on the basis of product innovation, investing huge amounts of resources to develop engines with more power, greater efficiency, and better reliability. Yet manufacturers often were unable to capture the value created, most of which was passed through the airlines and then to consumers. Superior product functionality and performance advantages alone were short-lived, given relentless competition and shorter product cycles.

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