Your strategy Needs a strategy (Reeves, Haanvaes and Sinha , 2015)

Chapter 5: Shaping

Be the orchestrator
Novo Nordisk: Danish insulin producer created a blue ocean in the insulin industry It
unlock a leap in value for a previously overlooked set of buyers. Doctors are target buyer
groups since they affect insulin purchasing decision directly. No one will take the
medication without the doctor’s prescription.

Novo Nordisk, however, saw that it could break away from the competition and create a
blue ocean by shifting the industry’s longstanding focus on doctors to the users – patients
themselves.

NoVo Pen the first user-friendly insulin delivery solution that was designed to remove
the hassle and embarrassment of administering insulin. Patients could take the pen with
them and inject insulin with ease and convenience without the complexity and social
embarrassment of syringes and needles

Novo Nordisk’s strategy shifted the industry landscape and transformed the company
from an insulin producer to a diabetes care company. Novo Pen and the later delivery
systems swept over the insulin market. Sales of insulin in pre-filled devices or pens now
account for the dominant share in Europe, Asia and Scandinavia, where patients are
advised to take frequent injections of insulin every day. Today, almost thirty years since
its initial blue ocean strategic move, Novo Nordisk remains the global leader in diabetes
care, with some 70 percent of its total turnover coming from this offering, which
originated largely in the company’s thinking in terms of users rather than influencers. In
1995, the firm opened its first production site, and in 2002, Novo became the first
pharmaceutical multinational to open an R&D center in China.

Shaping was a good approach for Novo to penetrate the market. Shaping in this context
was building a relationship with ministry of health, medical association for diabetes and
patients association. They started to educate doctors about diabetes, teach them how to
treat diabetes. Eventually they end up buying their products.

Shaping is accompanied by

- Collaborating with Others to take risk

- To supply complementary capabilities and resources Shaping
firm operates under
- High degree of unpredictability
 - Influence but cannot control /because of multiple stakeholders
and flexibility.

1960s: Bruce Henderson already drew elaborate comparisons between competition in the
natural and business spheres.1980s: Stakeholder management theory, or the notion that
external stakeholders should be considered in designing business strategy. Initially this
concept did not focus on the co development of markets. The early 1990s saw an increase
in high-tech businesses using “deconstructed” business models, with one company
orchestrating the activities of many others. In 1999, BCG’s Philip Evans and Tom
Wurster, in their book Blown to Bits, explored how the new economics of information
redefined the link between businesses and their customers, suppliers, and employees The
authors suggested new models for competition in digitally disrupted industries, including
the “orchestrator” model, which is central to shaping strategies. In 2004, C. K. Prahalad
and Venkat Ramaswamy introduced the concept of cocreation of products between firms
and their customers.

When to apply Shaping:

1. when there is an opportunity to write or rewrite the rules of an industry
2. highly fragmented, young, dynamic industries, freshly disrupted industries, and
emerging markets

Such industries are malleable, barriers to entry are often low, products are new to
regulators, and it is not obvious which firms or business models will come out on top

Two other factors are critical: timing and your ability to orchestrate.

A firm may gain influence if it innovates disruptively to put itself at the center of an
ecosystem. Alternatively a firm may secure influence through knowledge or scale
advantage through the control of dominant platform for interaction or by serving as an
access point to a fragmented customer of supplier base, like a supply chain orchestrator.
Lack of influence disqualifies firms from leading the shaping approach, but not from
playing a role in an ecosystem.

Many firms build attractive business by participating in other firms’ ecosystem and
utilizing an adaptive or a classical approach,

Example: Zynga, Playfish and Playdom participated in face book’s platform as app
developers.

Why the Ecosystem Matters: Red Hat, software provider orchestrating the development
of open- source software the company supports software development by outside
developers engages with enterprise communities it monetizes its investment by selling
subscriptions for professional-grade versions of free software.
How did Red Hat build a successful business? Red Hat has developed a clear,
collaborative vision. The firm constantly and deeply engages its external collaborators.
Red Hat never acts without considering the implications for its stakeholders, especially
software developers. Developing and evolving a win proposition.

Red Hat as an orchestrator believes it can develop, launch and adjust software much more
quickly than traditional closed- source competitors.

The shaping approach in practice: Strategizing

For most firms shaping is the least familiar approach to strategy. In a shaping business
situation the following observations holds true:

 The industry holds unexploited potential.

 The industry is shapeable through collaboration.

 The industry’s regulations are shapeable – try to change the external

environment by influencing regulations.

 The industry does not have a dominant player or platform.

Unlike classical strategy, shaping strategy has no clear separation b/n a strategizing
phase and execution phase.

The shaping strategy emerges from continuous iteration of three elements:

1. Engagement

2. Orchestration and

3. Evolution of the ecosystem.

Steps of strategy setting for the shaping approach:

1. Engaging external stakeholders to develop a collaborative vision of the industry’s

development.

2. The orchestrators builds and operates a platform that brings stakeholders together
and allows the orchestrators to exercise its influence to create and extract value from the
ecosystem .

3. The orchestrator evolves the platform and the ecosystem by scaling and extending it
and keeping it flexible in the face of external change.
Engaging stakeholders

The benefit of shaping strategy largely comes from harnessing the resources and
capabilities of other powerful stakeholders. So the orchestrators must engage others in
the setting of strategy. The orchestrators need to develop a collaborative shared vision,
understanding and incorporating those stakeholders’ interests launching the ecosystem at
the right time.

A shaping vision outlines how the intended collaborators in the ecosystem solve a
problem dramatically, how they can stimulate demand and how build the economic
infrastructure to address it.

The vision needs to be mutualistic, emerging either through iteration with stakeholders or
from within the orchestrator’s firm. The shaping vision needs to be win-win , the
orchestrators needs to share resources without the expectation of immediate return and
these collaborative qualities build trust, goodwill, and influence. The shaping vision can
emerge singularly or collaboratively.

Classical Vs Shaping Strategy

Classical strategy is often called competitive strategy. Winning classical firms
concentrate primarily on exceeding their competitors.

Shaping strategy: is essentially collaborative. Competition may be a limited concern

because of the strong network effect inherent in an ecosystem structure.

The greater the number of participants, the greater the value of the system to the participants.
The shaping vision does not imagine a precise end state or product spec. Rather it details
the ecosystem’s mutual value proposition how value is created and shared and identify
Stakeholders and understand their Interest. The interest of the stakeholders in the
ecosystem should be aligned with those of the ecosystem as a whole.

Hence, the orchestrating firm should map:

 How the interest of the stakeholders fit with a potential ecosystem.

 How they contribute.

 How they might influence other players.

 Are the stakeholders interested in obtaining access to your customer base,

brand or IP?

 Do they want to leverage your firm’s scale or resources?

Launch Collaboration at the Right moment. Timing is key;

 Act too early – market conditions may not be favorable enough yet to compel
others to join.

 Act too late – an alternative platform with a different orchestrator may have
already gained prominence.

Orchestrate
Steps for Orchestrating:

 Building a platform –Its primary goal is facilitating the direct interaction b/n
ecosystem participants or b/n participants and customers. The ideal platform
reduces transaction cost for stakeholders and management cost for orchestrator –
given large ecosystem complexity.

Successful platform often provide feedback to participants without direct explicit

mandate from the orchestrator. Platforms are digital market places that facilitate
interaction at low cost and provide instant market based feedback.

Operating a Platform - Building a platform is a start; shaping firms need to actively

manage the platform through selective control of few key variables, focusing on locking
in stakeholders, monetizing value created, and adjusting the system to maintain win-win
outcomes. Successful ecosystem orchestrators often control the rules and mechanisms of
interaction and this allows them to catalyze, rather than directly manage in detail, the
evolution of the ecosystem.

Effective platform management keeps value within the ecosystem by

• making participation in the ecosystem attractive,

• maximizing network effects that discourage potential rival shapers from

building a competing base,

• limiting value portability beyond the collaborating partners.

Successful shapers do this by sharing their resources “with strings attached”—offering

things that only have value inside the ecosystem, like platform-specific tools for app
developers.

Evolve the Ecosystem - The power of a shaping strategy lies in the depth and breadth of
stakeholder contributions, which support the ecosystem’s fast growth and quick
adaptation in response to external change.
Shaping firms should also persistently invest in opportunities to maximize network
effects by extending or scaling the platform. Once the system has gained critical mass,
the orchestrator must keep the ecosystem flexible—shaping environments change, and
the ecosystem must, too. As the platform grows, the orchestrator should allow the
stakeholder mix to change to maintain alignment.

Shaping Approach in Practice: Implementation

Since the direction of a shaping strategy emerges from the frequent engagement and
orchestration of an evolving set of collaborators, the approach needs to be embedded in
every aspect of the “organization” to be effective.

A shaping strategy must however reach beyond firm boundaries, from fostering external
innovation to developing an open organizational structure to leading with an eye toward
inspiring and influencing other ecosystem participants.

Information - An ecosystem orchestrator must facilitate and monitor the relations

between multiple parties and catalyze these interactions to create mutually favorable
outcomes. Information is the lubricant that smoothes the interaction between orchestrator
and stakeholders, facilitates coordination, and, as the vehicle for constant feedback,
stimulates collective learning, thereby increasing the perceived value of the platform.

Innovation – It happens externally it draws on the diversity of participants in the

ecosystem but its catalyzed by the shaping firm. The orchestrator catalyzes innovation
by putting in place incentives and providing feedback to stakeholders to allow them to
innovate in ways aligned with the interests of the ecosystem.

However, not all innovation happens externally. The orchestrator’s innovations are
mostly second order designing and improving the business model and interaction
platform, which reinforces the shaper’s right to orchestrate the ecosystem.

Organization - Shaping organizations need to be open to and intertwined with the

external environment in order to extend their reach beyond the boundaries of the firm and
build a covenant of trust. This means that orchestrators have few organizational
boundaries. They leverage and share resources and knowledge externally and give
up a certain degree of control by leveraging the same market-based mechanisms as
the ecosystem itself .

Culture - The culture of a shaping firm should look outward; have an inclusive attitude
toward external parties. It should also encourage both catalysis rather than control in
stakeholder interactions and collaboration rather than competition.
Shaping cultures encourage employees to respect other players in the ecosystem and
promote a non managerial culture in which building relationships, rather than directly
managing or controlling them is most prized.

Leadership - Shaping leadership extends beyond the boundaries of the firm. The shaping
leader sets the ecosystem vision often collaboratively communicates the vision , Builds
external relationships rooted in mutual interest, resolves conflict and influences rather
than commands