Seminar 3

Article (1): Adaptability: The New Competitive Advantage

1.! Sources of competitive advantage
•! First-order capabilities
!! Size, tangible resources, scale, position

Discussion Question
Q: Is this sufficient? Why or why not? (i.e. does a big company with large EOS be
forever competitive?)
A: It is insufficient because with megatrends in the world such as globalization, many
small companies can outsource to emerging economies for production to lower the cost
of production.

•! Hence, companies start to rely on “second-order” capabilities that foster rapid

adaptation" instead of being really good at some particular thing, companies must be
good at learning how to do NEW things

2.! Types of markets

(a)! Slow cycle market
•! Competitive advantage shielded from imitation for long periods of time, imitation is
costly
•! These markets are close to monopolistic conditions
•! Focus: To build one-of-a-kind competitive advantage (proprietary and difficult for
rivals to understand), then protect, maintain and extend that competitive advantage
•! Example: Market for utilities/power (shielded by govt. regulation)
(b)!Fast cycle market
•! Competitive advantage not shielded from imitation, imitation often rapid and
inexpensive
•! Unstable, unpredictable and complex
•! Focus: Learn how to rapidly and continuously develop new competitive advantage
(through innovation)
•! Example: IT Market
(c)! Standard cycle market
•! Competitive advantage moderately shielded from imitation (in between slow cycle
and fast cycle markets)
•! Focus: Form alliances with partners who have complementary resources &
capabilities
•! Examples: Sty Team (chaired by Delta and Air France, and recently joined by China
Southern Airlines) developed an internal Web site to speed joint buying (to reduce
cost)

3.! Four organizational capabilities to attain adaptive advantage

I.! Ability to Read and Act on Signals
•! Why is it important?
!! Companies need to be alert to these signals of change, decode/read them,
quickly respond to them and make appropriate changes/act on them
!! Ensures no opportunities are missed
!! Earns a stream of revenue if successful
 •! Why is it a challenge?
!! Small%companies%may%not%necessarily%have%the%information%required%
!! Big%companies%even%though%they%have%the%necessary%information,%they%%
have%to%go%through%levels%of%management%to%enforce%and%act%on%the%
signals%"%inefficiency%
!! Complex, varying signals available to ALL companies
•! What can be done?
!! Select and analyze the RELEVANT information through
(1)!Point-of-scale systems
(2)!Data-mining technologies
(3)!Signal-reading capabilities

Case Study: Tesco

Tesco%leverages%their%signal:reading%capabilities%to%make%operational%interventions%
in%real%time,%bypassing%slow:moving%decision%hierarchies.%%
• Performed%detailed%analyses%of%the%purchase%patterns%of%the%members%of%its%
loyalty:card%program%%
! Enabled%Tesco%to%customize%offerings%for%each%store%and%each%
customer%segment%and%provide%early%warning%of%shifts%in%customer%
behavior.%%
• Supported%the%development%of%Tesco’s%hugely%successful%online%platform%
(extending%the%company’s%business%model)%
! Enabled%Tesco%to%become%a%store%without%walls%and%to%offer%a%broader%
range%of%products.

Case Study: Google

Google%uses%alogrithms%to%respond%to%changing%ad%conditions%on%a%split:second%
basis,%without%the%intervention%of%human%decision%makers
• the%position%of%an%ad%is%updated%on%the%basis%of%the%ad’s%relevance%to%an%
individual%search%or%website%as%well%as%the%advertiser’s%bids%on%key%words
• %The%more%relevant%an%ad,%the%higher%the%click:through%rate
• Since%advertisers%pay%per%click,%this%means%more%revenue%for%Google.%

II.! Ability to experiment

•! Why is it important?
!! Helps to uncover information that cannot be deduced or forecasted
•! Why is it a challenge? (using traditional approaches)
!! Costly
!! Time-consuming
!! Failed experiments may ruin company’s brand & recognition
•! What can be done?
 (1)!Adaptive companies need to change the way experiments are done using new
technologies " experiments are done faster and at a lower cost

Case Study: Procter & Gamble – Connect & Develop

• Leverages InnoCentive & open innovation networks to solve technical design
problems
! Uses walk-in, 3D virtual store to run experiments (cheaper and quicker
than traditional market tests)
! Uses Vocalpoint and online user communities to test products with
friendly audiences before a full launch
• Result: 10 P&G employees generated over 10,000 design simulations in hours
instead of weeks (shorter time, lower cost, larger no. of ideas)

(2)!Adaptive companies need to broaden the scope of their experimentation – not just
products & services, but business models, strategies

Case Study: Ikea (experiments with business models)

• Leverages%existing%assets%and%capabilities%to%experiment%with%business%
models.%
• Noticed%that%whenever%it%opened%a%store,%the%value%of%nearby%real%estate%
increased%dramatically%in%Russia
• Decided%to%explore%two%business%models%simultaneously:%retailing%through%
its%stores%and%capturing%the%appreciation%in%real%estate%values%through%mall%
development.%
• Result:%It%now%makes%more%profit%in%Russia%from%developing%and%operating%
malls%than%from%its%traditional%retail%business.

(3)!Adaptive companies must know that experimentation necessarily produces failure

" receptive to failures " learn from past mistakes

III.! Ability to Manage Complex Multicompany Systems

•! Why is it important?
!! Increasing amount of economic activity occurring beyond corporate
boundaries through outsourcing, offshoring etc. " no longer a single
company/business unit
!! Industry is now an ecosystem of codependent companies instead of
independent competitors producing similar goods and working on stable,
distant and transactional basis with suppliers and customers
•! What can be done?
!! CA will flow to companies that can create effective strategies at the network
or system level
!! Adaptive companies manage their ecosystems by using common standards to
foster interaction with minimal barriers
Case Study: Nokia vs. Apple & Android
Nokia: Was the leader of the smartphone market. Had the advantage of being an early
mover (experience) and the market share leader with a strong cost position (scale/EOS)

Apple & Android: Able to leapfrog the experience and scale curves to become the new
market leaders in the smartphone industry
• Adaptive system of suppliers, telecom partnerships & numerous independent
application developers to support the iPhone/android system
• Took the market share with an entire ecosystem

IV.! Ability to Mobilize

•! Why is it important?
!! Encourage the knowledge flow, diversity, autonomy, risk taking, sharing
and flexibility to be adaptive
!! Creating a decentralized, fluid, flexible structure drives decision-making
down to the front lines
!! Allowing people most likely to detect changes in the environment to
respond quickly and proactively
•! Why is it a challenge? (of having a decentralized structure)
!! Some employees may not have fixed jobs – unsure of their job scope,
resulting in inefficiency
!! Loss of accountability
!! Higher cost
•! What can be done?
!! Simple, generative rules to facilitate interaction and set the boundaries
within which they can make decisions
Case Study: Netflix
• Netflix’s model “increase employee freedom as we grow, rather than limit it, to
continue to attract and nourish innovative people, so to have continued success”
• Consistent with this philosophy, Netflix has only 2 types of rules: those designed
to prevent irrevocable disaster and those designed to prevent moral, ethical, and
legal issues.
• It has no vacation policy and does not track time – focuses on what needs to get
done, not how many hours or days are worked

4.! Challenge for Big Businesses

Big companies may not be adaptive as they are oriented towards managing scale and
efficiency, and their hierarchical structures and fixed routines lack the diversity and
flexibility needed for rapid learning and change. Hence, they should:

(a)! Learn from the mavericks

•! See what the new players are doing and then think of ways to insure your
company against this new competition
•! See what is happening in adjacent or analogous industries and visalise what if this
happened to their market
 (b)!Identify and address the uncertainties
(c)! Put an initiative on every risk
•! Every significant source of uncertainty should be addressed with an uncertainty
•! (Depending on the nature of the uncertainty) The goal of the initiative may be
responding to a neglected business trend, creating options for responding to it down
the line or simply learning more about it
(d)!Examine multiple alternatives
(e)! Increase the clock speed
•! In a fast-moving environment, companies need to accelerate change by making
annual planning processes lighter and more frequent

5.! Conclusion
If industry is stale and predictable, companies are better off sticking to the traditional
sources of advantage. If industry is uncertain & rapidly changing, companies need a
dynamic and sustainable way to stay ahead " HOW? Using the four organizational
capabilities to gain adaptive advantage!

Article (2) : Time Pacing

1.! Time Pacing vs. Event Pacing
Time Pacing Event Pacing
Definition Scheduling change at Scheduling change only when
predictable time intervals some event happened in the
environment
Characteristics Proactive, Rhythmic, Regular Reactive

2.! Benefits of Time Pacing

•! Better at managing transition
•! Better at creating rhythm
•! Creates a sense of urgency with confidence " Although tempo may be fast, it is
predictable and gives people a sense of control
•! Resist the extreme of changing too often
•! Focused, efficient, and confident " enhanced performance
•!

Managing Transitions " Sustain momentum

Managing Rhythm " Build momentum
!

3.! Examples of Time Pacing

•! 3M wants to have 30% of their revenue come from new products every year
•! Starbucks wants to open 300 stores every year
•! British Airways wants to refresh its service every 5 years
4.! Managing Transitions
Examples of transitions
•! Shifts in product development project
•! Entering or leaving markets
•! Launching new alliances
•! Mergers and Acquisitions

(a)! Why is it important to effectively manage transition?

•! Transitions involve a large number of people " Communication easily breaks
down
•! Because the pace of transition is very fast, it is very easy to “slip and fall” And
once you slip, it is hard for you to catch up with you competitors
•! Some managers spend months analyzing an acquisition but far less time planning
the integration " simply ignore transitions
Case Study: Gillette – Paced Product Releases
• Does not release a new product prototype into production unless a mock-up
of the next product is available
• E.g. Its successful Sensor razor was not launched until its successor product,
Excel, was in development
• “Is not just reacting to competitors but orchestrating and commanding a
business”
• Benefit: When competitors copy its products, Gillette would have another
product ready
(b)!Where do transitions matter the most?
•! In fast cycle markets
!! Because where the pace is fast, there are more transitions " command a
larger share of managers’ time
!! Transitions are more critical because the faster the market is moving, the
harder it is to catch up when you stumble
Case Study: Banc One – Post acquisition integration
• Banc One made many acquisitions (10 per year)
• They had a process for managing transition:
! Welcome staff of newly acquired bank into the family through videotape
! Simultaneously aligned activities along multiple points
- Marketing department mapped the affiliate’s products into Banc
One’s portfolio
- Electronic banking department assess ATM volume
! Assigned a “mentor” bank to provide a model of how the bank will turn
out
• Each transition took 6 months before the old systems were switched over to
Banc One’s system
(c)! What are the best transitions?
•!Where organizations use these transitions to learn, reflect, change direction and
accomplish other goals
•!Where companies use transitions as opportunities for CHANGE

Case Study: Banc One – Post acquisition integration

While Banc One is integrating its transitions, it also exploits the opportunity to skim off
new best practices from the acquired banks, which then can be used throughout the Banc
One network

•!The way companies manage transitions may differ – some may take a month, some
may take more than that, but what makes these transitions successful is that they all had
clear, choreographed processes that employees understand

5.! Managing Rhythms

•! Creates momentum for change in time pacing
•! Help managers plan ahead and synchronise activities
•! Not about speeding up
•! Without rhythm, managers tend to be reactive (and not proactive) and see change
as an unwelcome surprise

(a)! Examples of using rhythms – by getting in step with the market

•! Align with rhythms in the market place
!! ThirstCo aligns their launch of their new drink during summer which is the
peak buying season(rather than when a new drink idea comes up)
!! Appliance manufacturer aligns its new product launch with retailer’s schedule
shelf planning cycle
!! Computer manufacturer aligns its new product launch with computer
magazine’s reviews
•! Lesson learnt: Although customers may be the most important source of rhythm,
external rhythms from suppliers and complementers (market/external) are also
important
Case Study: Intel

(b)!Choose a manageable pace

•! Why?
-! Companies can only time pace as fast as their internal capabilities will allow them
to move
-! Hence, must match your internal capabilities with external rhythm
•! How?
:! Companies that want to time pace effectively must match their rhythm to the
realities of their internal capabilities. But when their pace falls short,
companies should ramp up their internal capabilities

Case Study: Emerson Electric

• Set a target of 35% of revenue coming from the sales of new products, which was
initially unreachable due to lack of adequate product development capacity
• Began multipronged approach to increase capabilities
! Streamline product development process, cutting development time by 20%
! Strengthen marketing staff to increase its understanding of customers’
demand
! Cut the size of active product-development portfolio as too many products
under development

6.! Changing often enough

•! Time pacing can help organisations resist the extreme of changing too often or too
infrequently, especially since signals for when to change are unclear
!! Changing too infrequently: Companies become locked into old patterns and
habits. They run the risk of waiting too long and falling to ofar behind to catch
up
!! Changing too often: Reacts too quickly to any signals and never learns to be
good at anything. Fails to accomplish tasks and sends confusing messages to
employees and customers