Rising complexities!

Strategic landscape has changed; strategy formulation should follow suit! On any given day, AT&T might find Motorola as a competitor, customer or a supplier. Hyper-competition, co-opetition, strategic disruption and 'amazon'ed are some of the terms that are dominating business headlines today. Companies are fighting tooth and nail to preserve their markets while the competition is relentless. New players are causing havoc among the traditional players with their revolutionary and radical strategies, which often render their predecessors obsolete. The parameters and frameworks that worked till yesterday do not hold water anymore. For instance, in the pre-amazon.com days, retailers did not consider the net as a threat. Today, no retailing strategy is complete without taking Internet into consideration. In the emerging scenarios, it is logical to conclude that it is essential to redefine the strategic imperative and align it with the changing business environment. The following scenario emphasises the importance of such an exercise. A regional bank faces competition from foreign and private players. To remain competitive, it must not only exceed current service expectations but also uncover latent and unarticulated needs. It has to turn into a one-stop shop for financial services. In retrospect, the strategy and policies never gave the organisation a long-term perspective. How does it go about such an exercise? Traditional strategic framework is basically centred around the firm and its strengths, along with the influence of various industry participants on it. At the core, all traditional frameworks are formed with certain assumptions in place: 1. Strategic landscape or the Industrial structure 2. Advantage and value 3. Uncertainty levels I. Strategic landscape or the Industrial structure

Intel, a fiercely competitive company, manufactures microprocessors to power personal computers. Collaboration with other players like Microsoft, HP, Compaq and other manufacturers of PCs and videogames is vital for its success. It supports advances across the entire communications media and PC sector. Wintel, the alliance between Microsoft and Intel to create a common platform for PCs, has the PC industry by the hammerlock. This is not an isolated case. Players in most industries are forging complex partnerships and alliances to succeed in an increasingly cluttered marketplace. Traditionally, strategic planning rationalises the industrial structure, which assumes that all competitive activity is conducted at arms-length. This does not hold ground anymore, competitors are using every weapon in the arsenal and whats more it comes from unpredictable quarters. The competition is not between companies but between the efficiencies of different partnerships/alliances. Today, the industrial structures are more complicated and convoluted resulting in companies blindly applying the traditional framework facing the risk of failure.

II.

Advantage and Value

Amazon.com has shaken up the retailing industry. What seemed like an industry, which needed heavy capital investment because of the real estate, physical infrastructure and merchandising suddenly had an alternative dimension, the Web! Entry barriers are falling all over the world in almost all industries. Competition has a new advocate, the Internet. Traditional companies thwarted potential companies by erecting high entry barriers and other obstacles. Globalisation of trade and the Internet have changed the scenario. Now companies cannot hide behind the protectionist barriers of governments. Structural advantage (which accrued due to the industry structure) is not the only source of competitive advantage; in fact revolutionary business models of new entrants are rendering the traditional sources of competitive advantage obsolete. Companies that possess a knowledge base that is difficult to duplicate and/or consistently out-perform their competitors will succeed. Knowledge that is either patented or cannot be duplicated has emerged as a potent source of competitive advantage. III. Uncertainty levels

Pharmaceutical companies in some countries, until recently, enjoyed protectionist patronage from governments. Then came WTO with GATT and GATS. Post-GATT, these pharmaceutical companies are in a frenzy to develop their core competencies. Why? Come 2005, the pharmaceutical sector will witness open competition, which means companies are not sure about where competition is going to come from. The migration from the product patent regime to the process patent regime will see a lot of companies biting the dust. Compared to few years back, the industry participants face higher levels of ambiguity and uncertainty. The marketplace was far more certain when Barnes and Noble opened shop, but Amazon.com has changed that to an extent. The business environment has evolved, throwing up both opportunities and challenges. However, most industries still cant paint a clear picture of the future. Today, industries only differ in the level of uncertainty, which follows four stages: 1. Evolutionary: In industries where the evolution is a gradual and predictable process, the uncertainty is limited and the future can be predicted with reasonable degree of confidence. (e.g. Automobile) 2. Emerging scenarios: In industries where the future is dependent on a policy decision or other such regulations, companies have a set of scenarios, usually divergent, before them. The uncertainty is limited to the applicability of each scenario. (e.g. Telecommunications) 3. Continuum: In industries where entry barriers are low and product innovation and obsolescence is high, uncertainty is hidden in a continuum, where any scenario can take shape. (e.g. Software) 4. True Ambiguity: In emerging economies, companies that have operated in closed conditions suddenly find themselves all at sea, when markets are opened to foreign participation and therefore exist in a state of complete uncertainty. This is also the case with many traditional industries which have been amazoned by innovations on/due to the net. The emerging business environment, across industries, has evolved into a more-complex-than-ever phase where the past may offer little guidance. Companies need to look beyond traditional frameworks for strategy formulation. The foundation of these frameworks is not on certain ground. Related Reading : Bringing discipline to strategy; Coyne, Kevin P & Subramaniam, Somu; McKinsey Quarterly; 2000.