An article in the September, 2012 issue of Harvard Business Review described four styles of competitive environments based on the notions of predictability and malleability. Predictability is the degree to which unforeseen events, such as new competitors or new ways of doing business, arise. Malleability is the degree to which you and your competitors can influence your respective markets. The four styles differ as well in the types of strategies that work and even in the skills required to develop a sound strategy. The main point of the article is that since the process (for developing strategy) affects and constrains your results, you need to have a strategy for developing strategy that matches the competitive environment in which you find yourself; you need to solve the right problem. This idea is very familiar to architects of all kinds, including your enterprise architects.
Solving the right problem starts with accurately identifying and describing the problem to be solved. In this case, that means figuring out which competitive environment applies to your company, division, department, or unit (this method can be applied at many levels in an organization, and you will often find that you have multiple styles at the same time). The four styles are: classical, adaptive, shaping, and visionary. While the authors of the article did not provide definitive ways to determine the appropriate style, they did offer some clues along with some advice as to what works and what doesn’t in each case, as we explore in this Advisor.
The classical style is defined by high predictability and low malleability and is called “classical” because it’s the environment we all learn about in business school. The style is characterized by long planning horizons, high barriers for entry, high fixed costs, long lead times, tight regulation, or some combination of these. Stand-alone strategic planning teams evolved in this environment because predicting market activity and responses requires specialized skills. Plus, there is plenty of time for the plans to filter through the rest of the organization. This top-down flavor of strategic planning should be familiar to you; according to the authors, 80% of companies in 2012 used methods for developing strategy appropriate to this style (that’s probably still true, but we don’t have updated data to know for sure). The goal in this style is to predict the game and adapt before changes come along, leveraging your unique capabilities as best you can.
The adaptive style is characterized by low predictability and low malleability. In such an environment, new competitors can spring up seemingly overnight. Because barriers for entry are so low, high fixed costs become an impediment, not an advantage. For example, all you need to create a new fashion retailer is a supply contract, a logistics contract, and a website. In addition, market tastes change rapidly, and the market players adapt, and quickly. Planning horizons run months or weeks, not years, and continuous planning may be necessary. Long-term plans go out of date as soon as they’re printed, and agility and the ability to pivot are paramount. In such an environment, the strategy might be less detailed, providing only the diagnosis and guiding principles, leaving what UCLA management professor Richard Rumelt calls “coherent actions” to change with market conditions. Planning becomes more bottom-up than top-down and is baked into the culture of the organization. The overall strategy is flexibility. The goal in this style is to see the game changing and react before anyone else does.
The shaping style is characterized by low predictability but high malleability, an environment in which the first to market often wins. The best strategy in a shaping environment is based on flexibility like that of an adaptive environment, but the focus is beyond the boundaries of the enterprise and includes suppliers, customers, and others to create new markets. Open platforms such as Facebook, which allow others to develop products and services yet still benefit the platform, are becoming more prevalent in particular industries, all of which happen to be in shaping or visionary environments. The goal in this style is to change the game, but do it before someone else can.
The visionary style is aptly named and is characterized by high predictability and high malleability. The best approach in such an environment is to pick a vision and stick to it, come what may. Often referred to as “build it and they will come,” companies in this style often struggle for years before “instantly” coming out on top. Two current examples of such companies are Amazon and Tesla. Both Jeff Bezos and Elon Musk apply the visionary strategy to their core business as well as their space ventures. The goal is to change the game, as in a shaping environment, but doing so requires much more time and resources.
Which Style Best Fits Your Situation?
With all that, how do you tell which style is the best fit for your situation? To assess predictability, look to things like the youthfulness of the industry, concentration, growth rate, or rate of change. If any, except youthfulness, is high, then predictability is decreased. Young industries do show low predictability, but so do very old industries in decline. An industry characterized by high fixed costs or other barriers to entry is not malleable. If being nimble is important in your market, you will focus on nimbleness and sacrifice efficiency.
A nagging feeling that the usual annual planning cycle doesn’t align well with your business cycle is an indication of low predictability, putting you in the adaptive or shaping style. On the other hand, in the visionary style, striving for annual results, and plans, takes away from progress toward the goals. In fact, annual planning really works only in the classical style.
Different styles may apply to different parts of the company, different departments, or even different geographic regions. You will likely find yourself having to deal with multiple styles at the same time. This is a good thing, since you will become adept at both recognizing the appropriate style but also adjusting your strategy development processes. It’s also possible, even likely, that the style appropriate for today may not work tomorrow, so you need to monitor your environment almost continuously.
You may have noticed that this Advisor doesn’t seem to be about enterprise architecture, but it is. The four competitive styles create a set of top-level patterns that drive the rest of the structure of the enterprise. Knowing which style is right for your situation amounts to solving the right problem. The lesson, of course, is that if you set out to solve the wrong problem, you have no hope of getting the right answer, no matter how good you are. Your enterprise architects excel at this kind of analysis. Enlist them in the process of determining and monitoring your competitive environment. They can also help tailor your strategy development process to your environment.