Market Context: The critical missing link in the strategy puzzle.
01/10/14 06:00 Filed in: Market Context
Market dynamics have been changing and traditional approaches are leaving many companies with market values that are stagnant and eroding. Historical approaches are necessary but no longer sufficient. Understanding your complete Strategic Context is now an imperative and missing in current strategy toolsets. The work will enable you to see your business within a broader context, understand all strategic options available to you and determine which one are most likely to generate value.
“Why do once excellent companies with growing market valuations see their market valuation flatten and erode”?
I believe that there are key contributors:
- Lack of focus on the Strategic Context
- Company structures, systems and processes (“Company&rdquo are misaligned with the Strategic Context.
- The Culture, Capabilities and Assets (“Core&rdquo evolve too slowly in the current business environment.
What is the Strategic Context?
Context is the organization’s relevant external environment and Strategic Context focuses on business model and strategic elements of the external environment.
The premise: Organizations operate at peak efficiency when the Core, Company and Strategic Context are aligned and operate at peak effectiveness when each one of those elements is thoroughly understood.
“Why and how do these elements become misaligned?
Strategic Context Company Core Alignment
The answer lies in 3 different patterns of change. Change in the external environment is accelerating; Companies evolve through a lifecycle of growth, maturity and decline and the Core evolves at a slow pace.
When overlapped and over time, the patterns of change lead to 2 key gaps:
Business Model Gap
The business model loses its fit; this has a profound impact on value creation potential and usually results in a deteriorating market value.
Shared Value Gap
“We cannot change fast enough to keep up with our markets!” The culture, assets and capabilities (“Core&rdquo are no longer serving the company well. Effectiveness erodes while the perception of efficiency is still there. It becomes more and more difficult to execute while more and more energy is required to deliver business results.
There is an additional gap that needs to be mentioned, and that is the gap between real and perceived Strategic Context. This is often the result of inside-out perspectives, industry vs ecosystem focus, incomplete analysis, linear vs systems thinking, lack of strategy map, …
“Is this relevant to my situation?” Which one of these 5 market valuation patterns reflect your reality?
Market Value Patterns
Decelerating – Market Value is still growing but the rate of growth is slowing.
Growing Sideways – Market Value is flat over a period of time, with the usual up and down noise.
Declining – Market Value is shrinking
Expanding – Market Value is growing at a relatively constant rate.
Accelerating – Market Value is growing and accelerating.
If your pattern in expanding or accelerating this work can help you understand why so that you can predict what potential triggers would lead to market value leveling off and declining.
Why are new insights required?
For the past 100 years, we have looked at markets through an industry lens. These industries were codified through SIC codes and more recently NAICS codes. This worked well until more recently when the digital world started blurring industry lines and redefining industries. As an example, Cameras were their own industry for a very long time. Bellows cameras were followed by analog SLR cameras then digital and more recently Point and Shoot digital cameras. Then mobile phones started adding camera capabilities and those eventually became good enough for most occasions. So is there a “camera” industry today? Yes but it looks radically different and is much smaller. More importantly it has been replaced by a digital imaging ecosystem that includes not only the camera devices but also image management, storage, manipulation, viewing and image fulfillment, to name a few. The digital era has made the traditional industry analysis necessary but no longer sufficient.
What additional approaches are required?
The key changes required include ecosystem analyses, strategy map development and listing of the complete and exhaustive set of strategic options identified by the strategy maps.
Ecosystem Analysis methods done at the strategic and business model level were developed in 2003. The analysis builds a view of the complete ecosystem, includes multiple layers (current and potential players, value delivery systems, profit pools, profit models, strategic control points, customers and experiences, and customer value gaps) and looks at the interplay of all these elements. The benefit to clients: one such analysis enabled us to reverse engineer a competitor’s strategy across an entire ecosystem.
Strategy Maps are structured visual 2 or 3 dimensional representations of the ecosystem business types and businesses. It pulls together bits and pieces into a coherent picture that is easy to digest. Your business will be placed into a broader context and possible opportunities will become readily visible. It’s like having a big “YOU ARE HERE” in the middle of a map. The strategy maps are used to detail a complete list of strategic options.
Market dynamics have been changing and traditional approaches are leaving many companies with market values that are stagnant and eroding. Historical approaches are necessary but no longer sufficient. Understanding your complete Strategic Context is now an imperative and missing in strategy toolsets. The work will enable you to see your business within a broader context, understand all strategic options available and determine which one are most likely to generate value.