How to stay one step ahead of the competition?
The following is a transcript of an interview with Prof. Filip Caeldries. The interview took place at the Krannert School of Management (Purdue University – USA) where Prof. Caeldries was teaching the strategy course in the Global EMBA program. Prof. Caeldries was interviewed by Prof. Aldas Kriauciunas (Purdue University).
Aldas Kriauciunas (AK): How do you understand strategy?
Caeldries: Strategy is often defined as trying to create a sustained competitive advantage. In reality however, it most often is a sequence of temporary advantages that - linked together - appear to be a longer term sustained advantage. These temporary advantages arise due to a successful alignment between unique firm capabilities and customer needs. Over time, however, customer needs, technologies, regulatory frameworks etc. will change. Firms will often respond to these changes too late – reflecting a concept called strategic rigidity. In such instances, there is a reactive response external/environment change. In contrast, strategic agility is about being proactive. Here, firms are undertaking change before it becomes inevitable. You change before you have to!
A.K.: Tell us more about this strategic rigidity. It sounds rather bad and most of us probably believe we are pretty good at being proactive.
Caeldries: This rigidity occurs at three levels. At the industry level, we see more and more firms embracing the idea of an ‘industry recipe’ or best practices. These so-called best practices get propagated through benchmarking. As a result, managers no longer ask the fundamental question ‘how should we be doing business’? At the firm level, there are core competencies and … core rigidities. What makes you good at doing A (your core competence) can make you bad at doing B (core rigidity). Core competencies and related organizational systems often end up sustaining the status quo. That, in turn, compromises an organization’s capability to explore new ideas, new business models, new skills sets. We also need to focus on the individual level, since it is people that make decisions, not firms. Managers – like all of us – are subject to cognitive simplification biases. As a consequence, they often find themselves trapped in flawed decision-making structures.
A.K.: So, are there any solutions?
Caeldries: Firms should create organizational structures that balance/correct the individual cognitive biases of managers (e.g. the systematic use of a devil’s advocate approach in key strategic decisions). They also need to implement systems that compensate for the institutional pressures towards conformity. Beyond that, managers should be willing to listen to the voices and ideas from people operating outside their own industry. That can help to restore the balance between exploitation (doing the things right) and exploration (doing the right things).
A.K.: And will this lead to strategic agility?
Caeldries: As I said earlier, strategic agility reflects the notion that the organization is changing before it has to change. This is based on having three organizational capabilities. The first is ‘Sensing’. This means being able to read the environment. In reading the environment, you cannot just focus on the obvious. You need to also consider weak signals – ideas from the periphery. To do this, you need to democratize knowledge collection and knowledge management. Sensing is not a department. It’s a mindset. I like to think of sensing as launching probes into market space and seeing what you comes back. Sensing activities often involve a structured interaction (albeit low-profile) with the market. For example, McDonalds is currently experimenting with a no-meat/salads-only store concept in France (McSalad). Clearly, there are no guarantees that all of these experiments will succeed. For example, earlier it also tried a McHotel concept, which did not go well. Firms need to be able to accept failure and that is a must if you are creating an experimenting organization. In addition, they need to listen to those at the periphery, non-customers, new hires. Very often they have something to say that we can learn from.
A.K.: Okay, we have ‘Sensing’. What else?
Caeldries: The next is ‘Resource Flexibility’. If a firm, a manager, receives an important and/or positive signal during the ‘sensing’ phase, then the firm needs to be able to move resources quickly. So, you need to consider ahead of time where the resources are located. Are they located at the function level, the country level, or the firm level? Some firms, such as 3M, create corporate venture funds as a formal mechanism to ‘unlock’ resources out of functional or geographic silos. Similarly, Procter & Gamble has embraced open innovation, which is very much linked to being effective at sensing. The third capability is creating ‘Unity’ of the top management team. This cohesiveness is needed to ensure that follow-through takes place. The team needs a shared vision, clear purpose, and positive ambitions for the firms. Top management unity allows for resource flexibility. This does not mean that conflict is avoided – it means that there are ways to constructively work through conflicts.
A.K.: Any final words of advice?
Caeldries: I have some words of caution. The increasing rate of top management turnover has made it harder to build unity and to react promptly to information received from sensing. Beyond that, I think the greatest problem is that firms (top managers) are insufficiently listening to the diversity of voices within their own firms. A communication wall has been built, thus preventing information from lower and middle management ranks to reach the key decision-making levels in the organization. A striking example of that is the slow acceptance of social media in some firms. The experts in this area (young recruits operating at the lower management levels) have not always had a chance to communicate their ideas to those in key decision making positions. So firms end up using dated approaches to managing customer interactions. I’m afraid we will see this pattern repeated in the future.
The challenge for most firms is not that they don’t know what to do. For most of them, the key challenge is to remove the organizational obstacles that stand in the way of effectively mobilizing the knowledge that is already available somewhere in the organization.