I believe that the only sustainable source of competitive advantage is the ability to out learn current and prospective competitors; and this applies equally to public sector, not-for-profit and business organizations.
Before I get to organizational learning (OL), let me first say a word about sustainability. What are the characteristics or elements that might generate a sustainable advantage for organizations? There are four; VRIO: (Note: VRIO comes from the work of Jay Barney.)
Value. Organizations are essentially social mechanisms to generate value. They generate valuable goods and services by taking inputs and using their resources (people, plant, know-how, etc.) to convert them to value added outputs (products, services). The resources to do the conversion, must add value to that conversion process, i.e., resources must be valuable.
Rarity. At least some of those valuable resources used in the conversion processes should be relatively rare in the organization’s industry/market. If none are rare then there can be no competitive advantage. Firms must have something different from others in their competitive space. For example, a firm could have a better location, a defendable patent, highly innovative and skilled R&D team, or a valuable brand, etc.
Inimitability. Can competitors copy, imitate or obtain (at the same price as you paid) the same valuable, rare resources? If so, the firm will have no sustainable advantage. Can competitors substitute other resources and get the same result, e.g., can they engineer around a patent? Can they develop their own innovative, skilled R&D team? Inimitability is usually the stumbling block for most organizations.
Organization. Finally, is the company sufficiently well organized to leverage those valuable, rare, inimitable resources in the cause of fulfilling the organization’s value proposition?
Why is this important? Why bother looking for resources that satisfy these four criteria? Because, if firms have value and rare resources but they are not inimitable, competitors will imitate those resources and the firm will only generate normal levels of performance (at best). If, however, an organization can satisfy all four criteria with some of their resources, then they have the potential to generate above normal performance (whether measured in profit, growth, or patient outcomes depending upon the industry).
Let’s now look at organizational learning (OL) and see if it has the potential to satisfy these four criteria for sustainability, because remember, I suggested that OL might be the only long term source of sustainable advantage.
Organizational learning is the adaptive capability of an organization to create, capture, transfer, and use knowledge. I am hard pressed to think of any process or element of an organization and what it does that is not a function of learning. Firms have to learn how to market to their customers, learn how to buy inputs at the right quality and price, learn how to make better products and services. They have to learn how to attract and retain talent and buyers, and how to adapt to an ever changing external business environment. These activities are fundamental to business. A business, indeed any organization, cannot exist without learning. Learning (let’s assume for now it is the “right” learning) is fundamentally valuable. If a firm can learn better than its competitors, then the learning capability is also rare. Learning is socially complex and path dependent so it may be difficult for one firm to learn how another company learns. Finally, if learning is core to the organizational culture, if it is a valued part of what managers and employees do, then OL can be valuable, rare, inimitable and organized into the firm.
Organizational Learning has the potential, therefore, to help an organization generate sustainable advantages which has the potential to generate superior performance.
Wednesday, February 11, 2009
Tuesday, February 10, 2009
Strategy is not Planning
Planning is one thing. Strategy is another. They are not synonyms.
Before I go any further, though, let me make it clear from the outset that you have to plan. In all business environments you have to choose a "road" to follow, otherwise any "road" will do and you'll not likely get to your "destination". So, yes, you have to plan.....the trouble is, planning simply doesn't work in most of today's business environments.
But planning can work sometimes. To plan you need to be able to get a handle on all the important variables in your environment. Then you need a fairly stable environment so that the variables and their relevance don't change on you. This suggests that when looking at business environments -- call them markets or industries -- you can think in terms of two key variables: complexity and dynamism.
Complexity
Complexity simply means the number and interconnectedness of variables, e.g., the number of competitors, number of suppliers and how much power they hold over you the buyer. How big is the market and how much power do your buyers (i.e., customers) have over you? Are supply chains in place? Are mechanisms in place to ensure you get paid? Is there a chance that new competitors will enter your space? Will new technology make your product or service obsolete? These are the kinds of variables that are important in most industries.
You can assess the complexity in qualitative terms. Theoretically, industries can be anywhere on a continuum from low to high. Low complexity suggest you understand and can evaluate a limited number of variables in your business environment. A high rating suggest the opposite -- that there are simply too may variables, that are too difficult to grasp and that have interconnections that are too complex to get a handle on.
Dynamism
Dynamism refers to change. How quickly is your market or industry changing? Can you predict what will happen in a few months, years or decades? Does technology change slowly or quickly? Is your customer base stable and experiencing linear growth, or are customers fickle and likely to flee to the next big thing, what ever that is? Here too, you can assess dynamism qualitatively on a scale from low to high. Low suggests no, or at best slow, change. High suggests an explosive environment where change is the norm and where uncertainty is the order of the day.
Pulling it Together
Let's put these two continua on vertical and horizontal axes (see figure).
Planning works, i.e., is effective, with low complexity and low dynamism. Why is that? To plan, you need to have a good understanding of the variables that can affect your market, industry and your business, so you need a limited number of fairly simple variables. And you need relatively low degrees of change so that the important things don't change over the course of your planning horizon. Is your business in a low complexity, low dynamism environment? Not likely. So planning will not be effective (but remember you must nonetheless make plans. We'll come back to this in a moment).
With low dynamism and high complexity trial and error is an effective strategy. It is difficult to grasp the salient variables but if you can understand them you can move ahead because they are unlikely to change quickly.
With high degrees of change (dynamism) and low complexity, you can understand the important variables in your context, but change is the norm. In these contexts (the oil industry is a good example here) you can do scenario planning. That is you make multiple plans based on possible futures or possible changes in your environment but founded on the key business variables. As you move forward you can see which direction change is headed and you adjust your course as you go.
Most of us, however, would place our businesses in the upper right hand quadrant -- high complexity and high dynamism (e.g., red "X" in the figure). Our industries and markets are very difficult to understand, the variables are interconnected in unfathomable ways, and on top of that, everything seems to be changing before we even come to grips with or recognize the previous change and then it changes again....whew!
Here is where you need experience to guide you. Part of the brilliance of Meg Whitman when she took over as CEO of eBay was that she brought experienced people to eBay from the brick and mortar world. She found herself in an environment with high complexity and high dynamism. While most new internet-based companies were populated with youngsters with limited business and life experience (though admittedly brilliant technologically), she brought in "grey hair" competencies to the areas where strategic and operational decisions needed to be made. She needed their experience to help her guide eBay through uncharted waters.
Emergent Strategy
Planning only works in a limited "space", a space in which most of us would not place our businesses...but you still have to plan. Plan the way forward from where you think you are and given what you expect to happen. Then -- and this is the important part -- you have to be prepared to let new strategies emerge and old elements of your strategy fall away. The term "emergent strategy" was coined by the great Canadian strategist Henry Mintzberg. He noted that the "realized strategy" of firms was a combination of their planned strategies (not all of which were fulfilled) and emergent strategies (what they made up as they went along). A word of warning here though. Beware of the difference between emergent strategy and strategic drift. The latter will send your "ship" to the "rocks". How do you tell the two apart? Alas, only in retrospect will you know for sure, but if you have experience on your team, you have a better chance of making the right decisions that avoid drift and that lead to success.
Planning and strategy are not the same. All strategy must have a planning component however. The strategy at the core of your business will need to be flexible enough to adapt to the changes and complexities of today's business environments.
Before I go any further, though, let me make it clear from the outset that you have to plan. In all business environments you have to choose a "road" to follow, otherwise any "road" will do and you'll not likely get to your "destination". So, yes, you have to plan.....the trouble is, planning simply doesn't work in most of today's business environments.
But planning can work sometimes. To plan you need to be able to get a handle on all the important variables in your environment. Then you need a fairly stable environment so that the variables and their relevance don't change on you. This suggests that when looking at business environments -- call them markets or industries -- you can think in terms of two key variables: complexity and dynamism.
Complexity
Complexity simply means the number and interconnectedness of variables, e.g., the number of competitors, number of suppliers and how much power they hold over you the buyer. How big is the market and how much power do your buyers (i.e., customers) have over you? Are supply chains in place? Are mechanisms in place to ensure you get paid? Is there a chance that new competitors will enter your space? Will new technology make your product or service obsolete? These are the kinds of variables that are important in most industries.
You can assess the complexity in qualitative terms. Theoretically, industries can be anywhere on a continuum from low to high. Low complexity suggest you understand and can evaluate a limited number of variables in your business environment. A high rating suggest the opposite -- that there are simply too may variables, that are too difficult to grasp and that have interconnections that are too complex to get a handle on.
Dynamism
Dynamism refers to change. How quickly is your market or industry changing? Can you predict what will happen in a few months, years or decades? Does technology change slowly or quickly? Is your customer base stable and experiencing linear growth, or are customers fickle and likely to flee to the next big thing, what ever that is? Here too, you can assess dynamism qualitatively on a scale from low to high. Low suggests no, or at best slow, change. High suggests an explosive environment where change is the norm and where uncertainty is the order of the day.
Pulling it Together
Let's put these two continua on vertical and horizontal axes (see figure).
Planning works, i.e., is effective, with low complexity and low dynamism. Why is that? To plan, you need to have a good understanding of the variables that can affect your market, industry and your business, so you need a limited number of fairly simple variables. And you need relatively low degrees of change so that the important things don't change over the course of your planning horizon. Is your business in a low complexity, low dynamism environment? Not likely. So planning will not be effective (but remember you must nonetheless make plans. We'll come back to this in a moment).
With low dynamism and high complexity trial and error is an effective strategy. It is difficult to grasp the salient variables but if you can understand them you can move ahead because they are unlikely to change quickly.
With high degrees of change (dynamism) and low complexity, you can understand the important variables in your context, but change is the norm. In these contexts (the oil industry is a good example here) you can do scenario planning. That is you make multiple plans based on possible futures or possible changes in your environment but founded on the key business variables. As you move forward you can see which direction change is headed and you adjust your course as you go.
Most of us, however, would place our businesses in the upper right hand quadrant -- high complexity and high dynamism (e.g., red "X" in the figure). Our industries and markets are very difficult to understand, the variables are interconnected in unfathomable ways, and on top of that, everything seems to be changing before we even come to grips with or recognize the previous change and then it changes again....whew!
Here is where you need experience to guide you. Part of the brilliance of Meg Whitman when she took over as CEO of eBay was that she brought experienced people to eBay from the brick and mortar world. She found herself in an environment with high complexity and high dynamism. While most new internet-based companies were populated with youngsters with limited business and life experience (though admittedly brilliant technologically), she brought in "grey hair" competencies to the areas where strategic and operational decisions needed to be made. She needed their experience to help her guide eBay through uncharted waters.
Emergent Strategy
Planning only works in a limited "space", a space in which most of us would not place our businesses...but you still have to plan. Plan the way forward from where you think you are and given what you expect to happen. Then -- and this is the important part -- you have to be prepared to let new strategies emerge and old elements of your strategy fall away. The term "emergent strategy" was coined by the great Canadian strategist Henry Mintzberg. He noted that the "realized strategy" of firms was a combination of their planned strategies (not all of which were fulfilled) and emergent strategies (what they made up as they went along). A word of warning here though. Beware of the difference between emergent strategy and strategic drift. The latter will send your "ship" to the "rocks". How do you tell the two apart? Alas, only in retrospect will you know for sure, but if you have experience on your team, you have a better chance of making the right decisions that avoid drift and that lead to success.
Planning and strategy are not the same. All strategy must have a planning component however. The strategy at the core of your business will need to be flexible enough to adapt to the changes and complexities of today's business environments.
Subscribe to:
Posts (Atom)
