Competing On The Edge : Strategy as structured

chaos

Collaborative Advantage:

The Art of Alliances

Strategy as structured ChaosCompeting on the Edge:

CHANGE IS CONSTANT AND INEVITABLE, NOTHING IN THE WORLD IS AS CERTAIN AS CHANGE.

OUR ONLY SECURITY IS OUR ABILITY TO ADAPT TO THE CHANGE.

Competing on the edge:

• Improvisation

• Co-adaptation

• Experimentation

• Regeneration

• Time pacing

The strategiesThe ability to survive change and re-invent a firm constantly over time

FUNDAMENTALS OF COMPETING ON THE EDGE

1.UNCONTROLLED 2.INEFFICIENT 3.PRO-ACTIVE

4.CONTINOUS 5.DIVERSE

Core concepts

Where do you want to go? How do you get there?

THREE CORE CONCEPTS:

EDGE OF CHAOS

EDGE OF TIME

TIME PACING

MANAGING CHANGE

REACTION ANTICIPATION LEADINGCHANGE

TAKING DEFENSE CONTINGENCY PLANNING.

BEING AHEAD OF THE GAME

CHANGE IS DIFFICULT BUT RESISTANCE TO CHANGE IS FATAL.

However , Managers cannot wait for the future to unfold

However, they cannot focus only on change

1.The future is too unpredictable to plan thus managers cannot plan effectively.

2.There is fierce competition in most high velocity industries.

Edge of chaos

- An organization is only partially structured.

-The natural state between order and chaos, a compromise between structure and surprise.

-An intermediate zone should be maintained where the system is most vibrant, surprising and flexible.

Edge of time

-Thinking simultaneously about multiple time horizons.

-The challenge is to balance on the edge of the past the present and the future.

-The intermediate zone where managers look backward to the past and forward into the future while concentrating on today.

Time pacing.

-Change is triggered by passage of time rather than occurrence of events.

- Creating an internal rhythm that drives the momentum for change.

-Systems evolve most effectively by shedding off what was useful in the past and adopting what will be useful in the future.

Cont’d

• Variation is enhanced, making evolution more effective (filling the inefficiency during the process)

• Keep what works and adopt what will be useful in future

• Slower and more gradual change process• Stretches managerial thinking across a longer time

frame• The key is to remain at the edge of time (where past

and future are still connected)

How Organizations Change

• Change is the marriage of two processes Complexity theory

Evolutionary theory

• Adaptation is most effective in systems that are only partially connected (not too structured)• Quicker change process that happens as managers adapt to current situations• The key is to stay poised on edge of chaos

Complexity Theory

Too many cooks spoil the broth??

Evolutionary Theory

Grow Adapt Change

Natural selection Acting on inherited

Variation through successive

generations over time

Competing on the Edge | Intellectual Roots

• Competing on the edge is based on the fundamentals of change and the elements that affect:

- adaptive behavior- evolutionary change and- origins of speed

Assumption 1: Marketplace is in a constant flux

• Competitions come and go• Market changes (emerge, close, shrink, collide and grow)

Assumption 2:Firms are composed of numerous parts

• Links of parts together at the edges of chaos and time forms complex adaptive system

Complex Adaptive System:1. Made up of multiple agents (people or companies)2. Agents must differ from each other3. Exhibits COMPLEX behavior (behavior that is orderly

enough to ensure stability but also full of flexibility) – Think Jazz band !

4. Behaviors are ADAPTIVE5. Behaviors are EMERGENT

What does this mean?

• The organization has the ability to adjust to obstacle together without an established ‘leader’

GOAL of Competing on the edge strategy

Flexibility

Ability to locate the constantly changing

sources of advantage

Adaptation to current change &

evolution over time

Resilience in the face of setbacks

Poised on the Edges at 3M

How did the managers do it? CHAOS

• Scientists : Allowed to spend 15% of their time on anything

• Business run with lots of freedom & loose planning

• Grants for external projects• Allowing change to happen will

flexibility• This is pursuing edge of chaos

The other elements in their structure..

Structure

• Sophisticated financial controls &

• Sophisticated information systems

Past

• Rooted on edge of time

• Routinely recombine past techonologies

• Eg. Mircoreplication

Future

• Acceleration of their R&D projects

• Ensure every 3M business can reinvent itself periodically

Cont’d

Time Pacing

• 25% of sales must be from products less than 4 years old

• Sets the rhythm of change

• Past > present > future

Semicoherent Strategic Direction

• Constantly finding new products

• Their strategy: focuses on coating technologies & innovations

• Edges of chaos & time

CONTINUOUS FLOW OF COMPETITIVE

ADVANTAGES

• 38th of dividend increase

• 9% of sales increase

• 3M continuously reinvent itself

Conclusion

Where do you want to go?

How are you going to get there?

Collaborative Advantage:The Art of Alliances

2nd Reading

An Introduction…

• An alliance is not necessarily a merger or acquisition. It can also be an agreement between businesses to work collectively to achieve their objectives (mutually common or different).

• Either way, a good business alliance can give a firm Collaborative Advantage.

• What to consider when establishing an alliance?– Not just cost minimisation, improved funding, better productivity…– Human factors are also important!

Barriers to effective use of relationships is social, not strategic factorsDistinctions between organisational classes can interfere with adaptive capability

-Kanter-

3 Fundamental Aspects of a Business Alliance

1Gradual evolution

2Collaboration!

Not just exchange

3Non-

restrictive

Alliances should provide continuity. It should provide new opportunities rather than being one-off

Alliances should not be just an exchange of resources and skills. That’s not an alliance, more of just a supplier-consumer relationship

Alliances cannot be restricted by strict rules. It should provide interpersonal connections and encourage change & development.

Collaboration & Driving the Market

• Shaping the Market via deconstructionist approach.• Deconstruction of competitors• Accomplished by joint ventures, hostile takeovers,

partnerships, mergers, acquisitions…etc.• E.g.

– Eliminated direct competition in international telecom– Increase likelihood of competitors exiting & preventing

new entrants• Can be done with suppliers, channels…

Types of Alliances

Mutual Service Consortia

• Similar firms in similar industries

• Combine to obtain a benefit which is too costly to accomplish alone

• E.g. Siemens, Toshiba, and IBM alliance allowed them to develop and introduce a new dynamic random access memory chip.

Joint Ventures

• Firms combine with the aim of utilising partner’s capabilities.

• E.g. Technology of one firm & experience of the other

Value-chain Partnerships

• Firms in different industries

• Different yet complementary skills/resources

• Combine to create value for final consumer

• E.g. Supplier –Customer relationships

Strong & Close

Weak & Distant

Combining core

competencies

Collaborating within the Value Net

Customer

• Retailer• End user• Wholesaler

Microsoft X-box

Complementors

• Xbox Linux Project

• User-communities

• Magazines, fanzines…etc.

• ISPs• ModChips

Suppliers

• Nvidia• Intel• Content rights

holders

Competitors

• Playstation• Gamecube• PCs• Online-gaming

platforms• Stand-alone DVD

player

From Martin Koser

Phases of a Successful Alliance

Courtship Engagement

Setting up Housekeeping

Learning to Collaborate

Changing within

Courtship• The stage where a suitable partner firm is discovered• Business alliances are more commonly initiated like

romantic relationships; from optimistic ambition, feelings or intuition.

• It is important for firm’s executives to hit it off at a personal level.

• Relationship compatibility is not measured just by numbers and statistics.

• Strategic and financial analyses just contribute a level of confidence.

Criteria for partner selection

1. Self-Analysis

• Important to assess the firm itself: Find out the firm’s resource levels, internal SWOT analysis, objectives…etc.

• Calls for a deep evaluation of the industry (their own and the targeted industry).• Focus on a shortlist of potential partners and evaluate them. You wouldn’t want

any surprises!

Criteria for partner selection

2. Chemistry

• Focuses on the personal side of a business alliance• A good understanding between executives creates some goodwill to draw on in

times of tension. (can include business & personal interests)• Important to consider cultural, religious, ethnic and regional differences when

interacting with another company.

Criteria for partner selection

3. Compatibility

• Compatibility on financial terms is important• But so too are intangible measures such as:

• Historical• Philosophical• Strategic• E.g: common experiences, values and principles and future aspirations

Engagement

• The alliance becomes formally institutionalised.• Relationship becomes complicated when

stakeholders enter the picture.• The management can follow certain steps to ensure

the relationship keeps it balance between personal and institutional:– Meeting the Family– Establishing the Vows

Meeting the Family• Like the executives, the lower-level

management and employees should be given the chance to build a good rapport with staff of the potential partners.

• Also ensure that other stakeholders approve of the alliance.

The Vows• Third party professionals (lawyers, investment

bankers) enter the fray to oversee the contracts and legal side.

• Must control their role at this stage as these professionals tend to focus more on technical elements and less on operational compatibility.

Professional savvy rules

and contracts

Operational Friendly

If professionals dominate, this may happen

The Vows 1. Incorporate a specific joint activity

2. Include a commitment to expand the relationship

3. Incorporate clear signs of independence for partners.

Ways to ensure the best agreement is established

Setting up Housekeeping

• As companies get past the initial set-up, there are bound to be some barriers when the actual alliance is put into practice.

• These obstructions include:1. Problems of Broader Involvement2. Discovery of differences3. Respect vs. Resentment

Problems of Broader Involvement

• This involves the problems which arise among employees of the partnering firms.

• Problems may arise due to:– Insufficient opportunities for staff to create a

good working rapport– Employees may have a different perspective about

the alliance compared to the executives– Employees may focus on the company that

primarily hired them instead of the partner firm– Some staff may oppose the alliance

Discovery of differences

Operational and cultural differences start to emerge. These differences can be classified as:

• Differences in authority and decision making

• Logistical and operational differences

• Money related conflicts

• Language barriers

Respect vs. Resentment

• Resentment from the different groups of employees may arise from:– Stereotyping– Blaming the “outsiders”

• Higher-level management should encourage their respective employees to be open and supportive of partner firm’s staff, regardless of background or nationality.

• Respecting other’s work will help them feel appreciated and contribute more to the venture.

Learning to Collaborate

• Firms have to develop procedures to eliminate organisational and interpersonal disparities to obtain the maximum value of the alliance.

• Alliances can achieve 5 levels of integration:

Strategic Tactical

Operational

Interpersonal

Cultural

• Involves frequent communication among executives regarding objectives and company changes

• Helps firms move in a complementary direction

Strategic

• Develop plans for joint activities, knowledge transference, firm changes that enables better linkage

• Involves appointment of as Alliance managers, Worldwide account directors (WWADs)

Tactical

• Concerned with providing staff with necessary information, resources and training to do their tasks.

• E.g. participating in mutual workshops to formulate common work schemes

Operational

• Develop personal relationships between the companies

• This helps in improved sharing of resources and information

• Prevents small conflicts from growing

Interpersonal

• Involves managers acting as teachers as well as learning about the skills and cultural awareness required to eliminate any differences

Cultural

EXAMPLE: CROSS-CULTURAL CONFLICTS

The US team leader described his Japanese counterpart as weak, incompetent and completely disinterested in the project. “He never says anything in meetings, he just sits there. Sometimes I think he is asleep. I do my best to drive the project, but nothing happens.

“headquarters gave him a weak team; he must always present things himself. He can’t rely on his team for any support. We don’t believe anything his people send us, how could we?”

Marshall n.d.

Both sides were interpreting the other’s behaviour strictly in terms of their own corporate and national cultural assumptions.

Where the Japanese executive was demonstrating confidence and support for his team the Americans saw passivity and disinterest.

In trying to correct that perceived problem the American executive unintentionally convinced the Japanese that the American team members were not up to the task at hand – anything that did not come from the American executive himself could not be trusted

Marshall n.d.

Changing within• An alliance will produce changes which were

unexpected at the start of the collaboration.• Manager should exchange ideas in order to garner

the full value from the partnership.

Empowerment of Relationship Managers• Managers must be able to adapt their firm’s

methods accordingly to venture-specific tasks• E.g. Northern Telecom gives independence to its

managers in Turkey and China branches to alter the working procedures.

Changing withinInfrastructure for Learning• Companies discover that strong communication and

exchange of ideas across departments lead to increased productivity.

• This leads to internal modifications to allow more teamwork across departments and the exchange of information and ideas.

Q & ATHANK YOU