Paper on strategic intent & disruption

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Contents


Premise

The premise of this paper is that the root-cause of success of companies associated with Strategic Intent is in reality due to other factors.  Strategic Intent is at best a proximate cause of success. 

Strategic Intent is a term that Hamel and Prahalad associate with an obsession with winning within certain companies that rose to global leadership during the 20 years from 1970.  These companies initially had ambitions that were out of all proporation to their resources and capabilities and created an obsession with winning at all levels of their organizations and then sustained that obsession over the 10- 20 year quest for global leadership. 

In the paper a number of scenarios are explored to identify the various root causes of success and failure of companies using Strategic Intent.  Without other factors being present Strategic Intent will be shown to commit resources when the pre-conditions for success are not guaranteed resulting in some costly failures.  The root causes of success include: disruptive eco-system merger, bose condensation of market proven solutions through modular design rules or end-to-end business process refactoring, and network effects. 

Introduction

The investment and subsequent loss of billions of dollars in the second half of 1990s technology bubble provides market feedback regarding the visionary strategies built up in the 1980s.  This paper looks critically at those strategies and the creative activities they focused.  Applying theoretical models to the developments, this paper highlights the underlying causes of success and failure.  In conclusion it clarifies when to apply strategic intent. 

Scenarios

Toyota in the 1970s - Strategic Intent.

With the oil induced inflationary shocks to the economic systems of the Unites States and Western Europe the populations of these economies shifted their buying patterns.  Among the major beneficiaries of these purchasing shifts were Japanese companies whose products had been largely ignored until this point in these markets. 

Companies like Toyota joined consumer technology producers like Canon, who were successfully gaining share in Cameras and other high tech consumer markets. 
Studies by western academics and businesses that were being driven from leadership positions indicated that Japanese producers were using different design and manufacturing processes to build their products which were of significantly higher quality. 

Business strategists were also analyzing the Japanese management strategies.  It was shown that the Japanese were able to match their highly responsive manufacturing processes with resources mobilized from within the companies to achieve big goals.  In comparison western companies were managing by portfolio analysis and were exiting cash cow businesses over time.  Gary Hamel & C.K. Prahalad's "Strategic Intent" described the Japanese strategic process and western companies began to utilize the system.  

GSM in the 1980s - proof positive from Nokia - or is it?

During the 1980s western political strategies globalizing infrastructure markets and the financial system were paralleled by standardization of some key technologies.   The European Community agreed to standardize its mobile phone infrastructure.  Key executives at Nokia realizing that this market opportunity was large used Strategic Intent to transform its resources to match its goal of becoming a focused, market oriented global GSM network equipment provider. 

The success was astonishing.  Incumbent network equipment leaders, Motorola, Ericsson, Seimens lost market share to Nokia, as its new GSM operator partners offered businesses and then consumers attractive service packages. 

It appeared that Finnish companies could use Strategic Intent and become global competitors with attractive high quality goods just like the Japanese had done. 

Sun & the Internet Mainframe - How to compete for the future. 

Sun Microsystems pioneered the development of high performance workstations based on an enterprise setup by Vinod Koshla, Scott McNeally, Andy Bechtelsheim's hardware design and Bill Joy's UNIX knowledge.  With the network effect of growing UNIX use in academic and then enterprise environments there was a natural integration and co evolution with the steady build out of IETF based infrastructure within corporations during the 1980s. 

Sun's interest in video servers and infrastructure during this period initially stumbled along with the rest of the computing industry as the challenge of providing on demand video content systems proved very difficult. 

Sun had developed a long term vision of the networked computing world, which led them to continue funding the Oak video server platform which re-born as Java leveraged the limited programming capabilities of the emerging world wide web to created a possible mechanism to build a non-Microsoft computing eco-system. 

Sun gathered the key partners it would need to be credible: IBM, Oracle, Netscape, and Cisco and ensured market opportunity for all based on grabbing market share from Sun competitor's Microsoft, Hewlett-Packard and SGI. 

With a Sun controlled standards process & partner programs amplifying the development activities around Java it became a credible development and run time platform for new applications.  Applications that would be deployed at solution companies developing products and services that would be accessed across the Internet. 

Sun purchased super computer maker Cray to leverage their high end computing technology into a new class of UNIX servers to execute the vision of computing power "on tap". 

It was supposed to be a bold use of strategic intent but it resulted in the boom and bust of the .com revolution in the late 90s. 

What had been so different from Nokia's success? 

Nokia and the third-way

Nokia was building on its GSM success, and responding to the lack of packet switched services in the mobile networks it supplied to public network operators. 

The oligopoly that Nokia was now a part of had a long term plan for its mobile networks based on Universal Mobile Telephone service (UMTS) which aimed to allow one handset to operate world-wide and in any situation.  Its ability to provide third party services to operate over the network was very limited.  With the obvious success of the world-wide-web Nokia was able to take a much more attractive vision to market: the Mobile Information Society.  

Nokia and the other mobile network equipment providers were not able to resource the vision alone, since the goal required the collaboration of service developers from the Internet service world to add mobile terminal support, while the network equipment providers and IP community agreed on the changes to the core network. 

While the vision of reaching web pages from anywhere at any time was attractive and early solutions based on Wireless Application Protocol sold well the interest quickly waned.  Tough issues were identified:
So the use of strategic intent does not, of itself, provide the success the Japanese obtained when they were identified as benefiting from it. 

What went wrong?

Root causes of Japanese success

Hamel & Prahalad explained that Japanese companies were able to benefit from layered strategies:
However, while these are good strategies they were proximate to the presence in Japan of a competitive eco-system that did not overlap with the western system.  As the two systems merged the products of the Japanese system turned out to be disruptive to the western company's products. 

Segmentation mechanisms that had enabled GM to extract profits from Cadillac while limiting profitable access to the entry level car market were thrown into reverse, by products mixing quality from the mid-high end western segments in low end products. 

Within Japan the product development and markets were highly competitive and arm's races had extended the strategies that Japanese companies had initially adopted. 

Extended phenotypes - disruption across whole eco-nets. 

The integration of two eco-nets is likely to be disruptive.  Like biological systems benefits from cooperation between eco-system participants creates reinforcing feedback loops that typically lock the whole eco-net together in success or failure. 

When separate eco-nets are able to combine the financial, contractual and architectural interfaces limit the recombination's, and one system will become disrupted.  

Nokia's original mobile business success was based on the success of GSM.  However, Nokia also had to out-compete Ericsson, Siemens & Philips from Europe & Motorola. 

Ollila defined the corporate strategy.  It was based on a realization of the effects of the G5 politicians building of a global trading system.  Ollila leveraged Hamel & Prahalad's concept of strategic intent to create the tension within Nokia to drive the process forward.  Alahuhta, while on a research sabbatical, provided the strategic model - based on how small, medium competitors were succeeding and failing. It had Nokia developing mobile networks in small markets and then pushing them into a global system.  The standardization created by GSM amplified the potential of any value in the Nokia products. 

While the incumbent network equipment providers struggled to understand what was happening and how they could profitably alter their processes Nokia and its Eco-net disrupted the incumbents. 

As Nokia aimed at merging the mobile eco-net with the IP eco-net its use of Strategic Intent's big goals created huge change in the industry, but the modularity of the two systems were very different, both the architected aspects and the undefined aspects that allow for value creating entrepreneurism with limited constraints.  When the PC won the IP arms race becoming the standard display device its capabilities became part of the assumptions of many web pages, even though the web's designers had not architected this constraint. 

Whether the merging of the eco-nets would be possible in the current business cycle was not a question of effectively applying Strategic Intent but of understanding the alignment of the design rules: the need for re-factoring of the systems, and possibly the business and economic models as well! 

Strategic approaches to allocating resources with risk and uncertainty

Strategies for committing resources. 

Disruptions create powerful opportunities, but their power comes from the slow, incremental way that the many constraints to mass deployment are removed and corresponding limits to available revenues for incumbent businesses.

The incremental nature is due to the constraints on change caused by the interdependencies of the product, organizing ideas and business model of the current eco-net.  Re-factoring requires careful study of the problems created by deployment of the new system, in a variety of situations. 

Public mobile network operators should have responded warily to the politician's value assessments of 3G networks and should have limited the comments to such licensing.  Political administrators should not setup conditions that induce fear of lockout from the future and drive overly aggressive investment strategies by operators.  Once induced such forces have short term positive feedback and long term negative consequences. 

It is possible to niche down so that a special purpose solution will apply, and then wait hoping for network effects to kick in!  The mobile network equipment providers are doing this today with camera phones pulling networking changes across the infrastructure. 
With clear insight of the changes required, developed iteratively, or due to the tight modularity of the system, or by extensive analysis, commitments can be matched to pre-conditions for success identified.  Ebay matches the approach of taking a highly modular system - auction selling and deploying it through the already operational, and highly modular, world-wide-web. 

In the special case of responding to deployed new infrastructure it can provide a powerful catalyst for the success of disruptive systems designed to integrate with it.  Walmart, and Nokia, show why this strategy is worth funding the commitment of resources.  New infrastructure does not have the hidden constraints that are so difficult to identify and change. 

Monopoly control provides an escape from the "Innovator's Dilemma", via the cash harvested from the monopoly, & reallocated by strategy.  Microsoft also understands the techniques of API control, and this can be used to limit others "Bose condensing" the system. 

HP was founded on an alternative strategy.  It relaxed the financial constraint & created autonomously funded products and subsequently divisions.  This model:
Huge investments were funneled through the VC community into entrepreneurial businesses for committing to rapid growth justified by limitless upside from positive returns.  In all cases these commitments depended on still to be deployed, converged computing & communications infrastructure, and so were unsound.  Matching commitment to pre-conditions would balance investment to limited growth rate immediately sustainable. 

Current panacea business strategies, such as solving the enterprise application integration chaos with "service oriented architectures" (SOA) should not be resourced heavily.  Niches will emerge, and over time modularity will be constrained for particular paradigms at which point new eco-networks with costs in line with the incrementally realized benefits generated may disrupt the current market participants.  Microsoft may have the flexibility to invest in and harvest the niches as they appear but few others will be able to compete. 

Providing "commercial support" to projects which attempt to use SOA prior to the existance of clear design rules and with a clear understanding of the modularity implications seems most likely to capture any value in the short term.  IBM cleverly combines this strategy with use of OpenSource developments that minimize IBM's direct cost of the value creating investments and indirectly constrain competitor's revenue potential.    

Copyright ©2004 Robert Lingley