When the guru of strategy speaks on strategy, everyone listens!! That's what exactly happened yesterday when Philip Evans, a senior VP of BCG, gave a 2-hour presentation on the evolution of strategy in business world. No wonder he was the keynote speaker of the CEO summit convened by Bill Gates. The following is the synopsis of his lecture:
Henderson, president of BCG, was one of the first ones to think of strategy as a single blazing idea that helps the company to 'take-off' - his approach was more of action-oriented, specific and prescriptive. Porter followed this with his five forces analysis and 32 attributes of competitive advantage of which only six are seen in action so far. His approach is more of a generalist view, and descriptive. While Porter and Henderson stressed upon the structural aspects of business such as mkt. share, prices etc, Peters and Waterman bought about the behavioural aspects (quality, customer service, people) as the key in achieving sustainable competitive advantage in their famous work - 'In search of excellence'
Then he cited two wonderful and real stories on emergency responses at Toyota and Linux, which beautifully bought a new framework into light!! The two key aspects of this framework are 'pervasive collaboration technology' and 'sharing of such intellectual property'. By sharing intellectual stuff, the incentive to innovate might reduce, but the cost of innovation also dramatically reduces since one can build on existing work. Such visibility and multitude of granular communication creates trust, which is magnified to a greater scale -thanks to technology. This emergence of trust on large scale has bought in an entirely new way of doing business!! (Eg: e-bay)
The striking advantage of this community approach and presence of trust in large scale is dramatic reduction in transaction costs. While everyone focuses on direct costs, one ignores the fact that transaction costs in US constitute 62% of its GNP. All the more reason why this is the way to go forward. This approach can be learnt by understanding the key differences between 'exploration' and 'exploitation'. While the more typical 'exploitation' approach stresses upon efficiency, focus, minimizing direct costs, attending to strong signals, top-down direction, internal accountability and external contracts, the new 'exploration' approach stresses upon learning, innovation, adaptability, growth, minimizing transaction costs, attending to weak signals, trust in internal and external relationships.
Contracts are in markets where the resources are allocated via supply and demand, while trust is established in teams or clans where the resources are allocated via emerging modularity. To summarize, scalable self-organizing networks result in low-transaction costs and vice-versa by accomodating non-economic motivations as well. The new web 2.0 business models have this as the underlying concept!!
- Aurevoir, Satish.
P.S: All good things come to an end, we finished our lectures with Dr. C. Rangarajan, ex-RBI Governor, on macroeconomic policies and instruments. Also, had an impactful net-impact conclave event yesterday!!
