There are many frameworks and models for constructing and assisting teams to develop strategy. An approach which I have termed Dominant Logic is one and is relevant to the kind of challenges faced in the 21st century – disruption, innovation and reorganisation – by South African businesses. Powerful digital technologies in a world driven by very strong disruptors is one that must challenge the traditional logic of all businesses. So are rapid social change, exponential communications capability and an increasingly competitive and complete environment.
This article puts forward four frames of reference to strategy that are in one way different from each other and in another synergistic.
The ideal outcome for any business is to perform well in all four, but most firms seem to choose over time a particular approach to strategy that fits into one of the four primary approaches. These four models are developed from academic literature, as well as practical experience.
What follows is a discussion of each approach to strategy.
The first and most easily recognisable concept is that of rivalry. Capitalism is based on rivalry: the simple idea that firms compete for customers and markets and have to drive their business on the basis of the logic of competitive advantage.
In South Africa, our five main banks have overlapping formats and compete at the margin in terms of innovation, common new products and services. Look closely at them and it’s clear that they have similar approaches to customer delivery.
The oil industry is primarily a logistics business that imports oil, refines it and then distributes it through a series of franchise operations. All of them replicate very similar products but seek to differentiate them at the margin.
The same is probably true in the fast food industry. McDonald’s, Burger King, Steers and Roman’s Pizza are all competing in the same territory with very similar formats.
In these types of organisation, rivalry is visceral and, to many, the essence of competition. Organisations that focus on this kind of rivalry are aimed at matching the competition, searching from time to time to out-innovate them, but primarily making sure that they are not leaving competitive spaces that customers want to be filled because they have a different strategy than the others. These companies do a lot of benchmarking. Their emotional focus is to beat the competition – perhaps not just to serve the market – because the efficiencies in these types of companies are where the measurements are made. These are incremental businesses, searching for competitive advantage through massed rivalry and incremental innovation. Mostly this applies to mature industries where the rules of the game are well established.
The customer at times may come second to the competitive moves and the company’s thinking is often short-term and tactical in nature. It’s a tit-for-tat form of competitive arena, an “eat the lunch or be the lunch” approach to business.
The second approach is excellence. Excellence is the capacity of an organisation to design and put in place a set of goals and standards that are measurable and can be rewarded to stimulate and develop high performance. Incentives, bonuses and share schemes can all be engineered to reward an organisation for high standards, and, in addition and perhaps more powerfully, the leadership of a company can put forward vision, goals and objectives that raise the bar in any company.
They are also marked by a high level of focus on financial measurement.
A good example of this would have been South African Breweries over the last 30 years. A monopoly company for almost a century in its home country, it performed remarkably well within a monopolistic condition to become the second-largest beer maker in the world. (It was acquired in October 2016 for more than $100 billion by AB InBev.) Anyone who worked at SAB knew the rules. Everything was meticulously measured, on a performance matrix. Even though it was all inside the organisation, these were very big drivers in terms not only of products and processes but also in terms of selection of executives, training, the youthfulness of the team and the setting of strict targets.
In the excellence environment, company culture is all about performance. Reporting and accounting systems are geared to measuring where business units or products excel. Do they exceed the standards or do they fall behind, and if so, what action could be taken to improve performance?
This is a tough performance environment and one in which rationality and the logic of measurement becomes the dominant paradigm.
The third approach is innovation. In recent years, we have seen a remarkable set of disruptive companies come to dominate much of the technology landscape and, subsequently, huge product markets around them. Classic cases we all know well are companies like Facebook (its enormous strength in social media), Uber (its disruption in the transportation business) and Amazon (in the retail and delivery business). Netflix in entertainment and Apple in communications and technology.
Innovative companies are normally led by a founder or a small team of executives who have a remarkably different vision of the future. We saw this many years ago in the case of Henry Ford and the Ford Motor Company. There were 2 000 car makers in the United States, converting carriages into automobiles. The internal combustion engine had become a viable form of generating energy, as opposed to the 22 million horses that had been previously dragging Americans around their vast continent. Henry Ford’s tinkering as an engineer led to a production process that was eventually named after him: “Fordism”, which became the dominant paradigm for manufacturing for 60 or more years around the world.
Ford was a massive disrupter, summed up by one great sentence: “If I’d asked my friends what they wanted, they would have asked for faster horses”. His vision of innovation in the mass production process – “You can have any colour you want, so long as it is black!” – led to massive decreases in the cost of motor vehicles. He forced prices down from around $2 000 per unit to about $800 and the rest is history.
In the modern, global economy there are many of these disruptors emerging. Nations, new industries and remarkable companies. They seek to pioneer a new technology, operating system or an approach to business that causes a new kind or scale of value to be created. They challenge the existing, dominant players, and that’s the basis of their success.
The final approach is purpose and it is a difficult path to follow. Most innovators, when they begin a business, are driven by purpose, not just to make money but to add value to a market. I’ve always been intrigued by the quote from the chairman of Kellogg’s who said, “The purpose of business is not to make money – what a boring and demeaning description of what we do. The purpose of business is to add value to people’s lives, and when you do that well, you make a lot of money.”
They believe that just making money is putting the cart before the horse. Serving customers with value and a purposeful objective is putting the horse before the cart.
This is a challenging approach to strategy but defining value and purpose in today’s modern economies seems to be critical to energising both an organisation and its market. People are motivated by the ‘Why?’ question, not just the ‘How?’ Most great work is voluntary and those leaders of sizeable companies who have been able to fire the imagination of their employees because they have a greater purpose, have done well.
I recall that in the mid-1980s, when I was working in Seattle, one of my students had joined Microsoft and I went to see him. He was working in a small cubicle, wearing a pair of shorts and a T-shirt. He’d finished an 18-hour spell developing marketing strategies for the newly formed Microcomputer Software company. I asked him what on earth he was doing as he tried manfully to explain what the technology of software was going to mean in the personal computer world. I understood little of it. At the end I asked him why, and with a gleam in his eye, he looked at me and said, because the purpose of Microsoft is to change the world. As we now know, Bill Gates used that vision to build an extraordinary global business.
Another example of a purpose-driven business has been the strategic initiatives taken by Paul Polman at Unilever. Polman’s ‘sustainable living plan’ approach to strategy, and therefore its knock-on effects for product and market development, are an attempt to elevate Unilever into a high-order purpose. Polman believes Unilever should serve society in a distinctive way: its values become the fundamental framework used by its executives to build and lead the business.
Heaven must be a business that is able to excel in all four of these quadrants. If by some extraordinarily hard work or even luck, you find yourself in a purposeful company led by innovation that’s highly competitive and where excellence is measured and the norm of the day, good luck to you, sustainable success will follow and you are in Elysium. However, if you have a “dominant logic”, check its assumptions, test the choice and keep both eyes open to the need to shift.
When major changes develop, over time or quickly, and require a major change in focus, it is the moment of strategic truth. Business history is full of cases of those who couldn’t change, those who could, and those who read the winds of opportunity and created a business that disrupted the existing market and added value to people and society.
WHICH ONE’S FOR YOU? HOW TO IMPLEMENT AT YOUR COMPANY
This framework allows executives to consider where their company’s dominant logic lies. It may be important to start with the history of the business to understand what the dominant logic has been that has got them to where they are. What we know is that how you got in the room and what you’re doing in the room, is not how you’re going to get out of the room in today’s fast-changing world.
The management team needs to assess which is (or are) the dominant logic(s) of their business. It may be that there’s a significant focus in one of the four quadrants of the model. If so, that’s important to understand and agree.
Then, having looked at the basic framework, it is worth asking what combinations of the four might be most useful. For example, the rivalry-and-excellence mixture is a relatively slow change model, where an industry is mature and competitors are known. Doing that well could be the foundation of a business. The gear change would be, especially if you can disrupt or are being disrupted, to shift to purpose and innovation as your dominant change process.
Next, ask yourself whether that dominant logic or focus area is what you want for the future? If it’s not, then you need to begin the process of thinking about how to move from one dominant arena to the next. These are always painful processes, especially for mature companies.
For example, if you’re an emerging company with new technology and a new approach to business and new products or services that are shaking up the market, your maturing process is to move from purpose and innovation to excellence and rivalry. This follows the broad life most firms commonly talked about and understood.