Its the activities that count

ChristensenHBRStrategic Change

The key to a successful strategic change is to change the things that matter to an organisation’s survival; and leave the things that don’t matter to operations.

In his seminal paper ‘What is strategy?‘ Michael Porter argues that effective operations is necessary for survival, but not sufficient.  Strategy is always needed. So I am going to argue that strategic change focusses on delivering the edge that enables a successful strategy to deliver not just survival but longevity. To achieve this a strategy must identify those activities that will make the difference for the organisation. Of all the things an organisation does only a few are critical to its survival and hence its strategy. It is strategic insight that identifies these activities.

Clayton Christensen has come the closest I have seen to lucidly describing how to design a business as a set of closely aligned activities which deliver a profitable business model (or an effective model if you are not measuring profit). He shows how the business model as a set of activities needs to be organised for success; and why existing organisations struggle to implement the necessary strategic change for survival.

My original insight of the power of the business model came when I worked in the Hewlett-Packard Research Laboratories. The labs were charged with finding the breakthrough innovations that would enable the company to grow and remain profitable. The problem I found was that innovation in HP was limited to technology, and the harder the better. So a new gadget was more valued that a new software system. And a new business model was not even thought of as an appropriate use of our time. Yet, the biggest innovation in our industry at the time was a new business model designed by Michael Dell which created a hugely valuable business from scratch; the size of which no technical innovation from the labs came close to. Dell’s business model re-defined the supply chain to design, assemble, and ship a PC. It also re-defined the channel to the end customer. And it cut out a number of middle men and agents who were all taking a profit from the process. So Dell was more agile, more focussed on the customer; and hugely more profitable than the HP computer business. Michael Dell did this by thinking through the activities of delivering a computer to the end customer and innovated a few key items, notably:

  • A direct selling operation using the telephone, and later the internet, so Dell talked directly to the end consumer.
  • An assembly method where the carrier (DHL etc) assembled the bits sent by the supply chain in their own warehouses so that most of the Dell inventory never entered a Dell property before it was received by a customer.

There are other innovations; these make the point. Such was the innovation of Dell’s model that no matter how hard it tried HP just could not emulate it. HP was just incapable of the strategic change needed to even follow this model; let alone innovate it. I have a sneaking suspicion the reason HP merged with Compaq was to avoid the possibility of Dell acquiring either of them to dominate the industry.

Changing your systemic activities

Do you know how the activities in your business line up to deliver your value proposition to your customers. Do you know how your competitors compare? Do you know how you can innovate your activities to create a breakthrough in your market? Here is a sample chain to give you some things to think about.

BusinessModel

For more on this idea see The Entrepreneurial Mindset (click on the image)

Each of the items above is a possible activity and a possible place to innovate. If you understand where your strategic advantage lies then you can focus on those activities. The other activities need to be good, at least as good as your competitors, but are not the target of strategic change.

Summary

We propose that strategic change using the scarce resources of your organisation needs to focus on those activities that support the survival of the organisation. Other activities need to change, but only enough to keep up with the competition; these can be done through the small projects we have discussed before.

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