The “Strategic Palette”: Inspiration with Caution
In their 2015 book, “Your Strategy Needs a Strategy”, Reeves et al., all of whom were serving as consultants for Boston Consulting Group at the time, identified a small number of primary strategies that leaders should include in their “strategic palette” and thus have available for deployment in appropriate situations. The consultants argued that visualizing strategy based on the palette approach was an appropriate acknowledgement that no single strategy fit every scenario and that leaders would need to be able to both switch between strategies and artfully blend strategies to create new approaches.
The primary strategies that should be included on the palette were described as follows in a review of the book that appeared in The Economist:
- The “classical strategy”: This strategy was traced back to the 1950s and was succinctly described in the review as “find a good niche, develop a plan to dominate it, then muscle up”. Such a strategy, long popular in business school classes, requires developing and maintaining core competencies that are competitive advantages (e.g., cost controls, logistical savvy etc.) and a sustainable network of suppliers, distributors and customers. Typical practitioners of the strategy mentioned in the review included Procter & Gamble, Walmart and UPS. The problem with relying too much on this strategy is that it assumes stable markets, an environment that is increasingly harder to find in today’s competitive world.
- The “adaptive, evolutionary approach”: A strategy that has become popular among technology firms, this approach was described in the review as “trying lots of small things and then backing whichever ones work”. In practice, a fashion retailer might first produce a new line of clothing in small batches and then transition quickly to “scaled up” production if and when market interest is confirmed. Central to this strategy is investing resources in explaining new ideas and products to the market when they first come out in order to both generate potential interest and collect feedback necessary to implement changes before additional cash and other resources are ploughed into production.
- The “blue-ocean approach”: Described as a “visionary approach”, this strategy calls for the firm to “generate a compelling new idea—a whole new market, with you at its center”. While Apple’s development of the iPhone and iPad are certainly compelling and spectacular examples of the successful application of this strategy, the obvious challenge is educating potential customers that they really do need the proposed product or service and building sufficient excitement and demand.
- The “shaping approach”: The review described this strategy as “working with partners to create new markets”. The review pointed out that firms may turn to either private- or public-sector partners. One example of private partnerships was the way that Apple and Google have worked with small developers to create ecosystems of applications for their respective mobile services. An illustration of public-sector partnering was the success of Novo Nordisk, a Danish pharmaceutical company, in capturing a large percentage of the insulin market in China by working with physicians and health authorities in that country to increase awareness of diabetes and encourage diagnosis and treatment.
- “Renewal”: This strategy is generally reserved for firms that have gotten into trouble and calls for the following: “refocus the business decisively, preserve capital, free resources to apply to areas of growth”. One illustration provided was AIG, the large insurance conglomerate bailed out by the US government during the depths of the Great Recession in the 2000s. In order to survive AIG divested a number of businesses and product lines and rigorously restructured its remaining units to reduce overlap and rivalry.
- The “ambidextrous” approach: This approach encourages and expects that firms can and will be able to shift quickly and efficiently among two or more of the strategies described above and even use multiple strategies at the same time for different purposes. The review described how each division of PepsiCo had two groups: one group was tasked with remaining competitive using a strategy of continuously improving the efficiency of businesses that were to be maintained their current form and the other group was looking for ways to “disrupt” current ways of doing business before competitors found the answer.
The review complimented Reeves et al. for offering a clear taxonomy of strategies; however, it is also pointed out that the success of the “palette approach” depended heavily on the ability of leaders to recognize and overcome difficult contradictions. For example, while the niche-domination approach suggested by the classical strategy often turns on reducing choices for consumers in order to keep costs down the adaptive strategy is based on offering several new choices in order to find the best product or service option to focus on in the future. The review also noted that firms used to practicing the classical strategy tend to prefer being closed and acting defensively and that these characteristics will make it difficult for them to engage in the sharing with outside partners that is required in order to pursue a shaping strategy. Another impediment to ease of use for the palette approach is the inevitable mistrust and rivalries between managers pursuing different strategies in the same market at the same time. Certainly a group tasked with maintaining the status quo through cost reductions and incremental changes to an existing product will be loath to share information with another group established to topple the traditional foundation in the same market and roll out new products and solutions. The result will be internal stress and strain and wasteful investment of cash and other resources.
Sources: “A palette of plans”, The Economist (May 30, 2015), 66; M. Reeves, K. Haanaes and J. Sinha, Your Strategy Needs a Strategy: How to Choose and Execute the Right Approach (Cambridge MA: Harvard Business Press, 2015).