Last Updated Feb 2, 2009 1:08 PM EST
The Idea in Brief
Hammered by relentless technological change, many companies take a reactive stance: They focus solely on keeping up, protecting their existing markets, and improving their performance.
But a few companies take a proactive stance by executing shaping strategies: They use technology changes to create new business ecosystems that benefit themselves and other participants. Take Google's AdSense: It has reinvented the advertising business by enabling advertisers, content providers, and potential customers to connect with one another quickly, easily, and cheaply.
To succeed, a shaping strategy needs a critical mass of participants, say Hagel, Brown, and Davison. Shapers can attract them by:
- Convincingly articulating opportunities available to participants
- Defining standards and practices that make participation easy and affordable
- Demonstrating they have the conviction and resources for success and won't compete against participants
Well-executed shaping strategies mobilize masses of players to learn from and share risk with one another — creating a profitable future for all.
The Idea in Practice
To be a successful shaper, take the following steps. To be a participant, look for a firm that takes these steps:
Communicate a "Shaping View"
Formulate a view of the future that highlights how a broad industry or market is changing and identifies the opportunities for a wide range of participants.
Salesforce.com's founder used speaking engagements at software industry conferences not to pitch his new company, but to describe the fundamental forces transforming the business landscape. He explained how, in an increasingly competitive world, companies that managed customer relationships more skillfully than rivals would win. He explained that applications to support customer-centric imperatives (such as salesforce automation) would best be delivered as network-based services, not discrete software packages installed in enterprises. By accessing these services, companies could reduce their IT infrastructure investments and easily upgrade as new functionality became available. By offering such services, Salesforce.com achieved an $8 billion market cap in less than a decade.
Develop a Shaping Platform
A shaping platform is a set of standards and practices that organize and support participants' activities — making it easy and inexpensive for participants to develop and deliver their own products or services.
Google's AdSense has protocols governing how ads are submitted, priced, presented, and paid for. It allows even small advertisers and Web sites to invest minimal time and effort, with little oversight from Google, and still generate value for one another. This platform's scalability makes specialization by participants economically attractive: AdSense can connect the maker of a product that appeals to a tiny niche with the largest imaginable pool of prospective buyers of that product.
Demonstrate Shaping Acts
Companies won't participate in a shaper's proposed business ecosystem if they worry that the shaper lacks the conviction or capability for success, or that the shaper will compete against them. To assuage these worries, shapers must signal their intentions through their actions.
Computer networking company Novell had seen an opportunity to shape the local area network (LAN) business and had developed a robust operating system for LANs. To accelerate adoption of its operating system, it decided to sell off the hardware business that generated 80% of its revenues. The move sent a clear message to the emerging industry: Novel was so committed to its network operating system that it was prepared to walk away from a significant portion of its revenue. Other network hardware manufacturers knew they could adopt Novell's system without worrying that Novell would compete with them in their core business. Novell's network operating system became the de facto standard for over a decade.
Harvard Business Review
by Michael E. Porter
In 1979, a young associate professor at Harvard Business School published his first article for HBR, "How Competitive Forces Shape Strategy." In the years that followed, Porter's explication of the five forces that determine the long-run profitability of any industry has shaped a generation of academic research and business practice. In this article, Porter undertakes a thorough reaffirmation and extension of his classic work of strategy formulation, which includes substantial new sections showing how to put the five forces analysis into practice. The five forces govern the profit structure of an industry by determining how the economic value it creates is apportioned. That value may be drained away through the rivalry among existing competitors, of course, but it can also be bargained away through the power of suppliers or the power of customers or be constrained by the threat of new entrants or the threat of substitutes. Strategy can be viewed as building defenses against the competitive forces or as finding a position in an industry where the forces are weaker. Changes in the strength of the forces signal changes in the competitive landscape critical to ongoing strategy formulation. The five forces reveal why industry profitability is what it is. Only by understanding them can a company incorporate industry conditions into strategy.
Harvard Business Review
by Anita McGahan
To truly understand where your industry is headed, you have to take a long-term, high-level look at the context in which you do business. McGahan studied a variety of businesses from a cross-section of industries over a 10-year period, examining how industry structure affects business profitability and investor returns. Her research suggests that industries evolve along one of four distinct trajectories--radical, progressive, creative, and intermediating--that set boundaries on what will generate profits in a business. These four trajectories are defined by two types of threats. The first is when new, outside alternatives threaten to weaken or make obsolete core activities that have historically generated profits for an industry. The second is when an industry's core assets--its resources, knowledge, and brand capital--fail to generate value as they once did. Industries undergo radical change when core assets and core activities are both threatened with obsolescence; they experience progressive change when neither is jeopardized. Creative change occurs when core assets are under threat but core activities are stable, and intermediating change happens when core activities are threatened while core assets retain their capacity to create value. If your company's innovation strategy is not aligned with your industry's change trajectory, your plan for achieving returns on invested capital cannot succeed, McGahan says. But if you understand which path you're on, you can determine which strategies will succeed and which will backfire.
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