What’s new in strategy after Porter and Blue Ocean?

The world has changed considerably since the 1980’s but the dominant paradigm in strategy remains Michael Porter’s competitive advantage. In the early 2000’s, Kim & Mauborgne proposed a different perspective with their Blue Ocean strategy but both approaches suffer from the same shortcoming. They both assume a relatively stable environment, with changes of low magnitude, which do not disrupt the fundamentals of the industry.

It seems more and more difficult to hold this restrictive assumption. We are certainly in the midst of a deep transformation of our societies and economies. Whichever the angle, whether technological, geopolitical, climatic, macroeconomic, societal, the idea of a lasting phenomenon, such as a “sustainable competitive advantage” or “a blue ocean where competition is irrelevant” appears to be more an illusion of a short-sighted mind than a reality supported by facts. These strategic ideals have been inferred from observations that have a limited period of validity (a few years or at best a few decades). Far from being eternal attributes of the companies enjoying them, they characterize a specific moment of affluence, doomed to be stymied by either the imitation of the competitive advantage, regulation, the arrival of new entrants in the blue ocean, technological progress or shifting customer preferences.

When we zoom out of the turmoil of the most recent and salient years and take a long-term perspective, most industries undergo a life cycle of expansion and decline, where any source of economic advantage is being undermined. In the intense period of transition we are currently experiencing, it is no longer possible to ignore this predictable pattern of obsolescence and maintain the fallacy of a relative stability. The passage of time and the resulting vulnerability of any lucrative position is the blind spot of the dominant paradigm in strategy. That’s why, strategists need new frameworks to anticipate and overcome the inevitable changes and redefinitions of their playing field.

It has been our ambition to design some practical tools which tackle the progressive evaporation of economic rents. By reference to the bamboo, the invasive and resilient plant that keeps growing back when uprooted, the Bamboo Strategy is a pragmatic approach to deal with the challenge of disruption and self-reinvention, by leveraging today’s and past successes.

Table 1 : Bamboo strategy to overcome the limitations of Porter and Kim & Mauborgne’s frameworks

We use bamboos to provide a metaphorical representation of the firm, with on one hand, horizontal and underground roots encapsulating the distinctive capabilities and strategic assets of the firm, and on the other end, vertical stems symbolizingg its different business models. The roots propagate themselves into the soil, recombining themselves to incorporate new competences and assets (by assimilation, partnership or acquisition). From there, they form new roots, from which new stems will emerge, that may become the future core of the firm.

Fig 1 : A Bamboo representation of a company as a portfolio of business models rooted on a set of distinctive capabilities and strategic assets

 

The bamboo may be used as a model of what happens during a successful transformation, where one of the small stems of the bamboo, a marginal and fledgling activity, built around a few core capabilities and assets, manages to take precedence over the legacy business model to become the main source of profits and cash flows. In the turnaround of IBM, software and services replaced the hardware branches. This holds true for Apple (Ipods & smartphones vs computers), Netflix (streaming and content producing vs DVDs by postal services), Microsoft (operating systems for PCs vs cloud computing), Schneider Electric (energy saving systems vs electric appliances) and many other companies.

In our research, we have thoroughly examined the successful trajectories of companies faced with the challenge commoditization or erosion, while wanting to take advantage of growth opportunities in businesses not immediately related to their core business. We have uncovered a pattern of three phases: take root, proliferate and stifle.

For new stems to be successful, they need to be built on scarce, if not unique, world class competences and assets. Before venturing into a new business, you need to excel in a few capabilities (step 1, “take root”), that you will redeploy and recombine in a different context. To find the fertile ground on which you may thrive, you need to find a multitude of clients’ frustrations and dissatisfactions, and conscious and unconscious aspirations. You will address them with minimal offerings to identify which ones have the biggest potential (step 2, “proliferate”). Then, once a promising niche has been identified, the offering needs to be refined and scaled up to exclude competitors from the newfound promising territory (step 3, “conquer/stifle”).

Fig 2 : The 3 steps of a bamboo strategy

Bamboo strategies require a broad and deep mindset, that runs against the short-term imperative of shareholder value’s maximization. To survive and thrive in the long term, one has to be willing to dissipate a few resources to build up strong capabilities and assets (step 1), as well to try out different offerings (step 2). As the proverb goes, to reap the harvest, you need to sow seeds!