The value of strategy

I just started reading the book “The lords of strategy” by Walter Kiechel, who is the former Editorial Director of the Harvard Business Review. I have not yet finished the book but it’s a worthwhile read. Kiechel explains the origins of business strategy and the increasing importance of strategy in most corporations over the last 50 years. One can dislike the book’ strong focus on business consultants and their ever changing strategy memes (From “Just-in-time” to “Re-engineering”) but companies have significantly increased their strategic intelligence over the last years. And yes, business consultancies like BCG or McKinsey were critical to enable this positive change.

The more surprising is that it seems that most advertising agencies don’t pursue consistently a strategy of their own. It seems a lot of agencies live in a strategic vacuum that manifests itself in three different organizational life forms with different levels of strategic blindness:

• Service clients and make them happy. These agencies don’t see the need for their own strategic plan. Their belief is the satisfaction of their clients is sufficient for long term survival
• Satisfy the visionary ego of the key agency leader. These agencies don’t have a strategic outline beyond the eye sight of the charismatic company leader. A well researched and defined company plan with a three to five year horizon would assume that the leader does not intuitively understand and accordingly change the company’s structure for long-term success. Surely, he or she does not, but no one dares to tell him or her.
• Deliver profit to the agency’s holding company. While the ultimate goal of any business organization is to deliver profit for its shareholder and benefits for its stakeholder, a lot of people confuse the result of making profit with a strategically defined plan and purpose. Generating long-term profit is the outcome of a well design strategy, not a strategy by itself.

Not surprisingly I believe that agencies that ignore the importance of strategic intelligence and the benefits of a well designed strategic plan will have only a short window of success. The need for strategic planning for any agency should answer at minimum the following questions:

• How is your serviced market changing over the next three to five years? What are the key implications for your current business model and competitive positioning?
• How would you describe the current and the desired state of your organization?
• What are the key strategic bets that your company will focus on to get you to your desired organizational capabilities and offerings?
• How are you going to measure your progress against the strategic plan?

Business strategy is a much less complex field than most marketers believe. It just requires a good understanding of the key market trends, the analytical and intuitive understanding of the core and essence of the own organization, and the courage to put down a stake for the future. And it can be as insightful, creative, and entertaining as creating a 30 seconds TV spot or a iPad application.

Closed and open systems

Apple’s absolute stunning success over the last few years has spurred in some circles a heated discussion about the benefits of a closed versus an open system approach for enterprises. A closed system can be described as a tightly regulated and controlled universe of services that are primarily communicating with its own system element while prohibiting the connection with outside partners (or making it extremely difficult or expensive). Apple and Microsoft are probably some of the most prominent examples of a closed system where as Facebook and any open source application (e.g. Linux, Wikipedia) represent best-in-class open systems.

Some people would argue that the best performing systems want to be open (and potentially even free), other people would argue that only closed systems are performing at the most innovative and user friendly level. The discussion seems to be less empirical driven than a question of philosophy and belief systems. If one objectively looks at the success and failures of open versus closed system, one has to acknowledge that we have extremely successful open and extremely successful closed systems and companies.

But who is following the right strategy, closed or open systems? It’s a tougher discussion (and maybe the wrong question) than one might assume. Just last week, Tim O’Reilly’s and John Battelle’s open letter to Apple to join the open forum of the Web 2.0 principles confirm that this becomes a fundamental and more heated discussion of right or wrong, of being good versus evil, or being progress versus hampering innovation.

But looking at the reality of all companies, one has to conclude that all commercially viable companies need some sort of closeness to protect their competitive advantage and monetize their services. But at the same time every company needs some degree of openness to fuel its own growth and innovation. It seems that it is more a question of degree between closeness and openness than a black and white decision. While Facebook might be 90% open and 10% closed and Apple 99% closed and 1% open, each company’s strategy and business model relies more on the right position within this ever shifting changing continuum of closeness and openness than making a dogmatic decision. A company can be successful by being either much closed or very open. The key criteria for its success seems to be how the company is utilizing the intrinsic structure and benefits of either a closed or open system, not a decision for or against either one of them.

In the future we will not see a clear winner between companies who are pursuing open or closed systems. There will be a co-existence of both models in which the smartest company of how to leverage the differences of these systems is winning, independent of its decision of being open or closed.

Berlin or Stockholm?

A lot of cities around the globe would love to become one of the hotbeds of innovation and creativity for the digital world. San Francisco and Silicon Valley have been long established in North America, Bangalore in India has had a strong reputation for the last decade, Shanghai has made huge strides over the last 5 years, now Sao Paulo and Buenos Aires are trying to get some well deserved recognition for digital expertise and innovation.

Good old Europe has been always more fragmented with almost every European capital claiming to be on the forefront of digital brilliance. Realistically there are currently two cities that are thriving for this European lead position: Berlin and Stockholm. It’s less an outright competition than the moderately passionate debate by citizens of both cities over dinner tables and bar stools. Both cities have the advantages of large numbers of educated young people with entrepreneurial drive, Berlin has the advantage of lower living expenses and a significantly larger domestic population, Stockholm had an early start in focusing on digital services and products, and has the advantage of high affinity for anything English and American.

The key hurdle for a true lead position in the digital arena is the emergence of one true global digital company that changes consumer behavior in most countries. It is not a coincidence that Silicon Valley has such dominant role due to the fact that almost any leading digital company has been started there: Yahoo!, Google, Facebook, Twitter, and now we have to count even Apple as part of the digital 800 pound gorilla family. Can Berlin or Stockholm generate a company that is as groundbreaking as these firms or are they going to solely focus on being digital service innovators who work with these large players as their center of universe?

The good thing is that innovation is not a zero sum game. That’s why it’s not Berlin or Stockholm? It’s hopefully Berlin and Stockholm.