A firm’s Identity – its core values, enduring aspirations and distinctive competencies – is intended to guide management’s decision making. This article discusses the effective methodologies for translating the values, aspirations and competencies embodied in a firm’s Identity into a decision framework.
Many businesses today find themselves in situations where industries are converging, disintermediating, transforming and dying. Products are ephemeral, markets are transient, and technology is dynamic. Organisation boundaries are unclear and consciously made permeable. Businesses are now facing problems that are so complex, intractable, and threatening to organisations – or entire industries – that they are best described as “wicked”. To the fascination and horror of managers, wicked scenarios are becoming increasingly commonplace.
Wicked problems are different and substantially without precedent. They involve multiple significant stakeholders with conflicting values and priorities. There are many apparent causes of the problem and they are inextricably tangled. It’s impossible to be sure when one has the “right answer” to deal with a wicked problem.
Managers facing wicked problems often lose their strategic bearings. Their long-held strategic vantage points and strategic foundations now rest on quicksand. Conventional strategic analysis seeks to develop “strategy” as the construct or mechanism that harmonises the organisation with its environment. Important tools of strategic analysis focus on the industry in which the business operates. But, for example, to what industry does the ubiquitous “cell phone” belong? Is a “cell phone” a phone, a voice recorder, a messaging system, a GPS device, a data storage device, a music player, a video player, a remote security monitor, a calculator, an organiser, a camera, a video recorder, a mobile internet access device or something else? If you can’t specify the industry how do you conduct a traditional five-forces analysis? And when the organisation’s products are obsolescent, markets are transforming, and disruptive technologies are taking over, how does one conduct a value chain analysis?
So, how can managers caught in this crucible of mutating environments, unsettled organisations, and wicked problems confidently and effectively approach the task of strategy making and strategy implementation? In my book, Wicked Strategies, I develop a framework for creating Wicked Strategies that can handle wicked problems. This framework is comprised of three components. One component is a dynamic Modular Organisation Structure that motivates and embraces transformation. A second component is Feed-Forward – processes that support visioning, and develop and analyse possibility scenarios to identify robust actions and enable a real-options approach. The third and most important component is the organisation’s Identity. It is the question of organisational identity, and its fundamentally important strategic implications, that I will address here.
In the challenging world of mutating environments and wicked problems, the organisation’s Identity should be designed to serve as a touchstone for strategic decision-making. It should provide stability and consistency of purpose and perspective in the midst of ambiguity and even chaos. It should articulate a vision, and offer a roadmap and compass that guides the organisation toward realisation of the vision. The need for firms to define such an Identity is beyond compelling – it is an absolute necessity.[ms-protect-content id=”9932″]
To attain these ends, the firm’s Identity needs to accomplish the following:
• Insightfully describe the organisation, employing dimensions that have strategic and competitive import – it has to capture what is distinctive about the organisation.
• Inspirationally offer substance and meaning that transcends repositioning and transformation of the organisation – it has to be enduring in the face of disruptive changes.
• Evocatively articulate what is inviolable and of central importance to the organisation – it has to express what is at the very core of the organisation that motivates, guides and constrains how it conducts business.
So, we are in search of what is core, enduring and distinctive about a firm. There is a concept of “identity” that has been gaining much traction in the management literature. It is a construct that possesses the essential characteristics that we have described. That is, it consists of (1) the values embraced by the organisation, (2) the aspirations that are espoused and (3) the competencies it possesses. All of these components relate to – and indeed drive – the formation of strategy. Values, aspirations and competencies are not constrained by commitment to an “industry”. They can transcend disruptions with continued meaning and relevance. Each of these three elements is discussed below.
Values inform, illuminate and perhaps even determine the raison d’être of firms. Values can directly impact the strategy of the firm. For instance, values determine the relative importance that the organisation ascribes to its various stakeholders. Consider the three most commonly discussed stakeholders – shareholders, customers and employees. The importance given to each these three classes of stakeholders is a strategic choice that the firm’s leadership has to make. This choice significantly impacts the organisation’s strategy and performance and it depends substantially on the values espoused by the firm.
Milton Friedman, the conservative economist argues, for instance, that it is unethical for a firm not to give primacy, if not sole importance, to shareholders. Dean of Harvard College and Harvard Business School professor Rakesh Khurana, on the other hand, makes a powerful argument that giving primacy, if not sole attention, to shareholder value delegitimises management as a profession. Values determine whose philosophy the firm adopts.
Who is right is not important to this discussion. What is important is to recognise that values impact strategy, and that this impact happens regardless of the industry in which the firm operates. Values are at the core of the organisation. Values transcend disruptions.
Values can have a guiding influence on strategy and performance in other ways. Values can determine whether a firm employs criteria such as environmental sustainability, gender equality, diversity, integrity, quality, and safety in choosing between strategic alternatives. Strategies that align with these humane criteria have an impact on the firm’s performance. There is a growing body of research and a broadening acceptance by managers of the importance of these humane values and their positive impact on both the bottom line and economic sustainability. Humane values are prime candidates for adoption by firms to guide the way in which they do business and in promoting synergy between social and economic benefits.
Aspirations are the second constituent element of the proposed Identity. Cyert and March’s seminal work on the behavioural theory of the firm provides a great perspective on aspirations. They demonstrated that a higher degree of stretch or reach in an organisation’s aspirations can motivate a more concerted search for innovative alternatives, hence affecting the organisation’s strategy. This affirms the conventional wisdom that stretch goals and BHAGs have a positive impact on innovation.
A firm has a responsibility toward multiple stakeholders, and its aspirations should therefore encompass goals beyond profits. At the simplest level, the balanced scorecard suggests that, in addition to shareholder-oriented financial goals, the firm needs to address goals that are responsive to the customer, that relate to processes, people and productivity, and that reflect the firm’s growth and innovation. The message here is that the firm needs to seek to improve the performance of the existing business and simultaneously seek to exploit innovations that could lead to new businesses.
Transformational growth requires goals that are not constrained by the past. For instance, market share, which is perhaps the most widely employed measure of strategic performance and competitive strength, may not be suitable for incorporation in the organisational Identity. Market share is substantially a historically-oriented measure in that it refers to an original conception of the market. It focuses management attention on traditional definitions of the market rather than motivating managers to anticipate, embrace and stimulate disruptive change. An alternative, enduring goal derived from a desired future would be, for instance, the proportion of revenues and profits that come from new markets each reporting period.
In short, “aspirations” incorporate:
• Multiple goals responding to the priorities of significant stakeholders
• Future (vision)-derived goals that motivate the firm to embrace change
• Stretch or reach goals that push performance beyond the existing business.
Such aspirations serve as the charter of the firm’s vision; a vision that is not constrained by existing businesses or strategies.
Competencies are the third element of the Identity construct. Distinctive competencies form the basis for competitive advantage. For instance, the ability or competency to learn faster than competitors has been proposed as a basis of sustainable competitive advantage. The business-process-oriented variation of competency that has been labeled “capabilities” has also gained much attention. But, the most compelling concept related to competency is that of a core competency. While there is great value and appeal to the idea of core competency, the approach to competencies that is proposed in the context of Identity is significantly different from the popular understanding of core competency.
A core competency leads to the development of multiple products and entry into related markets. For instance, Sharp Corporation’s competency in LCD technology led to efficient, solar-powered calculators, organisers (PDAs), televisions, and camcorders with innovative LCD viewfinders. Honda Motor Company’s core competency in internal combustion engines has led to a plethora of products, including portable power generators, lawnmowers, motorcycles and automobiles. So we go from a core competency to multiple products.
In the context of Identity, given the transformational imperative faced by organisations, what is needed is an array of competencies, not just a core competency or core competencies. This array of competencies has to be mutually supportive. For instance, in the case of Walmart, its enormous success is built on an array of competencies that are strongly linked. This is quite obvious when one looks at Walmart’s strengths and advantages in logistics, supply chain, global sourcing, RFID technology, IT, cost control, and merchandising. There is no single core competency that is the basis of Walmart’s success. It is the synergistic combination of these competencies that has made Walmart the company with the largest revenues in history.
An array of competencies enables a firm to go beyond adjacent products or markets in the search for growth and increased profits. Growing existing businesses and entering new markets are necessary for sustained profitable growth. An array of competencies offers more points of leverage for entering new markets. Additionally, entering new markets will require and foster the development of new competencies. These new competencies may serve to enhance competitive advantage in existing businesses.
Examples abound of companies that have adopted the Identity construct’s approach to competencies. Google is one such company. From its original expressly-held focus on search as its core competency and the core of its businesses, it has moved into a variety of businesses – self-driving cars, smart thermostats, human longevity – that demand a growing array of competencies related to its foundational search and data analytical strengths. Asahi Glass’s foray into electronics is a powerful example of nurturing new (electronics technology) competencies that could then be brought to bear on its core-business-related new ventures in high-tech glass with advanced functionalities such as varying electrical resistance and selective transparency.
The Identity construct enables and motivates transformative growth and sustained profitability. If the firm possesses an array of interlinked competencies, it increases the likelihood that the firm can go beyond the constraint of seeking growth based on a limited set of “adjacencies”. An array of interlinked competencies can be leveraged to support the entry into new markets. The new markets may require and foster the development of new competencies that are added to its array. These newly developed competencies may then prove to be a source of competitive advantage for the existing markets.
A firm’s Identity – its core values, enduring aspirations and distinctive competencies – is intended to guide management’s decision making. Strategies are made real through developing, evaluating and selecting strategic initiatives for implementation, and through the resource allocation process. There are effective methodologies for translating the values, aspirations and competencies embodied in a firm’s Identity into a decision framework. A decision framework based on the firm’s Identity can ensure that managers are motivated to act consistently and synergistically when evaluating and prioritising strategic initiatives, and when directing resource allocation for sustained profitable growth. Identity provides managers with the foundation and the flexibility to withstand and overcome the disruptions and chaotic ambiguity caused by wicked problems.
This article is an excerpt from WICKED STRATEGIES: How Companies Conquer Complexity And Confound Competitors (Rotman – UTP Publishing).[/ms-protect-content]
About the Author
John C. Camillus is the author of WICKED STRATEGIES: How Companies Conquer Complexity And Confound Competitors (Rotman – UTP Publishing), and the Donald R. Beall Professor of Strategic Management at the University of Pittsburgh. He has served as consultant on strategic management to over 100 organisations on four continents, including many Fortune 500 companies.