What is Dynamic Advantage?
Most executives and managers have been trained to think about the strategy of the firm from the perspectives of the competitive forces that characterize the industry and the core capabilities and resources that they command; informed by prior experience, continuously improving execution, assuring investors that future earnings are secure by hitting forecasts and consistent incremental growth. That this model is broken is widely accepted, and amply demonstrated by the massive swings in value capture by notable new companies and by the dramatic, rapid value destruction that has moved household name corporations from global dominance to bankruptcy in a few short years. Despite its short-comings the approach remains dominant as day-to-day momentum requires the use of a commonly accepted approach and stakeholders, firm leaders, investors, analysts and educators have no comprehensive alternative model.
Professor Christensen pointed the way towards a new model when he explained how 'industry disruptors' are able to overturn established competitors by targeting parts of the market with new business models that the incumbents struggle to respond to without abandoning assumptions, experiences and resources bases that have previously made them successful - and then how the disruptors succeed in driving the evolution of the market in the new direction. Professor Christensen explained that incumbents need to start thinking like disruptors, famously noting that "the only way to peer into the future is through the 'lens of a good theory'." Dynamic Advantage is a complete integrated model that firm leadership and investors can embrace to maximize value creation and capture in business contexts that are fast evolving.
Professor Christensen pointed the way towards a new model when he explained how 'industry disruptors' are able to overturn established competitors by targeting parts of the market with new business models that the incumbents struggle to respond to without abandoning assumptions, experiences and resources bases that have previously made them successful - and then how the disruptors succeed in driving the evolution of the market in the new direction. Professor Christensen explained that incumbents need to start thinking like disruptors, famously noting that "the only way to peer into the future is through the 'lens of a good theory'." Dynamic Advantage is a complete integrated model that firm leadership and investors can embrace to maximize value creation and capture in business contexts that are fast evolving.
- Dynamic Advantage identifies the capabilities and specific mechanisms that a firm must adopt to out-perform competitors today and tomorrow;
- Dynamic Advantage identifies the characteristics required of the senior leadership team in order to succeed in orientating the firm towards the unfolding future.
- Dynamic Advantage provides a measure that is a strong predictor of the future performance of the corporation, and thus as indicator of the value of the firm. In fact the more dynamic (the faster the rate of evolution of) the business context for a firm, the better the predictive ability of the performance results relative to competitors.
At the core of the Dynamic Advantage model is the firm's capacity to act dynamically. The Dynamic Capacity of the firm can be understood by analogy to a sportsman or woman in a match; let's consider a top tennis player. Given the speed at which tennis is played, with the ball frequently traveling at over 80km/hr, the player has to begin preparing for the next shot before the ball arrives near to them. The earlier that they can identify where the ball is going, the more time they have to decide upon and to prepare for their winning response. They look at the body movement of the opposing players for clues as to where the ball may be hit towards, sometimes there are big indicators such as the positioning of the feet, sometimes for the smallest flicker of the turn of the head or eyes. Players at the top of their game seem to have an ability to sense what their opponent is about to do. They also study the history of games of the opponents, the types of shots and moves in their repertoire, their areas of strength and comparative weakness. This background knowledge, helps them to make-sense of the in-game signals, no matter how fleeting, obtaining early insight on where the next ball may be hit. Knowing where and how the next ball will be hit to defines the field of options that the player has for the play that they will make in return; how will they optimize their next shot to move them closer towards the win? This requires knowledge of their own and their opponents skills, as well as a thorough appreciation for the the rules of the game and the conditions under which the game is being played; base-line rally or serve-and-volley? How best can they seize the initiative and what's the higher probability winning shot that they can confidently replicate? Essential as the above capabilities are, it is equally critical the player moves to the right position on the court to receive the on-coming ball and that they are also able to adjust their body, to play the shot that they have decided upon with the power and precision required; delicate drop-shot or powerful driving backhand.
The capacity of the firm to win in the unfolding future, similar to the capacity of the top tennis player, is dependent on the product of three core capabilities:
To increase your understanding of this concept I recommend you explore the topic Dynamic Capabilities that has been developed by several writers including Professor David Teece of U.C. Berkeley. In 2007 Professor Teece published an article in which he identified three core dynamic capabilities as Sensing, Seizing and Reconfiguring.
The capacity of the firm to win in the unfolding future, similar to the capacity of the top tennis player, is dependent on the product of three core capabilities:
- Sense & Make-Sense (of the future that is about to unfold),
- Seize & Replicate (selecting plays that enable them win more frequently),
- reShape & rePosition (being in the right place, bringing to bear the right alignment of resources at the moment required).
To increase your understanding of this concept I recommend you explore the topic Dynamic Capabilities that has been developed by several writers including Professor David Teece of U.C. Berkeley. In 2007 Professor Teece published an article in which he identified three core dynamic capabilities as Sensing, Seizing and Reconfiguring.
b) Dynamic Advantage model of leadership
c) Mechanisms of Dynamic Capacity
d) Superior Performance Achieved
Strategy of Dynamic Advantage
- Leadership Motivation
- Motivating Purpose (Doing Good & Doing Well): Longer term goals & horizons, measured by metrics
- Leaning Forward to achieve goals & mission
- Value creation and relevance for all major stakeholders groups: Sustainable value creation & capture (Long & Short-term, Societal & Economic)
- Executive Team Ability
- Systemic understanding
- Ambidextrous Capability
- Global perspective
- Entrepreneurial: bias for action
- Opportunity to Win
- Archetypes of market dynamics, for your industry (Life-stage, disruption & adoption dynamics)
- Positioning choices within markets
- Where to Compete choices: Portfolio structure to optimize Learning, Value Creation & Value Capture whilst matching risk and uncertainty exposure to level of Dynamic Capacity of the organization.
Building Dynamic Capacity
- Sensing Capacity
- Network of dispersed yet connected experts
- Domain experts engaged in markets, dispersed globally
- Sense-makers are the new experts
- Actively ensure the application of knowledge: Measure expert support to business units & Measure engagement by Business Units of experts
- Coordinated market-place experimentation
- Learning by doing: Probing uncertainty, parallel trials to accelerate knowledge creation
- Rapid prototype –> fail or scale
- Deliberate Design, Distillation & Dissemination
- Sourcing of Idea-Fragments
- Empowered communities & interest groups: ‘Open’ source, Eco-system & Employee network engagement.
- Administrated platforms & events
- Expectation for action, reinforced with visibility of impact achieved.
- Seizing Capacity
- Deploy Enabling Resources
- ‘Flying Doctors’ (internal consultants / experts)
- Short-term deployments of key staff across boundaries and borders
- Parallel project assignments, virtual and in-person
- Innovative Market Clustering
- Grouping markets by similarities of dynamic context in order to maximize rate of learning and dissemination & application of relevant learning i.e. in-line with dynamic archetypes (ref. 4.a. above). E.g. maturity of demand base, intensity of competition, regulatory regime or regime stability.
- Resources managed Globally or In-market, Dissolve Regional resources and interfaces.
- Strategy plans and budgets aligned with portfolio choices (markets defined by dynamic archetypes)
- Influence market evolution through leveraging experiences accumulated across the network of the corporation
- Engage and influence regulators and the evolution of regulatory regime (ref. 2.a.i)
- Act decisively and signal clearly to influence behaviour of competitors & potential entrants.
- Influence the rate of evolution and direction of customer purchase & usage behaviour as well as attitudes and expectations.
- ReShaping Capacity
- Morphing the scope of the business activities
- Embracing new business models within existing markets & businesses: Responding to or leading industry disruption
- Entering into or increasing emphasis in prior to non-core markets & industries: Exiting from or harvesting positions in markets and industries
- Out-sourcing vs. In-sourcing decisions (Make/Buy/Collaborate choices). Accessing, Nurturing, Protecting & Leveraging capabilities and assets that are key sources of competitive advantage
- Embrace continuous transformation
- Culture of continuous change and transformation: Organization anchored on values and mission, not activity set or structure which are expected to continuously evolve.
- Differentiating between ‘Heavy’ and ‘Light’ parts of organization structure (Light being more fluid).
- Process & asset efficiency pursed with flexibility rather than optimized but rigid processes & assets.
- Differentiating between managers & roles that are frontier/builders vs. conservators/optimizers vs. harvesters/divestments (KPI aligned for the role; Talent development to support the role)
- Create and Maintain alternative options
- Go-to-market models; including ‘competing’ distribution networks e.g. on & off-line, Branded & OEM, Direct sales & Distributor, alternative pricing models (including sale, rent, right-sizing, servitization, etc.).
- Supply chain / factory-network;
- Alternative paths through production and supply chain networks to mitigate currency swings or political or environmental risks.
- Differentiating between planned production cycles, with longer lead times and swing capacity to react to unfolding demand patterns
- Flexibility in which activities are located where e.g. to protect IP or enhance customer service level.
- Product ranges
- Competing technologies (e.g. emergent and established)
- Generations of products (e.g. to match market segment sophistication)
- Fighting brand, Premium brand (e.g. to match swings in demand due to economic sentiment)