Shaping strategy in a world of constant disruption

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 and transform industries and markets. This is what we call a “shaping strategy” which is no less than an effort to broadly redefine the terms of competition for a market sector through a positive, galvanizing message that promises benefits to all who adopt the new terms. What Bill Gates did with Microsoft in the early 1980s is a classic example. In essence, he said that computing power was moving inexorably from centralized mainframes to desktop machines. Companies that wanted to be leaders in the computer industry needed to be on the desktop.

Instead of finding a new business opportunity just for his company, Bill Gates tried to convey the message to the entire world through a persuasive slogan ― “The desktop is the future.”

Shaping strategies are not new. Indeed, the Medici family deployed successful shaping strategies in Renaissance Italy, most notably in banking. More recent examples can be found in industries as diverse as shipping, financial services, and apparel. What is new are powerful enabling infrastructures, which can strengthen the hand of shapers while reducing their exposure to risk. In fact, all successful strategies can be viewed as shaping strategies.

Some companies reshape the markets and industries using M&A-driven strategies, tapping into previously unseen economies of scale and scope. Disruptive innovations also reshape markets. These strategies can be very powerful when they work. But they also concentrate risk on companies who pursue them.

On the contrary, the shaping strategies outlined in this article mobilize legions of other players through positive incentives. Participants in the shaper’s broad ecosystem can use the strategy to create and capture enormous value as they learn from and share risks with one another.

The Three Elements of a Shaping Strategy

Changing the risk and reward calculus as you shape strategy in a time of rapid change involves three interrelated elements: a shaping view, which helps focus participants; a shaping platform, which provides leverage to reduce the investment and effort participants need to make; and specific shaping acts and assets, which persuade participants that the shaper is serious and can pull off the shaping initiatives.

The three shaping elements combine to help shapers quickly attract and mobilize a critical mass of participants. That unleashes powerful network effects, making shapers difficult to stop. Yet, as many failed shaping efforts reveal, reaching a critical mass can be extremely challenging. We’ll use these three elements as a lens through which to scrutinize successful shapers, both past and present.

Element 1: a shaping view

The first step in shaping an industry or market to one’s advantage is to change the way potential participants perceive market opportunities. By altering mind-sets, shapers can materially influence the perceived economic incentives to participate.

They start with a clear and compelling long-term view of the relevant industry or market. The view makes sense of the fundamental forces at work, helps participants envision the rewards and act accordingly, and reduces perceived risk by making the positive outcomes appear inevitable.

The shaping view is never very detailed; it leaves much room for refinement. But it is clear enough to help participants make difficult choices in the near term. The classic shaping view articulated by Bill Gates in the early 1980s motivated many executives to make the trek to Redmond, Washington, during a time of great turmoil and uncertainty in the computer industry.

They came away reassured that someone had a compelling view of the industry’s direction. Even more important, Gates’ shaping view helped these executives understand where to invest. At a time when many options were competing for investment, an invitation to focus clearly on the highest-return opportunities proved extremely valuable.

For Microsoft, this shaping view was incalculably important to the company’s early success. Microsoft’s experience emphasizes an important distinction between a shaping view and the way businesses conventionally use the word “vision?”

Corporate visions tend to be too narrow-they describe only the direction of the company articulating the vision. Shaping views instead start with a clear perspective on the direction of the relevant market or industry and articulate the value-creation implications for all companies involved. Gate’s shaping view certainly applied to Microsoft, but it also extended to anyone seeking to succeed in the computer industry.

Element 2: A shaping platform

The second component of a shaping strategy is the shaping platform, a set of clearly defined standards, and practices that help organize and support the activities of many participants.

Shaping platforms provide leverage: they enable participants to do more with less. Leverage is always valuable in times of high uncertainty because it reduces the investment and effort required to target potential rewards, and it often accelerates returns, thereby reducing risk.

Shaping platforms typically offer one of two forms of leverage. Some provide development leverage _ often derived from new technologies _ that reduces the investment required to build and deliver products or services. The second type of shaping platform provides interaction leverage by reducing the cost and effort required for a diverse array of participants to coordinate their activities. Although such a platform may have a technology component, the key value lies in a set of standardized protocols and practices designed to facilitate interaction. Google’s AdSense platform, for example, uses technology to connect advertisers, content providers, and potential customers, but its real power resides in the protocols and practices that govern how ads are submitted, priced, presented, and paid for.

It allows even the smallest advertisers and websites to invest minimal time and effort, with little oversight from Google, and still generate value for one another, thereby increasing the long tail’s rewards for niche players.

Malcolm McLean, the founder of Sea-Land and a successful shaper of the global shipping industry, achieved interaction leverage through a very different kind of shaping platform. By developing an innovative design for four-corner fittings and twist-lock mechanisms on shipping containers and by making the design available industry-wide, he encouraged a broader set of investments by port authorities, shippers, and crane companies that sped the adoption of containerized shipping.

Element 3: Shaping acts and assets

The shaping company’s acts and assets themselves constitute the third element of a shaping strategy. Even the most compelling shaping view and most robust shaping platform can be undercut by would-be participants’ lingering concerns that the shaper may lack the conviction or capability needed for success.

Conversely, participants are also likely to worry that their own business niches might become vulnerable to competition form a powerful shaper. Selected bold acts by the shaping company and careful use of its assets can assuage those concerns.

Malcolm McLean made a similar striking move in his effort to accelerate adoption of his shaping platform for the containerized-shipping industry. In the 1960s he released the patents to his four-corner fittings and twist-lock mechanisms royalty-free to the International Organization for Standardization. McLean could afford to be magnanimous with the intellectual property from his shaping platform because as the major shareholder of Sea-Land, he stood to profit handsomely from broader adoption of standards in that arena.

The assets of the shaping company also become a significant factor in persuading potential participants to invest in the shaping strategy. In this domain, large established companies have a potential advantage as shapers. Their massive assets can attest to the credibility of the shaping view and platform.

Few would doubt that these companies have the resources to support a shaping strategy. On the other hand, a smaller new entrant faces a significant challenge on this front. Anyone considering investing in its strategy will understandably wrestle with the concern that it may not have the necessary assets. The risk of stranded investment becomes very real.

A shaping company can demonstrate to would-be participants its ability to successfully execute a shaping strategy in the following ways:

By achieving critical mass quickly: When executed well, shaping strategies aggregate a critical mass of participants that then unleashes powerful increasing returns. The challenge, of course, is getting to that critical point rapidly. Many efforts at shaping have foundered during this challenging initial phase. Strategic relationships with major incumbents in a market can accelerate the aggregation of participants.

By mobilizing the multitudes: Shaping companies need to develop the institutional arrangements and management practices that attract and mobilize masses of participants. To be sure, all firms work with partners to deliver more value to the marketplace. However, during the past couple of decades many companies have reduced the number of participants in their supply-chain and distribution operations in a quest for greater efficiency. This poses a nontrivial challenge to potential shapers as they focus on large-scale mobilization.

By shaping again and again: Once unleashed, increasing returns have traditionally been a powerful force, leading to virtually unshakable market positions and disproportionate wealth relative to competitors. That was certainly the case in yesterday’s world of punctuated equilibrium, where relatively long periods between disruptions allowed shapers to lock in a competitive advantage.

However, in the sustained disequilibrium of today’s business environment, a paradox emerges. Although it’s now easier to develop and deploy shaping strategies, it’s also more difficult to protect them once they’re established. Successful strategy now requires a series of shaping initiatives over time, rather than one disruptive big-bang effort to be exploited thereafter.

This article was provided by Deloitte.