11 Rules for Creating Value in the Social Era
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About this ebook
Nilofer Merchant
Nilofer Merchant, CEO, strategist, and author, is a leading authority on creating business strategy to achieve success. She has honed her unique, collaborative approach to solving tough problems while working with and for companies like Adobe, Apple, Nokia, HP and others. As Rubicon's founder and CEO, Nilofer leads a distinguished team of hands-on operational veterans. Her firm works with global corporations such as Hewlett-Packard, Pinnacle, Logitech, Openwave, Symantec, among others, to create solutions to win markets. Nilofer's keynote presentations attract SRO crowds at business leadership events, technology expos, women's conferences, and universities, ranging from AjaxWorld, CTIA, and PBWC, to Stanford. She's won multiple awards for her insights on applying strategic thinking and innovation, and has been quoted or published in major business publications such as BusinessWeek, Entrepreneur, Fortune, and The Wall Street Journal. She hasearned an MBA from Santa Clara University, a BS in Economics from University of San Francisco, and is a certified by Interaction Associates as an Instructor of Facilitative Leadership.
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11 Rules for Creating Value in the Social Era - Nilofer Merchant
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Chapter 1: Traditional Strategy Dies
Traditional Strategy, who played a significant and meaningful role in how organizations operated to win in the industrial era, perished on Tuesday, in Boston.
He was forty-three.[1] The cause of his demise was the numerous complications arising from a collision with the Social Era, the context for business in the twenty-first century.
Traditional Strategy (T.S.), born of Joseph Schumpeter and Frederick Winslow Taylor, combined capitalism and industrial efficiency. T.S. had a rich and full life, contributing significantly to the era of big business. For nearly four decades, he was anointed by leaders to guide and inform business organizations and society at large through the dynamics of corporate strategy, industry influences, advantage, market power, and competitiveness. He established position and identified which markets to pursue, as well as ways to design and maintain competitive advantages, and, finally, to defend against competitors. He fueled scale, efficiency, and productivity.
He leaves behind a signature accomplishment: each organization was encouraged to be unique, to carve out its own differentiated identity, to set itself apart from its rivals. While not all organizations understood or truly adopted this philosophy, T.S. did foster the understanding that strategy is all about making choices and trade-offs, and deliberately choosing to be different. This understanding continues to be highly relevant and, in that, the legacy of T.S. will live on.
T.S. was a central figure in the industrial era, when centralized big institutions were the best way to provide scale. While his beliefs may strike many today as outdated, at the time they were considered the cutting edge of business thinking. His legacy includes:
Right strategy reigns supreme. A group of elite executives once designed the highly considered and analytically rigorous right
strategy and then handed it over—apparently via a program called PowerPoint—to managers and their underlings to execute it. This worked well in a simpler time when markets were stable, and when information was scarce and staff needed to be told exactly what to do. Back then, mobilizing the talent and creativity of all members was not required to be competitive. In T.S.’s lifetime, markets evolved at a leisurely pace—the speed at which a teenager moves in the morning—so businesses could take their time to consider the
right response to a new opportunity or threat. The idea that there could be many possible right responses, and that a business could try them concurrently and experimentally, would not take hold for several more decades. And far too few organizations recognize that more than a winning idea, it is important to engage the hearts and minds of their highly educated workforce.
Size matters. Size created competitive barriers and correlated with market power. Being big allowed organizations to corner the means of production and negotiate lower raw-goods supply costs, giving leverage and pricing power. Big dollars also bought vital access to once-limited media outlets. This meant some dominant firms could reach consumers when others could not, and thus lock out potential competitors. Taken together, these norms supported a mind-set in which size could protect the firms—or at least buy time. Being big had many advantages and no meaningful disadvantages. Size came to be its own measure of success.
Stability rules. During T.S.’s lifetime, economic disruptions were thought to be exceptions. It thus made sense to invest in building organizational structures to last. Minimizing variability was seen as essential, which resulted in the hallmarks of the T.S. organization: top-down command and control, division of labor into parsed work, and standardized routines. Predictability was programmed into the business model. Following that embedded logic, the leader’s role often centered on optimizing systems and processes around the organizational structure so that people could continue to do what they did yesterday, only more efficiently. Although the idea that disruptions are rare may seem quaint in today’s world, vast numbers of organizations are still functioning under the assumption that change is the anomaly, rather than the norm.
Sustainable advantages exist. T.S. taught us that industries consist of relatively enduring and stable competitive forces that, once understood and exploited, can provide the firm with a long-lasting advantage. Yet, the lifespan of companies listed in the Standard & Poor’s index has steadily declined over the last forty years, suggesting the limitation of that idea. We set an annual strategy and then spend most of the year executing against that strategy. Reviewing Traditional Strategy before the appropriate next cycle is then interpreted by corporate boards as an execution problem—such as trying to move the goal posts. This has created a false tension for many organizations—do we focus on the current business and market, or do we build the capacity to identify and tap into the next?
The customer is the guy at the end of the value chain. The value chain—as it had been interpreted—meant that organizations directed their efforts at a customer outside the perimeter. The organization made things and told the buyer that it was good, and the buyer bought. But by the 1980s, buyers became customers with cynicism, opinions, and expectations, and by the 1990s, the old approach was starting to show the strain. Then in the early twenty-first century, so-called customers
began to exert co-creative tendencies. During this time T.S. underwent his first major hospitalization; his legacy that the idea that products can be co-created is still often treated as an anomaly. Even in these enlightened times, most organizations have a hard perimeter wall between the company and its employees, and the