Some large companies succeed while others fail in global markets, depending on their ability to survive and compete. This requires preparing a plan that includes an assessment of the company’s current situation, setting desired goals, and outlining a roadmap to achieve those objectives. This can be accomplished by adopting an open strategy that ensures flexible interaction within the company among all its employees and engaging frontline workers in shaping that strategy, which enhances a better understanding of it and contributes to a positive response to external market changes.
Conversely, traditional and closed planning strategies act as a barrier to innovative and unconventional ideas and methods that often lead to significant competitive successes. This notion is presented by Christian Stadler and others in a book titled “Open Strategy: Mastering Disruption from Outside the C-Suite,” which discusses various models related to corporate success and failure.
Decline of Traditional Strategies:
The capability of conventional strategic approaches to bring about a leap and progress in large organizations has diminished, leading many to falter. This decline is especially evident as such strategies hinder companies from facing the various disruptions present in contemporary global markets. Several factors contribute to this decline:
Ill-informed Acquisitions: Profit generation and acquisitions are aims of corporate management strategies; however, in the absence of thorough market studies and understanding of capabilities and future forecasts, this may burden companies. A clear example is General Electric, once among the most successful companies. Its efforts to acquire several other companies, like the French energy firm Alstom for $10.6 billion, led to diminished profits. Additionally, acquiring other companies for explosive detection following the events of September 11, 2001, resulted in significant capital losses between 2001 and 2019, with its capital dropping from 29.6% to 3.3% as its stock price fell by over 40%. These critical transactions hampered GE’s capabilities due to its inability to manage the acquired companies and failure to operationally integrate those acquisitions.
Lack of Openness: The relationship between middle managers and senior leaders in large companies is one of the main issues with traditional strategies. A breakdown in this relationship can result in a focus on achievement rather than development and innovation, fostering fear, short-term thinking, and competition for resources and promotions. Additionally, companies often lack a forward-looking strategy that can reliably meet their aspirations, particularly since strategic discussions tend to involve only a small group of senior executives, thus stifling the influx of ideas from the middle management and other levels. Traditional strategic planning remains secretive and limited under the presumption that it protects companies from competitors who might steal their ideas. However, this mindset inhibits the growth of their companies rather than fostering it.
Homogeneity of Thought: A significant cause for the decline in companies’ competitive abilities is the similarity in strategic thinking across firms, which leads to a diminishment of innovation and diversity. The desire for survival causes companies to adapt to their external environments, resulting in a convergence of strategies under similar circumstances and constraints, such as government regulations and societal expectations, as is often the case with companies pursuing ISO certification or engaging in similar training programs. Consequently, members of the same professions tend to undergo comparable training, leading to a uniformity in their values and global outlooks.
This factor is also linked to how large companies view and develop products primarily for the markets where they are headquartered. For instance, multinational pharmaceutical companies often focus on their primary market constraints rather than global market needs, neglecting international demand in favor of local dynamics like regulation, political pressure, and consumer demand. As a result, many companies tend to follow relatively similar product development strategies, failing to respond adequately to other market changes.
Loss of Trust and Bias: The increase in internal competition—whether between departments or individuals—for resources or status, coupled with a lack of mutual trust, can reduce the flow of ideas and creative input. This was evident in Sony during the 1990s when company leaders sought to launch the “One Sony” initiative to foster innovation and utilize diverse ideas, but couldn’t overcome the competitive pressures among individual departments, which hindered the long-term strategic positioning and investment opportunities.
Status Quo and Lack of Alignment: Among the challenges posed by traditional thinking that diminishes companies’ capabilities is their reliance on the status quo and a strong bias toward maintaining existing conditions, often stemming from overconfidence or the high costs associated with changing the current state. Additionally, a “closed” approach often results in strategies that appear obscure or misleading to employees due to executives failing to consider their viewpoints.
The Rise of Open Strategy:
Open strategy serves as an effective mechanism for large companies to manage change in external markets. It promotes the engagement of frontline employees in shaping corporate strategies, allowing them significant autonomy in satisfying customers without administrative hindrance. This strategy aids in three essential stages of strategic deliberation: idea generation, analysis and formulation, and implementation.
However, creating multiple business units within this open strategy has not always yielded the anticipated success, as these units sometimes fail to coordinate effectively with one another, and the diversity of opinions among employees can obstruct execution. A lack of cohesion might not significantly impact companies during favorable economic conditions, but it becomes a major issue during crises, such as the 2007-2008 financial crisis. For example, Saxonia Systems, a consulting company, adopted this management style but failed, resulting in a 40% decline in revenues.
To ensure that open strategy in companies is “effective,” it requires a detailed action plan and evaluation of all steps involving both executives and frontline employees, measuring their readiness to propose ideas and implement plans. It is also essential to establish clear final goals, design the process to meet the company’s needs, determine the participating groups, and carefully balance appropriate levels of openness and control, especially regarding sensitive information. For large companies to successfully implement this open strategy, they should adhere to the following foundations:
A Rationale for Secrecy: There should be a balance between informational confidentiality and the necessity for knowledge sharing and openness to contribute to strategic planning for competitive advantage. An example of this model is evident from the U.S. Navy’s call in May 2011 for citizen ideas on combating Somali pirates threatening international shipping, without disclosing sensitive information regarding the Navy’s strategies to counter that threat.
Developing a Protection Strategy: The open strategy should incorporate a balanced protection strategy, ensuring that the flow of information is not constricted, thereby diminishing the benefits of openness. This entails identifying who should be involved in the strategy formulation (internal or external participants), their numbers, and their required roles, primarily during the initial stage of strategy formulation, to foster new and innovative ideas without revealing implementation mechanisms, which would be limited in the second stage of strategy development and execution primarily to employees and business agents.
Formulating Multiple Strategic Options: Given that innovative business ideas capable of changing the game are “rare,” the likelihood of arriving at a successful strategy depends on the organization’s ability to generate a wide range of strategic options. This necessitates multiple diverse responses to ideas related to the company’s goals, which can be a powerful tool for enhancing success. This can be achieved through online open strategy competitions where leaders seek to address strategic challenges, as these competitions create competitive markets for ideas, building a strategic community that aligns shared interests or focal points regarding the company’s objectives with clarity about these goals to foster a sense of connection among participants.
In conclusion, while open strategy holds promise in the operations of large companies, traditional strategies can still effectively serve companies in specific situations, particularly core operations facing no immediate threats. Thus, the strategy essential for the success of companies in achieving their objectives must rest on the continuous development of business models and updating strategies to adapt to various changes in external markets, implementing mechanisms for future forecasting to enable better strategic decision-making for quick and efficient responses to customer needs at lower costs, while also emphasizing the importance of fostering participation from both internal employees and external experts, as the flow of ideas is crucial for changing the game and enhancing competitiveness and survival.
Source:
Christian Stadler, Julia Hautz, Kurt Matzler, and Stephan Friedrich von den Eichen, Open Strategy: Mastering Disruption from Outside the C-Suite, The MIT Press Cambridge, Massachusetts, London, England.
