Throughout most of my career, I have been quite involved in strategy. I have thus been able to observe from first hand experience how the nature of strategy in the IT industry has changed over the last twenty five years.
Most apparent is the increasing pace of change in information technologies and in the marketplace. Product cycles are now significantly shorter than in the early '80s, perhaps one third the length they used to be. Everything is moving quite a bit faster.
Another major change is the increasing importance of focusing on the marketplace and the applications of technology, not just on the technologies and the products and services themselves. As hardware and software components become increasingly powerful, inexpensive and ubiquitous, much of the innovation in the IT industry will be in the kinds of systems, applications and industry solutions that we can now develop by leveraging those technology components.
These are among the factors requiring that businesses approach strategy in a significantly different way than they used to. While my comments are based on my experiences in the IT industry, I suspect that they equally apply to any industry where its technologies and markets are undergoing rapid and profound changes.
Most businesses have traditionally formulated their strategies in a hierarchical manner that pretty much followed their hierarchical organization. Each line of business prepared its strategic plan once or twice a year, then presented it to the overall management of the company. Once accepted, all the plans were then integrated by a corporate strategy team into the overall strategy of the business. In loosely integrated companies, the overall strategy was simply the sum total of the strategies of the individual units, whereas in more integrated companies, like IBM, there was an attempt to pull together a relatively holistic company-wide strategy.
This hierarchical approach worked well when technologies and products developed primarily within the business were the key focus of a strategy, and when those technologies and products were changing much more slowly. Today, you have to preserve aspects of the hierarchical approach, e. g., managing the financial strategy of the company. But for technologies and markets, the hierarchical approach is too rigid and must be complemented with more dynamic, bottoms-up approaches that constantly probe and react to what is going on within the business and out in the marketplace. Achieving the proper balance between a top-down strategy - necessary for proper governance, and a bottoms-up strategy that reflects the realities of the marketplace may be one of the biggest competitive challenges facing a business.
In the past, a business clearly had to pay attention to competition and the marketplace, but not to the same degree as today. Given our hypercompetitive, fast changing, global environment, the forces of the marketplace have achieved almost mythical status. I think of them as asteroids pounding us with increased frequency and changing the environment, often in drastic ways that necessitate an equally drastic and rapid response from the business. It is thus more important than ever that the business have a very clear, up-to-date understanding of the market environment, and do its best to adjust to and be in harmony with that environment, rather than attempt to fight it to try to preserve the status quo.
In such a climate, you need to pay a lot of attention to what is going on out there. One of the key findings of the IBM 2006 Global CEO Study was that more than 75 percent of CEOs looked to their clients and business partners as their top sources of innovative ideas, whereas less than 15 percent thought that their own R&D labs were the top sources of innovation. More and more businesses are realizing the importance of looking at the innovation of the leading users of their products and services as strong indicators of where their markets are heading. Collaborating with universities, research labs, and open communities is essential in order to anticipate the fast-coming future with sufficient time to do something about it. These collaborations cannot be done with corporate staffs tracking what is happening out there; the business needs to have its own talented people who are respected by, contribute to, and work closely with the communities with which they collaborate.
Thus, a major part of the bottoms-up strategy process is to help organize within the business innovation communities that can let you know what is really going on out there, suggest all kinds of innovative ideas, and vet them as a community before making recommendations to management. Our Thinkplace initiative at IBM aims to do just that, by providing the right platform, tools and governance to help communities self-organize within the company. Collaborative innovation in general, both within and outside IBM, is a major objective of our Innovation that Matters initiative.
James Governor, principal analyst and founder of Redmonk, made a similar point about market research in a recent entry in his blog. He said: "In the past a vendor would go to an analyst to find out about a competitor, because a direct conversation was somewhat out of the question. Information control was the order of the day. Everything is a secret." And then he added: "In the present there is an intriguing balance emerging as the Corporate types try and work out what is going on. Chances are developers and others in the firm are out there talking happily to the market about what is going on in the company- blogs are an obvious manifestation of the water cooler on steroids crossing organisational and competitive boundaries . . . Suddenly requirements gathering is far more effective . . . "
Personally, I have very much enjoyed being involved in strategy formulation -- identifying emerging technologies and marketplace developments that are critical to the future of the IT industry, and then organizing activities in and outside IBM in order to capitalize on them. But even more satisfying for me is to have the responsibility for executing the overall efforts to implement the strategy. There is frankly quite a difference between coming up with recommendations for someone else to implement and having to figure out how to implement the recommendations yourself. The more complex and competitive the strategy - the more exhilarating it is. Much as in rock climbing - which I did for a while many years ago - the fear of looking down and knowing what can happen to you if you fail focuses the mind, gets the adrenaline pumping and propels you forward, as you anticipate how good it is all going to feel once you are done.
In the IT industry, when you look down from that rock, you see the remains of the many companies that did not do a good job in managing their strategies and consequently, their businesses and are no longer around. Formulating and managing strategies is a very serious business - and one that is in serious flux.