A good strategy takes into account more than customers and investors
The strategy of change
To develop an effective strategy in an environment of constant change, leaders must hone their ability to determine what changes will boost the competitiveness of their organization. This series examines data from companies around the world to provide practical insights to business leaders seeking benefits as they navigate complexity and change.
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Every business today is under pressure to meet the needs of stakeholders beyond its customers and investors. Some organizations may see this as a burden, but others have been successful in increasing their value by meaningfully integrating employees, business partners, and communities into their strategies.
Examining these broader strategies using the framework described in our article ‘Changing the Way We Think About Change’, we found that strategies that take into account the needs of non-traditional stakeholders often result in creative solutions that also benefit customers and investors. Some strategies effectively expand the addressable market, a key indicator of suitable for the purpose, which we define as the relevance and sustainability of the company’s value proposition. Other strategies mainly affect the competitive position of the company – its relative advantage, defined as its perceived distinctiveness and vulnerability to substitution – either by improving its ability to obtain a high price, or by reducing its cost base.
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Changing the way we think about strategy
Traditionally, strategy has been approached as an exercise in where to play (identify industries with favorable economic structures) and how to win (identify how to capture value by focusing on product leadership, operational excellence or customer intimacy). The only stakeholders that mattered were shareholder investors, as providers of scarce financial capital, and customers, as a source of income.
But over the past 20 years, three developments have called into question the validity of this traditional approach to strategy:
- Technology has blurred the lines between industries, eroding the stable economic structure on which a Analysis of the “five forces” is based.
- Financial capital is no longer the scarcest asset. Increasingly, companies compete and succeed on the basis of customer care, employee talent, and intellectual property.
- The primacy of shareholders (based on the importance of financial capital) has been called into question. Multiple stakeholders are now recognized as significant contributors to a company’s value creation activities.
The first response to these changes has been to rediscover the importance of customers. (We specify Dfind out because Peter Drucker had already observed – in 1954, no less – that the purpose of a business is to create a customer.) In quick succession, the ideas introduced by Clayton Christensen in Work to do (2007), Tim Brown in Design thinking (2008), and Peter Fader in Customer centric (2011) has become the new orthodoxy.
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