My last post argued that an effective strategy, as defined by traditional strategic frameworks, confers market power, which can undermine a company’s ability to innovate. My co-author Alejandro Ruelas-Gossi and I have argued that there is another way to look at strategy that starts not with resources or market position, but opportunities. This approach, which we call strategic orchestration, describes how a firm can pursue an opportunity not by leveraging power, but by assembling and managing a network of partners.
Strategic orchestration is not pursuing partnerships for their own sake—the corporate equivalent of inviting thousands of people you don’t know to connect on LinkedIn. Rather, these networks are strategic in the sense that they serve to create, capture and sustain economic value. But this approach to value creation flips traditional strategy on its head. Rather than start with what you control and look for ways to leverage it, begins with the opportunity and assembles required resources.
In our work with companies over the past few years, we have found that strategic orchestration is a powerful approach that can address several challenges. Below we outline some of the questions strategic orchestration can answer.
- How can we profitably serve emerging market customers at the bottom of the pyramid? Mexican cement company CEMEX assembled a network of hardware stores, banks and community leaders to help poor customers build extensions to their homes. By relying on partners rather than building the full infrastructure itself, CEMEX earned a healthy return on invested capital despite a relatively low price point.
- How can we break out of the commodity trap? Swiss insurance firm Baloise has partnered with business service providers to move beyond selling commodity insurance policies to making clients safer through prevention. Baloise has partnered with flood prevention, data security and fire safety firms to provide clients with an integrated approach to risk prevention.
- How can we grow outside our core market? Nestlé is the global market leader in instant coffee, but it had no experience selling systems for in-home coffee consumption when it formed Nespresso in 1986. Nespresso has orchestrated a network of coffee growers, machine manufacturers, distributors, service firms and high-end partners (including Ritz-Carlton hotels and first class on Cathay Pacific Airlines) to provide a luxurious experience to coffee drinkers.
- How can we provide an integrated customer experience? From its inception, Apple has aimed to deliver a seamless experience to users, but in the Macintosh era the company tried to do everything itself. With the iPod (and later the iPhone and iPad), Apple has continued to value ease of use but achieved it by stitching together an ecosystem of content providers and accessory makers that provide customers with simplicity.
- How do we grow revenues on a low-cost product? RyanAir offers the lowest prices of any major European airline with an average fare in 2010 of €35, but the company books an average of €10 per passenger from ancillary services. RyanAir partners with Hertz, Booking.com, Costa Cruises and Banco Santander to offer passengers car rental, hotel rooms, cruises and branded credit cards.
- How can we solve the world’s big problems? Although everyone recognises the value of a an effective vaccine against HIV, pharmaceutical companies lack incentives to develop one because the people who need the vaccine most are too poor to pay for it. The International AIDS Vaccine Initiative works with a host of biotech start-ups, pharmaceutical companies, governments, universities and not-for-profits to secure government funding, stimulate experimentation on vaccine design and development, and run clinical trials in developing countries.
My next post will discuss the importance of customer empathy for orchestration.