Strategic orchestration requires a shift in orientation. My co-author Alejandro Ruelas-Gossi and I argue that existing strategy theory is egocentric — its starting point is the individual firm that exists to create, capture and sustain economic value. The firm focuses on opportunities that it can seize by leveraging its strategic power. The allocentric orientation, by contrast, takes a broader perspective and incorporates the various partners in the network as the unit of analysis. Apple’s renaissance began when the newly returned Steve Jobs re-framed the company as the hub of a digital lifestyle, rather than a computer maker that had to do everything important itself.
An allocentric view allows executives to recognise and, more importantly, seize a whole range of opportunities that could only be pursued by a network rather than an individual firm, no matter how powerful. An allocentric orientation does not imply that managers ignore the interests of their own company. Rather, they recognise that the value lies in the network, which they cannot own.
When executives in powerful companies want to grow revenues, they often start with the same basic question: how can we sell more software, pizza, cement, insurance, coffee? Asking the same question leads to the same tired answers — use better raw materials and hope the customer will notice, cut prices to steal share, boost advertising, add features or simply give up and focus on cost reduction.
These stale answers are often attributed to a lack of imagination, and they indeed share a tiresome lack of creativity. But that is not all they share. These responses are all actions that are under the company’s exclusive control. In taking these actions, companies avoid the difficulties of probing customers’ unmet needs or collaborating with partners to provide an integrated solution. How else can one explain the mindless proliferation of features that no one understands (let alone uses) that clutter consumer electronics, other than employees’ desire to rely exclusively on actions under their control?
To break out of the[…]
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