Strategies in a Disruptive World PDF

Strategies in a Disruptive World Module III - Multiple Disruption Typologies Netflix case study Néstor Miranda Carús Professor of Strategic Management Disruptive technologies are a driver of leadership failure and the...

Strategies in a Disruptive World Module III - Multiple Disruption Typologies Netflix case study Néstor Miranda Carús Professor of Strategic Management Disruptive technologies are a driver of leadership failure and the source of new growth opportunities Incumbents nearly always win Performance Disruptive Entrants nearly always win technologies Time Two strategies for asymmetric competition Bring a better product into Performance an established market Of Performance Different measure Time Time Powerful forces cause companies to target market segments that are irrelevant to the reasons why customers buy products Segmentation based upon attributes of products Job-based Nascent idea segmentation: What are customers trying to get done in their lives? Segmentation based upon attributes of customers The Driving Forces of Disruption Abundance Digital Exponential Growth Disruptive Technologies Disruptive Business Models (Platforms & CrowdSourcing) Digital Convergence What about BlockBuster ? How was BlockBuster creating value for its customers ? Which market segments were its target ? What about Netflix ? Which jobs was Netflix DVD Rental Business doing for its customers? How did they come up with their disruptive strategy? From scarcity to abundance Netflix study case background From scarcity to abundance The US home rental video market 90s Fragmented industry Blockbuster, the incumbent company o New releases were 70% of total rentals o 2500 titles and 10 staff members per store o Growth strategy based on the opening of new stores o 70% of US population < 10 min drive o They started with VHS but in 2002 DVD was more and more frequent In 2002 they enjoyed record levels of profitability and revenues Why Blockbuster didn´t see the Netflix disruption coming? Why incumbents do not deal well with disruptive technologies The very management practices that have allowed Resources, processes & values them to become industry leaders also make it extremely – Companies depend on customers and difficult for them to develop the disruptive technologies investors that ultimately steal away their markets: – An organization’s capabilities define its Listening to customers disabilities Investing aggressively in technologies that – Technology supply may not equal market give those customers what they say they want demand Seeking higher margins Incentives and resource allocation Targeting larger markets rather than smaller – Smaller markets don’t solve the growth ones. needs of larger companies – Markets that don’t exist can’t be analyzed Source: Christensen (1997) 10 Incumbents are better prepared to assess and implement sustaining technologies, not disruptive ones Sustaining innovation Disruptive innovation Positioned on a job that competitors aren’t Focuses on a job that people are trying Market focus serving well to get done Margin improvement Reach of Isn’t over-shooting Competes against non-consumption and customer overconsumption needs Existing Disruptive relative to competitors’ Business model business model Readily leveraged into derivative projects Success measured by market share gain Market development How is success measured Source: Christensen (1997) 11 From scarcity to abundance The DVD paradox Reed Hastings & Mark Randolf conceived Netflix in 1997 o First website in 1998 with a search engine I just always believed we would succeed. Even when everyone else said my ideas were ridiculous. Even when we were almost out of money. Even when the metrics were all upside down. I always have confidence that I'll figure something out. I just have that confidence that things Was it a disruptive are going to work out fine. innovation strategy? Marc Randolf – Netflix Co-Founder From scarcity to abundance Moving to abundance 1999 Moving to a prepaid subscription service o 4 movies at home at once o Receive up 4 new films each month And soon they changed to a unlimited movies rentals model (but at most 3 at a time) What is the conceptual twist introduced by Hastings? How has a new pricing system solved the problems? From scarcity to abundance Moving to abundance In which sector is this business model most commonly found? This first Netflix “all-you-can-eat” model was a success. Becoming an incumbent Major decisions Becoming an incumbent Building the movie library In 2000 Netflix still was a small player in a desperate situation o Only 300.000 subcriptors and 100 workers o No direct relationship with the major studios o Library filled through relationships with small movie distributors with minimal discounts o John Antioco (Blockbuster's CEO) declined to buy Netflix for $50 million o Estimated annual loss for 2000 were $57 million How did Hastings reverse the situation? Becoming an incumbent The big convergence As Netflix added subscribers, content Customer retention was a major issue, as the acquisition grew in importance cost of attracting new customers was high o Win-win agreement with US Postal Service o 2001 Difficult: phone call with a salesperson who (with traditional mails decreasing) tries to change the customers’ mind o Win-win agreement with lower-profile and o 2002 Easy: online (brief survey with reasons) independent film producers Why did they change the policy? o In 2006 Netflix started to acquire distribution rights of independent films What were the consequences? The Netflix Prize (2007, 2008, 2009) conceived to improve its recommendation system based on user-rated movies  satisfaction & retention Stranger Things at Netflix Disrupt or be Disrupted ? How did Netflix disrupt it´s own DVD Rental Business Stranger Netflix things Standing at the razor's edge I messed up. I owe everyone an explanation. On Sunday night, the CEO of Netflix announced, in what may go down in history as the World’s Worst Apology Letter, that Netflix is sorry It is clear from the feedback over the past two about doubling the price subscribers had to pay and, by the way, it is now dividing into two businesses, one to supply online video, the months that many members felt we lacked other — named Qwikster — to continue mailing you DVDs in red respect and humility in the way we envelopes. announced the separation of DVD and Alexandra Petr, Washington Post, 19 Sept. 2011 streaming, and the price changes. That was certainly not our intent, and I offer my sincere apology. I’ll try to explain how this happened. CEO Reed Hastings, 18 Sept. 2011 A bumpy road to self disruption Stranger Netflix things The streaming race A streaming video service was always on “Our hope is that we’ll eventually be able to download more movies. It’s why we named the Hastings' mind business Netflix and not DVD-by-Mail” o The service was launched as an adjunct to the Reed Hastings, 2003 interview company’s core DVD-by-mail offering for a $2 add-on to the monthly plan o Netflix took advantage of… The success attracted more competitors its brand image and increased licensing costs… recommendation system network relationships and agreements better & major library than competitors (amazon, apple) How to differentiate number of subscribers o 2008 first breakthrough streaming deal Netflix's value o 2010 deals with Paramount, Lionsgate and MGM proposition? Stranger Netflix things How Netflix changed entertainment https://www.youtube.com/watch?v=LsAN-TEJfN0 What’s next? What can do Netflix to avoid to be blockbustered? What’s next? Reed Hasting’s Top 5 lessons learned being CEO of Netflix What do you think about of any of those tips? https://www.youtube.com/watch?v=BH-Dq50Cz8Q What’s next? Netflix’s past was brilliant, but… What happened to the industry structure once they moved to streaming? What new threats is Netflix confronting now? What should Netflix do next?  Strategies in a Disruptive World Module IV – Confronting disruption & strategic foresight Managing uncertainty Néstor Miranda Carús Professor of Strategic Management A future in motion A future in motion “Difficult to see… always in motion the future is” A future in motion Foresight and strategy Strategic Thinking o exploration, intuitive, synthesising, creative, inductive, disruptive, incomplete/ambiguous info; generating options Strategy Formulation o assessing options, examining choices, making decisions and/or setting a destination or direction Strategy formulation Strategy evaluation Strategic Thinking Strategic planning Strategic Planning o implementation, analytical, deductive, making it happen, getting things done, pragmatic, “can do”; actions Strategic Evaluation o monitoring, strategic and operational, realistic, root causes, lessons learned; corrective actions A future in motion Limited comprehension All our knowledge is about the past, but all our decisions are about the future. What we know What we don’t know we don’t know we don’t know What we know Most of what we need to know to make good decisions today is outside our comprehension: we don’t even know it’s there. A future in motion Several types of future Possible o “might” happen (future knowledge) Plausible o “could” happen (current knowledge) Probable o “likely to” happen (current trends) Preferable o “want to” happen (value judgements) A future in motion Several types of futures “Wildcard” Scenario Plausible Probable (deep drivers) Possible (trends) Preferable Today Time A future in motion Deconstructing exponential transformation A foresight focus Technological singularity “This present moment used to be the unimaginable future” The Clock of the Long Now Stewart Brand Founder of The Whole Earth Catalogue “The future is already here – it's just not evenly distributed” The Economist, December 4, 2003 William Gibson Novelist and “father” of cyberpunk A foresight focus What is foresight Foresight is an approach to thinking An attribute, competence or process that about the future which lets you: attempts to expand the boundaries of o free up your thinking beyond the here and perception by: now; o assessing the implications of present o explore plausible futures (i.e. always more actions, decisions etc. than one, because “the” future is not pre- o detecting and avoiding problems before determined); and they occur (early warning indicators) o think about implications for decision o considering the present implications of making today. possible future events (proactive strategy formulation) Foresight is a way of thinking that enhances o envisioning aspects of desired futures our understanding of our current -and (normative scenarios) plausible future- strategic operating environment(s) A foresight focus Formulating strategy with a foresight focus Understanding factors and trends that might shape the future to formulate feasible strategies. In an highly uncertain environment we need to understand how the future might be. o Foresight is not prediction! it is about getting an idea about how plausible futures might look like. o We are good at learning from the past; we need to learn to envision the future we need to develop alternative ‘histories of the future’ as we do a ‘history of the past’.  A foresight focus Strategy under uncertainty Classification according to the complexity of future scenarios. Low Chaos Consensus Problem Adapted from: Strategy under uncertainty Highly uncertain McKinsey Quarterly June 2000 Simple High High Solution Knowledge Low  A foresight focus Strategy under uncertainty Decision making context according to uncertainty. Low Leadership Consensus & Vision Problem Strategic Adapted from: Strategy under uncertainty Management McKinsey Quarterly June 2000 Technical High Solutions High Solution Knowledge Low  A foresight focus Strategy under uncertainty Uncertainty Level 1 A clear enough future Degree of scenario uncertainty: Level #1 Low Leadership Consensus & Vision Problem Strategic Adapted from: Strategy under uncertainty Management McKinsey Quarterly June 2000 Technical High Solutions High Solution Knowledge Low  A foresight focus Uncertainty Level 2 Strategy under uncertainty Alternative Futures, limited set of possible future outcomes, one of Degree of scenario uncertainty: Level #2 which will occur Low Leadership & Vision A Consensus Problem Strategic Adapted from: Strategy under uncertainty B Management McKinsey Quarterly June 2000 C Technical High Solutions High Solution Knowledge Low  A foresight focus Strategy under uncertainty Uncertainty Level 3 Range possible future outcomes Degree of scenario uncertainty: Level #3 Low Leadership Consensus & Vision Problem Strategic Adapted from: Strategy under uncertainty Management McKinsey Quarterly June 2000 Technical High Solutions High Solution Knowledge Low  A foresight focus Strategy under uncertainty Uncertainty Level 4 Not even a range of possible Degree of scenario uncertainty: Level #4 future outcomes Low Leadership Consensus & Vision Problem Strategic Adapted from: Strategy under uncertainty Management McKinsey Quarterly June 2000 Technical High Solutions High Solution Knowledge Low Scenario planning for an uncertain future Bringing the future here Scenario planning for an uncertain future Introduction Scenarios are not projections, predictions or preferences. Scenarios are coherent and credible alternatives about the future. Scenario Planning Scenarios force firms to challenge their assumption about the future and the traditional forecasting and budgeting processes. Adapted from: Three Decades of Scenario Planning in Shell. California Management Review – Fall 2005 Scenario planning for an uncertain future Scenario planning requires a new approach Forecast, budget, Strategy Map and Balanced Scorecard Planning The Present The Future Scenario Evolution of the Sources of Uncertainty Planning Indicators and Multiple strategic Triggers initiatives & Triggers Images of alternative Souces of Uncertainty future outcomes Current Realities Adapted from: Three Decades of Scenario Planning at Shell. California Management Review –Fall 2005. Scenario planning for an uncertain future Scenario planning requires a new approach Elements of scenario planning Identify Identify Develop Discuss Driving Critical Plausible Implications Forces Uncertainties Scenarios & Paths A B C D Scenario planning for an uncertain future Methodology 1 - Central Question 2 - Issue Identification PESTEL Analysis Indicators and Monitoring 3 - Issue prioritization 6 - Strategic Initiatives 4 - Scenario driven vision 5 - Scenarios Narrative Scenario planning for an uncertain future Methodology. Step 1 1.- The central question It specifies what the scenarios will try to answer o Should be about a pressing issue relevant for the industry or business o Should start with “How could…” to reflect the exploratory nature of scenario planning o Complex question  can’t be answered “Yes” or “No” o Has a relevant time horizon embedded into the Central Question How could the automobile industry evolve by 2035? Scenario planning for an uncertain future Methodology. Step 2 2.- PESTEL Analysis The second step would be to map out the external environment of the industry: Identifying relevant issues using the PESTEL analysis framework Identify the trends that are currently impacting or are likely to impact on the industry (macro-level, do not focus on your company yet) Political Economical Social Technological Environmental Legal Scenario planning for an uncertain future Methodology. Step 3 3.- Issue prioritization i. Then we must classify the Impact- ii. Identify critical uncertainties Uncertainty of each issue (matrix) Prioritize the list of drivers according to the greatest impact on your industry/company Critical Important Critical Choose the 2 most uncertain and critical drivers Planning Scenario Scenario High in terms of impact on your firm Issues Drivers Drivers Impact Important Important Important Critical Scenario Driver 1 Mod Planning Planning Scenario Issues Issues Drivers Technology Related Monitor & Low Monitor Monitor re-assess Critical Scenario Driver 2 Market Low Moderate High (acceptance or economic) Related Uncertainty Scenario planning for an uncertain future Methodology. Step 4 4.- Scenario driven vision i. Project critical drivers through time ii. Building the scenario matrix: develop plausible + scenarios for each of the 2 examples This will create 4 quadrants Each with a unique scenario World 2 World 1 (narrative) (narrative) Critical Uncertainty 1 Technology Related - + World 3 World 4 (narrative) (narrative) - Critical Uncertainty 2 Market (acceptance or economic) Related Scenario planning for an uncertain future Methodology. Step 4 4.- Scenario driven vision i. Project critical drivers through time Scenario Driven Vision Lineal Vision Today Future Scenario planning for an uncertain future Methodology. Step 5 5.- Scenarios Responding to the scenarios: discuss implications & paths o Focus the discussion on impacts and implications for your industry/company o Consider potential actions to be taken Market Reactive Shaping Strategy Strategies Technological Conservative Proactive Strategies Strategy Scenario planning for an uncertain future Characterization of Strategies Market Reactive Strategy Shaping Strategy Follow a strategy to address both critical uncertainties Maintain options to choose best path as the future becomes simultaneously, discovering and learning and clearing the path to clearer. potential market disruption. Invest in a portfolio of relatively small strategic options and It is focused on driving a deep transformation of the industry. scale up or abandon later. It is usually costly and risky, as it involves large investments or Requires an understanding of the key decision triggers disruptive innovation paths. (What would trigger further investment or abandonment) It is an ideal way to be ahead of the curve and secure a leading Requires active monitoring of indicators. future competitive position. Conservative Strategy Technological Proactive Strategy Pursue strategic options which benefit the company under any Proactively invest in strategy options that resolve the underlying scenario. technical uncertainty or drive down the cost of technology. Leads to a conservative respond to divergent business The strategy can be broken into a number of discrete steps to environments reduce risk. Leads to modest and relatively stable results Assumes that the company can find the right technological solution and that there is enough time to develop the technical Trends to focus on maintaining and sustaining current competence. position Scenario planning for an uncertain future Methodology. Step 6 6 - Portfolio of strategic initiatives McKinsey’s portfolio of initiatives framework identifies 9 categories Level of familiarity / risk Familiar Unfamiliar Uncertain Short Term Medium Term Long Term Time Adapted From McKinsey Quarterly. Enduring Ideas Scenario planning for an uncertain future Methodology. Step 6 6 - Portfolio of strategic initiatives According to each category, McKinsey propose one action on matrix Level of familiarity / risk ACCELERATE UNICORN! Familiar DRIVE & EXPAND GO TO MARKET INVEST HEAVILY SELECTIVELY PLAN INCREASE Unfamiliar DRIVE & EXPAND GO TO MARKET INVESTMENTS SELECTIVELY PLAN LONG TERM Uncertain NO GO ZONE GO TO MARKET R&D INVEST Short Term Medium Term Long Term Time Adapted From McKinsey Quarterly. Enduring Ideas Scenario planning for an uncertain future Methodology. Step 6 Adapt core capabilities Potential size of Build new businesses market capitalization 6 - Portfolio of strategic initiatives Shape corporate business portfolio Positioning the firm’s initiatives and their respective potential market value on the matrix. Level of familiarity / risk Familiar Unfamiliar Market Capitalization Profitability (+) Risk (-) Uncertain Growth (+) Investment (-) Short Term Medium Term Long Term Time Adapted From McKinsey Quarterly. Enduring Ideas Scenario planning for an uncertain future Methodology. Step 6 6 - Portfolio of strategic initiatives The shape of the “bubble wrap” reveals company’s focus strategy Level of familiarity / risk Familiar Unfamiliar BALANCED Uncertain PORTFOLIO Short Term Medium Term Long Term Time Adapted From McKinsey Quarterly. Enduring Ideas Scenario planning for an uncertain future Methodology. Step 6 The shape of the bubbles reveals company’s focus strategy 6 - Portfolio of strategic initiatives Risk averse No focus Short-term focus Short-term no-growth Very risky future Taking risks to stabilize in the future Long term, live on line of credit Study case analysis Amazon study case background Study case analysis Group Discussion – The evolution of Amazon 1. What are the factors that drove Amazon´s early success? 2. What are the advantages and risks of opening a retail platform to third parties as Amazon Market Place? 3. What is the logic behind… ✓ …Amazon Prime? ✓ …eBooks and Kindle? ✓ …Amazon Prime Video and Content Development? ✓ …Amazon Web Services ? ✓ Fashion & Amazon Wardrobe ? ✓ Physical Retail 4. Is Amazon a “technology” company, an “e-commerce” company, a “consumer electronics” company a “marketplace” company, a “media and entertainment” company” or a “IT Infrastructure (cloud computing)” company? Study case analysis Amazon virtuous circle Selection Customer Sellers GROWTH experience Traffic Study case analysis Why moving to a Networked Platform The strategic value delivered by Amazon Innovation High Value Value Creation Ecosystem Strategic support Business Solutions Standard Services Low Low Business Innovation High Focusing on strategy Sources of competitive advantage Focusing on strategy How is technology changing our strategic environment? Development of the “Core Competencies” within the organization (Hamel & Prahalad “Competing for the future”) o Strategic Advantage lay in clearly identifying and strengthening core competencies within the firm Creating Business Ecosystems (Brandenburger & Nalebuff “Co-opetition”) o Managers can create Strategic Advantage by shaping and leveraging broader networks of resources beyond their individual enterprise, creating value nets and business ecosystems Value Innovation (W. Chan Kim & Renée Mauborgne “Blue Ocean Strategy”) o Strategic Advantage comes from creating new uncontested market spaces by rethinking market boundaries and reaching beyond existing demand Focusing on strategy Building new sources of competitive advantage Strategic Advantage is Created through: o Dynamic Specialization Making difficult choices to focus on areas of world-class capabilities and use them as a platform for aggressive growth. o Connectivity and Coordination Learning how to access and mobilize the resources of others equally specialized companies to add even more value to customers. o Leverage Capability Building Recognizing the most effective way to accelerate capability building is collaborating closely with other specialized companies, pushing each other to become better faster. Source: John Hagel III y John Seely Brown – “The only sustainable edge” – Harvard Business School Press Focusing on strategy Position within the network Specialist. Small number of activities that are offered to a large number of partners. Integrator. Coordinates the activities of a large number of partners, adds some internal activities to offer a unique value for the customer. Platform. Brings together different groups of users and encompasses the components and rules required by users to access services or complete transactions Focusing on strategy Management of relationships within the network Type of external relationships and coordination requirements Relative Relationships Coordination Dependence Value Capture Strength Strong High Ownership Great Deal Very High Equity A lot High Sourcing and Substantial Moderate Alliances Contract Occasional or some Minimum Market None Zero Weak Low Strategies in a Disruptive World Module V - Multi-Sided Business Models and Diversification Google case study & Alphabet case study Néstor Miranda Carús Professor of Strategic Management Google Platform Strategy Discussion topics What’s your Google strategy? Google Platform Google The Beast Files https://youtu.be/R7yfV6RzE30 Advertising Search Technology What’s your Google strategy? Corporate values and innovation management Corporate Values Managing Innovation o “Don’t be evil” tenet o 20% time (Google News, Gmail, AdSense…) refusal to compromise the integrity of search o “Keep it small” (3 to 5 people teams) results o As little middle management as possible Ethical standards about paid listings o Technology matters o 70/20/10 rule for allocating engineering efforts o “We make our own rules” 70% on the core business (web search and paid listings) https://youtu.be/_SiNH92EEb8 20% on extending the core 10% on new businesses o High-risk long-term projects are welcome o Fail fast o Reward failure What’s your Google strategy? Google platform strategy Strategy: Search & IP Network Advertising AdWords Froogle Platform News AdSense Photos Gmail Content Blogger YouTube Publishing Orkut Convergence Maps And Social Markets Networking Meet Search Earth Technology Desktop Calendar Google Search Docs Android Bar Platform strategy How platforms are reshaping business Platform strategy Main concepts Platform business main concepts The most valuable firms are Platforms. o It brings together producers and consumers Market capitalization in 2021 1. Apple $ 2.3 trillions o The critical asset is the community and its 2. Microsoft $ 2.0 trillions members resources 3. Saudi Aramco $ 1.9 trillions o Platforms transform competition 4. Amazon $ 1.7 trillions 5. Alphabet (Google) $ 1.5 trillions o The focus on strategy shifts… 6. Facebook $ 870 billions from controlling to orchestrating resources 7. Tencent Holdings $ 774 billions from internal processes to external interactions 8. Tesla* $ 710 billions from customer value to ecosystem value 9. Alibaba Group $ 658 billions * Tesla combines a pipeline and a platform. When a platform enters the market of a About 60/70 % of unicorns (startup value > pure pipeline business, the platform $1 billion) are platform businesses virtually always wins (HBR) Platform strategy How platforms are reshaping business Michael A. Cusumano and Anabelle Gawer | “Elements of Platform Leadership” | MIT Sloan Management Review “With vision that extends beyond their current business operations or the technical specifications of one product, platform leaders can create an industry ecosystem greater than the sum of its parts” o All platforms have in common 3 points: Bring together 2 or more market sides Generate value from “network effects” Must solve a “chicken-or-egg” problem o Network effects: the more innovations and transactions, the more valuable the platform o Innovations and transactions would not occur, Michael Cusumano (MIT) or not occur so easily, without the platform https://www.youtube.com/watch?v=Yo0ydXtVjGk Platform strategy Elements of a platform leadership Networked Platform * “Foundation Technology offered by an intermediary that brings together different groups of users and encompasses the The creation of a platform… components and rules required by users to access services or complete transactions ” Platform * “Foundation Technology that is essential for a broader, independent ecosystem of businesses. The platform requires complementary innovation to be useful and vice versa” Product * https://www.youtube.com/watch?v=kN0SVBCJqLs “Proprietary and under one company control” * Source: Michael A. Cusumano & Annabelle Gawer. The Elements of Platform Leadership MIT Sloan Management Review Article – Spring 2002 Multi-Sided Platform MSP Concept A MSP exists whenever a company brings together two or more distinct groups of customers (“sides”) that need each other in some way, and where the company builds an infrastructure (platform) that creates value by reducing distribution, transaction and search cost incurred when these groups interact with one another. ¿Can you think about any example? Shopping malls Multi-Sided Platform (MSP) Searchers Content Creators (Bloggers, WebSites) Google Advertising Engine Content Users - Affiliates (Web Sites incorporating Google Search Advertisers or Content Eg. Youtube) Network Multi-Sided Platform Business model MSP´s create value by generating “indirect network effects” between the multiple sides they serve. o Ex. iTunes Store (Music Publishers) – iPod (users) MSP´s can have: o 2 sides: eBay o 3 sides: Visa/Mastercard o 4 sides or more: Google, Amazon Revenue models also vary : o eBay-Visa -> Merchant Pays, user only pays the annual fee to the bank o Windows -> Users Pay , developers don’t o xBox -> Game developers pay royalties, consoles are sold at cost The key for growth is to be able to attract the different sides to the platform, without one side on board the others won´t join. Multi-Sided Platform The chicken and egg dilemma Which “side” of the business should a MSP (Multi-Side Platform) target first? (chicken and egg dilemma) Kiyan Barelli published in Forbes some thoughts about the online marketplace businesses boom: B2B networks or exchanges between individuals, peer-to-peer rentals, or a hub for finding and booking key services, at the same time as large corporations such as Uber, Lyft, Airbnb and Upwork emerge in their respective sectors. His recommendations are: a) Start with a soft launch b) Seed the marketplace with providers c) Do not play both sides of the fence (providers and customers) too soon d) Identify and connect with your ideal providers Establish your value proposition Seek existing providers Search directories, aggregators and offline resources Networked Platform Key decisions to be made i. Scope: Which sides should the business platform include. ii. Design: What should the platform do for each of its sides. iii. Pricing: How much and by what mechanism should each side be charged or attracted. iv. Governance: to determine the rules for: accessing the platform interacting on the platform how much control over the interaction should the platform hold MSP network Changing the value network in de digital industry MSP network Multi-Side Platforms concept A MSP exists whenever a company brings together two or more distinct groups of customers (“sides”) that need each other in some way, and where the company builds an infrastructure (platform) that creates value by reducing distribution, transaction and search cost incurred when these groups interact with one another. ¿Can you think about any example? Shopping malls MSP network Business model MSP create value by generating “indirect network effects” between the multiple sides they serve. The key for growth is to o Ex. iTunes Store (Music Publishers) – iPod (users) be able to attract the different sides to the MSP can have: platform; without one o 2 sides: eBay, Uber… side on board, the others won´t join o 3 sides: Visa/Mastercard, Paypal… o 4 sides or more: Google, Amazon, Alibaba… Customers variety Revenue models also vary: allows for multiple revenue and profit o eBay, Visa -> Merchants pay, users only pay an annual fee sources BUT  pricing o Windows -> Users pay, developers don’t structure is challenging o xBox -> Game developers pay royalties, consoles are sold at cost MSP network The chicken and egg dilemma Chicken and egg dilemma which “side” of the business should a MSP target first? “Solving the chicken-or-egg-problem and then generating strong network effects can be very difficult if one side of the market realizes value only when another side is fully engaged” Michael Cusumano, 2019 MSP network Key decisions to be made i. Scope: Which sides should the business platform include. ii. Design: What should the platform do for each of its multiple sides. iii. Pricing: How much and by what mechanism should each side be charged or attracted. iv. Governance: to determine the rules for… accessing the platform interacting on the platform how much control over the interaction should the platform hold https://www.youtube.com/watch?v=VkO0sR6qF9o https://www.youtube.com/watch?v=FuhMuMcIm90 MSP network From Amazon to Google platform… Content Buyers Content Searchers Creators (Bloggers, Web Sites) Amazon Google MSP MSP Content Affiliates Users - Vendors (many programs as zShops, Elastic Compute Cloud, Advertisers Affiliates Mechanical Turk…) (Web Sites incorporating Google Search or Content Eg. Youtube) Network Network MSP network To play or not to play, that’s the question! Choosing the wrong MSP can make you lose An existing MSP may use its power against control over customers you to capture more value for itself o When is better using an existing MSP or o Imposing prices increases once the MSP building your own platform? becomes successful o Should your company partner with one or o Vertically integrating into players business many MSP? o Weakening your relationships with your o Which MSP features should you adopt or customers reject to maintain competitive advantage? o Transforming their targets Use MSPs in ways that will enable you to… o Differentiate yourself from competitors o Reduce the risk of an MSP using its power against you o Being an MSP player try to become a new MSP From Google to Alphabet Reinventing the future From Google to Alphabet Alphabet creation “Alphabet is grappling with a problem that has already troubled many other big tech firms: how much freedom, money and time to give internal startups.” The Economist The internet: Reweaving the web From Google to Alphabet Alphabet creation In 2015 Google restructured its business, creating Alphabet, a parent company, and leaving Google as the major subsidiary. This will allow investors to quantify Google's profitable returns and -apparently- money-losing Moonshot Projects (Waymo, DeepMind, X Development…). Alphabet Inc. has become a house of brands where Google exists Decentralized Innovation The unexpected benefit of celebrating failure Moonshot factory (moonshot strategy) o Huge problem o Radical solution o Breakthrough technology https://www.youtube.com/ Astro Teller’s watch?v=2t13Rq4oc7A “How we’re going to kill our project today” From Google to Alphabet Alphabet creation Industries served o Internet (Google Search, Google Ads, Gmail, YouTube) o Consumer electronics (Chromecast, Google TV, Pixel) o Venture Capital (CapitalG, Google Ventures) o Computer software (Android, Chrome) o Urban innovation (Sidewalk Labs) o Autonomous vehicles (Waymo) o Access division (Google Fiber) o Healthcare (Verily, Calico) Group discussions o AI research (DeepMind) o Why was important the restructuring of Google? o Moonshot factory (X) o What was the main reason for restructuring Google? o Etc. o How can Alphabet remain innovative in such a competitive industry? From Google to Alphabet Risks and advantages of Alphabet decentralization strategy Decentralization Risks Decentralization Advantages o Achieving efficient inter-unit communication o Gain greater control over subsidiaries will be a crucial challenge for success o Decrease competitions between the units o Subsidiary autonomy may overshadow o Making units accountable for their actions Alphabet's mission and vision o Better analysis of each unit's performance o Managers may prioritize the growth of their o Reduced bureaucracy and time in decision subsidiary without assessing whether it is in making the best interest of Alphabet o Speed up operations o More operations staff will be needed Conclusions 1) restructuring helps to identify inefficiencies and focus objectives 2) communication needs to be monitored very closely 3) key factor: ensure that Alphabet's overall interests are paramount From Google to Alphabet Discussion topics Group discussions o Identify and evaluate Alphabet’s resources and capabilities to achieve competitive advantage. Innovation Skilled human resources Customer loyalty Popularity Cash Data knowledge o What organizational structure is Alphabet using? o Why do they use a diversification strategy? From Google to Alphabet What’s next? Growth What are today Alphabet´s major + threats? Diversification What do you think Alphabet will look like 10 Huge challenge years from now? Strategies in a Disruptive World Module IV – AirBnB and Module Closing Néstor Miranda Carús Professor of Strategic Management Creating abundance in the Hospitality Industry AirB&B Case GroupDiscussion Topics 1. According to CEO Brian Chesky, what is the vision and purspose of Airbnb’s? What are the strategic implications ? 2. What is Airbnb’s platform strategy? What are some strengths and some weaknesses of this approach? 3. Which are Airbnb’s most relevant competitors, and how does Airbnb attempt to differentiate itself from the competition? 4. Do any of these factors have the potential to lead to a (sustainable) competitive advantage? 5. Identify the strategic issues that Brian Chesky faces in the video. What recommendations would you give Brian What’s next? Where can AirB&B expand now ?  Disruptive Technologies Digital Exponential Growth The driving forces of Disruption Disruptive Business Models (Platforms & CrowdSourcing) Digital Convergence Abundance The history of Disruption and Exponential Transformation Global Economic Growth in the last 2000 years 1769 Technology Adoption Rates Technology creates abundance Exponential Growth of Computing Power Exponential Growth of Internet Connectivity  “New efficiencies of distribution, manufacturing and marketing allow us to deliver to customers many more products in the “tail”— outside the usual demand curve dictated by shelf space and other limiting factors. Collectively, these niche products create a new market as big as the one we already know.” The Long Tail and the The Long Tail is about abundance. Economics of Abundance Abundant shelf space, abundant distribution, abundant choice. “Our tendency to give scarcity more attention than abundance has caused us to ignore the many examples of abundance that have arisen in our own lifetime. The way to compete with free is to move past the abundance to find the adjacent scarcity.”  SCARCITY ABUNDANCE Business Models that have disrupted industries. The Rise of CrowdSourcing Business Models  “What are humans for? Humans are for being more human than we’ve ever been. More human in how we work. More human in what we learn. And more human in how we share that knowledge with each other. Our giant opportunity for tomorrow is to rise. To rise above our long history of using specialist The intentional creation of knowledge to do repetitive tasks. abundance can transform Whether it’s the backbreaking work of harvesting rice year after year or the mind- a small organization into a numbing work of assembling a product on a manufacturing line, most humans, for most of disruptive global force. history, have made a living doing the same thing over and over again. Our future won’t be like that. Anything that can be automated or calculated ultimately will be. Now, we can be fearful of that, or we can embrace it and take the chance to discover a richer path to life fulfillment.” Chris J. Anderson  1 https://youtu.be/GltlJO56S1g Seek a “Contrarian Truth” A business idea you are convinced will work but very few peple would see it your way. "If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.“ Peter Thiel – Zero to One  The very management practices that have 2 allowed incumbents to become industry leaders also make it extremely difficult for them to develop the disruptive technologies that Create a business model ultimately steal away their markets: with a value proposition Listening to customers that is out of the “radar” Investing aggressively in technologies that give those of stablished incumbents. customers what they say they want Seeking higher margins Targeting larger markets rather than smaller ones.  Iteration, not ideation, is the most important part of early stage entrepreneurship. You have to have a lot of ideas - a lot of bad ideas - if you want to end up with a good one. Marc Randolf – Netflix Co-Founder 3 Experiment and iterate continously to improve on your value proposition Here's a simple truth: When you surround a good idea with brilliant people, it changes. No matter how much you plan, great ideas have a mind of their own. Marc Randolf – Netflix Co-Founder  4 "Dominate a small niche and scale up from there, toward your ambitious long-term vision.“ Peter Thiel – Zero to One  Brand Equity 5 Economies of Scale Build Sustainable Sources of Competitive Advantage and protect your IP to avoid imitation. Network Externalities Know-How, CopyRight & Patents  6 “Disrupt or be Disrupted” Never give up in identifying the next disruptive trends. https://youtu.be/2t13Rq4oc7A  Personal data value platforms: Data Wallets Mobile AI Agri-Tech Subscription /as-a-service business models Gene editing technologies Meatless meats Cultured meat Blockchain Voice based virtual assistants Prescriptive Analytics Industry 4.0 and the factory of the future Digital Twins Some Disruptive Trends ☺ Commercial drones and UAVs Clean Energy Augmented and Mixed Reality : Spatial Computing Phygital spaces Web 3.0 The Market of One: Mass Personalisation Fin-Tech Strategic automation Circular Economy Quantum computing Smart buildings Fully autonomous vehicles Widespread connectivity via IoT Machine Learning for Medical Diagnostics  Strategies in a Disruptive World Module VI – Disruptive challenges and opportunities to lead the future From structure to narrative Néstor Miranda Carús Professor of Strategic Management Between exploration & exploitation The final countdown Between exploration and exploitation The essential dilemma of Strategic Management TARGETS QUESTIONS Explotation ALIGNMENT STRATEGIC DISCOVERY Exploration MEASURES IDEAS CONTROL GOALS LEARNING LOOP LOOP REWARDS EXPERIMENTS Doing what we do Seeking New Ways Adapted from Goddard & Eccles – Making Strategic Judgements Business Strategy Review - Summer 2009 Between exploration and exploitation Management Double Loop TARGETS CHALLENGES Explotation ALIGNMENT STRATEGIC INNOVATION Exploration MEASURES IDEAS CONTROL GOALS LEARNING LOOP LOOP REWARDS ORGANIZATIONAL CAPABILITIES Making things happen Finding new paths and techniques Adapted from Goddard & Eccles – Making Strategic Judgements Business Strategy Review - Summer 2009 Between exploration and exploitation How Elon Musk’s Starlink Is Bringing In Billions For SpaceX https://youtu.be/SVgVzEVeP4Q?si=dkGlnzSB6pVX-3Yx The 3 Horizons framework Bringing the future here The 3 Horizons framework – Bill Sharpe A framework for managing strategy ‘3 Horizons’ is a model for creating a shared vision for biodiversity conservation and outlining the steps needed to achieve it, co-created by Bill Sharpe of the International Futures Forum. agency + 3 Reflexive 4 Futures/Pathways RoadMaps Normative/Transformatio nal Scenario Planning 1 2 Plans Explorative Scenario Forecasts planning https://www.youtube.com/watch?v=tHRyNnwiGz0 - uncertainty - + The 3 Horizons framework – Bill Sharpe A framework for managing strategy ‘3 Horizons’ is a model for creating a shared vision outlining the steps needed to achieve it, co- created by Bill Sharpe of the International Futures Forum. 3 Horizons Framework for driving strategic innovation H3 Analysis Which are the actual deep drivers that may help emerge a new business pattern What are the seeds of that future visible in the present ? How could the new model be scale up ? Who are the main actors that are playing a relevant role ? What is the purpose and alterative visions of the mos relevant actors ? | 10 3 Horizons Framework for driving strategic innovation H2 Analysis What are the early innovation or disruptive opportunities ? Which are the main factors and technological, social, political, environmental or competitive realities that can help those disruptions or innovations succeed ? Could those innovations be captured by H1 players (H2-) or harneshed by H3 new players (H2+) Are you ready to become a disruptive innovator ? | 11 3 Horizons Framework for driving strategic innovation H1 Analysis How can we describe -“Business as Usual”? Key characteristics of the prevailing pattern How did we get here? Sources of Competitive Advantage Key Success Factors Resources and Capabilities developed by the industry Dominant Business Model Competitve Dynamics What is the actual fase of the Business Lifecycle? What is being threatened? What is not working as it used to? How fast could the decline be? What are the most valuable elements of the actual system that we would like to keep in any horizon ? | 12 The 3 Horizons framework - McKinsey A framework for managing strategy 3 horizons for managing strategy Industry life cycle o The 3 Horizons approach was Long term growth looking at least 2 cycles ahead developed based on research of how companies sustain long-term growth o It helps manage current performance while maximizing future opportunities for growth o Strong companies must balance investments across all three horizons while moving from Horizon 1 to Horizon 3 over time Adapted From McKinsey Framework The 3 Horizons framework -McKinsey The 3 Horizons Horizon One focuses on the current core business Horizon Three are future profitable ideas and opportunities o Goal: to improve performance to maximize the remaining value for the business o How: identify greatest profit drivers o Goal: to detect disruptive ideas outside of the current core business o How: to accelerate learning to validate areas for future learning (small ventures such as research projects, pilot programs, or minority Horizon Two focuses on emerging opportunities for the stakes in new businesses) business o Goal: to rise entrepreneurial projects or initiatives likely to Long generate substantial profits in the future Term o How: could require further investment to become profitable and sustainable Medium Insight and Visionaries Term Foresight Short Term Positional Entrepreneurs Business Builders Advantage Superior Experience Business Managers Performance Adapted From McKinsey Framework The 3 Horizons framework -McKinsey The 3 Horizons Horizon One focuses on the current core business Horizon Three are future profitable ideas and opportunities o Goal: to improve performance to maximize the remaining value for the business o How: identify greatest profit drivers o Goal: to detect disruptive ideas outside of the current core business o How: to accelerate learning to validate areas for future learning (small ventures such as research projects, pilot programs, or minority Horizon Two focuses on emerging opportunities for the stakes in new businesses) business o Goal: to rise entrepreneurial projects or initiatives likely to Long generate substantial profits in the future Term o How: could require further investment to become profitable and sustainable Measurement Medium Insight and Market Term Foresight Orientation Milestones Short Measurement Term Positional Net Present Value Advantage Revenue Growth Measurement Superior Profit Return on Invested Capital Performance Adapted From McKinsey Framework Cash Flow SCP framework Transitioning from Horizon 1 to Horizon 2 and dentifying the correlations between industry structure and performance SCP framework Analytical framework : S-C-P model that looks at industry forces and drivers Industry Producers External shocks Structure Conduct Performance Feedback Technology breakthroughs Economics of demand Marketing Financial Changes in government ▪ Availability of substitutes ▪ Pricing ▪ Profitability policy/regulations ▪ Differentiability of products ▪ Volume ▪ Value creation Changes in consumer preferences/ ▪ Rate of growth ▪ Advertising/promotion Technological progress lifestyles ▪ Volatility/cyclicality ▪ New products/R&D Employment objectives Economics of supply ▪ Distribution ▪ Concentration of producers Capacity change ▪ Import competition ▪ Expansion/contraction ▪ Diversity of producers ▪ Entry/exit ▪ Fixed/variable cost structure ▪ Acquisition/merger/ divestiture ▪ Capacity utilization Vertical integration ▪ Technological opportunities ▪ Forward/backward integration ▪ Shape of supply curve ▪ Vertical joint ventures ▪ Entry/exit barriers ▪ Long-term contracts Industry chain economics Internal efficiency ▪ Bargaining power of input suppliers ▪ Cost control ▪ Bargaining power of customers ▪ Logistics ▪ Informational market failure ▪ Process R&D ▪ Vertical market failure ▪ Organization effectiveness Final Group Presentation Final Group Presentation Role Play: The Team will take the role of consultants giving advice to a client that is confronting a disruptive trend. The structure of the homework is based in two levels 1. Industry level (macro) 2. Firm level (micro) Apply all the knowledge acquired during the course related to strategy, business model transformation, disruptive innovation, disruptive trends and scenario planning. Don’t forget to use a narrative that drives your work! Do not leave the tools learned in the box, use them. The report must not be only descriptive, but it must be analytical and focused on supporting your findings, conclusions and recommendations. Final Group Presentation Structure Industry Level Analysis: First choose an interesting industry How is the industry today – How is the industry creating value ? (Horizon 1) Resources and capabilities developed within the industry (Horizon 1) Industry value chain / value network (Horizon 1) Industry Challenges – What kind of change is each industry facing ? ( SCP Framework External Shocks) Analysis of potential threads to the actual business model and to the assets and capabilities of the main players in the industry ( SCP Framework. Structure - Conduct) Where are the threads coming from ? (Analysis of disruptive new entrants- Horizon 2) Firm Level Analysis: Then choose a company from that industry After analyzing the industry each group should choose a company that is likely to play a mayor role in the future configuration of the industry Define actual business model of the chosen firm (Horizon 1) Describe the alternative future that the industry might face and the business model that the firm should adopt to succeed eventually investing in a disruptive technology or business model. (Horizon 3 - Scenario Planning, Future Business Model) Recommend a strategy and a path for the implementation of the new business model trying to anticipate the strategic moves of competitors (Defining Horizon 2 as a transition to Horizon 3, Business Model Transformation Strategy)