A framework for strategic reflection and planning
This document presents a framework for strategic reflection and planning which can support business stakeholders in creating real and sustainable value by providing a deeper understanding of the emerging market context.
It is not the intention of this document to try and predict the future, but rather to illuminate and give meaning to the systemic patterns of change that are unfolding – deep systemic shifts which are caused by the combined effect of changing socio-cultural, business, environmental and technological realities.
These insights can help guide the transformation of business thinking, practices and organizational culture required to sustain future competitiveness.
The implications of the findings in this document have far reaching consequences for organizations, and acting upon them will require substantial leadership, courage and vision to bring about the necessary changes.
As a result, organizations will have to re-examine the basic assumptions and core practices of their current business paradigm.
In addition, embracing the emerging economic value creation paradigms will mean businesses have to reconsider the meaning of some of the most basic concepts of our business vocabulary, such as ‘consumer demand’, ‘branding’ ‘marketing’, ‘innovation’ ‘value chains’ and ‘value propositions’. It may also prompt many organizations to reflect on – their business mission, competences, organizational culture, processes, and their role in value creation and delivery.
Paradigms in Value Creation
‘Paradigms in Value Creation’ presents a model for understanding the drivers of future value. It also shows what is required to leverage the changing societal contexts and deliver appropriate value in each of the periods covered.
The emerging paradigms in value creation have far-reaching consequences for the future vitality and competitiveness of organizations. Many companies naturally tend to create future strategies and innovation roadmaps based only on their existing paradigm, which often does not exploit the full potential available. Even supposed sources of innovation such as incubators are often trapped in the same paradigm as the parent organization.
Companies which can transform their business models, processes, talent base, capabilities and organizational culture to leverage emerging paradigms will create new landscapes for future growth and profitability (even in their existing industry), whereas companies ‘trapped’ in a declining paradigm are likely to face increasing pressure on profitability and opportunities for organic growth. creation growth will cease to exist.
This is by no means a small challenge. Each paradigm requires a unique skill set, mode of thinking, enabling processes and – most importantly – business models and performance measurements. This generally brings a new level of complexity. In order to cope, companies often need to set up parallel organizational platforms with distinct processes, ways of working, funding and performance measurements so that initiatives are not stopped prematurely and don’t fail due to a lack of organizational support.
Companies do not necessarily have to follow the linear progression of these paradigms, but may be able to ‘leap-frog’. It often takes the same amount of effort for organizations to move from one paradigm to the next as it does to leapfrog to a non-adjacent paradigm.
An example: Experience paradigm — business and brand implications
In this paradigm, building and managing brand equity will still be very important, but as mentioned already, building top-down managed brands is becoming increasingly costly and ineffective. There are simply too many brands trying to capture customer attention and ‘selling’ their brand experience in a world dominated by peer-to-peer trust and recommendations.
In the experience paradigm, building power brands required a very different business mindset and skill-set than in the industrial paradigm. Whereas the latter was focused on maintaining technological superiority, optimizing quality management, efficiency of execution and productivity management, many of these competences could be outsourced in the experience economy.
There are a number of key enablers required to perform in the experience economy:
Focus on marketing excellence. In the experience economy, many companies typically adopted an ‘asset light’ strategy. They outsourced manufacturing and technology development, and instead focused on managing brand narratives, building media strategies, orchestrating brand experiences and building brand loyalty. This often meant a shift in emphasis towards marketing excellence, consumer understanding, and aligning the value proposition portfolio and communication to build the brand image and fulfill consumer needs and aspirations. A clear understanding of key market segments and their behavior, needs and aspirations was crucial.
Develop end-user empathy. An important attribute of leading lifestyle brands which offer the ‘preferred brand experience’ is brand leadership. Brands need to be highly in tune with their customers and end-users in order to build relationships. Many companies think that responding to every consumer/customer need and desire (‘customer is king’) is the way to build a respected brand.
Beyond needs to inspiration. The experience economy fulfilled the need of people to discover and re-establish their identity in the urban context. Leading brands do not merely aim to fulfill the expressed needs of people, but deliver propositions that guide and inspire them to expand their horizons.
Brand experience management. The strategy of experience brands is to find emotional resonance with people within a tightly coordinated set of brand attributes. Managing the ‘brand experience’ requires a level of control of key ‘touch points’ at which consumers/customers interface with the brand. This requires creating a clear and appealing brand position, capturing the attention of key target audiences, demonstrating core values, maintaining the brand image and delivering value propositions that exemplify the brand lifestyle.
Today, this quest has become much more challenging. There are a multitude of lifestyle reference points provided by brands, popular cultural icons and peer self-expression in social media. People are empowered by an increasing confidence and ability to shape and express their own unique identity and lifestyle vision.
Companies that are able to master and leverage new paradigms of economic value creation have more options to sustain future growth and profitability. Companies who are unable to make these transitions will face increasing pressure of commoditization and cut-throat competition. Preparing an organization to operate and derive value from a new paradigm is no trivial task and requires vision, leadership and above enabling conditions for learning and experimenting.
The leadership of such organizations needs to be fully aware of the challenges, and must also be dedicated to creating such enabling conditions.
Each economic paradigm require a completely new mindset, a re-definition of value, a new approach to value creation and dissemination, and a new (parallel) set of performance measurements to prevent new initiatives from being axed based on the wrong assumptions.
Future growth through the knowledge and transformation paradigms
Two key economic paradigms for future growth are the knowledge paradigm and the transformation paradigm. Both have distinct challenges, but they also share some common principles which differentiate them from earlier paradigms.
— The knowledge and transformation paradigms assume a level of democratization of technology and value creation.
— Both leverage a high level of stakeholder participation.
— Both require a re-think of business models to transform value dissemination from a chain to a network in which value can flow in multiple directions.
— Both favor continuous experimentation rather than top-down visions and planning.
— The knowledge economy is about building platforms that achieve scale through stimulating peer-to-peer collaboration and enable people to develop their potential, fulfill their aspirations and become their own authentic brands.
— The transformation economy will be built on systemic initiatives to derive business opportunities from addressing local/global socio-economic and socio environmental issues. The approach (how) and the engagement (who) will be an important principle. Successful initiatives need to build trusted local value networks that add value by solving issues and empower local stakeholders and entrepreneurs to share in the economic value.
Key success factors
In the knowledge economy, the choice of leveraging existing meta-platforms or building a dedicated platform is a major consideration, yet understanding and discovering the social mechanisms that causes peer-driven platform scaling is the key success factor.
In the transformation economy, the establishment of best global and local networks of competencies and expertise around a particular issue becomes a key competitive business asset.
Next to roadmap innovation, radical or break-away innovation is fundamental for business growth. Break-away innovation has been driven to a large extend by advances in performance and technology. But in the recent years it has become increasingly clear, from examples like the Nintendo WII and the Apple Ipod, that innovations also need to be in sync with developments in what people value and aspire to achieve breakthrough growth. Innovating how products and services help people to achieve their future goals and aspirations, in other words innovating meaning, is based on a deep understanding how value is changing for people and on how socio cultural paradigms are developing. Recent books, e.g. Douglas. Holt’s: How Brands Become Icons, and Roberto Veganti’s: Design Driven Innovation – Changing the Rules of Competition by Radically Innovating what Things Mean- illustrate this clearly.
In Philips Design we track how value is changing by identifying so-called weak signs. Or as William Gibson puts it: “The future is already here – it’s just not evenly distributed.” In order to assess the importance of these weak signs we position them in the historical context (as presented in this paper on changing paradigms) and develop design visions (Design Probes) to provoke debate in order to generate (high level) insights. To understand which weak signs resonate with a larger audience, as starting point for developing growth propositions together with the innovation partners – technology, strategy, marketing