13.3 Implications for Strategy and Strategic Responses to New Business Models
Key Takeaways
Whittington's four perspectives on strategy are classical, evolutionary, systemic and processual.
Discovery-driven planning works back from the required profit, lists critical assumptions and tests them cheaply at milestones.
The entrepreneurial strategy compass combines collaborate-or-compete with control-or-execution to give intellectual property, architectural, value chain and disruption strategies.
Incumbent responses to new business models include block, milk, invest in the disruptor, disrupt yourself, retreat to a niche, redefine the core and exit.
In fast-changing markets leaders devolve decisions, shape culture and protect a stable core while teams experiment.
13.3 Implications for Strategy and Strategic Responses to New Business Models
Executive Summary: When unknowns outweigh knowns, classical long-range planning breaks down. This section uses Whittington's four perspectives on strategy to explain when emergent approaches are needed, describes discovery-driven planning and the entrepreneurial strategy compass, and sets out the options incumbents have when a new business model threatens them, the different positions of start-ups and established firms, and the leadership roles these situations demand.
Four Perspectives on Strategy
Richard Whittington classified approaches to strategy along two dimensions: whether outcomes are profit-maximising or pluralistic (several goals), and whether processes are deliberate or emergent.
| Deliberate process | Emergent process | |
|---|---|---|
| Profit-maximising | Classical: rational analysis and planning by top management | Evolutionary: markets select the fittest; keep costs low and options open |
| Pluralistic | Systemic: strategy reflects the social and cultural system the firm belongs to | Processual: strategy emerges from learning, negotiation and compromise among stakeholders |
The classical approach suits stable environments where knowns outweigh unknowns. In dynamic environments with emerging business models, organisations lean toward evolutionary and processual approaches: many small experiments, rapid learning and continuous adjustment.
Discovery-Driven Planning
Rita McGrath and Ian MacMillan's discovery-driven planning is a disciplined way to plan when uncertainty is high. Instead of projecting detailed revenues and then hoping to achieve them, it:
- Starts with the required result: a "reverse income statement" works back from the profit the venture must earn to justify the risk, to the revenue needed and the costs allowed.
- Lists the assumptions that must be true to achieve it (price, volumes, conversion rates, costs).
- Tests the most critical assumptions first, as cheaply as possible.
- Sets milestones at which assumptions are checked and the plan is revised, expanded or stopped.
The aim is to convert assumptions into knowledge at the lowest cost. It complements design thinking (Section 8.4) and the lean start-up method.
The Entrepreneurial Strategy Compass
Joshua Gans, Erin Scott and Scott Stern's entrepreneurial strategy compass helps a new venture choose how to commercialise an idea. It combines two choices: whether to collaborate with or compete against incumbents, and whether to invest in control (protecting the idea and building proprietary assets) or in execution (moving fast and building competitive strength without relying on protection).
| Collaborate with incumbents | Compete against incumbents | |
|---|---|---|
| Control | Intellectual property strategy: develop and protect ideas, then license or sell them to established firms | Architectural strategy: create and control a new value chain, platform or standard |
| Execution | Value chain strategy: fit into an existing value chain as a specialised supplier or partner | Disruption strategy: enter quickly and attack incumbents by out-executing them |
Each strategy needs a coherent set of choices about customers, technology, organisation and competition. The authors recommend testing at least two strategies before committing to one.
How Incumbents Can Respond to New Business Models
Established firms facing a disruptive model have a menu of responses, which can be combined or sequenced:
| Response | What it involves | When it fits |
|---|---|---|
| Block | Use legal, regulatory or contractual means to slow the entrant | Short-term only; rarely stops a superior model |
| Milk | Accept decline and maximise cash from the legacy business | Shrinking market, no capability to compete in the new one |
| Invest in the disruptor | Acquire or fund the new players (corporate venturing) | Strong cash reserves, weak internal capability |
| Disrupt yourself | Launch a competing model even though it cannibalises existing sales | Leadership willing to accept short-term cannibalisation |
| Retreat to a niche | Focus on the segment the new model serves poorly | Loyal, distinctive customers who value what the incumbent does best |
| Redefine the core | Change how the core business operates to match the new model's agility | The core proposition is still valued but the operating model is outdated |
| Exit | Sell the business while it still has value | The new model is clearly superior and the incumbent has no edge |
Constantinos Markides and Constantinos Charitou showed that incumbents can also run the old and new models side by side, keeping them separate where the two conflict and integrating them where they share resources—an application of ambidexterity (Section 13.4).
A local footwear retailer squeezed by online competitors illustrates redefining the core: she moved from long, expensive leases to short-term pop-up sites, matching the flexibility and low overheads of online rivals while keeping her advantage in expert, in-person fitting.
Start-ups Versus Established Organisations
Start-ups can build a new model from scratch but lack resources, brand and scale; established firms have resources and customers but must protect today's profits while funding tomorrow's model. The established firm's challenge is therefore organisational as much as strategic: creating space for new models without letting the legacy business smother them.
Leadership and Management Roles
Centralised decision-making becomes a bottleneck when markets move quickly. Leaders of organisations facing new business models:
- devolve decisions to teams close to customers and give them clear boundaries;
- shape culture—psychological safety, learning from failure and customer focus—rather than making every decision themselves;
- adopt a servant-leadership stance that removes obstacles and develops people;
- protect a stable core of purpose, values and governance while allowing the edges to experiment (Section 13.4);
- invest in leadership development, because these capabilities must exist throughout the organisation, not only at the top.
Managers, in turn, translate experiments into scalable operations, measure results honestly and allocate resources to the experiments that work.
Under Whittington's four perspectives, which approach treats strategy as emerging from negotiation and learning among stakeholders with several goals?
Evolutionary
Systemic
Processual
Classical
A biotech start-up develops a patented diagnostic technique and plans to license it to large pharmaceutical companies rather than build its own sales force. Which entrepreneurial strategy compass quadrant is this?
Value chain strategy, because it becomes a specialised supplier without relying on protection
Architectural strategy, because it builds and controls a new value chain or industry standard
Disruption strategy, because it competes with incumbents through fast execution
Intellectual property strategy, because it collaborates with incumbents and controls its idea
A traditional newspaper publisher faces free online news. It has large cash reserves but little digital capability, and its board wants exposure to digital growth quickly. Which response is most consistent with these facts?
Invest in the disruptor by acquiring or funding promising digital media start-ups
Milk the print business for cash and avoid any further digital investment
Exit immediately by selling all assets at any price
Block the entrants through legal action as the main long-term strategy
Sections you finish are checked off in the contents.