Playing To Win

Strategy in the Face of Discontinuity

To Do, Or Not To Do?

A couple of weeks ago, I was asked by a Peruvian friend how to think about strategy in the face of the dramatic shift in his company’s operating environment due to the election of President Pedro Castillo, who is both avowedly Marxist and an admirer of Hugo Chávez’ controversial reign as President of Venezuela. It is analogous to a question I get frequently: “When do I know it is time to rethink my strategy?” So, I have decided to write my 50th Playing to Win/Practitioner Insights piece on Strategy in the Face of Discontinuity: To Do, or Not To Do?

The Challenge

In due course, nearly every company will face some sort of discontinuity. It could be a discontinuity in the business environment due to government change as with Peru. But equally, the discontinuity can occur due to the arrival of a new technology — the automobile, the transistor, the digital switch, the Internet. Or it can be a new type of business model — like the Uber, Airbnb, etc. peer-to-peer sharing platform. Or the arrival of a new competitor — as when GE Financial entered a variety of traditional leasing businesses or when Amazon enters yet another vertical.

It is difficult for a company facing one of these discontinuities to know how to respond. It doesn’t want to be in the position of acting as if the sky is falling and totally throwing out its strategy when that isn’t either necessary or productive. But equally, it doesn’t want to be the next Blockbuster and be written up as the ultimate case study in sticking your head in the sand until you die.

To do or not to do? Do you significantly alter your strategy, or do you stick it out with the current strategy? That is the question. But how do you know which is right for you? Unfortunately, there is no simple rule for what to do. It will always be a judgment call, but your friend in making that judgment is the question: what would have to be true? (Or WWHTBT for short)

Going Back to Your WWHTBT

I love the strategy question WWHTBT because it provides a snapshot of the logical architecture of your strategy. Think of WWHTBT as the blueprint of your house. It is difficult if not reckless to make meaningful renovations to your house without the blueprints because you won’t know which are retaining walls, where the plumbing goes, how the wiring is structured, etc.

The WWHTBT blueprint should be a logical byproduct of strategy formulation. A key step in the strategy choice process is to lay out the WWHTBT for each possibility under consideration. The eventual strategy choice should be the possibility for which the WWHTBT are most true now and/or are within the company’s capacity to make true going forward. When the strategy choice has been made, it is imperative to retain the WWHTBT for the chosen strategy because tossing it away would be like tossing away the blueprint of your house after you have built it — which would be nuts!

In fact, you should use it daily. Before starting your work each day, you should check whether the WWHTBT that you put together at the time of your strategy choice still holds true. If it does, best thing to do is to keep on doing what you are doing. Don’t adjust the proverbial dials when your strategy logic still holds. But when a discontinuity hits, WWHTBT is even more important. It can help you figure out, metaphorically, whether the discontinuity just took out a load-bearing wall or only ripped a section of shingles off the roof. If it is the former, you know you need to redo your strategy because the WWHTBT just isn’t true anymore. If it is the latter, you may need to tweak it, but not start from scratch.

It will always be a judgment call. But the WWHTBT will help you make that judgment. And if a strategy redo is called for, reviewing the WWHTBT is a great way to frame the problem to solve with your next strategy effort.

Working Through the WWHTBT Analysis

It is important to assess each of the seven elements of the above strategy logic flow in forming your point of view on strategy change.

Industry Analysis: Segmentation

Think of this as the map of the market on which your current strategy is based. For example, does your map assume to be true that the segment of ‘natural’ products is so tiny that you can ignore it and just serve the ‘traditional’ part of the market? But does recent data show that this segment is growing faster than any other and has started to cause major shrinkage in the part of the map in which your strategy has chosen to compete? If so, does that mean your Where-to-Play (WTP) needs to shift before it is too late?

Industry Analysis: Structural Attractiveness

This is your strategy’s assumption as to the profitability level earned by the average player in your WTP. Has that already worsened, or does it appear to be likely to worsen from the assumed level due to a macroeconomic change as with the Peru example, or because of the influx of low-cost international competitors, or because technology has made it easier for start-ups to compete? To what extent does the WWHTBT about structural attractiveness still hold true?

Customer Value Analysis: Channel Value

What does your strategy assume about what value the channel seeks from you? Has that changed in a way that makes your strategy less effective? For example, does your channel insist upon your loyalty to it while new competitors are going around that channel, whether GEICO, Dollar Shave Club or Tesla?

Customer Value Analysis: End-Consumer Value

What does your strategy assume about what value end-consumers want from you? Are they demonstrating that they have changed how they value existing attributes or maybe value entirely new attributes? Perhaps you assumed that your taxi customers didn’t mind that their provider was largely unreliable, but Uber has demonstrated that they value much more than your strategy assumed knowing when their ride is actually going to show up. Similarly, do car owners value over-the-air software updates now that they know, thanks to Tesla, that they are possible? If customers’ definition of value has shifted, what does it mean for your existing value proposition?

Analysis of Relative Position: Capabilities

What does your strategy assume to be true about your capabilities relative to competition in your WTP? Has any competitor entered with better capabilities, whether Toyota’s elevated quality/reliability/durability (QRD), Amazon’s endless aisle, or Apple’s iTunes? If they have, what does it mean for your assumed competitive position?

Analysis of Relative Position: Costs

What does your strategy assume is true about your cost position relative to competition in your WTP? Has any competitor entered with a superior cost structure, whether with low-cost labor or a digital product or direct distribution or other means? If they have, what does it mean for your assumed competitive position?

Competitor Analysis: Prediction

This is, by the way, the most misunderstood element of the strategy logic flow. Most assume that it represents what you think competitors will do. Rather it is what you would have to believe about competitors in order for your strategy to work as you hope. For example, WWHTBT might be that your competitors won’t replicate your successful strategy because by doing so, they would cannibalize their current business.

So here the question is whether competitors (existing or new) have done something that you thought they couldn’t/wouldn’t do, which threatens your strategy? For example, CarMax and AutoNation might not have assumed a competitor like Carvana could enter with a unique model that threatens theirs. Or the credit card companies might not have assumed a competitor such as Apple Pay would threaten their strategies. If a competitor has, what does it mean for the sustainability of your assumed competitive position?

The Judgment Call

Based on your assessment of these seven components of your existing strategy’s WWHTBT, you need to make the judgment as to whether the WWHTBT elements collectively are still true enough to largely maintain course. If so, then tweak your strategy gently. The attraction of this course is that you can continue to utilize the current set of capabilities that you have built to accompany the strategy to compete successfully going forward.

But you can’t allow sticking with the current strategy to become your default response just because it is the most convenient thing to do. You need to take a cold, hard look at the new reality through the lens of the seven WWHTBT elements. Are customers behaving just plain differently than we thought? Has our channel become an albatross? Is the cost structure of new competitors so much lower than ours that it doesn’t matter that customers like us more? For example, they will take a free offering over our offering. Did we count on Amazon/Google/Apple/Netflix not wanting to own our territory — but it turns out they do?

Take all seven WWHTBT together and ask: am I willing to continue to bet the company’s future on these WWHTBT actually being true? If you can’t convince yourself to make that bet, then it is time to rethink your strategy from scratch. Otherwise, you will have given up your option of adjusting strategy proactively or at least before it is simply too late to make a difference.

Practitioner Insights

To my friend in Peru and everyone else who has asked me this question, I would say that this is a tough one. There is always the threat of anchoring on the current strategy. It is very tough to internalize that your current strategy no longer makes sense. And many companies have died the death of hoping against hope on this front.

That is why it is so important to be methodical about it. Use your existing WWHTBT as an aid to your judgment. It is the blueprint of your strategy house. Use it to stress test your strategy based on the new realities. Nobody can predict the future with certainty, so it isn’t your fault that you are facing a discontinuity. You can be faulted only if you ignore the discontinuity.

The exercise of revisiting your WWHTBT has a secondary benefit of helping to pinpoint the problem(s) that your new strategy must solve. If the WWHTBT for customers no longer holds, then you have a customer problem to solve with the new strategy. If it doesn’t hold for costs, then you have a cost problem to solve, and so on.

The final insight I would share is that this exercise underscores how important it is to do WWHTBT in the first place. If you don’t do WWHTBT in service of making your prior strategy choice, you won’t have a reference point against which you can judge the degree to which the discontinuity does or does not undermine your strategy. In the same way that it is hard to know how far away from home you are if you don’t know where your home is, if you don’t have an accurate starting point for your strategy, it is easier to rationalize the discontinuity as not having made a big change to your strategy context.

Professor Roger Martin is a writer, strategy advisor and in 2017 was named the #1 management thinker in world. He is also former Dean of the Rotman School.