Weekly Business Insights from Top Ten Business Magazines | Week 297 | Strategy & Business Model | 2

Extractive summaries of and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 297 | May 19-25, 2023.

Radical Optionality

By Martin Reeves et al., | Harvard Business Review | May–June 2023 Issue

Listen to the Extractive Summary of the Article

In the early 1990s, the digital revolution marked a shift to a new era of competition, one that was characterized by rapid business-model innovation, the dissolution of enterprise boundaries, and a blurring of industry borders. These changes were driven by technology and facilitated by a very low cost of capital. Today we’re at another inflection point. The pace of change continues to accelerate as digital innovations such as AI reshape business models and shorten the timescales necessary and available for achieving strategic renewal. Moreover, climate change, geopolitical conflict, and social polarization are elevating uncertainty and volatility. Business leaders are facing choices not between a few plausible future states but rather a multitude, with each individual state being hard to describe ex ante and only recognizable ex post. It is no longer sufficient for firms to develop specific options that could secure advantage in a given future scenario. Rather they need to be able to adapt quickly to—and thrive in—any new reality.

This shift is taking place as the extraordinary period of essentially free capital is coming to an end. Fewer resources are available for financing the search for new advantages, and investors are increasingly demanding short-term returns.  Many leaders will react to these new environmental conditions by pouring their efforts into maximizing short-run earnings and conserving cash. However, research has shown that long-term returns are predominantly driven by differential growth, particularly in turbulent times. Thus firms face a dual challenge: They need to execute sharply on their current models while developing a multitude of options to secure future growth and competitive advantage—on tighter timescales and at lower costs.

To reconcile these apparently conflicting objectives, the authors propose a new strategic paradigm, which they call radical optionality. Embracing radical optionality will help firms turn uncertainty from a disruptive threat into a potential source of advantage, allowing them to thrive in any future state of the world.  It starts with changing five implicit assumptions underpinning today’s strategy-making: from thinking then doing to thinking while doing; from striving for fit to creating optionality; from exploring versus exploiting to exploring while exploiting; from market segments to mass customization; and from enterprise to ecosystem.  Firms pursuing radical optionality will be characterized by the following: increased organizational fluidity, deeper integration between humans & technology, and forward-looking performance metrics.

2 key takeaways from the article

1. Today’s business leaders are facing choices not between a few plausible future states but rather a multitude, with each individual state being hard to describe ex ante and only recognizable ex post. It is no longer sufficient for firms to develop specific options that could secure advantage in a given future scenario. Rather they need to be able to adapt quickly to—and thrive in—any new reality.
2. To reconcile these apparently conflicting objectives, the organizations need a new strategic paradigm – radical optionality. This will help firms turn uncertainty from a disruptive threat into a potential source of advantage, allowing them to thrive in any future state of the world.  It starts with changing five implicit assumptions underpinning today’s strategy-making: from thinking then doing to thinking while doing; from striving for fit to creating optionality; from exploring versus exploiting to exploring while exploiting; from market segments to mass customization; and from enterprise to ecosystem.

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Topics:  Strategy, Technology, Competition