When going fast is not the same as going somewhere
The next product release will not determine your company’s future
When activities in a company are connected and reinforce each other, competitors can’t easily copy them. This synergy effect is business 1x1 ever since Michael Porter wrote about sustainable competitive advantage in 1985.
Three and a half centuries later companies have changed; self-organized, autonomous, agile teams are on the rise helping companies to leverage opportunities in fast-paced, complex markets.
With decentralized structures on the rise, we should remember Porter’s fundamental concepts of business strategy that explain the success of today’s business heavyweights.
Moving fast is not the same as going somewhere — Robert N. Anthony
If the activities of autonomous teams are not integrated, teams will still go fast; but probably not in the same direction. This misalignment poses a serious threat to the long term success of products and businesses. If autonomous teams are not steered towards a common goal and cooperation between them is not encouraged, autonomy could harm the business more than help. Fast to build, easy to copy products will quickly leave companies in a dead end.
What are reinforcing activities?
Michael Porter was aware of this when writing the iconic “What is Strategy?”. A company’s ability to properly align their activities across their value streams is seen as critical to create a sustainable competitive advantage.
Ikea is a prime example where activities throughout the company, like product development, supply chain, packaging, and marketing, are tightly integrated. The outcome is a combination of style, affordability and accessibility for their young target audience that is hard to match by any competitor. The more integrated activities are, the higher their value, and the harder they are to copy by competitors.
We have seen plenty other examples, in which the relentless focus on a couple of activities helped companies to develop a hard to copy, and thus sustainable competitive advantage. Most recently, Tesla took the automotive industry by storm with their flawless design, superior on- and offline user experience and also their approach to manufacturing. A couple of years earlier, Amazon was able to become the everything store thanks to their ever-growing inventory and convenient order process.
In their book Playing to Win, A.G. Lafley and Roger L. Martin draw from their experience of running Procter & Gamble (P&G) and build up on Porters’ idea: Only when an activity, in P&G’s case it might be scale or innovation, is manifested in every level of the company — from corporate strategy all the way down to the product distribution for Pampers — it will have the desired effect and not lose momentum on it’s way down the org chart. Lafley and Roger coin the term reinforcing rods. Strains of core activities that run through the organization and stabilize a system just like reinforcing rods made of steel.
Companies like Gillette, a P&G acquisition in 2005, integrated into P&G’s reinforcing rods and maintained a sustainable competitive advantages in their market. For instance, the razor company aligned their activities with P&G’s well respected advertising and customer research activity system. P&G’s willingness to actively integrate different parts of the organization under a clear, guiding activity system is seen as one of its key success factors. The whole becomes bigger that the sum of its parts, and consequently harder to copy. Still, P&G’s businesses remain largely autonomous. Reinforcing rods hold these autonomous groups together. They stabilize and unite, directing activities towards the creation of a sustainable competitive advantage.
If we want our autonomous teams to be as successful as P&G’s businesses, it's worth thinking about the benefits that reinforcing rods can offer.
Stronger together — The benefits of reinforcing activities in todays world
Autonomous teams are creating flat, horizontal organizational structures. Next to the vertical alignment of activities outlined by Lafley and Roger, the horizontal alignment between units of the same hierarchy becomes important. Missing alignment to a companies strategy, and to the activities of other teams, are a toxic combination creating frustration and confusion around empowered teams trying to make an impact for the company. Here, the concept of reinforcing activities can create a guiding path to sustainable outcomes in high autonomy environments by connecting the activities of teams to a higher goal. This combination of entrepreneurial autonomy and strategic alignment can drive an organization to high levels of competitiveness, collaboration, and efficiency.
The concept of reinforcing activities can create a guiding path to sustainable outcomes in high autonomy environments.
Thinking in reinforcing rods ties the work of teams to strategic focus areas and reiterates that the company can only be successful when everyone is working towards the same goals. The creation of a sustainable competitive advantage becomes the focus. Teams are measured against how they help to create an integrated set of activities that helps the company win, and are not solely celebrated for the short lived local KPI uptick that is presented in quarterly business reviews.
Today, most autonomous product development teams work hard to improve their product — an A/B test to improve conversion or a new feature, maybe. They will be able to do this development quickly and efficiently on their own. And this might be the problem here as people default to what is easiest for them, which in this case is adding bits of improvement. However, what’s easy to implement will be easy to copy by competitors. In comes Porter and his reinforcing activities, providing the rational for taking the collaborative high road instead of the lonesome highway.
Porter differentiates between merely running in the same direction, simple consistency, and working together to create synergy effects, reinforcement. Consequently, collaboration is the tool at the forefront to craft the desirable reinforcing activities to achieve sustainable competitive advantages through them.
Knowing that collaborative efforts are the key to a companies long term success can motivate teams to expand their thinking. Collaboration and tighter integration across the company become a desirable leverage of expertise, instead of a mere dependency that slows down.
Think of a multi-channel retailer whose website development team integrates advanced tracking on their website so that the user analytics team can improve their algorithms, which in turn help the marketing team recommend tailored items to users. But they do not stop there, the website data is shared with stores, tailored by location, to provide preference information from the website to inform the store design. Retail store and website send information to the retailer’s in-house brand which can use the information for future product developments. Together, the integrated activities help the company to achieve superior performance in the fields of demand-driven commerce and personalization.
Still, increased collaboration comes with an increased need for communication and alignment. However, this overhead will be more than compensated by the increase in clarity and direction that transparency on the company’s desired activity system offers. If you’ve ever been put in a position with high decision authority but little guidance or direction, you know that every decision becomes a gruesome, inefficient act of guesswork. Added clarity on the desired direction helps empowerment to flourish as decisions can be made more efficiently; even if that means talking to people outside the team from time to time.
Driving the rods into the ground
Combining the fast paced nature of autonomous teams with the strategic guidance of reinforcing activities is no easy task. In order to succeed, companies need to embrace organizational change, and be disciplined enough to manage the day-to-day activities of the new setup. A supportive company culture is the final piece to establishing an environment of high autonomy and high alignment at the same time. Only when it‘s in the company’s DNA to value cooperation over quick success or to appreciate integration over independence, the ideas behind reinforcing activities have a chance to stick.
“No matter how brilliant your mind or strategy, if you’re playing a solo game, you’ll always lose out to a team.” — Reid Hoffman
On the organizational level, cross-functional teams are a powerful way to expand the thinking of a team as multiple perspectives are added. If a team consists of software developers, designers, marketers and analysts a wider range of topics will be considered. Also, a joint leadership of different departments can force a more holistic thinking about how to combine activities as organizational boarders are removed. If invisible department walls still exist, joint goals between departments can nudge an organization into collaborating and integrating activities.
In the last years, Objectives and Key Results (OKRs) — a goal system used by the behemoth of silicon valley to create alignment and measure success — gained popularity. Alignment tools like OKRs can be the glue between a company’s strategy and the autonomous teams putting that strategy into action. Only by managing the information flow from top to bottom, organizations can make sure their activity rods don’t grasp into nothing.
Still, only if you put quality in at the top, you can expect quality results at the bottom. The mere administration of loosely run autonomous teams is not enough. Instead, strong competitive strategy needs to be crafted and company leadership needs to return to the virtues of strategy creation: A clearly articulated plan about where and how the company will play to win. If the key activities of the company are clear and well understood, the activities of autonomous teams can be guided into the right direction.
In the absence of good strategy at the top, it's bullshit in / bullshit out — a testament to the strong connection between a company’s ability to link activities and good strategy that directs this. For Michael Porter, the ability of a company to cooperate and link its activities is more than a mean to an end.
The strategic development and management of linkages is a far more complex organizational task than managing the value activities themselves. (…) The very ability to do so becomes an important source of sustainable competitive advantage. Porter, 1985
In complex, fast paced environments the ability to focus on what really matters throughout the company becomes a sustainable competitive advantage in itself. Continuously aligning and combining activities creates a solid web of hard to copy value propositions. In contrast stand organizations with highly autonomous teams that act fast, efficient but also unconnected, resulting in a loose set of easy to copy outputs.
While one creates a solid footing for a long lasting company, the other is a mere house of straws prone to crack under the first competitive storm. We should be mindful of what company we are creating. It might not be one that is build to last.
