While many companies continue to use traditional approaches to strategy development, Harbor has seen over and over that the biggest winners are the companies that take firm control of their growth strategy and deliberately shape their competitive arenas. We call these companies “catalytic.”

If we reanimated a cryogenically frozen person from 1999, the most surprising thing about the world of 2022 might be what has happened to the fundamental definition of a business.

Massive outsourcing of corporate services, combined with the emergence of platform business models is causing the “disintegration” of traditional enterprises and is restructuring businesses

into three broad categories or roles: 1) platform players, 2) horizontally focused providers of outsourced “professional services” and, 3) vertically focused “specialist” product and service businesses.

The growing influence and disruptiveness of platform models is forcing all businesses to think more carefully about their future roles. Since not all businesses can be platform players, organizations are now focused on which role suits them, and which players (in the other two categories) are prospects for win-win partnerships that will maximize value for customers.

As businesses come to understand that future enterprises will all be part of new ecosystems and value-delivery networks, they are recognizing the era of “going it alone” or “flying solo” is over. The “command-and-control” alliance and partnering strategies of the past will not be effective in the complex, instantaneous, interwoven global digital economy.

EVOLVING CATALYTIC GROWTH STRATEGIES

Both platforms and outsourcing will require huge scale, but small focused product and service companies will be able to use that scale to thrive as well. “Everything as a service” will be available on demand, from a mix of horizontal (cross-industry) and vertical (industry-specific) outsourcers, with the latter often set up as joint ventures by industry participants. There will be ongoing battles at the intersections of these three types of companies.

Technology advances are now continuously conspiring with new business model designs forcing corporations to continuously evolve their growth strategies. To succeed, companies must become more flexible and adaptive and will need to continuously reshape their businesses to address changing market and competitive structures.

RE-THINKING GROWTH STRATEGY

While many companies continue to use traditional approaches to strategy development, and some even succeed in this way, Harbor has seen over and over that the biggest winners are those that take firm control of their growth strategy and shape their competitive arenas. These are the companies we call “catalytic.” Just as a chemical catalyst hastens the rate of a chemical reaction, companies with catalytic strategies shape their worlds at rates that can take the competition’s breath away.

In chemistry, a catalyst works by altering the sequence of intermediate compounds that leads to the one ultimately desired.  All new technology and innovation is born from combining and re-combining existing technologies and innovations. For example, the GPS and navigation system we take for granted in smartphones combines the earlier technologies of satellites, computing chips, radio receivers, transmitters and atomic clocks into a single, more valuable technology. Interestingly, the value of a new technology lies not just in what it does, but also in what further technologies it will lead to — every new technology becomes a building block for future technologies.

Today we have a seemingly infinite number of technologies to work with many of which have hidden dimensions of capabilities that can be combined into new innovations. Creative combinations of Smart Systems technologies and software are increasingly reinforcing and accelerating one another. Combinations of cloud, wireless, machine learning and mobility are being integrated into a broad array of physical and digital applications.

• Consider Cisco who acquired over 200 companies to creatively combine diverse technologies to dominate the computer networking arena ever since.
• Consider ARM Holdings the world’s leading semiconductor Intellectual Property (IP) developer whose processor designs are embedded in over 50% of all consumer devices worldwide.
• Consider Qualcomm whose founder patented a number of important advances in wireless communications and came to understand how to create whole new markets by enabling three critical dimensions: platforms that address the needs of sub-markets with customization; a portfolio that included a wide variety of processing, connectivity, security, and interoperability capabilities; and partnerships to provide enablers.
• Consider Tesla’s emergence as a designer of smart, software-defined vehicles that understood that Smart Systems demands we think about opportunities as systems not products.

CATALYTIC STRATEGY IS ABOUT CREATIVE COMBINATIONS OF INNOVATION AND BUSINESS DESIGNS

Innovators like Thomas Edison, Irwin Jacobs, Steve Jobs and Elon Musk understood the value of “systems thinking.” Each understood the value of product innovation and the business systems that created entire industries around their products.  Their genius lies in the ability to look beyond discrete innovations and conceive of entirely new Smart Systems experiences that became new marketplaces.

What is the key to success for these companies? The short answer is that each of them has employed what Harbor Research calls “catalytic strategy.”

ROWING HARDER DOES NOT IN ITSELF EQUAL CATALYTIC STRATEGY

Of course, simply “rowing harder” may hasten the arrival of this state somewhat. This is evidenced by many larger diversified organizations that have utilized acquisitions to create new business platforms.

Between 1985 and today, Danaher has been one of the best-performing industrial diversified businesses based on its platform/portfolio acquisition strategy and the Danaher Business System—a systematic and wide-ranging set of organizational processes the company has developed to drive business unit performance.

We would argue that acquisitions alone do not constitute catalytic maneuvers and strategies. A business that just “bolts together” combinations of acquisitions needs to consider what new combinations of innovations the acquisitions can bring.

In business as in chemistry, catalysis is in essence the process of sneaking around a barrier that others are struggling to climb, and thereby arriving at the destination much more quickly. In other words, it means creatively combining technologies and capabilities to enable completely new innovations. The catalysts can be new combinations of technology, people, skills and systems whose introduction into the business environment creates the shortcut to an advantageous structuring of one’s competitive arena.

There are many dimensions to catalytic strategy. There is the deterministic type that combines acquisitions mixed with new customer innovations, and the non-deterministic type informed by the architectural innovators that leverage the ecosystems they develop to drive adoption. There are many potential “creative combinations” of these elements that players can explore.

NOT ONE GROWTH PATH BUT MANY COORDINATED MANEUVERS

Historically, established companies have pursued three broad avenues to growing their businesses: Core market penetration to drive share in existing markets, consolidation of peer companies to drive economies of scale and cost, and expansion into adjacent growth opportunities including new offerings or new market segments. We believe established product manufacturers and services providers are operating with outdated growth strategies and innovation models that were conceived in the post-WWII era and cannot serve the needs of a truly connected world.

Smart Systems and digital technologies are creating many new and diverse sources of growth opportunities. Ecosystems, corporate ventures, autonomous start-ups, joint ventures with customers and partners as well as minority equity investments and more. Catalytic growth strategies that cleverly combine organic maneuvers with inorganic growth mechanisms are multiplying fast and becoming a new dominant path to value creation.

Flexibility, innovation, and the ability to move quickly are essential elements of catalytic strategy. But for many companies in technology driven arenas, the velocity of change in the marketplace and the number of variables in play exceed many managers’ ability to make confident and informed decisions. At too many companies, management’s natural response to this environment is to try to slow the world down so they can understand and control it.

Companies do this by attempting to lock in their customers, signing binding and inflexible agreements with suppliers and partners, approaching new markets with traditional means, and acquiring emerging competitors simply to remove them as market threats. These actions, while seemingly logical, in fact often run contrary to effective strategy in the evolving digital world.

MAKE + PARTNER + BUY

In this modern age of Smart Systems and the IoT, where computing is now migrating towards and embedding itself into the physical world, traditional players need to think about employing catalytic strategies to drive new customer value.

RIPE FOR A CATALYTIC DISRUPTION

But this revolution will not be limited to consumers and web services. Two of the economy’s largest subsectors, energy generation/transmission and food production/distribution, are ripe for a decentralized revolution. Around the world, products and services are beginning to emerge and make their way to market, with much of the infrastructure now in place for these aspirational disruptors to grow exponentially over the next decade or so.

Next generation platforms will become a material force for building community and increasing bargaining power among skilled workers, much as unions have done historically for lower-skilled workers. We believe new digital and Smart Systems technologies will turn long held beliefs upside down, and we expect an out sized impact on traditional OEM strategy. For example, many managers believe that you can be big and low cost, or you can be focused and differentiated—but not both.

Today’s Smart Systems and IoT technologies are enabling new modes of services delivery and creating new opportunities with data and analytics capabilities that will significantly reduce, if not eliminate, this classic strategic trade-off. This, we believe, is but one example of the extraordinary effects new systems technology will have on OEMs.

SMART SYSTEMS DESIGN

To conceive and design Smart Systems, organizations will need new methods and a more holistic and integrated approach that addresses key dimensions:

Design: We believe design needs to transcend discrete product or service innovation.  Assuming that the role of design is only about making existing products or services more attractive no longer works.  Business designers need to creatively imagine fully developed systems and whole marketplaces.  Companies need to envision the design role as one that can address product, services, community and business systems.

Relationships: Problem solving for new Smart Systems opportunities must address tough questions:  how can an organization turns its workers, partners, and customers into believers and contributors? How can we make changes that can impact multiple functions and organizations and ultimately solve really big problems or create unique new offerings? We are firm believers in the human element – the community as a manifestation of the system and visa versa.   Behaviors of users, customers, teams, functions, leadership, all need to considered.   Understanding empathy, participation, motivations – putting human sensibilities and behaviors at the center of the solution is key.

Knowledge and Skills: Companies need to move beyond a conventional orientation to technology skills and knowledge.  Organizations need a disciplined process focused on optimizing all tangible and intangible skills and assets including people and competencies, brands and positioning, technologies and intellectual property, alliances, relationships and business and operational processes.

The solutions we are describing here will have much less managerial hierarchy, command and control decisions or proprietary ownership of ideas. These relationships will be self-organized by people who are motivated to explore and develop ideas they care deeply about. Collaborative innovation will extend beyond ideas about new products and services to the very manner in which business is conducted

The convergence of design with strategy and related innovation and engineering processes will inevitably lead to a new integrated set of processes, methods and disciplines — the advent of what we are calling Smart Systems Design.