While many companies continue to use traditional approaches to strategy development, Harbor has seen over and over that the biggest winners are growth strategy innovators. We call these companies “catalytic.” Just as a chemical catalyst hastens the rate of a chemical reaction, companies with catalytic strategies shape their competitive arenas at speeds that can take their competition’s breath away.
ANATOMY OF A CATALYST
In chemistry, a catalyst is an agent that alters the sequence of intermediate compounds to speed up a chemical reaction. The designer of a catalytic process maps out a sequence of strategic steps that will produce an end-compound in a swifter sequence than would be achieved under normal conditions.
In business as in chemistry, catalysis is in essence the process of sneaking around a barrier that others are struggling to climb, thereby arriving at the destination much more quickly. Catalytic strategy means creatively combining technologies and capabilities to enable completely new innovations.
The catalysts themselves 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.
The resulting “value compound” possesses some unique combination of technological and business system elements which, when offered to customers, results in accelerated market penetration, value chain advantage, or advantageous market structure.
Smart Systems Venture Innovation Maturity
ALL TECHNOLOGIES ARE BUILDING BLOCKS OF FUTURE TECH
All new technology innovation is born from combining and re-combining existing technologies. 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.
The value of any technology lies not just in what it does, but also in what further technologies it leads to. Every new technology becomes a building block for future technologies.
Today we have a seemingly limitless number of technologies to work with, many of which have hidden dimensions or 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.
For example, Cisco did not acquire a single company during the first seven years of its existence. Then in 1993 Cisco acquired Crescendo Communications, a LAN switching company. Since then, Cisco has acquired close to 200 companies—50 percent of the company’s business activity—and came to dominate the computer networking arena.
In moving to a campaign of acquiring other companies, Cisco broke its own 7-year mold by adopting a “catalytic strategy” that quickly sent it to the top of its business category.
For more perspective on software-focused growth ventures, read Harbor Research’s “The Software Paradox.”
ARCHITECTURAL (HORIZONTAL) INNOVATION WITH CATALYTIC BUILDING BLOCKS
At the other end of the spectrum are products that are architectural building blocks, usable in more applications than anyone can hope to imagine. These include programming languages, class libraries and reusable intellectual property, as well as multi-purpose electronic components such as sensor reference designs.
For these products there is no simple picture of a “complete solution” that the product’s creator can envision, much less control. Creators of architectural innovations require different catalytic mechanisms. These players depend heavily on alliances and broad ecosystems for adoption of the new “building blocks.” Two classic examples of success in this arena are ARM Holdings and Qualcomm.
ARM Holdings is the world’s leading semiconductor Intellectual Property (IP) supplier. Its microprocessor design IP is at the heart of over 40% of all consumer devices worldwide. ARM has an innovative business model in which it does not manufacture products that use its technology. Instead, ARM creates the technology that is utilized by partner companies. These partners incorporate ARM IP with their own technology to create smart, energy-efficient chips suitable for modern electronic devices.
In creating this business model, ARM cleverly nurtured the creation of an ecosystem comprising a large network of different types of partners to develop competitive advantage in the semiconductor industry. Between 1990 and 2010, ARM became the leader in microprocessors for mobile and consumer devices. Their IP lies at the core of 95% of mobile phones produced in the world based on leveraging its ecosystem and having partners like Qualcomm.
In 1991, former engineering professor Dr. Irwin Jacobs and his team were preparing to take the new wireless communications company Qualcomm public. They had proven that their technological approach, Code Division Multiple Access (CDMA), was feasible and demonstrated that it could provide important benefits to wireless carriers and their subscribers. The Qualcomm team had patented a number of important advances in CMDA technology, and plans were in place for the company to design semiconductor chipsets to further advance CDMA and Qualcomm’s intellectual property. On the market side, the technology had been deployed successfully in the company’s OmniTRACS business, a fleet management system that was growing quickly in the market.
From these roots, Qualcomm 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
Qualcomm, like ARM Holdings, employed a catalytic strategy to create significant value and build a formidable market position.
Smart Systems Design Framework
ROWING HARDER DOES NOT IN ITSELF EQUAL CATALYTIC STRATEGY
Simply “rowing harder” can sometimes hasten the arrival of the desired end-state. This can be seen in 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.
But 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.
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.
“SLOWING DOWN REALITY” IS NOT A WINNING STRATEGY
At 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.
In the modern age of Smart Systems and the IoT, where computing is now migrating toward— and embedding itself into—the physical world, we believe that traditional players must employ catalytic strategies to drive new customer value.
In this brief essay, we have only looked at two dimensions of catalytic strategy: 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.
“Catalytic Strategy” is supported by our updated Insight “Catalytic Growth Models & Strategies for OEMs.”
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