Idea in Brief There’s growing evidence that our strategy tools are outdated. Most tools wrongly assume that incumbents are more important than new entrants; that corporations can easily identify their rivals, suppliers, and customers; and that companies can compete only by changing what they do. Instead of using static frameworks such as industry analysis and blue ocean thinking, a company should write a playscript that details all the changes in a business and the roles that it and others are playing. Words are more powerful than numbers because they allow a company to focus on the underlying causes of change, enable it to update strategy constantly, and alert it to the idea that it can change the business. Companies develop playscripts by tracking plots and subplots at the level of both the corporate center and the business unit. By writing and rewriting playscripts, companies can also capture employees’ imagination because people understand words better than numbers, maps, and charts. ABOVE Michel de Broin , Superficial , 2004, Mirror, glue, cement, 290 x 523 x 475 cm, Frac Alsace, Vosges, France It’s time to reinvent the way companies develop strategy. If you were asked to pick the defining characteristic of today’s business environment, you would surely point to its turbulence—unprecedented, unstoppable, and, apparently, unlikely to go away. Globalization, technological innovation, regulatory restructuring, demographic shifts, and environmental pressures have all conspired to continually redraw the competitive landscape. Consequently, the nature of most industries is changing quickly, and companies are seeing their rivals, suppliers, and customers transform at breathtaking speed. Everyone notices these changes, but little is being done to help companies cope with them. Traditional strategy tools carefully organize data about the competitive landscape, but they create static categories and visual representations. For instance, the frameworks used by industry analysis (the five forces and maps) and the tools of blue ocean thinking (value maps and comparative value curves) help managers better understand the environment in which they operate. However, these devices reduce complexity by creating stationary maps and projecting the landscape onto two-dimensional graphs—approaches that offer reliable guidance only when the environment isn’t changing rapidly. Moreover, the tools presume that an industry is well defined and that organizations know exactly who their competitors, suppliers, and customers are. They hold constant the very parameters that are up in the air. Some frameworks compare the relative value of companies’ resources without accounting for the value generated by newcomers that rewrite the rules. Recall how Microsoft and Intel transformed the computer business in the 1990s, relegating hardware makers such as IBM and Apple to the sidelines, and consider how Google is doing the same in mobile communications, hurting handset makers like Samsung and service providers such as Orange. Most strategy frameworks are simplifying devices. When companies must compete by reshaping sectors—as they increasingly have to today—the old tools offer little insight because they implicitly or explicitly assume that industry boundaries remain constant. That can be misleading for two reasons. One, organizations may choose the wrong path through a changing landscape. For instance, many newspapers and magazines reacted to the internet’s advent by offering their content free of charge, which crippled their ability to charge for it later. Two, companies can miss lucrative opportunities, as Kodak did by fighting changes in photography instead of acknowledging the shifts in the business and leveraging its strengths differently. Four Indications That You May Be Losing the Plot 1: You find yourself needing to justify the value you add (and so do your competitors). 2: You continue linking in the same way to the same actors, while the sector is being redefined through new providers or all-in-one propositions. 3: You believe that your customers still value the same attributes. 4: Value is being created by players in adjoining parts of the process. The few tools that do help managers tackle change deliver mixed results—at best. Game theory and war games help a company predict the implications of its actions, so it can try to preserve its competitive position. However, these highly mathematical models, too, assume that industries, rivals, and incentives are constants, and so they reflect competitive interaction only within well-defined boundaries. Scenario planning does help executives visualize hypothetical futures. But, again, the emphasis is on generating static landscapes: still pictures of the future. Academics and executives spend so much time studying the landscape, like botanists who carefully classify and categorize, that they forget the importance of understanding evolutionary dynamics before creating strategy. My recent academic research suggests that companies should tackle the challenge of developing strategy head-on by describing the underlying logic, story lines, decisions, and motives of all the players that are creating and capturing value in a business. Instead of drawing and analyzing a map or plotting numbers on a chart, executives should use words to create what I call a playscript: a narrative that sets out the cast of characters in a business, the way in which they are connected, the rules they observe, the plots and subplots in which they play a part, and how companies create and retain value as the business and the cast change. Drug companies can modify how they create and capture value by reordering the connections among other players in the business. Words are more powerful and flexible than value curves. In a world where everything is shifting, executives can use words to decipher the motives and roles of the organizations bringing about change, the evolving rules and relationships in the business, and the story lines that link the present and the future. The playscript isn’t just a metaphor; it’s a tool that helps companies manage the complexity of the competitive landscape and facilitates analysis and action. Playscripts force companies to focus on the causes of change as opposed to the symptoms; they explicate the logic of success and the assumptions behind it. By providing a sense of how long the good and bad times will last and how value is migrating, playscripts allow companies continually to assess the relevance of their strategies. They acknowledge that strategy could involve changing the company’s links to other players—a key element that other frameworks ignore despite the increasing overlap among suppliers, customers, competitors, and substitutes. Unlike charts, which are stuck in the present, playscripts consider how a company could succeed by reinventing its role or even the business itself. And they can be updated as reality changes, so they often alert companies to the unexpected. Identifying characters, describing their roles, and coming up with plots, subplots, and story lines offers a simple but rigorous approach to strategy planning, which I describe in the following pages. Anatomy of a Playscript Over the past five years, I have studied businesses such as financial services, textiles, construction, and technology, and have helped around 20 companies cope with change. On the basis of my experience, I believe executives should develop strategy by writing a playscript that encapsulates the motives, decisions, and actions of the company (the protagonist) as well as those of all other organizations connected to it, regardless of the businesses in which they operate. A playscript also describes roles—how companies add and capture value—and how organizations are linked. It must be constantly updated as companies don new roles or the environment changes, which keeps executives focused on the dynamics of the business. In my experience, playscripts shape boardroom sessions effectively, facilitate discussions in top management teams, and allow companies to develop sophisticated strategies. Characteristics of Good Playscripts Imaginative Playscripts should explore all the opportunities that exist, whether within or beyond the sector. Outward-facing They should focus on the links a company has with other entities, the way it connects with them, and how others perceive it in the market. Robust They should not depend on too many assumptions about other actors’ behavior, but instead focus on the actions that lead to the creation and capture of value. Plausible Companies should consider why they, rather than some other player, would be able to make a playscript succeed. Organizations must develop playscripts at two levels—corporate and business—before translating them into the daily realities of running a company. The corporate playscript. This playscript describes the logic by which value is generated and appropriated by the corporate headquarters. It consists of two subplots: the synergies subplot and the financial subplot. The synergies subplot sets out how the different parts of a corporation—its business units as well as other ventures it has invested in—reinforce one another and how the center adds value by managing those relationships. Laying out the synergies subplot enables executives at headquarters to articulate the ways in which they can add value. This is particularly helpful when companies navigate a landscape that is changing quickly and therefore need additional capabilities to survive. The financial subplot describes how the company uses both assets and capital to generate returns. For instance, a company could sell assets, buy others, or strip assets for sale. Or it could focus on growth and create value by offering equity to executives and other employees. The financial subplot dictates how much leeway the synergies subplot enjoys. For example, if a company’s focus is on growth, it will prefer to strike alliances with other companies rather than make equity investments. It can also use stock options to induce employees to take risks and grow the company. The financial subplot affects the business playscript, which I describe in detail below. For instance, a financial subplot that focuses on selling assets will prevent the company from investing in more assets, whereas one that allows increases in the equity base will help motivate people through grants of stock options. Managing the finance plot too cleverly may hurt synergies, and focusing only on growth will hit the bottom line. By considering the financial subplot at the same time as the business playscript, executives can bridge the chasm between strategy execution and corporate finance. The business playscript. This playscript is the more important of the two because it results in more value generation by the company. It contains three main elements: Dramatis personae and roles. The main actors in a sector, their motives, and their roles. Links and rules. The links between companies and the operating rules of the business. Present and future plots and subplots. The story lines of how players in a sector generate and capture value. A Playscript for Pharmaceuticals Playscripts are most useful in sectors where growth is petering out but companies don’t know why. Consider, for instance, a playscript for the pharmaceutical business. Dramatis personae and roles. Big pharmaceutical companies; payers such as insurance companies, corporations, and governments; universities and research institutions; hospitals and doctors; and patients. The role of big pharmaceutical companies—our protagonists—is to deliver new drugs, under patent protection, that offer better cures. Links and rules. Pharmaceutical companies have teamed up with biotech firms, universities, and research organizations to develop and test drugs. Doctors have the right to prescribe drugs for patients, while all payers compensate drug companies by subsidizing patients’ medical costs. Present plot. R&D generates the most value, so pharmaceutical companies are structured around it. They can easily monetize new discoveries, and their marketing skills ensure that they earn high returns. Molecule discovery and development require large budgets and teams, so the pharmaceutical companies appropriate most of the value. Neither employees nor suppliers can easily capture the value they contribute; as a result, the drug majors make most of the money. The changes in the pharmaceutical business and throughout the health care system, however, could make it difficult for drug companies to create or capture value using that playscript. Demographic shifts, increases in health care costs, and budgetary issues have made governments and insurance companies revisit their links with pharmaceutical companies. The rules are changing: In countries such as the UK and the United States, increasing value for money is fast becoming the priority. In addition, blockbuster drug pipelines are drying up, and most money spinners seem to have been discovered already. New dramatis personae, such as HMOs, pharmaceutical benefits managers, and national institutes for clinical efficiency, have entered the field, further changing rules and links. The drug companies must deliver value to shareholders amid rules that are in flux even as they fend off threats from generic drugmakers, biotech companies, and nonprofit organizations. The trend toward personalized medicine signals that the ability to make money by discovering drugs is limited, and the ability to retain value by controlling intellectual property no longer constitutes a sufficient advantage. The business is also being transformed by companies that are developing new devices. As a result, power is shifting from organizations that conduct R&D and manufacture drugs to those with links to the payers for health care. Strategy has ceased to be about integrated companies identifying new drugs, increasing R&D, or reducing costs; each is looking for the best way to restructure the system and reposition itself. Given those changes, what would traditional strategy tools recommend? Industry analysis would suggest that generic drugs pose the biggest threat to established drug companies. It would advise the pharma majors not to move into the manufacture of generic drugs, which is characterized by low entry barriers, cost cutting, and low margins. It would also argue that they should aggressively fend off new entrants in the generics business and reduce the power of suppliers, who could become adversaries. In a nutshell, it would advocate strengthening the status quo, which is showing signs of unraveling. Value curve analysis would be even more confusing. Most big pharmaceutical companies look alike and have nevertheless profited for a long time, which is the opposite of what blue ocean thinking predicts. This framework would advise companies simply to offer something new—such as personalization—or a fresh value proposition—like a better-distributed generic drug—to capture value. However, the novelty advocated by blue ocean strategy is neither a necessary nor a sufficient rule for riches in pharmaceuticals. A revised playscript would be more useful to a pharmaceutical company. When a drug company identifies emerging players, it will realize that it should rethink its links with them. That has started happening. For instance, Novartis and AstraZeneca, aware that owning molecules and compounds is no longer enough for success, want to become the payers’ best friend. They plan to market both patented formulations and generic drugs—the opposite of what industry analysis and value curve analysis recommend. Both are strengthening their links with health care providers so that they can use their knowledge of patients to compete even when their drug pipelines dry up and rivals offer cheaper formulations. Pharmaceutical companies are also reshaping the business by using new technologies to reorder the links among drug companies, health care providers, patients, and payers. Companies can change strategies by changing their roles. That isn’t about simply coming up with a new value proposition; it’s about changing the very basis of competition. Consider Saatchi & Saatchi’s revival after its near-collapse in the 1990s. Perceiving that clients needed more than traditional branding, CEO Kevin Roberts coined the concept of “lovemarks”: brands that command “loyalty beyond reason.” Roberts wanted to become a strategic partner in developing clients’ links with customers. Instead of getting briefs and developing ads, Saatchi & Saatchi learned what customers wanted from a brand and worked with the client to deliver it through ads and other content. Roberts succeeded in making lovemarks an industrywide concept and persuaded Publicis Groupe, the mother company, to acquire firms that would help turn the concept of improving shoppers’ lives into reality. By writing a new playscript, the agency also ensured that clients wouldn’t cherry-pick creative services from other agencies. Saatchi & Saatchi didn’t just focus on finding a new value proposition; it cemented its connections to clients, becoming more of a partner than an advertising provider. This has allowed it to increase its number of pitchless wins: new contracts or renewals from clients that have not solicited bids from other agencies. Drug companies can modify how they create and capture value by reordering the connections among other players in the business. Identifying a new playscript can turn a company around. Consider, for instance, Marvel Entertainment, which has emerged from bankruptcy to become a $4 billion company in less than a decade by rethinking its business-level playscript. A publisher of comic books, its products have become the test bed for new stories that can be adapted into movies. Marvel, which used to work with only one studio, now makes all the major studios—Warner Bros. (Batman), Universal Studios (Hulk), 20th Century Fox (Fantastic Four), and Paramount Pictures (Iron Man)—compete for its business. Thanks to the affordability of digital effects and the increasing cost of signing stars for movies, Marvel has turned a sleepy set of characters into a pool of potential revenues. The company did not pick a blue ocean by offering a new type of character or format or by creating more channels such as games and toys. It geared up to take advantage of its position given the new playscript it wrote, which changed the logic of its connections to other players. It reinvented the architecture of the business, rather than taking it for granted. In October 2009, Disney acquired the company—a sign that Marvel’s playscript represents a promising way forward for the movie sector. A playscript helps companies break free of the hidden assumptions of conventional strategy making in several ways. One, it replaces the vision of a heroic company competing on a slow-changing field with a focus on the dynamics of the environment and the interdependencies that drive success. Two, it does away with the concept of a neatly ordered industry with distinct buyers and suppliers by recognizing that companies can be competitors, buyers, and suppliers—all at the same time. Rather than isolating different parts of the business, a playscript describes the numerous relationships a company must manage. Three, it focuses less on the dynamics of value appropriation and more on how companies are embedded in a collaborative web of value creation. As sectors unbundle and governments and nonprofit groups become key actors, companies need a tool that captures such complexities. Finally, a playscript focuses less on what happens within a sector and more on how the market will change—how participants in one part of the value chain may try to change their fortunes by destroying other players. Developing Your Playscript On the basis of my research and consulting work, I have developed a three-step process that companies can follow to reinvent their strategies by using playscripts. Reinventing Your Strategy with Playscripts 1: Define your sector and playscript Take a good look at your company and your sector. Questions to answer Who are the main characters in your sector? (Consider customers, competitors, suppliers, regulators, and others.) What are the rules (norms and regulations) that link the characters? What is your company’s plot? That is, what allows you to add value, and what lets you hold on to it? What are the motivations of the other characters? Who does what? How does that affect who generates and retains value? Has the plot changed recently? Why? 2: Reinvent your strategy by rewriting your playscript Rewrite your playscript, and that of your business, so that the plot favors your company. Questions to answer What would be the ideal playscript for your firm? What role could you play that no one has taken on? How would a new perspective on customers’ needs create opportunities for you? What other options do you have for creating and capturing value? For example, could you profit from the appreciating value of assets? How could you change the way value is added in your sector? What elements of the plot could you influence? How could you use others’ motivations to improve your position? What new characters or roles could help you create or capture value? Is a better story being told elsewhere? Are you in the right business? 3: Future-proof your playscript Do your best to ensure that your new playscript will stand the test of time. Questions to answer How are customers’ needs evolving? How are customers’ needs affecting which company is making money? How will changes in customers’ needs redistribute value within and outside the sector? What do companies take for granted in your business? How will you retain your ability to create and capture value? Could value migrate to other players, and how can you prevent that? How might other characters respond to your playscript? How can you make your playscript more resilient? What relationships can you build that will reinforce your position? What other assets could safeguard your playscript? Step 1: Write your current corporate and business playscripts. Start by describing the broad setting in which your company operates by concentrating on three building blocks. First, identify the other characters in the sector. What roles do they play? What are their motivations? What roles does your company play? How is it perceived by other players? You can start with your own opinions, but it’s important to perceive every role through the eyes of others, such as consumers and regulators. As in Akira Kurosawa’s film Rashomon, reality depends on whom you ask. Understanding all the actors reveals what’s driving the playscript and to what extent your enterprise can benefit from changing it. Second, identify the links among actors and the rules that govern interactions. For example, the links among a company wishing to go public, the lead merchant bank, underwriters, the stock exchange, and credit rating agencies as well as the fees they earn are well established and easily understood. Companies must grasp the relationships between participants as well as government and nonprofit bodies in order to predict how those links might change. They must also decipher the sector’s operating rules—some ensconced in regulation, others steeped in tradition. Third, articulate the logic by which your company currently adds and captures value. Understanding that is essential to revisiting your company’s strategy. Think of your value proposition, which is where tools such as the value curve come in handy. What can your company do that others can’t? What allows you to capture the value you create instead of hemorrhaging it to employees or suppliers? Step 2: Rewrite your playscript. The next step is to rethink your company’s playscript and, if possible, reinvent the playscript for the entire sector. To do that, you need to reconsider actors and roles. Can your company attract fresh players to the sector? Google’s dominance in internet search, for instance, has been based on its ability to identify partners that can participate in parts of the value chain where it isn’t present. Selective alliances help a company transform itself into a central character—one that is well positioned in a web of relationships or controls a vital link in the value chain. Companies often stick with outdated conceptions of other actors’ roles, thereby wasting opportunities to reframe sectors or to enhance the value they can grab. Instead, imagine how your company can change the roles of existing or would-be participants. Reordering who does what usually decides who takes what. For example, pharmaceutical companies are trying to change the payers’ role by making them integrate medicines into the health care delivery system. They are also altering the role of patients, who can’t simply buy drugs but must get involved with the treatment process. Next, evaluate whether your company can change the rules of engagement with other actors. Merck Serono, for example, has turned itself into a desirable partner for physicians and insurers with the introduction of the easypod, which not only dispenses growth hormones but also creates a log detailing how often the patient has used the device and the doses administered. Companies can also change the way they monetize what they offer. For instance, the recent push by IT outsource providers to price by usage not only is reducing margins in the equipment renting business but also is hurting manufacturers since customers can no longer request particular makes of equipment. Creating new structures outside of traditional markets can often help cement dominant positions. For instance, Jordans & Ryvita Company, the British cereal and wheat products manufacturer, helped create Conservation Grade, a body that certifies grain producers as sustainable. That has allowed the company to offer more money to farmers and lock up supplies, which can be remarkably volatile, while boosting its eco-friendly image with consumers. This approach has also allowed Jordans & Ryvita to distribute natural cereals directly to homes and workplaces, which has insulated the company from the retail trade’s demands for lower prices. Finally, revisit what allows your company to add and capture value. Think about what the sector’s other participants value and how you might be able to use that knowledge to increase revenues, profitability, or the value of assets. Intrawest, for instance, has shifted from developing property to developing and managing experiential destination resorts, defining its customers’ needs as “buying leisure time away from the home” instead of buying property. In this new role, Intrawest has built relationships with organizations that can help deliver a trendy, sporty, and entertainment-based experience without gaining any power over Intrawest. By continuing to own the resorts, the company captures value through asset appreciation as well. Step 3: Future-proof your playscript. The third step is to make sure your playscript can cope with the foreseeable changes in your business. One issue to consider is how changes in customer needs will affect the company. There’s always a correlation between who customers are, what they want, how they procure—and who has the power. Executives tend to think that control of a particular part of the value chain guarantees success, yet history is littered with dominant companies that collapsed or were forced to change as their playscripts fell apart. IBM thought that owning the customer was enough to control the hardware business and outsourced the development of microprocessors and operating systems. As individuals became customers, the need shifted from customer service to the computer interface, relegating the making and servicing of computers to footnotes. That forced IBM to reinvent itself. IKEA has future-proofed itself in several ways. The Swedish company’s phenomenal success is not based on cheap design alone; other companies do that, too. IKEA also manages its supplier relationships carefully. It has devised rules to ensure that its three tiers of suppliers deliver quality improvements as well as cost benefits. Foreseeing that a wood the company uses could be in short supply in the future, IKEA bought forests in Poland and the Baltic states. This allows it to compare prices and control logging’s environmental impact by reforesting the land it owns. The company has also joined forces with the World Wildlife Fund to support forest development and management. As the lighting market changes, IKEA is looking for acquisitions that will allow it to continue controlling the playscript. It is moving from being the keystone in “furniture retailing” to dominating the cost-conscious “lifestyle furnishings” market. By considering the incentives and motivations of other players, companies can anticipate possible counteractions. Consider Velti, a rapidly growing software company whose playscript has constantly evolved. The company began by offering e-business software. It then moved into providing e-commerce solutions, developed software for banking, telecom, and advertising firms, and is currently a provider of mobile commerce solutions. In a sense, the company kept changing the actors around it after studying how their roles were changing. Velti continually rethought its strategy after learning what incumbents would buy and looking for lucrative opportunities that would not attract the attention of major players. For instance, Velti has struck alliances with several advertising agencies in Europe to provide mobile marketing solutions. To ensure that those ad agencies don’t see it as a potential rival, Velti uses a revenue-sharing model—an approach no ad agency would ever take. Companies can also embed themselves in networks of mutually reinforcing relationships by developing capabilities that are centered around other actors. That’s Intel’s challenge as it enters the mobile internet devices (smartphones) and consumer electronics (internet-connected TVs) businesses. Although it is introducing products based on the same x86 instruction set that has equipped PCs for the past two decades, Intel has been forced to build new capabilities. It has struck alliances to create a common platform for companies that develop software and applications in those businesses and works with device makers to help them manage those ecosystems. Engaging the Organization After developing a new playscript, CEOs need to ensure that the organization is capable of implementing it. They need to identify the capabilities that must be developed; links they must build inside and outside the organization; initiatives they must launch to overcome inertia and resistance; and new products and services that form part of the new approach. Take AstraZeneca, which is transforming itself in order to ensure that it can deliver on a new playscript in pharmaceuticals. In terms of capability development, the London-based company has focused on becoming more responsive to codevelopment, comarketing, and copromoting new drugs. It is changing its centralized approach, giving country-level marketing and sales teams more power and offering more locally made products and services. Initially, a company should implement a new playscript on an experimental basis, modifying it along the way. The company can test premises, gauge other players’ reactions, and institute mechanisms to institutionalize change processes. Playscripts allow employees at every level to express an opinion about how and why the organization should change. Companies can mobilize employees better with playscripts than with other strategy frameworks. People understand words better than value curves; a love of stories, intrigue, and relationships is hardwired in the human brain. Basing the creation of strategy on playscripts can not only improve the level of buy-in within the organization, increasing alignment and effectiveness, but also start a feedback loop, ensuring that the organization continually updates and modifies the playscript on an internal blog, for example. Playscripts allow employees at every level to express opinions about how and why the organization should change. People can be asked to adopt the playscript as actors, yet they can propose changes as playwrights. In addition, playscripts offer an opportunity to structure the conversation between the corporate world and society. In the aftermath of the financial meltdown of 2007, many companies wish to develop a set of operating principles they can easily describe to stakeholders. That’s a playscript by another name. More than 170 years ago, Carl von Clausewitz noted that theories of war and strategy must evolve as social and political conditions change. We are now in an era characterized by incessant change, by the revision of the roles of the public and the private sectors, and by the reinvention of the structure and role of corporations. Companies will be better served in future by the dynamic capabilities of playscripts than by the static characteristics of maps.
