A recent article about ride-sharing service Uber reminded me of a common issue faced when I teach on strategy courses. Should we use only recent examples of companies and strategies, or are the principles of strategy relatively fixed – making classic, older examples, a useful complement? Of course, everyone loves a hot new story – but does it actually teach you more? What do you think?
Added on 23 June 2015 by Jo Whitehead
My personal answer follows – illustrated by the Uber example and others…
Uber is investing heavily in China – losing $3 for every $1 of revenue it receives. By doing so it has built market share from 15% to over 20% in an attempt to become market leader.
This sounds a lot like classic case studies developed by the Boston Consulting Group and their clients. BCG showed that the experience curve meant that high market share companies cut costs faster than low market share companies. The implication: Invest heavily in the early stages of industry growth to build share – even if that meant losing money. Massive profits will flow later – to the leaders.
This advice proved useful in a wide range of manufacturing industries – with power turbines and electronics being classic examples, and wind and solar power as more recent examples. Sound familiar? Yep – it’s the same strategy as Uber…invest early to grow market share, and harvest as the industry matures.
So, perhaps the classics do have relevance today. They provide powerful examples of important principles. For example, competitive advantage is a key driver of success. Competitive advantage comes from a mix of market positions and valuable assets, organisational capabilities and an appropriate culture. Markets different in attractiveness. Corporate centres need to add value to their businesses – or they will be vulnerable to decline and takeover…and so on.
This raises the issue – do we really learn anything new from more recent examples? Or, are they just more fun, because they are topical? I think we can learn more. For example, what is new about the Uber example is that the drivers of competitive advantage have morphed over time. It is not experience effects that drive lower costs and increased profitability, but network effects. Internet businesses can often be “winner takes all” businesses – just like BCG’s 1960s example – but for different reasons. The more customers you have (in the case of Uber this is taxis as well as end customers) the more you attract.
So – where I come out is that a well-informed strategist needs a mix of examples. The classics can powerfully illustrate long-standing principles of strategy. They are often well described, with the benefit of hindsight to show how things panned out over time. The newer examples illustrate how those long-standing principles are playing out today. But, they rarely create new principles.
Ashridge runs Open programmes in strategy and finance, which can be taken as combined packages to help equip executives with the skills they need to progress their careers.