Nilofer Merchant - 11 Rules for Creating Value in the Social Era

• An obituary for Traditional Strategy points out the beliefs we need to recognize as pass, before we can reformulate future strategy, value creation, and work for the twenty-first century.

• An outline of the key principles and ethos of the Social Era and a preview of many examples of business model changes, along with a simple table for a visual overview.

• Were at an inflection pointwhere we can see that social components add up to more than tools, products, services, or processes. No, the components add up to a new way of creating value... for and in the Social Era. What is this thing called Social Era, and how does it differ from the industrial era, the Web or information era, Enterprise 2.0, and social business?

• The first part of the how we create value differently: by how we organize.

• The second part of the how we create value differently: by how we deliver value.

• The third part of the how we create value differently: by how we sell and market.

• What creating value differently means for the economic and business models of the Social Era; why it matters for competitiveness.

• Too often, the idea that people matter is in conflict with create scaled performance. A clear picture of Social Era leadership that reconciles the two.

• Social purpose drives alignment, reducing the friction between strategy and execution and invites those outside to participate and care about something together.

• Openness is the frame that helps us understand innovation in the Social Era.

• Practical exercises to initiate change.

Traditional Strategy, who played a significant and meaningful role in how organizations operated to win in the industrial era, perished on Tuesday, in Boston.

He was forty-three. The cause of his demise was the numerous complications arising from a collision with the Social Era, the context for business in the twenty-first century.

Traditional Strategy (T.S.), born of Joseph Schumpeter and Frederick Winslow Taylor, combined capitalism and industrial efficiency. T.S. had a rich and full life, contributing significantly to the era of big business. For nearly four decades, he was anointed by leaders to guide and inform business organizations and society at large through the dynamics of corporate strategy, industry influences, advantage, market power, and competitiveness. He established position and identified which markets to pursue, as well as ways to design and maintain competitive advantages, and, finally, to defend against competitors. He fueled scale, efficiency, and productivity.

He leaves behind a signature accomplishment: each organization was encouraged to be unique, to carve out its own differentiated identity, to set itself apart from its rivals. While not all organizations understood or truly adopted this philosophy, T.S. did foster the understanding that strategy is all about making choices and trade-offs, and deliberately choosing to be different. This understanding continues to be highly relevant and, in that, the legacy of T.S. will live on.

T.S. was a central figure in the industrial era, when centralized big institutions were the best way to provide scale. While his beliefs may strike many today as outdated, at the time they were considered the cutting edge of business thinking. His legacy includes:

1. Right strategy reigns supreme. A group of elite executives once designed the highly considered and analytically rigorous right strategy and then handed it overapparently via a program called PowerPointto managers and their underlings to execute it. This worked well in a simpler time when markets were stable, and when information was scarce and staff needed to be told exactly what to do. Back then, mobilizing the talent and creativity of all members was not required to be competitive. In T.S.s lifetime, markets evolved at a leisurely pacethe speed at which a teenager moves in the morningso businesses could take their time to consider the right response to a new opportunity or threat. The idea that there could be many possible right responses, and that a business could try them concurrently and experimentally, would not take hold for several more decades. And far too few organizations recognize that more than a winning idea, it is important to engage the hearts and minds of their highly educated workforce.
2. Size matters. Size created competitive barriers and correlated with market power. Being big allowed organizations to corner the means of production and negotiate lower raw-goods supply costs, giving leverage and pricing power. Big dollars also bought vital access to once-limited media outlets. This meant some dominant firms could reach consumers when others could not, and thus lock out potential competitors. Taken together, these norms supported a mind-set in which size could protect the firmsor at least buy time. Being big had many advantages and no meaningful disadvantages. Size came to be its own measure of success.
3. Stability rules. During T.S.s lifetime, economic disruptions were thought to be exceptions. It thus made sense to invest in building organizational structures to last. Minimizing variability was seen as essential, which resulted in the hallmarks of the T.S. organization: top-down command and control, division of labor into parsed work, and standardized routines. Predictability was programmed into the business model. Following that embedded logic, the leaders role often centered on optimizing systems and processes around the organizational structure so that people could continue to do what they did yesterday, only more efficiently. Although the idea that disruptions are rare may seem quaint in todays world, vast numbers of organizations are still functioning under the assumption that change is the anomaly, rather than the norm.
4. Sustainable advantages exist. T.S. taught us that industries consist of relatively enduring and stable competitive forces that, once understood and exploited, can provide the firm with a long-lasting advantage. Yet, the lifespan of companies listed in the Standard & Poors index has steadily declined over the last forty years, suggesting the limitation of that idea. We set an annual strategy and then spend most of the year executing against that strategy. Reviewing Traditional Strategy before the appropriate next cycle is then interpreted by corporate boards as an execution problemsuch as trying to move the goal posts. This has created a false tension for many organizationsdo we focus on the current business and market, or do we build the capacity to identify and tap into the next?
5. The customer is the guy at the end of the value chain. The value chainas it had been interpretedmeant that organizations directed their efforts at a customer outside the perimeter. The organization made things and told the buyer that it was good, and the buyer bought. But by the 1980s, buyers became customers with cynicism, opinions, and expectations, and by the 1990s, the old approach was starting to show the strain. Then in the early twenty-first century, so-called customers began to exert co-creative tendencies. During this time T.S. underwent his first major hospitalization; his legacy that the idea that products can be co-created is still often treated as an anomaly. Even in these enlightened times, most organizations have a hard perimeter wall between the company and its employees, and the customers.