Avoiding the success trap: How to keep exploring
Many companies fall into the trap of success: Lulled into a false sense of security by their good results, they neglect to invest in the future. This leaves them vulnerable to new, tech-savvy competitors. Since the year 2000, half of Fortune 500 companies have disappeared because of digital disruption, according to Accenture. Even leading technology companies can be blindsided. When Amazon first launched its corporate IT services with cloud-based computing, IBM and Microsoft’s reaction was denial and dismissal. They believed cloud-based services could never provide the necessary security, reliability and privacy. What the incumbents failed to grasp was that people do not buy product attributes, they buy customer benefits. Cloud-based services were incredibly practical. This allowed Amazon (originally a bookseller!) to overtake industry stalwarts and become the market leader.
Here, the underlying challenge is corporate renewal – to invest in innovation while continuing to run the current business. It is a balancing act between the short term and the long term. Companies that excel at capturing value from their current business focus on “exploitation” – operational efficiency, profit margins and incremental enhancements. In contrast, firms that pursue novel ideas and business models favor “exploration” – entrepreneurial initiatives, growth and radical innovation. One way to bridge the gap between these two approaches is to adopt an ambidextrous model, wherein the firm creates a parallel organization devoted to exploration and renewal. By having independence and being insulated from day-to-day business, this exploratory unit can develop disruptive innovations. Thanks to these innovation breakthroughs, the company can reinvent itself over time.
Creating a 20-year strategy runway
The capacity to detect long-term trends is a skill that Peter Brabeck-Letmathe brought to the table as former CEO of Nestlé. Although in the early 2000s his board members balked at the thought of moving away from focusing only on the food business, Brabeck gradually started laying the groundwork for a new vision: Nestlé as a nutrition, health and wellness company. This allowed the Swiss-based multinational to start acquiring and partnering with clinical wellness firms, as well as developing innovative in-house solutions to growing global health problems.
The first of these health problems is obesity. The paradox of today’s world is that one-third of the global population will soon be obese while 1 billion people are undernourished. In response to the worsening obesity situation, Nestlé has focused on the problematic role of sugar in the modern diet. To start with, the company has decreased the amount of sugar in its products by 30% and has also reformulated many of its products to banish trans fats and sodium. Its R&D department has also invented an entirely new form of sugar. Based on an innovative chemical structure, this fast-dissolving sugar gives the same impression of sweetness in the mouth while reducing the amount of sugar in food by 40 to 50%.
Another focus for Nestlé is educating consumers about nutrition. In Japan, Nestlé has launched a nutrition app that leverages AI and data from home-testing DNA kits to create personalized diets. In collaboration with Samsung, Nestlé is also exploring how digital sensor technologies can be combined with nutrition science. The goal is to create a digital health platform providing recommendations around healthy diets as well as lifestyle and fitness.
Here, it is important to highlight the Nestlé management team’s farsighted strategy for renewing a traditional core business. By detecting – and then acting on – emerging trends, CEO Peter Brabeck-Letmathe built a 20-year runway for strategic renewal.
Using data to reinvent the value chain
Like Nestlé, OCP has a long company history. This state-owned Moroccan company was founded in 1920 to mine the country’s vast reserves of phosphate. Historically, OCP focused almost exclusively on extraction. Given that Morocco holds more than 50% of the world’s phosphate reserves, which translates to a time frame of over 100 years for extraction (compared with oil’s expected 50-year time frame, for example), this seemed like a solid strategy. However, as commodity prices for phosphate stagnated, OCP began losing money on its mining operations. This forced the company to explore new paths.
As part of its strategic renewal, OCP considered the future of farming as well as technological and macroeconomic trends. What put OCP in a strong position was that Morocco could play a key role in the world’s food supply, since modern agriculture relies on phosphate as one of the three essential ingredients in fertilizer, along with nitrogen and potassium. Moreover, OCP’s location in Morocco served as a gateway to the African continent, which contains the most arable land in the world and is expected to lead global population growth in the next 80 years. What hindered OCP was its relative lack of expertise in anything beyond mining and industrial plants.
As it launched its new strategy, OCP decided to put sustainable agriculture at the core of its vision. It developed a new business based on customized fertilizers: Using agricultural data and predictive analytics, the firm started producing customized mixes for farmers. To accomplish this, the company built new digital capabilities, including taking and processing detailed pictures of farmland. OCP also hired agronomists to work directly with farmers and develop solutions that help them optimize crop yields. As part of its new strategy to boost Africa’s agricultural potential, it also worked with partners to facilitate financing for farmers and improve their access to markets. In short, OCP used technology, data and analytics to reinvent its value chain and extend it far beyond the company’s industrial core.
In an age of disruption, incremental change does not prepare companies for the future. Firms need the courage to embrace radical change to renew themselves and stay relevant. The first three approaches presented here – using country competitiveness as a strategy lens, mapping out domino effects and capturing value from demographic shifts – offer a macro perspective on detecting opportunities and threats. The last three approaches – avoiding the success trap, creating a 20-year strategy runway and using data to reinvent the value chain – focus on firm-level strategies to explore and innovate. Of course, companies cannot reinvent themselves constantly or they risk exhaustion. But by adopting a farsighted strategy mindset, business leaders can avoid being blindsided by disruption.
This article, based on a Discovery Event, provides a macro perspective on detecting opportunities and threats to allow companies to embrace radical change to stay relevant, as well as firm-level strategies to explore and innovate