Strategy: The play’s the thing
Those who study and plan strategies risk falling into the traps that maps, graphs, charts and matrices present. Michael G. Jacobides feels that strategy might best be cast as a dramatic playscript that can reveal the unfolding plots of business far better than traditional strategic tools, as the landscape shifts around us.
On the first day of March in 2007, The Guardian opened its report on the death of a pioneer British businessman as follows: “Lord (Charles) Forte, who has died aged 98, created a worldwide empire of restaurants and hotels from virtually nothing. Yet within his lifetime it had crumbled and disappeared, making him one of those single-generation businessmen who fail to lay solid enough foundations, or a sound enough succession, to transcend the family heritage.”
Here’s a man about whom millions of words were probably written during his life – after all, the Forte group at one time comprised 940 hotels and 600 restaurants – yet it is his newspaper obituary that hints most strongly at the drama of his success. Today, Lord Forte’s life can be studied for both his strategic masterstrokes and his commercial mistakes.
However, my guess is that most students of business examining the strategic genius behind all those Little Chef and Happy Eater roadside restaurants and Crest, Forte Grand, Travelodge and Posthouse hotels would miss the real story of Forte Group plc. A ‘proper’ case study would be filled with maps, graphs, matrices and lots of numbers. That’s fair enough – but not far enough. To really understand business (and, especially, strategy), one must become immersed in the plots, subplots and characters that come to life on the stage of markets and industries.
To be sure, Lord Forte had many competitors during his lifetime. One wonders how many of those competitors knew the real character of the man. As The Guardian points out, the young Forte started with ‘virtually nothing’. But his character was manifest from his earliest days. Two researchers once shared this story about him: “The young Charles Forte looked at three sites for his first milk bar and chose the most expensive, least renovated. ‘Why that one?’ asked the estate agent. ‘I stood outside each for half a day with a stopwatch and counted the number of mouths walking past,’ explained Forte.”
During his prime business days, when competitors were thinking strategically about challenging Forte, how much might they have gained if they had known that story and had factored it into their estimates of how they might gain an edge on him?
To be sure, anyone today drafting a movie script about Forte would most likely open with that scene of him, stopwatch in hand, counting “mouths walking past”. And if Forte himself had stopped to revisit his own story line, could he have seen that it was becoming out of date and out of place, leading to the waning of his business empire? Quite possibly.
And that’s the message business leaders today need to absorb. My recent research suggests that companies should develop strategy by analysing the underlying logic, story lines, decisions and motives of the players in the industry in which they operate. Instead of drawing and analysing a map or plotting numbers on a chart, executives should create what I call a ‘playscript’: a narrative that sets out the cast of characters in their sector as well as the way in which they are connected, the rules they observe and the plots and subplots in which they play a part, and how companies create and retain value in new ways as the plot develops.
Stories are more powerful and flexible than value curves; more important, they help us not only make sense of our environment, they also help us understand how they change. This simple insight has all but been lost over the last two decades, as strategy scholars and consulting firms have emphasised tools, visual representations and metrics to capture the business environment. In the mad rush to ‘objectify’ the business environment, to ‘improve and sanitise’ the strategy development process, and ‘professionalise’ the strategy debate, we have unwittingly become the servants of the tools we use. And the main problem of the tools we use in strategy is that they assume the world does not change. Tools, such as Michael Porter’s five forces, are visual representations with some strong embedded assumptions (for example, that we can define a neatly structured industry, that all actors have straightforward profit maximisation as their objective, that the landscape does not change and as such we can analyse the forces within it). These tools are not well positioned to capture change and focus on the dynamics of the business environment. And in a period of turbulence such as the one we are living in, this is a very high price to pay.
In a world in which everything is shifting, executives can use narrative to help them understand the motives and roles of the organisations driving change, the evolving rules and relationships in a sector and the story lines that link the present and the future. The narrative is a complement to numbers and is a substitute for figures and graphs that make us focus on the landscape, rather than on the forces that change the landscape itself.
The playscript isn’t just a metaphor; it’s a tool to help companies manage the complexity of the competitive landscape and facilitate analysis and action. Its advantage is that it is not a visual tool that assumes the landscape can be taken for granted. Instead, it helps us revisit not only our role but also our interaction with other players in our business ecosystem and point to new ways of adding and capturing value. 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 from one firm to another, playscripts allow companies continually to assess the relevance of their strategies.
Motives, decisions, actions
Over the past five years, I have studied sectors such as financial services, textiles, construction and technology and have helped some 20 leading companies cope with change. Based on my experience, I believe executives should develop strategy by writing a playscript that captures the motives, decisions and actions of the company itself (the protagonist) as well as those of the other ‘characters’ (competitors, customers, suppliers, shareholders, regulators and so on). A playscript also describes roles, how companies add and capture value – and rules, the ways in which organisations are linked. It must be continually updated as companies take on new roles or the environment changes, which keeps executives focused on the dynamics of change. In my experience, playscripts shape boardroom sessions effectively, facilitate discussions in top management teams and allow companies to develop sophisticated strategies.
There are two levels of playscript:
A corporate playscript, for larger groups, 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 business units of a corporation (as well as other ventures it has invested in) work with one another, and how the centre adds value by managing those relationships. Developing the synergies subplot enables executives at headquarters to articulate the ways in which they can realise more value from the group. This is particularly helpful when companies navigate a landscape that is changing quickly and need new capabilities to survive.
The financial subplot describes how the group uses its assets and capital to generate returns. For instance, a company could sell or buy assets or strip them for sale. It could focus on growth and create value by offering equity to executives and other employees. The financial subplot determines how much leeway there is to develop the synergies subplot. 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 could use stock options to induce employees to take risks and grow the company.
The financial subplot affects the business playscript (see below). A financial subplot that focuses on selling assets will prevent the company from investing in more assets, for instance, 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. But 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 embodies the way in which value is created and captured at the business level. It contains three main elements: (1) dramatis personae and roles: the main actors in a sector, their motives and their roles, (2) links and rules: the links between companies and the operating rules of the business and (3) present and future plots and subplots: the story lines of how players in a sector generate and capture value.
Consider the example of Hornby, one of the UK’s few remaining traditional toy manufacturers. Known for its model trains, Hornby tried, in the 1990s, to play by the established rules of strategy. It conceived of a new series of toys, to compete with Mattel; it updated its positioning to become more competitive. But performance did not improve, as the entire toy industry in the developed countries was coming under immense pressure.
Hornby, partly by chance and partly by design, stumbled upon the fact that its toy trains had another important source of demand: middle-aged and older men, train model enthusiasts who knew the Hornby name from their childhood, and had substantial disposable income. As a result, Hornby started changing the playscript. Relocating manufacturing to China, it focused on increasing quality rather than simply reducing costs and changed its role to become a support for the hobbyists. Hornby created road shows and gave gift trains to collectors, hooking them up, with an eye to creating a successful revenue stream from follow-on train collectible purchases. It changed links to customers by creating a collectors club and represented itself to investors as a hobbyist firm. More important, Hornby ensured that its part of the market is inextricably linked with the firm and hopes that its links to the customers will shield it from future competition.
Finding a plot and losing it
A similarly changing business playscript can be seen unfolding in the history of the advertising agency Saatchi & Saatchi. S&S gained its reputation not only by focusing on its creative content, but also by introducing new practices in the sector that effectively changed the playscript.
First, the Saatchi brothers made aggressive, proactive pitches for business, as opposed to waiting for clients to contact them. Second, they used their advertising campaigns (such as the famous ad for the UK’s Conservative party on why ‘Labour isn’t working’) to advertise the firm itself. Third, they changed their role to a global company, betting that there was an increasing need among global customers with global accounts. Fourth, they made money through buying smaller ad agencies and consolidating them into the network. And fifth, they gained access to the capital markets, in particular after the company’s flotation on the London Stock Exchange. The growth strategy rewarded them with high P/E ratios; and these high ratios meant that buying smaller, less highly valued firms increased both the company’s size and the total value of its stocks. This in turn fuelled ever greater growth, supporting S&S’s claims to be the leading global ad firm.
This playscript changed the industry, but it came to an end. The playscript could not be sustained. There were a number of reasons for this. First, the environment was changing: with increasing consolidation, potential firms to be snatched up and bought became fewer and more expensive. This led S&S to major acquisitions that caused huge post-merger integration problems, both culturally and in terms of customer conflicts (as the same firm would need to service competing customers, creating unease). The departure of the CFO (and founder of S&S’s archcompetitor, WPP) Martin Sorrell meant that execution on the financial side became less effective; and the limits of globalisation in terms of the customers became apparent. Yet S&S’s leadership acted as if its playscript was working to perfection and, rather than reconsidering it, decided to engage in one-upmanship by trying to acquire Midland Bank.
The tool I propose here, then, can help remedy what is an ‘organisational pathology’ – something that firms, left to their own devices, can be trusted to get wrong. The foremost such ailment is that success can often make executives oblivious to the limits of their playscripts. A more rigorous analysis and examination of the actors, rules, roles and story line for adding and capturing value might have safeguarded S&S from its disastrous period in the early 1990s. So even when things are still going well, a thorough analysis of the playscript can put success in perspective and highlight the ‘boundary conditions’ – the factors upon which we rely for our success.
Salutary lessons learned, an intelligent re-think of its playscript seems now to be helping S&S, despite the downturn in the advertising industry. Perceiving that companies 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 convinced Publicis, the parent company, to acquire firms that would help turn the concept of improving shoppers’ lives into reality, ensuring that clients wouldn’t go cherry-picking creative services from other agencies. Saatchi & Saatchi didn’t focus on finding a new value proposition; it re-invented its connections to clients and customers, focusing on their own playscript as it evolved.
Playscripting as a guide to strategy
“People are always blaming circumstances for what they are. I don’t believe in circumstances. The people who get on in this world are the people who get up and look for the circumstances they want, and, if they can’t find them, make them,” wrote George Bernard Shaw in Mrs Warren’s Profession. I have developed a three-step process that companies can follow to reinvent their strategies – to create the circumstances they want, in Shaw’s phrase – by using playscripts.
First, write your current corporate and business playscripts. Begin by describing the wider setting in which your company operates by concentrating on three building blocks. Identify the other characters in the sector – the dramatis personae. What roles do they play? What are their motivations? What roles does your company play? How do other players perceive it? 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.
Next, identify the links between the characters and the rules that govern interactions. For example, the links between a company desirous of going 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 sector participants as well as government and non-profit 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.
Finally, 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 – traditional tools such as the value curve may come in handy here. What can your company do that others can’t? What allows you to hang on the value you create instead of haemorrhaging it to employees or suppliers?
Second, rewrite your playscript. Now you must rethink your company’s playscript and, perhaps, reinvent the playscript for the entire sector. How could your plot be redirected, and how could you benefit by reshaping the plot of your entire sector? Reconsider all of the actors and roles. Can you attract fresh players to the sector who could help advance your cause? For example, Google’s dominance in Internet search has been based on its ability to identify partners who can participate in parts of the value chain in which 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 waste opportunities to reframe sectors or to enhance the value they can grab because they have outdated conceptions of other actors’ roles. Instead, imagine how your company can change the roles of existing or would-be participants, as well as its own. 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, determine whether your company can change the rules of engagement with the other characters. Merck Serono, for example, has turned itself into a desirable partner for physicians and insurers with the introduction of the easypod, a device that 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 monetise their offerings. For instance, the recent push by IT outsource providers to price on the basis of usage is not only reducing margins in the equipment-renting business but also 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. The company has thus been able to offer more money to farmers and lock up volatile supplies while boosting its eco-friendly image. 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 how your company adds and captures value. Think about what the sector’s other players value and whether you can use that knowledge to increase revenues, profitability or asset value. Intrawest, for instance, has shifted from developing property to developing and managing 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 organisations that can help deliver a trendy, sporty, entertainment-based experience without gaining any power over Intrawest. By continuing to own the resorts, the company captures value through asset appreciation as well.
Third, future-proof your playscript. The third step is to make sure your playscript can cope with the foreseeable changes in your sector. Consider how changes in customer needs may affect you. There’s always a relationship between who customers are, what they need, and how they get it – and who has power as a result. Executives sometimes 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 corporate customer was enough to control the hardware business, so it outsourced the development of microprocessors and operating systems. As individuals as well as businesses began buying computers, 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 inexpensive design alone; it also carefully manages its supplier relationships. It has developed rules to ensure that its three tiers of suppliers deliver quality improvements as well as cost benefits. For example, foreseeing that a particular kind of wood 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.
Companies can anticipate possible counteractions by considering the incentives and motivations of other players. Consider Velti, a rapidly growing software company with a continually evolving playscript. 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 now provides mobile commerce solutions. Velti continually rethought its strategy after learning what incumbents would buy and looked for lucrative opportunities that would not attract the attention of major players. For instance, it 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 revenuesharing model – an approach no ad agency would ever take.
By developing capabilities centred around other actors, companies can embed themselves in networks of mutually reinforcing relationships. That’s Intel’s challenge as it enters the mobile Internet devices (smartphones) and consumer electronics (Internetconnected 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 developed 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.
Everyone’s on stage
Geoffrey Palmer, New Zealand’s prime minister from 1989–1990, reflected on his country’s geographical character with these words: “Sometimes it does us a power of good to remind ourselves that we live on two volcanic rocks where two tectonic plates meet, in a somewhat lonely stretch of windswept ocean just above the Roaring Forties. If you want drama – you’ve come to the right place.”
I’ve had the chance to work within or study scores of enterprises, and it’s clear to me that, if you want drama, business is the right place. And those planning the strategy for a business by using playscripts should never forget that those who will act out the strategy are the employees. The good news is that using this approach is good for the leaders of the business and all who follow them, as it provides a powerful way to think about the mission and our strategy – and to re-visit how to go about it.
Consider the drama of Steve Jobs. Having struck gold with his revolutionary vision of computers and the development of the Graphical User Interface, Jobs was blinded by Microsoft’s careful manipulation of the playscript in the computer sector. He didn’t appreciate the power of Microsoft and Intel’s double play in transforming the playscript (what we call ‘industry architecture’ in academic research), and the ability of Microsoft to create a new, separate GUI segment, becoming the bottleneck. Yet more than a decade later, Jobs’ masterstroke was to create a new playscript in the music distribution sector, re-thinking how Apple created and captured value through an architecture of links that put it squarely in the middle. Today the battle rages in mobile telephony, with different playscripts and different dramatis personae battling it out: Vodafone and other major carriers linked through the Joint Innovation Lab, competing with Google and its Android platform, competing with Apple and its supporting characters. Competition has ceased being about dominating a market; it’s about getting the right playscript, and shaping the sector.
Mobilising the troops
Yet playscripts are not only good for helping conceptualise and articulate an effective, dynamic strategy. Based on my experience, playscripts mobilise and motivate employees better than other strategy frameworks. People understand stories more easily than value curves, scenarios or game theory, since the love of narrative, intrigue and character is so deeply ingrained in the human psyche. Basing the creation of strategy on playscripts will not only improve the level of buy-in within the organisation – increasing alignment and effectiveness – but will also initiate a feedback loop, ensuring that the organisation continually updates and modifies the playscript (by means of an internal blog, for example). Because they are so universal, playscripts allow employees at every level to express opinions about how and why the organisation 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 recent financial meltdown, many companies want to develop a set of operating principles they can easily describe to stakeholders. That’s a playscript by another name.
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