Strategy – A New Digital World

Strategy is about making choices to win. Our choices are based on information – discovering the knowns and balancing them with the unknowns.

However, the world before us is changing, the very building blocks of information – its source, its actionability – is morphing, building and rebuilding.

The people, processes, and systems we once used for strategic decision making is evolving in a bid to keep pace. This issue of Tzu in Review centers on some of the key changes in technology which are set to alter the world of strategy.

AI Could Change Strategy
In a recent HBR article written by Professors Ajay Agrawal, Joshua Gans & Avi Goldfarb at University of Toronto’s Rotman School of Management, the three pose a thought experiment to demonstrate how AI could change strategy using the example of Amazon. Amazon’s business model is shopping-then-shipping, that is to say, you visit, browse, add to cart, pay, then have the product shipped.

If you’ve ever shopped with Amazon (for the Australian readers, get ready, you will), you’d notice the recommendation engine which is accurate about 5% of the time (meaning 95% of the stuff suggested to you is wrong). However, for the thought experiment, imagine the Amazon AI collects more information about us: in addition to our behaviour on their website, it also collects other data it finds online, including social media, as well as offline, such as what time of the day we get home (“Alexa: Turn Lights On“) . It knows not only what we buy, what we’re buying it for and what time we leave home and return back from work.

What happens when the predictability gets so good, the very business strategy needs to change? When the threshold is crossed, and it becomes more profitable for Amazon to ship you the products it predicts you will want rather than wait for you to order it?

This is not an abstract example, recently, Amazon took out a patent for a ‘Method and System For Anticipatory Package System‘.

Google, GM, Ford and John Deer have collectively spent over $2bn on acquiring AI companies. Smart businesses are betting on or at least hedging their bets that AI will cross a threshold and are shifting themselves into a position to take the first mover advantage. Every executive involved in strategy must now begin to develop their understanding of prediction machines for their sector and develop ideas and theories on what fundamental economic options and new business models may come available.

Read the full article here

Blockchain – Strategic Awareness & Application
HP, Microsoft, IBM, and Intel, even banks and governments are all investing and investigating Blockchain, but what is it?

Read the simplest explanation of Blockchain. The concept of Blockchain is very confusing so it’s best to grasp it before considering a strategic implication. Here’s a link to the simplest explanation I could find (referred to as a big ‘record book’ which is shared by a lot of people). It’s written by Jamie Skella via the AFR.

Jamie gives a few examples beyond the familiar use of ‘Bitcoin’ of how Blockchain can fundamentally change the world as we know it.

The future of democracy? Over at MiVote.org.au they’re using this same shared record book technology for voting. In effect, they’ve replaced Bitcoins (which represent currency), with tokens of their own, which represent votes. Instead of spending a Bitcoin, you’re lodging a vote.
The future of music? What if when you opened up an app kind of like Spotify, that instead of Spotify charging you a subscription, and paying royalties to artists, you paid the artist directly? As an example, once you’re 35 seconds into the length of a song, a cent or two was paid directly from your wallet to the artists.
The future of energy? Imagine a country filled with Tesla Powerwall equipped houses. Instead of being “off grid”, they’re very much on it – but they’re not paying an energy provider for their kWh. In fact, in this future, there’s no need for traditional energy providers at all anymore. Instead, houses automatically generate, store, and trade electricity between themselves based on which neighbours need extra, and which have lots of excess in their batteries.
Strategic advisors John Plansky, Tim O’Donnell, and Kimberly Richards provide a few steps on how businesses can approach Blockchain (strategically and systematically).

Your blockchain and distributed ledger efforts will be most effective if you see them as ways to reinforce or strengthen your company’s most distinctive capabilities — the ones that differentiate you in the market.
Note: These recommendations are based on the suggestion you setup a core technology working group, designed to focus on Blockchain.

Here are the steps in summary.

Step 1: Find specific opportunities. Start by compiling a list of potential pilot projects for which a distributed ledger could make a difference.

Step 2: Explore feasibility and readiness. For each of the starting points you’ve chosen, develop explicit hypotheses describing how distributed ledger technologies can make a difference.

Step 3: Put your prototypes to work. As you move into implementation, you will adjust your parameters to make the prototypes work.

Step 4: Scale your efforts appropriately. With any luck, your prototype experiments will result in some immediate, tangible improvements that justify your interest in blockchain. They may also expand your awareness of its potential and what it will cost to implement real change. Now focus on its impact on your core business.

You can read them in more detail here

Preparing For Unkown Unknowns
You may not want to consider what will happen to your business if or when AI or Blockchain becomes tactically impossible to ignore. I get it.

As each wave of the digitally-integrated world crashes in, it brings along with it shades of uncertainty. All leaders, when faced with making decisions face uncertainty. However, it’s the circumstances we never saw coming, the ones we never even looked for that often become the most damaging. Donald Rumsfeld, the former U.S. secretary of defence, calls these the ‘Uknown Uknowns’.

Technology is in a constant motion of change and consumers are adopting it with each rotation- it’s a good time to take stock of your weak links. A good strategist knows how to protect their blind spots.

Dorie Clark, a strategist and Author of ‘Stand Out’ offers three simple ways to spot ‘Uknown Uknowns‘.

Seek out an inside perspective,
Wargame your potential failures,
Test for implicit assumptions.
The world is going to keep on spinning – our ability as decision-makers or those who influence decisions to be aware and prepared for each rotation may be the difference between ‘winning and losing’ the games we’re playing.

Regards,

-Fabian Di Marco, MD and Founder of Tzu & Co.

Feel free to contact me at Fabian@tzuand.co directly or continue the conversation on LinkedIn

Want to read past reviews? Check them out here