The Strategic Squeeze: Forces that Demand Innovation

Persistent and powerful forces are constantly at work changing the environment within which organizations need to innovate. These forces create a constantly changing future which an organization must navigate and influence if it is to be successful and grow. External forces are those that take place outside of the organization that create changes to which the organization must respond. These are the forces that affect organizations and individuals at both a macro and a micro level and which constantly ‘press inward’ on an organization and ‘squeeze’ its strategic boundary. If an organization does not recognize and respond to these forces, it is in danger of becoming irrelevant.

There are many of these macro and micro external forces and, over time, they have been articulated and classified in various ways[i]. Recently, structured models such as PESTLE or STEEPLE etc.[ii] have been proposed and, to some extent, utilized to understand what affects an organization and its offerings.

The usefulness of these models notwithstanding, one perspective on the many forces affecting an organization, and how the organization can ‘push back’ against these forces can be illustrated using the strategic innovation canvas[iii] shown in Figure 1.

Figure 1 – External Forces Constantly Impinge on an Organization’s Strategic Boundary

This canvas allows an organization to see the distribution of opportunities[iv]  it is considering along two dimensions, New-to-the-world and New-to-the-company. In this diagram, all of the various forces, be they political, economic, technological, social etc., are summed up into two primary vectors:

1. Offering Forces – Forces that affect how an organization’s offerings do in the future .The A vector represents the forces that are changing the environment and ecosystem within which an organizations offerings need to survive and thrive. This is the changing universe of the community of adopters.
2. Organizational Forces – Forces that affect how the organization itself adapts to the future. The B vector represents the forces that are changing the environment and ecosystem within which the organization itself needs to survive and thrive. This is the changing universe of the community of creators.

Naturally these two aspects of offering and organizational fitness are related. A very successful offering will improve an organization’s future fitness, at least temporarily. A very successful organization will be creating offerings that are successful, at least in the near term. But this is precisely the point of looking at these two force vectors independently. This canvas is a dynamic one. The boundary changes over time due to external forces that change the environment and ecosystem within which the organization and its offerings need to survive and thrive. Paying attention to the offering environment and ignoring the organization environment, or vice-versa, is a recipe for decline.

To a greater or lesser extent, all organizations must pay attention to these two aspects of the changing external world, but they often do it using very different means. The Y axis, the world of the adopters, is typically the province of R&D and marketing. The X-axis, the world of creators, is typically the province of Human Resources and Purchasing. Sales and manufacturing bridge the two. Viewing these worlds on the same canvas can be somewhat jarring but it can also be illuminating and leads to a broader view of innovation as something that changes the organization as well as the organization’s offerings.

This is, naturally, a simplified depiction of the real world where an organization is beset by numerous external forces of many types. The two force vectors are each the sum of numerous sub-forces and drivers which themselves interact in complex ways. Looking at the myriad forces that impinge on an organization from the perspective of these primary two vectors offers some interesting insights.

The dynamic and recursive nature of how the forces interact and reinforce (or cancel out) each other makes understanding their effects difficult. The recursive nature of these forces can be seen when the organization itself is the one instigating the changes that it will eventually need to respond to. An example of this dynamic is the Apple iPhone and it’s initiation of a transformational change in the entire cell phone ecosystem.  The iPhone is a driver of external change in technology (design possibilities) and customer behavior (demand possibilities). But Apple, even though it is the instigator of this transformation, needs also to react to the external forces of change it unleashed. For example, the offering itself (i.e., the phone and its services) unleashed a plethora of smartphone designs that Apple must keep up with. In addition, the smartphone also changed the organizations and individuals that responded to this transformation (i.e., the value networks, the changing expectations and capabilities of employees etc.) one example of which is the emergence of the Bring-Your-Own-Device (BYOD) movement which was caused, in part, by the smartphone transformation.

The Squeeze from Above – External Offering Forces

The forces that contribute to the A vector are those that are changing the environment of new offerings. These are the external design forces (e.g. new science and technologies that change what is possible to design) and the external demand forces (e.g. new trends and interactions that change what is wanted). The adopters of new offerings determine how ‘fit’ they are and this fitness measure is constantly changing as new technology makes new things possible and new individual and group behaviors change what is needed and desired.

An example of a design force affecting the A vector is the rapid advancement and use of Artificial Intelligence (AI) in all types of information technology applications, from infrastructure to personal advisers. An example of a demand force affecting the A vector are the changing patterns of social interaction that influence the individual’s desire for personalization and immediacy (due, in part to technological changes that increase connectivity etc.).

These A vector forces typically get a lot of organizational attention through the structures and processes organizations have set up to do technology development and market research.

The Squeeze from the Right – External Organization Forces

The forces that contribute to the B vector are those that are changing the environment of the organization itself. These are the forces that determine its fitness within its evolving ecosystem. This ecosystem consists of an organization’s competitors, its future employees and the value network of partners, influencers and co-creators that determine, irrespective of any technological design or market demand, the environment within which an organization operates. This ecosystem evolves and changes in ways that are bigger than any individual organization although, just as for technological and market change, an individual organization can influence the way the ecosystem evolves.

Examples of the effect of these forces abound, from Kodak to Borders, from RIM to Smith-Corona. The issue with these companies was not that they didn’t understand the technological or market demand changes that were occurring, it was primarily that they could not adapt to the changing ways new competitors, channel partners and value networks were evolving. In the case of Kodak, the technology and markets were well understood. It was not the case that they could not have kept up or even led the transformation to digital imaging. What was at issue was Kodak’s inability to adapt to the changing ecosystem that saw other companies rapidly evolve the way that the imaging business worked. It was a time that saw the best and brightest individuals become employees of companies that had a different (and more inviting) organizational structure and that saw a whole value network develop that worked better with Kodak’s emerging competitors than they did with Kodak.

In one aspect, these forces are a re-articulation of the situation described in The Innovators Dilemma[v], albeit from a different, external perspective. Organizations are unable to adapt to their changing circumstance even when they have the technology and the market understanding to do so. The external environment will keep changing, both for the organization and for its offerings and the organization can either influence this change and adapt or it will suffer the consequences.

The B vector external forces generally tend to be more problematic for an organization that the A vector forces. These external organizational forces may get as much attention as the external forces that affect offerings, but they are often more difficult for an organization to deal with since they require the organization to change the way it behaves.

Pushing Back Against the Forces

The two different external force vectors, A and B, are a simplified summary of all the forces that affect an organization and its offerings. They exert constant pressure and impinge, or bear down on, an organization’s current offerings and its current behavior. They create very different demands on an organization and require the organization to counteract them in numerous ways. The organizational means to counter these forces, as well as the organizational constraints that limit how these forces are countered, are therefore of great importance. Unless the organization has a means to push back, to expand its boundaries along both dimensions, it will get squeezed into a corner.

Organizations counter these external forces by innovating, not just in the offerings they create, but in the way they create, produce and deliver offerings over time and influence not only their adopters but also their competitors, value network and even future employees. Figure 2 illustrates the way that strategic innovation pushes back to expand the strategic horizon of the organization.

Figure 2 – An organization counters the external forces through innovation

Organizations typically can change quite rapidly in the A vector direction. Indeed, one can say that the past decades have seen concerted efforts to develop effective means to do this. The most innovative companies generally have well developed and established means for effectively pushing outward against the A vector forces. Systems like opportunity discovery, open innovation, technology scouting, voice-of-the-customer, design thinking, R&D and market research etc. all address aspects of the A vector forces that constantly change the ‘new-to-the-world’ dimension. An organization needs to constantly identify new opportunities that push outward in the demand and design spaces that affect its position with its external adopters (i.e., its customers and consumers).

Most organizations are much less prepared to change rapidly along the B vector direction and few have a developed and systematized means for effectively pushing outward against these forces. Many companies are surprised by new business models introduced by their competitors, new behavior patterns of their value networks and new expectations and skills of the millennials and post-millennials they hire. But it precisely these aspects of organizational behavior and adaptation that will be critical for future success and a major part of the adaptability necessary for an organization’s willingness and ability to consider and implement internal change. An organization needs to constantly evolve the way it behaves and push outward to affect its position with respect to the ecosystem within which it chooses to function (i.e. its competitors, channels, partners and value cohorts).

The ability to counter the B vector forces could be the battleground of the future. If you imagine a future in which optimal means to understand new technologies and markets has been systematized to the extent that that a process like 6-sigma has been, then the ability to innovate new offerings is no longer differentiating, it is just table-stakes. In this future, the competitive differentiation will perhaps be organizations that are willing and able to change their behaviors and internal culture, strategy, structure, processes and people in ways and at a pace that approximates the pace of change in their offerings.

Early indications that this may be happening can be seen in the behaviors of companies such as Google and in the recent boom in business model innovation activities. It certainly isn’t hard to imagine a time when the term ‘business model’ is associated not with a company but instead is associated with a specific opportunity and offering and one company is simultaneously executing dozens or perhaps hundreds of business models at once. In this world, being able to push back against the external forces, no matter which direction they come from, will be necessary for an organization to survive and thrive.

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