The power of context

Written by
Ron Carucci

11 Jul 2016

11 Jul 2016 • by Ron Carucci

The power in context focuses on how all the elements of the organisation work in concert to take advantage of evolving possibilities to sustain viability and profitability within a defined competitive set and landscape.

The ability to apply intricate knowledge of one’s business to emerging competitive threats requires constant scanning of and the ability to see trends, patterns, and emerging possibilities on a multi-year horizon. It demands leaders maintain cutting edge knowledge about their business and how it fits into the broader industry and economic story ─ a complete 360° perspective of the market and competitive dynamics in play.

Value and loyalty

Value and loyalty will continue to shift from one business model to another based on ever evolving consumer preferences and broader economic, geo-political, technological, and demographic dynamics. The sum total of the choices business leaders make about 1) the customers they aspire to serve and the need they are meeting, 2) the solution they offer and how it is differentiated from available and emerging alternatives, 3) the capabilities required to deliver the strategy, 4) how physical, financial, and human assets are optimised to deliver value, and 5) where and how profit will be extracted will determine a business’ competitive advantage.

Much has been written in recent years about the importance of anticipating what is coming next. The exemplars in our study are described as having an innate curiosity about and a deep knowledge of their business context which they are able to translate, articulate, and apply to the wider economic, technological, and consumer trends within their industry sector. They are also able to extend this knowledge and pattern recognition and application to adjacent sectors with comparable dynamics or required capabilities. Armed with a clear point of view, our exemplars more readily prioritised, targeted, and addressed threats and took earlier advantage of opportunities. This is the very definition of the work of the strategic system. Too often, leaders are stymied by competing investment proposals or are caught flatfooted in the face of profit shortfalls. Lacking an understanding of how and where value is created and delivered to the market, they make suboptimal investments that have only marginal impact on success. More typically, they reflexively make across-the-board cost cuts that ultimately restrict their ability to maneuver effectively in a shifting competitive arena. Executives who focus on misguided mandates and who attempt to employ maladaptive approaches while failing to study their surroundings forfeit the power in context.

Exceptional executives maintain a solid grasp on the relevant and ever-changing context within which their business competes. Power in context lies at the intersection of their insights into how their organisation uniquely competes and makes money, what is possible, and what is most relevant to the consumers they serve ─ even when consumers may not know themselves. Mastering their context fuels their sense of freedom and confidence to actively influence how current and future success will be realised.

Many articles have been written in business journals over the last decade about Reed Hastings and Netflix, with good reason. Ten years ago, few could have projected cable television subscriptions would be challenged by the growing consumer trend of streaming TV and movie entertainment online. But, consumer demand for a my way, my time, my place lifestyle has moved most entertainment and cable companies to provide on-demand services and online streaming. Netflix is most notable among the businesses that have capitalised on the confluence of enabling technologies and changing consumer expectations. Reed recognised early on the power of streaming video and, in 2007, launched a subscription-based, video-on-demand model via the internet. Anxious to shift the focus of Netflix’s future, in July of 2011, Hastings split the DVD subscription and on-line streaming businesses which effectively doubled prices. The poor handling of the price hike sparked outrage among consumers and doubt among investors as to whether Netflix would ever be able to win back consumers’ trust. Hastings plowed forward and learned from the experience.  Hastings said, “[The fact] that … we were able to make the shift from DVDs to streaming is the bigger story. It is really hard moving forward. [Leaders] at Blockbuster … were smart and they worked hard, but still didn’t manage to do that. Looking back you could say we tried to spin off the DVD business too fast. But it is so much easier to cling to the past than to make that leap into the future and I still would rather be too soon than too late.”

Future success

Today Netflix’s future looks bright. Hasting’s ability to anticipate, envision, and move deliberately toward radically new models and take advantage of opportunities in a sea of shifting market dynamics demonstrates his mastery of his business context and competitive landscape. What confluence of emerging technological, logistical, demographic, economic, and consumer trends will he take advantage of next? What market, competitive and internal capability trends do you see in your own business? What will you do about them?