Strategy & Leadership

Emerald Article: A conversation with George Stalk about "disposable strategies" Robert M. Randall

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To cite this document: Robert M. Randall, (2008),"A conversation with George Stalk about "disposable strategies"", Strategy & Leadership, Vol. 36 Iss: 4 pp. 21 - 23 Permanent link to this document: http://dx.doi.org/10.1108/10878570810888731 Downloaded on: 26-03-2012 To copy this document: permissions@emeraldinsight.com

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A conversation with George Stalk about disposable strategies

Robert M. Randall

Robert M. Randall is the editor of Strategy & Leadership and the co-editor of The Portable MBA in Strategy, Second Edition (Wiley, 2001).

In his new book, Five Future Strategies You Need Right Now, internationally known consultant and author George Stalk, a Boston Consulting Group senior partner, offers corporate leaders a brief peek at a set of innovative strategies. Stalk and his colleagues at BCG routinely monitor and discuss radical and subtle changes in the corporate environment and track their ndings, a process that enables them to spot signicant emerging trends early. They separate those most likely to get traction and provide competitive advantage for early movers from those that are likely to be long shots until well into the future, if ever. They sort these trends in three les.
B

Faint Signals Issues that will probably become strategies but have shown only a few, very slight, signs so far. Watch List Potential strategies where the sources of competitive advantage are not entirely clear. Hallucinations Provocative issues that are so out there they may never materialize, or at least not within this lifetime.

The ve strategies featured in the book all began as Faint Signals, until the case les on each of them became so thick that their potential as future sources of competitive advantage became obvious. The strategies, each covered in a separate chapter of the book, are:
B B B B B

Supply Chain Gymnastics. Sidestepping Economies of Scale. Dynamic Pricing. Embracing Complexity. Innite Bandwidth.

For this interview, a number of Strategy & Leadership senior editors (Brian Leavy, Stan Abraham, Alistair Davidson and David Rader) put together questions about a radical idea proposed in one chapter of the book. In the chapter, Sidestepping Economies of Scale, Stalk warns that in a volatile and rapidly changing business environment, business leaders may succeed by switching to disposable factories and in certain circumstances should seek competitive advantage with disposable strategies. Stalk examines the case of Orbitz, then a start-up Internet travel reservations rm that needed to mass produce an offering in months to win the race to market. Orbitzs solution: a virtual disposable factory.

DOI 10.1108/10878570810888731

VOL. 36 NO. 4 2008, pp. 21-23, Q Emerald Group Publishing Limited, ISSN 1087-8572

STRATEGY & LEADERSHIP

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 The main implication for innovators is that disposable factories and disposable strategies relax constraints on trying new products and new strategies.

Strategy & Leadership: Could you give us another example of a company that has successfully used the disposable factory or strategy concept? George Stalk: The disposable factory approach is not so much a new paradigm as it is an underappreciated tactic that many industries employ when the situation requires a facility that can be operating quickly at relatively low-cost and then can be quickly disassembled. Look around disposable factories are every where: eld messes on movie sets and battleelds, concrete mixing plants built adjacent to large engineering works, a Broadway road show company, and special-issue magazines staffed by freelancers. S&L: Could you expand a bit more on the main implications for managers of your disposable strategies idea? What are the risks associated with implementing disposable factories and strategies and how can leaders manage them? Stalk: Uncertainty is the phenomena of our times. Product life cycles are shortening dramatically: the average life of a new car platform has declined from eight years twenty years ago to four today, the product life of cell phones has declined from about 22 months just six years ago to 16 today. Demand forecasts for a new pharmaceutical can easily be off a minus 75 percent to plus 300 percent in the rst few years after introduction. The worst form of volatility is when a new product bombs. Only 20 percent of products with launch budgets of more than $25 million are regarded as successes! The main implication for innovators is that disposable factories and disposable strategies relax constraints on trying new products and new strategies. If higher costs of temporary solutions buy time and exibility, then business outcomes can be more manageable. The risks are that initial costs for some steps in the value chain will be higher than if these steps are designed and built with economies of scale as a driver. Thus, a competitor could drop in a world scale facility and have an economic advantage. But corporate managers always have the option of disposing of the high cost step and replacing it with a world class, economy of scale replacement. And managers would do this when they know their strategy is working. Given that they will know this before an outsider, there should not be a situation where a competitor surprises them with a world scale, low cost facility. S&L: Doesnt the quick x of a disposable strategy promote opportunism over shrewd, rigorous planning? Sure, if a strategy isnt working, change it. But wouldnt continually changing a strategy wreak havoc within a company? So what is your advice for top management? Stalk: Planning that is always smart and shrewd is unbeatable. Perfect consistency is also not very likely. Lets look at retailing competition. Compare Company A, a retailer with great merchandising but mediocre supply chain capabilities to Company B, a mediocre merchandiser with a world class supply chain capability. Company B will always win over the long term. Company B will adjust to changing market responses faster than Company A. Company B will have in stock what is in demand. Company A will be left holding excess inventories needing to be sold on mark down. If a company chooses to play in markets where product life cycles are short and consumer needs and desires are ckle, to survive they will need to be best in class in managing their

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value chains. If they are not, then their inability to track changing environments to keep pace with emerging competition will likely be their downfall. S&L: The Orbitz example in your book offers some insights about best practices of joint ventures. (See Challenging the advantages of scale: disposable factories and strategies by George Stalk in this issue.) Could you expand on this idea? Stalk: Interesting. Weve not thought of Orbitz as a joint venture. However, in terms of the initial ownership, it was a joint venture. But its management was almost completely independent of inuence by its ownership partners. Its board was charged with keeping the business build on track and with keeping the member airlines to their commitments. Orbitz did not have many of the traits of a compromise culture that most joint ventures have. Its owners knew they were participating in the creation of an independent economic entity. An entity that would be sold. S&L: Your disposable factory concept could be especially useful to rms involved in strategy experiments and business model experiments aimed at new market creation. So how can managers use disposable strategy model to promote strategy innovation? One of the advantages of your proposed strategy seems to be also that a company can place multiple bets (in a sense buy options) on manufacturing processes for servicing a market where the dominant business model or manufacturing process has not been established. Stalk: You are absolutely right. Disposable factories and disposable strategies are all about investing in options and seeing where things land. Then serious investment follows. S&L: There seems to be a parallel between temporary strategies and the idea in technology development and marketing of iterative prototyping. That is, Build it quickly and learn from the experience. Then move quickly to generation two. How can managers strike a balance between such a learning curve strategy and seat of the pants opportunism? Stalk: Strategic experimentation is the fastest way to accumulate experience. Random seat of the pants opportunism does not usually contribute much to accumulated experience. So strategy process that is, the learning gained from it matters. Strategy sets the context for experimentation. Disposable factories and strategies facilitate learning, create options and reduce risks. S&L: Does the strategy of disposable factories foster unprotable competition, as in the airlines industry, where a competitor can offer a cheap fare on any route or occasion where there is an opportunity to steal customers from an established carrier? Stalk: This is an interesting question. Airlines, at one level, are a stalemate business. Anyone can buy a low-cost plane, hire some non-union crew, pick a lucrative route, low ball ticket prices and have a business. When they try to grow their venture they will then have to deal with the network economics of the established competitors. And they will very likely be defeated by these economics. So, in the short term, their disposable strategies upset the local economics of the legacy players, but in the longer term forces bigger than a plane with a cheap crew overwhelm the play. Now if the business model is point-to-point executive class service between convenient airports near important cities, then a disposable strategy could (and probably is now) leading to a viable business model that has the best cost position for the value being offered at a price business people are willing to pay.

Corresponding author
Robert M. Randall can be contacted at: RRandallPublish@cs.com

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