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Strategy in a Structural Break: Look to Both Sides of Change

Every company reemerging from the lock downs must establish a new baseline. For many management teams going back to the strategy drawing board the first question is:

Which consumer and business behaviors have changed for good and how should we adapt?

Good strategy is always grounded in the particulars of a company and the specifics of its operating environment. But in times of crisis we are prone to polarize into camps of ‘everything will change’ and ‘nothing will change’. One strand argues that the change narrative is overblown while the other believes that a new normal will emerge out of the crisis. Each side can point to edge cases in support of their view and in the heat of discussion it’s easy to forget that the point is not to win an abstract argument, but to explore concrete points of change and stability in your particular operating environment. In most cases the truth, and the good strategy, emerges from a more nuanced middle point between the two extremes.

Start by assessing the speed, magnitude, and permanence of change in your specific markets and industries. In every industry and for every company the implications and outlook will differ. Air travel has come to an almost complete halt, but common sense tells us that it is critical infrastructure and a big chunk of demand will gradually return. Cruise demand has also fallen of a cliff, but it is less clear that baby boomers will come back at anywhere near pre-Corona levels to sustain the current industry capacity. Luxury goods consumption has taken a nosedive and when it rebounds the definition of luxury may have changed. eCommerce and remote work have skyrocketed, and a new set of habits, routines and values have been ingrained. Green energy may finally have the tailwind it needs to cross the chasm into the global industrial base of steel and fertilizer production.

Coming out of these changes there will be plenty of winners in receding markets and plenty of losers in new high growth markets. In other words, it’s not a strategy to be ‘on the right side of change’. Strategy is figuring out and weighing opportunities on both sides of change and then working out a coherent set of choices on Where-to-Play and How-to-Win that reflect your reading of the situation and plays to your strengths and vision.

To avoid the pitfalls of over generalization and binary arguments, we have found that asking these three questions can help executive teams move discussions and decisions forward:

1. To survive short term: Which waves of change must we catch to avoid being left behind?

2. To prosper medium term: Which value proposition and business model shifts could get us ahead?

3. To evolve long term: Which capabilities will be scarcer and more valuable in our markets 5-10 years?