The presentation describing this pathway within the 3rd epoch domain explores what are the limits to being strategic at the level of the organisation as a whole?
Capturing value on the demand-side means creating alignment and cohesion within clients’ situations better and more economically than the clients themselves. This means knowing a lot about how a client is itself trying to create value and where the gaps are in that client’s current approach to doing this. This creates a new kind of challenge for the organisation in which it must hold a dynamic balance between the effects created for each client and the sustainability of this kind of responsiveness.
The creation of sustainable competitive advantage makes a distinction between the positional strategies of dominating a category of product and dominating access to relevant combinations of product and/or service; and the relational strategy of dominating the relationship to demand. Whereas the first two of these involve expertise in modes of extraction, production and distribution, the last one involves knowing more about what the client wants than competitors – the client’s value deficit.
Looking at all of these in terms of the relation to the client’s demand, the rcKP distinction between value propositions involves introducing progressively greater degrees of design control over the relation to the client’s value deficit. This in turn requires the supplier to become increasingly involved in the situation and experience of the client, the effects ladder being a way of thinking about their combined effect on the situation of the client.
Competitive advantage is not static because the knowledge needed to compete on the supply-side can never be wholly monopolised. Propositions thus have a lifecycle in which, as they lead to the proliferation of individual products and services, make it possible to create systemic propositions through their combination, the possibilities for which are greatly increased by the effects of digitalisation. Suppliers’ efforts to control and/or ‘ride’ the cycle of knowledge diffusion thus form the context in which clients seek propositions that can satisfy more and more of their value deficits.
These supply-side dynamics form the context within which a supplier will seek to position itself in terms of balancing the complexity that it is managing on the client’s behalf and the contractual frame within which it does this. The resultant positioning on a value stairs allows us to think about how both the client and the supplier are having to move over time as competitive conditions change. It also allows us to think about the changes in the capabilities of both client and supplier which, in general, will involve engaging more and more with the knowledge-based sectors as they address value deficits that are more and more particular to the client’s situation.
Into this a new factor emerges as the tempo of demand accelerates. The supplier must not understand the client’s situation but also change the way it relates to that situation over time as it develops. The consequence is that the supplier becomes entangled with the situation of the client, introducing a dynamic into the behaviour of the supplier that demands designing agility not only into the architectures of its task systems but also into its structures of governance – its structures of governance must become generative.
Unlike the cycles of knowledge diffusion changing the ways in which clients make demands on an ecosystem of suppliers, the development of a supplier’s structures of governance must follow a zig-zag path as it first learns how to span greater amounts of supply-side complexity and then learns how to align this complexity to the demands arising from clients in increasingly differentiated situations. Good examples of the zig-zag path are apparent in the learning taking place in the military’s response to asymmetric forms of warfare, and in the response of urban governance to foster growth in the interests of all its citizens. In effect, what is being learnt by those working on the supply-side are different bases of trust within which to collaborate with others.
The limits, therefore, to being strategic at the level of the organisation as a whole are created by the impossibility to know at the level of the whole how individual clients will need to be related to in creating value for them. This situation arises when the tempo of demand exceeds the tempo of alignment and the supplier’s organisation must become entangled with that of its clients in a circular relationship. This demands the creation of platform architectures capable of sustaining such dynamics; and it demands structures of governance that can enable the horizontal relationships with clients to become dominant while at the same time ensuring that the organisation remains economically sustainable. Together these constitute a double challenge for the organisation.