23 Mar 2010
My recent academic research suggests that companies should develop strategy by describing the underlying logic, story lines, decisions and motives of the players who create and capture value in a business. Instead of drawing and analysing a map or plotting numbers on a chart, executives should create what I call a “playscript”: a narrative that sets out the cast of characters in a business as well as the way in which they are connected, the rules they observe and the plots and subplots in which they play a part, and how companies create and retain value as the business and the cast change.
The playscript isn’t just a metaphor; it’s a tool to help companies manage the complexity of the competitive landscape and facilitate analysis and action. Playscripts force companies to focus on the causes of change as opposed to the symptoms; they explicate the logic of success and the assumptions behind it. By providing a sense of how long the good and bad times will last and how value is migrating, playscripts allow companies continually to assess the relevance of their strategies.
A dramatic change
Over the past five years, I have studied businesses such as financial services, textiles, construction, and technology and have helped some 20 companies cope with change. Based on my experience, I believe executives should develop strategy by writing a playscript that captures the motives, decisions and actions of the company (the protagonist) as well as those of all other organisations connected to it. A playscript also describes roles — how companies add and capture value — and how organisations are linked. It must be continually updated as companies take on new roles or the environment changes, which keeps executives focused on the dynamics of the business. In my experience, playscripts shape boardroom sessions effectively, facilitate discussions in top management teams and allow companies to develop sophisticated strategies. Organisations must develop playscripts at two levels:
A corporate playscript describes the logic by which value is generated and appropriated by the corporate headquarters. It consists of two subplots: the synergies subplot and the financial subplot.
The synergies subplot sets out how the business units of a corporation (as well as other ventures it has invested in) reinforce one another and how the centre adds value by managing those relationships. Developing the synergies subplot enables executives at headquarters to articulate the ways in which they can add value. This is particularly helpful when companies navigate a landscape that is changing quickly and therefore need additional capabilities to survive.
The financial subplot describes how the company uses its assets and capital to generate returns. For instance, a company could sell or buy assets or strip them for sale. It could focus on growth and create value by offering equity to executives and other employees. The financial subplot determines how much leeway the synergies subplot has. For example, if a company’s focus is on growth, it will prefer to strike alliances with other companies rather than make equity investments. It could use stock options to induce employees to take risks and grow the company.
The financial subplot affects the business playscript. A financial subplot that focuses on selling assets will prevent the company from investing in more assets, for instance, whereas one that allows increases in the equity base will help motivate people through grants of stock options. Managing the finance plot too cleverly may hurt synergies, and focusing only on growth will hit the bottom line. But, by considering the financial subplot at the same time as the business playscript, executives can bridge the chasm between strategy execution and corporate finance.
The business playscript is the more important of the two because it results in more value generation by the company. It contains three main elements: (1) dramatis personae and roles: the main actors in a sector, their motives and their roles, (2) links and rules: the links between companies and the operating rules of the business and (3) present and future plots and subplots: the story lines of how players in a sector generate and capture value.
I have developed a three-step process that companies can follow to reinvent their strategies by using playscripts.
First, write your current corporate and business playscripts. Begin by describing the wider setting in which your company operates by concentrating on three building blocks. Identify the other characters in the sector. What roles do they play? What are their motivations? What roles does your company play? How do other players perceive it? You can start with your own opinions, but it’s important to perceive every role through the eyes of others, such as consumers and regulators.
Next, identify the links among actors and the rules that govern interactions. For example, the links between a company desirous of going public, the lead merchant bank, underwriters, the stock exchange and credit rating agencies as well as the fees they earn are well established and easily understood. Companies must grasp the relationships between participants as well as government and non-profit bodies in order to predict how those links might change. They must also decipher the sector’s operating rules — some ensconced in regulation, others steeped in tradition.
Then, articulate the logic by which your company currently adds and captures value. Understanding that is essential to revisiting your company’s strategy. Think of your value proposition, in which tools such as the value curve come in handy. What can your company do that others can’t? What allows you to capture the value you create instead of haemorrhaging it to employees or suppliers?
Second, rewrite your playscript. Now you must rethink your company’s playscript and, if possible, reinvent the playscript for the entire sector. Reconsider all of the actors and roles. Can you attract fresh players to the sector? Selective alliances help a company transform itself into a central character — one that is well positioned in a web of relationships or controls a vital link in the value chain. Companies often waste opportunities to reframe sectors or to enhance the value they can grab because they have outdated conceptions of other actors’ roles. Instead, imagine how your company can change the roles of existing or would-be participants. Reordering “who does what” usually decides “who takes what”.
Next, determine whether your company can change the rules of engagement with the other players. Is there a new product or service that your company can offer that would be, in essence, a game changer? Companies can also change the way they monetise their offerings, changing how they charge customers. Finally, revisit how your company adds and captures value. Think about what the sector’s other players value and whether you can use that knowledge to increase revenues, profitability or asset value.
Third, future-proof your playscript. The third step is to make sure your playscript can cope with the foreseeable changes in your business. Consider how changes in customer needs may affect your company. There’s always a correlation between who customers are, their needs, how they meet them — and who has the power. Executives sometimes think that control of a particular part of the value chain guarantees success, yet history is littered with dominant companies that collapsed or were forced to change as their playscripts fell apart. Companies can anticipate possible counteractions by considering the incentives and motivations of other players. By developing capabilities centred around other actors, companies can embed themselves in networks of mutually reinforcing relationships.
Everyone’s on stage
If you want drama, business is the right place. And those planning the strategy for a business by using playscripts should never forget that those who will act out the strategy are the employees. The good news is that using a dramatic approach is good for the leaders of the business and all who follow them.
Playscripts mobilise and motivate employees better than other strategy frameworks. People understand words better than value curves, since a love of stories, intrigue and relationships is hard-wired in the human brain. Basing the creation of strategy on playscripts can not only improve the level of buy-in within the organisation — increasing alignment and effectiveness — but also start a feedback loop, ensuring that the organisation continually updates and modifies the playscript (by means of an internal blog, for example).
Playscripts allow employees at every level to express opinions about how and why the organisation should change. People can be asked to adopt the playscript as actors, yet they can propose changes as playwrights. In addition, playscripts offer an opportunity to structure the conversation between the corporate world and society.
To learn more
Michael G. Jacobides, “Strategy Tools for a Shifting Landscape”, Harvard Business Review, January–February 2010.
Michael G. Jacobides (email@example.com) is Associate Professor of Strategic and International Management at London Business School, where he holds the Sir Donald Gordon Chair of Entrepreneurship and Innovation.
He teaches on the executive education programme Developing Strategy for Value Creation.