What is open strategy and does it really help firms?

14 January 2022

By Christian Stadler, Julia Hautz and Kurt Matzler

COVID forced companies around the world to urgently review their business models. Restaurants switched to selling groceries, passenger airlines moved cargo, and car manufacturers produced ventilators. The pandemic highlighted the importance of fresh thinking in the corporate world.

Now the business world faces its next serious challenge: to move on from finding a temporary fix in a pandemic to forging a more permanent path ahead. In a new book, co-authored with Stephan Friedrich von den Eichen, we propose a radical new approach to moving forward.

Put simply, we recommend that businesses should break away from the traditional method of relying on their senior executives to develop strategies. Instead, they should embrace the knowledge and insights of customers, frontline employees, and experts from outside the company – not with feedback surveys or focus groups, but by directly involving them in making important decisions.

It is a system of business development in which people far removed from the company boardroom are involved in crafting detailed plans. They have a much stronger voice, and the companies actually listen to it. The two distinct advantages it brings are fresh ideas and a better chance of employees accepting new plans.

We found many companies are choosing to develop in this way, from innovative small firms like Saxonia (a software specialist), which invites all employees to join regular strategy meetings, to major organisations like Ericsson, which uses an online forum to involve frontline employees in strategic questions.

Others already doing it include IT giant IBM, which set up an online conference with more than 150,000 participants from over 60 companies and resulted in the investment of $100 million (£75 million) in 10 new businesses. A similar approach meant the retail arm of Barclays found a way to bring a 325-year-old bank into the digital age by involving 30,000 employees in their discussion. The bank used their input to create a successful mobile app that now has nine million users.

Sports giant Adidas involved people from different industries in strategy workshops, including a research scientist from the MIT Media Lab and founder of several start-ups, as well as the chief executive of an online platform for sharing construction equipment. Together they developed radical new business plans for a more efficient manufacturing process.

This openness to new and numerous ideas is at the heart of all kinds of progress. In his book Seeing What Others Don’t, the psychologist Gary Klein claims that 82 per cent of the biggest discoveries and inventions in history were made when people connected the dots after being exposed to different concepts.

What does open strategy bring?

He cites the example of neurobiologist Martin Chalfie attending a lunchtime talk in 1989 where he learned how jellyfish produce light and are capable of bioluminescence. Chalfie could hardly wait for the end of the seminar, realising how this knowledge could affect his own research.

It was an insight that revolutionised science, won Chalfie a Nobel prize, and is now used to observe the spread of viruses or the migration of breast cancer cells.

In the corporate world, the same kind of openness to new ideas results in cross-fertilisation, fresh thinking and an ability to spot anomalies that are easily overlooked by executives sitting in echo chambers.

The higher the level of diversity, the greater the chances for ideas to collide. Customers and employees approach questions from a different perspective and should be seen as a valuable resource.

By involving staffers, external partners and customers in the planning phase, the odds of generating ideas that people can use go up quite dramatically. In a survey of senior executives 70 per cent told us that opening up the strategy process to others increased their employees’ commitment to a particular strategy.

Participating provides everybody with an opportunity to think through issues that affect them directly. How can they adjust their operations? What needs to change? Who are the people they need to interact with? The apprehension – often twinned with objection – is replaced by a sense of ownership.

Involving people in the plans that will affect them works outside of business too. For example, Kinari Webb is an American doctor who set up a successful programme to stop illegal logging in Indonesia. In remote communities in Borneo, she engaged in what she calls “radical listening”, asking local communities what they would need in return for not cutting down trees.

It turned out that most of the logging happened because locals had no means to cover emergency medical costs otherwise. By providing affordable healthcare for these communities, combined with training them in organic farming, logging was reduced by 68 per cent.

Of course, companies could – and many surely will – develop plans in the way most have always done, by bringing a small select group of executives together. But many studies have shown that small groups of people – particularly homogeneous ones – are subject to several biases that prevent them from developing promising fresh ideas.

Biases are especially dangerous to lone strategists and tightly knit groups, since they don’t have others around to point out their blind spots. To avoid this, it pays to open up. Involving customers and staff in making important decisions provides a more solid foundation for the future.

This article is republished from The Conversation. Read the original article.

Further reading:

Stadler, C., Hautz, J., Matzler, K. and von den Eichen, S. F. (2021) "Open up your strategy", MIT Sloan Management Review.

Stadler, C., Hautz, J., Matzler, K. and von den Eichen, S. F. (2021) "A user's guide to open strategy", Harvard Business Review.

 

Christian Stadler is Professor of Strategic Management and teaches Strategic Advantage on the Distance Learning MBA.The Conversation

Follow Christian Stadler on Twitter @EnduringSuccess.

Julia Hautz is Professor of Strategic Management at the University of Innsbruck.

Kurt Matzler is Professor of Strategic Management at the University of Innsbruck.

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