G2G
ORGANIZATIONAL
STRATEGY AND
INNOVATION
MANAGEMENT
A Case Study within a Dutch Startup
Amsterdam Business School
Company Project
Submitted by: Dan Palmer
Student Number: 11115513 Supervisor: Prof. Martijn Rademakers Submission Date: 30 August, 2016
Executive Summary
The purpose of this project is to analyze, and apply, pertinent frameworks for both organizational strategy and innovation management to a globally focused start-up initiative. Because of the unique challenges that startups face in the current environment, special care must be taken in terms of both establishing organizational strategy, as well as fostering continued innovation, in order to deliver their products and services to the market in the most efficient manner and position themselves for continued success.
Due to the non-traditional nature of the firm, and the inherent uncertainties in which startups operate, additional scrutiny is given in order for the firm to have the maximum opportunity for continued survival, not the least of which is a solid foundation from which to operate. The G2G platform has been conceived to alleviate some of the pressures that electric vehicle owners face due to the lack of necessary infrastructure, which represents a radical departure from traditional business thinking and practices. The for-profit company has been founded on the basis of meeting the needs of both consumers and municipalities as the seismic shift away from the internal combustion engine continues to gather steam.
While there are many applicable theories towards establishing and analyzing how strategies shape the competitive advantages (or disadvantages) that many firms currently face, there has not been extensive research done into how strategic pressures and concerns affect entrepreneurial ventures and the conceptual foundations of their business models. This paper will analyze the strategy of G2G against a multitude of organizational and innovation management frameworks, as well as the possible implications derived therefrom. Additionally, this project will serve as the foundation for further refinement of the operating strategy, and as a guideline for the human resource management strategy as the firm continues to expand. Finally, this paper will be a case study in the conception, revision, and application of a multidisciplinary approach to the foundation of a startup, and will future steps that the company will need to take as the business continues to mature.
Preface
This company project was completed as the culmination of my studies for the Masters of Business Administration at the Amsterdam Business School - University of Amsterdam. It represents research and analysis completed during the formation of an entrepreneurial venture with several classmates as co-founders. The genesis of the idea was the result of a class project, the idea of which inspired the real-world action of collaborating on a startup venture.
Firstly, I would like to thank my classmates and co-founders, Gali, Neeti, and Yu, whose academic and professional contributions, abilities to produce unconventional ideas, and light-hearted senses of humor were instrumental in not only the formation of the company, but of the project in general. Our ability to professionally and socially interact, and the resulting open communication and culture which resulted, is nothing short of a miracle as we negotiated the trials and tribulations of the academic program.
Secondly, Dr. Martijn Rademakers has been instrumental in the completion of this project. From offering helpful tips and interesting sources, to laying the groundwork of this analysis via his Corporate Strategy course, his instruction and support has been extremely helpful.
Finally, I wish to thank my friends and colleagues, who were a constant source support and motivation (and would reflexively call me out on my procrastination).
Table of Contents
I. BACKGROUND ... 4
A. HISTORICAL BACKGROUND OF ELECTRIC VEHICLES ... 4
B. COMPETITIVE ENVIRONMENT FOR ELECTRIC VEHICLES ... 6
C. INFRASTRUCTURE CONCERNS ... 6
D. COMPANY BACKGROUND AND DESCRIPTION ... 7
II. CASE DESCRIPTION ... 9
A. THE CASE STUDY ... 10
III. STRATEGY, INNOVATION, AND ORGANIZATIONAL LEARNING ... 10
IV. CONNECTING STRATEGY AND INNOVATION ... 11
A. CONCEPTUAL FRAMEWORKS,THEORIES, AND TOOLS ... 12
1. Exploration versus Exploitation ... 14
2. Resource-Based View ... 14
3. Core Competencies ... 15
4. Market-Based Strategy ... 16
5. Blue Ocean Strategy ... 17
6. Porter's Five Forces... 18
7. Identity-Driven Strategy ... 18
8. Knowledge-Based Strategy ... 19
9. Globally Born ... 21
10. The Ten Types of Innovation ... 21
V. FRAMEWORK APPLICATION ... 22
A. SUMMARY OF G2G’S STRATEGIC VISION ... 23
B. MEANS-DRIVEN ANALYSIS ... 24
1. Managerial Implications ... 25
C. MARKET-DRIVEN ANALYSIS ... 25
1. Managerial Implications ... 27
D. IDENTITY-DRIVEN ANALYSIS ... 28
1. Managerial Implications ... 28
E. KNOWLEDGE-DRIVEN ANALYSIS ... 29
1. Managerial Implications ... 30
F. GLOBALLY BORN ANALYSIS ... 30
1. Managerial Implications ... 31
G. PORTER’S FIVE FORCES ANALYSIS ... 32
1. Managerial Implications ... 32
VI. FUTURE CONSIDERATIONS FOR G2G ... 33
VII. CONCLUSION ... 34
VIII. APPENDICES ... 35
A. THE TEN TYPES OF INNOVATION ... 35
B. STRATEGIC PARADOXES ... 37
C. TEN TYPES OF INNOVATION ADDRESSED BY G2G ... 40
D. STRATEGIC MINDSET OF G2GFOUNDERS ... 44
I.
Background
A.
Historical Background of Electric Vehicles
Shifts in the geopolitical landscape, as well as an ever-burgeoning movement for sustainability have provided the foundation for a revolution in both energy production and consumption, particularly within the personal and commercial mobility fields. Depending upon source, nearly half of all hydrocarbons reach the end user in a transportation-ready form, typically as traditional Finish Motor Gasoline and Distillates. While fossil fuel based transportation has allowed the modern global economy to grow at an extremely rapid pace, mounting evidence has shown that the use of such forms of energy leads to environmental instability, international conflicts, and is being used as a funding source for terrorism. While hydrocarbons are an excellent source of energy from an engineering standpoint, their continued use is becoming increasingly unsustainable in the modern world.
Such pressures, in themselves, are often the impetus for lasting change in both economic and technological terms, in particular to this case: the reintroduction of the electric vehicle, which originally made its debut in the late nineteenth century (Kirsch, 2000). However, given the advancements made in petroleum based infrastructure and internal combustion technology, electric vehicles, generally, could no longer compete in the marketplace in regards to price1. The resulting pressures led to the rapid decline in
personal use electric vehicles, though it should be noted that many larger scale transportation networks, such as public transit, continued to use the technology (Loeb, 2004). It was not until the early twenty-first century that the combination of competitive landscape and other external factors allowed for a successful reintroduction of personal electric vehicles.
Though competitive, environmental, and security pressures have set the stage for the successful reintroduction of electric vehicles, the infrastructure required to allow for
ease of transportation is still missing in nearly every marketplace. This lack of resources is often forcing owners and drivers to compete for limited charge points, adjust travel logistics, or simply avoid the technology altogether. In fact, one of the major, or predominant (depending on geographic region), perceived drawbacks with electric vehicle ownership is acutely tied to lack of infrastructure: drivers are concerned that if a charge point is not readily available, the drivers will run out of battery, rendering the car inert and leaving the driver with limited palatable options (Rolim 2012). This is especially true in within the context of the largest oil consuming market on the planet, the United States, where not only is the infrastructure tailored to internal combustion engines, but also the distances between destinations are comparatively larger than most other countries (Eberle 2010). As such, the largest economy has been reticent to quickly adopt electric vehicles, despite subsidies offered by employers, municipalities, and the U.S. Federal government, which has prompted large-scale spending on infrastructure projects as well as alternative measures to alleviate the “range anxiety” that seems pervasive among drivers, particularly within geographically large markets2. However,
investments in infrastructure needed have been woefully hard to acquire; in addition to political uncertainties about incentives, there is also much that is unknown about the future economic state of the world, the penetration rates for electric vehicles, and the always looming pressures of technological breakthroughs.
All of these issues have created conflicting attitudes for consumers: the idea of an electric car is appealing (whether for ecological or economic reasons), but there are institutional roadblocks to widespread adoption. Sales of internal combustion cars still dwarf all other categories, despite the collective complaining about gas prices or political unrest in many oil producing regions. Coupled with the idea of “Peak Oil Theory”, the future of the gas powered car is definitively in doubt, though it will be a bitter pill for many to swallow (Deffeyes 2008).
B.
Competitive Environment for Electric Vehicles
The aforementioned geopolitical and economic pressures have given rise to the “modern” electric vehicle industry, as both end users and governments seek solutions to the issues of transportation. Spurred by breakthroughs in both battery and materials technology, many car manufacturers have begun offering hybrid and pure-electric vehicle options to the marketplace, yet studies have shown that the penetration rates of these vehicles has been fragmented and varies by market (Al-Alawi 2013). Additional, multivariate analysis of the adoption of electric vehicles has statistically illustrated what many have been saying anecdotally for quite some time: it is not only the purchase price and financial incentives that motivate buyer behavior, but also a significant and positive correlation between the availability of charging infrastructure and electric vehicle market share (Sierzchula 2014). Given this context, car companies, consumers, and governments all find themselves in a bit of a conundrum - there is latent demand for electric vehicles, yet an unwillingness to shift away from internal combustion.
Within the industry, the response has been to rely heavily upon the continued development of longer lasting batteries and both public and private investments in infrastructure, as evidenced by the outlays of Tesla Motors, Inc. in both fields, respectively34. And while it can be argued that Elon Musk is in several businesses, to
include power distribution, there is a palpable disconnect between the industries of manufacturing vehicles and providing energy. Companies such as Tesla Motors, and others, are likely engaging in these measures as ancillary activities to drive sales of vehicles.
C.
Infrastructure Concerns
While it may be difficult to place exact values on the geopolitical and environmental benefits that switching to electric vehicles can provide, extensive studies have been done in regards to the economics of governmentally provided charging stations. At best,
3 https://www.tesla.com/energy 4 https://www.tesla.com/supercharge
the installation of infrastructure related directly to the charging of vehicles has been described as “risky”; a study of fast charging stations within the German market showed that the high capital expenditures required to install a charging station was not economical in most of the projected scenarios (Schroeder 2012). And while some institutions and governments have, and will continue to, install public use charging stations, it can be reasonably argued that they are doing so with a non-economic incentive.
Given that the installation requirements of asset and investment intensive charging stations remains highly volatile, with questions arising around future technology developments, electric vehicle penetration rates, uncertain incentive plans, among others, it remains unlikely that large scale development will supply the needed infrastructure for electric vehicles, or supplant the traditional fossil fuel infrastructure currently in place (Schroeder 2012). There are few, if any, reasonable governments who do not see the need for such investment, but even fewer have committed the necessary resources to allow for such an infrastructure update.
Additionally, widespread economic and political uncertainties have prompted many governments to reconsider infrastructure investment of any kind. This has stifled the potential electric vehicle market, though as noted above, private firms have attempted to pick up some of the burden that others have thus far been unwilling to undertake.
D.
Company Background and Description
The challenges faced by all actors within the electric vehicle ecosystem represent an excellent opportunity for G2G: to establish a platform that not only helps service the needs of the end users, by providing a system to alleviate the issue of “range anxiety”, but also reduce the burden on car manufacturers and governments alike in terms of infrastructure buildout. By reimagining what is required to “fuel” a car, the company hopes to address concerns for all stakeholders, and to do so profitably. Doing so requires a holistic and multidisciplinary approach; many orthodoxies about business, consumer behavior, even the concept of the electric grid had to be challenged.
The startup initiative, G2G, was founded by four classmates from the Amsterdam Business School as a final class project for the Innovation Management elective offered in the M.B.A. curriculum as an elective. Comically, it grew out of the idea to deliver gasoline to parked cars on the street, but legal and safety concerns made such an endeavor a non-starter. However, we felt like we were truly on to something in regards to the very basic pain-point we were trying to address: if most other services and products are available on demand, why isn’t energy? Through many iterations, heated debates, and cups of coffee, we arrived at an answer to that fundamental question, while simultaneously exploiting an emerging opportunity within the market; we would deliver the energy that electric (and hybrid) vehicles required, without having to plug into the grid.
G2G is exploring the concept that sources of energy need not be tied to the infrastructure, at least at the point of delivery. Similar concepts are pervasive in other industries: you do not need a pizza oven in order to acquire some pizza, so why do you need a plug to get some electricity? The company firmly believes that this is a major driver of range anxiety, which has hindered the adoption of electric vehicles worldwide. In addition, this also provides a solution to the question of the investment intensive infrastructure construction that many municipalities and large corporations are hesitant to undertake. By unplugging the plug-in car, G2G is aiming to capitalize on an underserved market, alleviate pain points of buyers and suppliers, and capture a significant amount of the value chain in the process.
It is expected that globally, electric vehicle sales will grow by 20 to 30 times in the next quarter-century, and many municipalities will continue to struggle to provide the necessary infrastructure to charge electric vehicles at locations other than the consumer's place of residence5. Currently, charging relies on the use of designated
charging points and at-home wall solutions that require a fixed location and a
5
connection to the electrical grid; this represents a particular challenge in highly dense urban areas, where parking is often at a high premium, and there are not enough charge points to service the expected number of electric vehicles that will soon populate the roadways.
G2G intends to provide an alternative solution for vehicle charging, by removing the requirement for a grid connection and thus a fixed location for charging needs, in the form of an on-demand mobile electricity delivery service. In the first phase, G2G sought to create a platform that leverages the technology of its potential partners via their built-in open APIs, and will be able to brbuilt-ing the necessary battery charge to the location of the customer, alleviating the consumer's anxiety as well as pressure on the infrastructure. The second phase will also incorporate additional monitoring on the platform, and would function as an autonomous (from the consumer's perspective) charging service, to be offered in parallel with the on-demand service.
II. Case Description
Given that Electric Vehicles, their markets, and born-global companies are comparatively new to the business landscape, it is imperative that G2G establish a flexible organizational strategy and innovation frameworks to deal with the dynamism of the market. To that end, this study will build on, and incorporate, theories and frameworks related to both organizational strategy and innovation, through the non-traditional lens of a born-global firm. To establish a well-defined, yet flexible, operating strategy, that places G2G in the most advantageous position to capitalize on a currently underserved market while fostering collaboration and innovation will be paramount to the success of the firm as a going concern.
The company has recently completed the ideation phase, and has begun market validation and some very rudimentary organizational planning. This represents an unusual opportunity in, and of, itself: there is no institutional inertia preventing the firm from organizing how it sees fit; it can optimally structure itself as a knowledge and
learning organization from the start, and recommendations of this project can be put directly into use in a real-world setting. Additionally, as a technology start-up, continuous innovation will represent a key pillar to the success of the venture. To spur innovation and collaboration, several innovation-based frameworks will be analyzed and incorporated into the managerial recommendations that this paper aims to provide in a holistic manner, and will function as the underlying strategy for the firm.
A.
The Case Study
This case study will include a multifaceted examination of the pertinent strategic and innovation frameworks, an analysis of how the concepts were applied, and a direction on further strategic development within the firm.
III. Strategy, Innovation, and Organizational Learning
Though a more recent area of research and interest within the context of business, Organizational Strategy has received an immense amount of attention within the past 50 years. It has been proven extremely difficult to establish a set of universal rules that should govern a business - not only is the process highly complex and malleable, but each company operates with a set of unique circumstances (Miles 1978). There is, however, an understanding about the importance of strategy; many decisions have lasting effects on a firm, for better or worse, and the nebulous idea of “strategy” is the cornerstone of many modern business concepts, theories, and courses (Porter 1996).
From Henry Mintzberg to Sun Tzu, influential people have taught us that strategy is important, yet very few seem to elaborate much beyond the nebulous concept, or if they do, it is under a very esoteric set of circumstances. Additionally, there seem to be as many possible theories as there are PhD students to write about them - from the Traditional to the Knowledge-Based Views, or Core Competencies to Blue Ocean, there are many difficult tradeoffs to make for management that will significantly impact the future of their respective firms. There is, however, a common theme that runs through the heart of all strategic theories and links them to a common thread: competitive
advantage. A well-executed strategy, whatever form it may take, is the foundation for any company’s hope at being an ongoing concern (Porter 1989).
Closely tied to strategy and strategic thinking, innovation has come to the forefront of economic thought in the past few decades, as smaller and more nimble firms develop models that completely up-end the existing status quo. The use of “disruption” within the context of business might be an overused trope in the modern economy, yet the theoretical foundations stretch back many decades, and are built upon the idea of creative destruction (Schumpeter 1942). Having described innovation as one of the main drivers of economic growth, Joseph Schumpeter’s book (which ultimately predicts the end of capitalism), has been adopted into modern economic and business dogma, where the struggle to find new ways to use the firm’s resources, new ways to engage customers, even new business models, rely heavily on the process of innovation (Ireland 2007).
Ultimately, it has been empirically shown that the level of innovation built into the core values of an organization is directly correlated to the organizational performance, both in terms of technological and non-technological terms (Subramanian 1996). In addition, a high level of innovative thinking is directly correlated to organizational cultures that emphasize learning, that are quick to adapt to changing market conditions, and that engage employees at a much higher level (Hurley 1998). Thus, it is immensely important that G2G, as well as other firms, place significant emphasis on spurring innovation, as it is intrinsically linked to the long-term survival chances of the business.
IV. Connecting Strategy and Innovation
For the purposes of this study, an assumption has been made about the direct relationship between the success or failure of a product and the success or failure of the firm that offers said product (Klepper 1996). This was reached in the following manner: if we assume that a for-profit firm retails a single product, the firm’s economic outlook and performance should exactly match that of the individual product which it produces.
Adding additional products, and diversifying the revenue streams for the firm does reduce the chance of firm failure due to a single product failure, in aggregate, but there is still an inextricable link between offering performance and that of the company as a whole (Klepper 1996).
To this end, the concept of product life cycle plays a very important role in determining the future of a company. As products age, they are typically replaced by better variants or fall out of favor, causing the economic benefits derived from the product to diminish (Klepper 1996). In fact, this behavior regarding the product life cycle is actually quite predictable, as most products follow a set progression through the following stages, termed here: Introduction, Growth, Maturity, and Decline (Polli 1969). Other analyses on product life cycle are even more granular, further dividing the stages, but they all follow the same eventual pattern: the eventual decline and death of the offering.
As previously established, any firm that relies on a particular product, or bundle of products, will eventually fail as the basket of products enter decline. The modern industrial revolution and communications era has only sped this process up; products progress much quicker through the life cycle, and the introduction of a new offering can destroy competitors virtually overnight, a process that has been coined by some not as
disruptive innovation, but as devastating innovation (Downes 2013). A remedy for this
seemingly inevitable death is the introduction of new products, which requires innovation, by definition6. Firms must consider innovation management when
(re)establishing their operating strategies; this applies to multinational conglomerates and startups, alike.
A.
Conceptual Frameworks, Theories, and Tools
In this section, there are two concepts that influence the selection and implementation of an organizational strategy, yet do not necessarily lie within the bounds of what is generally considered a “strategy”. As such, they will be listed separately, but it is
important for the reader to note that they have a significant impact on organizational choices and strategic decisions.
Pervasive throughout the course of the company project, as well as through this paper, is the notion that all of the decisions made, for better and for worse, have to be viewed through the lens of bounded rationality. To think of humanity as a perfectly rational being is deeply flawed, we are not willing to, nor even capable of, evaluating every possible course of action, nor the litany of consequences that arise therefrom (Gigerenzer 1996). The founders of G2G accepted this concept; some of our decisions would be suboptimal, unexplainable, or even result in beneficial ways that we could not explain. We would live a real life example of how to start a company with the unwritten motto of “Good Enough”.
With this in mind, it is important to remember that some of the decision made during the course of the project were not explicitly rational. Though there was an attempt to evaluate and analyze all decisions against the applicable frameworks, theories, and tools during the course of the project, it was simply infeasible. Some decisions were made by intuition alone, particularly at the early stages of the project when the facets of consequences were highly ambiguous. This project will attempt to evaluate some of those decisions against the applicable frameworks, and incorporate the results into the recommendations, even when the choices made were not explicitly rational. However, there is an unforeseen benefit to acting in such an irrational way: by testing our inductive reasoning against real-world results, we set in place the foundation for an organizational strategy that incorporates learning (Arthur 1994).
This list is by no means exhaustive, but rather represents different organizational strategies that were evaluated during the course of the project. Models that were deemed overly-simplistic, unrealistic, or not applicable, such as Porter’s Generic Strategies, were not evaluated at all. The strategies listed below received at least partial consideration during the formation of G2G; it should be noted that some were accepted,
in part, to the formation of the operating plan and business model, while others were deemed to be of little to no value.
More recently developed strategies, or those that are still being developed, are also listed here. As previously mentioned, it is not the intention for this list to be exhaustive, but rather as an explanation of different concepts that were explored during the course of this study. Many of the strategies listed below were evaluated and incorporated into the final organizational strategy.
1.
Exploration versus Exploitation
It is a given that each organization faces a multitude of choices, some of which are mutually exclusive, such as the deployment of limited resources. Extrapolated into a strategic sense, there is a trade-off that firms must make, the choice between exploring for new opportunities in the search for future economic benefits or exploiting existing opportunities to maximize the current economic benefits available to the firm (March 1991). Neither strategy is sustainable for the firm when practiced at the extreme: too much focus on future opportunities will leave the company vulnerable in the current context, while overly focusing on exploitation will result in a lack of future cash flows. Each firm must make a strategic choice as to where on the spectrum they wish to operate; whether their focus is generally more on the present, or more towards the future (March 1991). This decision is generally much easier for a startup where initially they have few, if any, current opportunities to exploit, and can focus on exploration, yet must constantly evaluate their decisions in the context of future opportunities for exploitation (Porter 1996).
2.
Resource-Based View
Often coupled with the VRIO framework, the resource-based view of the competitiveness of a firm is still popular and applicable in modern circumstances, and quite easy to adapt to many circumstances. This theory posits that the majority of success (or failure) of a company relies upon the ownership and exploitation of resources controlled by a company (Barney 1991). The basis of the theory lies upon the
idea that a firm owns or controls one or more types of resources; the classical resources such as cash, equipment, or labor; and/or neo-classical intangible resources such as intellectual capital, intellectual property, or human capital. These resources are then exploited to generate value by the company, acting as the key inputs to whatever processes the company employs to deliver value to their customers. The level of, and duration of, value with each particular resource is generally progressively evaluated under four criteria: valuable, rarity, imitability, and organizational support (Barney 1991). For instance, if a resource is valuable, but rather common (not rare), at most the company exploiting this resource could hope to achieve would be competitive parity. However, should a resource meet all four criteria, the resource-based view suggests that it will lead to a sustained competitive advantage (Barney 1991).
Many entrepreneurial ventures use this strategy because of its simplicity and because of the context in which the ventures are formed; entrepreneurs have to make the best out of what meager resources they control, in an attempt to attain a competitive advantage and deliver value to their customers.
3.
Core Competencies
Though also considered a means-driven strategy, the concept of core competencies differs from the resource-based view in several ways. Similarly, it has an internal focus; that a firm can extract value from methodologies and items within its control, and does not have to overly rely on external factors related to its line of business. The key differentiator between core competencies and the resource-based view is the nature of the intangible assets that the business uses to drive value creation; both related to the substance, and the ownership, of those assets (Prahalad 1990).
For example, a core competency for a business may revolve around its ability to create an exciting and engaging brand, which customers will perceive as having additional value over the firm’s competitors. If it is truly a core competency, the process to create the brand does not explicitly lie within the human capital the firm has, but rather the processes the firm uses to leverage the human capital available to it (Prahalad 1990). It
should not matter, within reason, who the firm employs in its marketing department, the ability to create valuable brands should lie within the business itself.
This is often a tricky subject to parse, because so much overlaps with the resource-based view, but in the opinion of this author, there needs to be a distinction, due to the nature of entrepreneurial ventures. The typical startup possesses very few, if any, resources, yet must figure out how to create value; for a typical technology startup, it is the business’ ability to find innovative ways to extract value that matters, not necessarily the skills of a particular individual or value of an asset. Though the distinction between core competencies and knowledge-based strategies becomes a little murky when the headcount of a business is very small, and differentiating between the founder(s) and the company becomes increasingly difficult, the distinction is an important one for the purposes of this project.
4.
Market-Based Strategy
This is a classical strategy that nearly all of us are familiar with, even in the absence of and formal instruction; you look for opportunities to profit in the market, and then tailor your value proposition to meet those needs (Anderson 2006). A “classical” business strategy, one would find most of the practitioners are likely large firms, who, already in possession of a myriad of resources, begin to look externally for opportunities to generate value, often in the form of new markets (Ghemawat 2001). A market-based strategy also provides the underpinning for other, more recent concepts, such as Blue Ocean strategy, and is generally considered the foundation of an “Outside-In” entrepreneurial mindset.
Particularly in the case of multinational enterprises, the market-based has historically dominated the strategic thinking amongst the management; having saturated their home markets with goods and services, they begin to look for new opportunities, either by refining their current offerings, or seeking new markets in which to deliver value (Anderson 2006). While the market-based view is not necessarily related to international
business, per se, there is an easily identifiable parable: foreign markets are often very explicit in their demands, they see goods a different market and say “we want that, too”.
Outside the context of a large enterprise, the market-based view also influences startups and small businesses, alike. Even in the most inwardly focused firm, there is someone asking if there is a need for the product in the market, though perhaps the consumers are not aware. Not only does such a mindset essential when considering a customer focused offering, but also provides an opportunity to evaluate the needs of the marketplace.
5.
Blue Ocean Strategy
The Blue Ocean strategy is the next logical iteration of the market-based view, and relies heavily on some of the fundamental concepts contained therein. The literature posits that all industries and markets can be broken down into two mutually-exclusive types: Red Oceans and Blue Oceans (Kim 2005). Conceptually, Red Oceans are industries and markets where there are intense competitive pressures, where the industry boundaries are generally well defined, and where companies attempt to outperform their competitors under a generally accepted set of competitive rules (Kim 2005). Logically, this leads to an ever increasing burden on companies, and they turn the oceans bloody as the potential for profits is hampered by competitors.
Conversely, Blue Oceans represent industries and markets that are not currently in existence, and thus are uncontested, allowing for the opportunity for higher profitability due to the lack of competition (Kim 2005). Though often thought of as outside the bounds of current industries, this is not always the case: sometimes a Blue Ocean can be created within the bounds of a Red Ocean simply by redefining the boundaries of the competitive landscape, or creating a more innovative way to create and capture value while simultaneously reducing costs (Kim 2005). The identification and establishment of these “Blue Oceans” relies on several frameworks put forth by Kim et al., and will be addressed in the analysis section.
6.
Porter's Five Forces
Michael Porter’s seminal work is an attempt to create a universal tool that industry participants could use to evaluate the opportunity for profitability vis-a-vis the firm’s competitors. The conceptual simplicity of the model makes it a popular tool when a firm is establishing (or reestablishing) the organizational strategy, because it breaks all the real-world complexity down into five “fundamental” business forces (Porter 2008). With the Five Forces tool, evaluating the attractiveness of a particular industry is an assessment of the threat of potential entrants, the threat of substitutes, the bargaining power of suppliers, the bargaining power of buyers, and rivalry intensity among existing firms (Porter 2008). When all the forces are low, an industry might be very attractive to enter, and conversely, if all the forces are high, it may be an unattractive industry in which to compete.
7.
Identity-Driven Strategy
Within the context and complexity of the “Modern Industrial Revolution”, there are many who would argue that the abovementioned strategies are too simple, and that evaluation along the traditional lines are incomplete. One of the emerging strategies that was evaluated was the concept of an identity-driven strategy: that it was incumbent on a company to not only create profit, but also to also deliver value to stakeholders, economic or otherwise (Freeman 2010). This theory argues that the purpose of a firm is not solely to its owners, but to society as a whole, and has recently gained a lot of traction in the business community, with concepts such as fair trade, sustainable, and socially responsible business.
Though conceptually sound, there is often difficulty in establishing who qualifies as a stakeholder; theoretically it could be every entity, globally, or it could be a very select few. An important concept when evaluating stakeholders is salience: some stakeholders are more important than others, and it is generally a good idea to evaluate their needs in a methodical way, with the most important getting the most consideration (Mitchell 1997).
8.
Knowledge-Based Strategy
In the contemporary economy, or what some refer to as the “Modern Industrial Revolution”, many theorists and practitioners have begun to eschew the concept that an organization’s strategy should rely on the more traditional views. Their argument suggests that considering both the inside-out and outside-in views of a firm will not produce any long lasting tangible competitive advantage when executed properly, but rather competitive parity, as all firms are not attempting to leverage their internal mechanisms and actively scanning the market for opportunity (Grant 1996).
It has been demonstrated, within small and medium-sized businesses, that internal characteristics are not the major driver of competitive advantages within these firms, but rather their ability to leverage knowledge-based resources (Wiklund 2003). This phenomenon is not unique to smaller businesses, though often more pronounced, but rather applies to firms of all sizes, and suggests that firms that undertake the development of knowledge within the individuals (as opposed to firm knowledge, or core competencies), and facilitate the sharing of knowledge between employees, have been able to secure an advantage over their rivals (Grant 1996). Given this research, paying particular attention to the knowledge-based approach seems most fitting when an entrepreneurial venture is establishing the strategy for the organization; not only could it lead to development of other forms of competitive advantage, but it also helps spur innovation, which is the epitome of value creation for a startup (Nonaka 1995).
Unfortunately, establishing a knowledge driven company is not an easy feat to accomplish: there are technological, structural, and cultural “infrastructure” concerns that must be addressed and developed, which adds to the complexity of the firm’s organization (Gold 2001). Technological concerns, alone, add greatly to the complexity of instituting an effective learning enterprise; internal technology must be sufficient to allow for ease of tacit and expressed knowledge, which can take many different forms (Grant 1996). Additionally, in a more traditionally organized firm, where different business functions are provided by different business units, internal structures are often cited as inhibiting the effective transfer of knowledge (Gold 2001).
On top of all of the aforementioned, cultural concerns represent a significant challenge to effective management (Gold 2001). Some companies have a culture that promotes interaction between employees, which fosters information and knowledge exchange, while others have cultures which actively suppress such behaviors, which could potentially damage any competitive advantage that a company enjoys. Because company culture is often hard to manage and has many antecedents, many firms struggle with the issue, but culture directly impacts an employee’s willingness to transfer knowledge (Osterloh 2000).
Knowledge-based strategy suggests that the true competitive advantage that a firm could enjoy is highly correlated to the knowledge contained within the firm. Practitioners who follow this theory often place a great emphasis on human resource strategy and acquiring and retaining human capital (Zack 1999). Because of the consumable nature of tangible assets, the definitive life of many intangible assets, and the volatility inherent in labor, it can be argued that any competitive advantage gained from more traditional strategies (such as those listed above), is not only unsustainable, but often fleeting (Zach 1999). Competitors can quickly copy products, services, or techniques, and such supposed drivers of value no longer represent sources of competitive advantage, but simply what is required to do business in the modern era (Kim 2005).
Conversely, knowledge has a degree of tacitness; it is often hard to describe, hard to imitate, and is not diminished with use, but rather increased. On face value, fostering learning and the sharing of knowledge makes sense, having a smarter workforce is an advantage against competitors. This concept also holds true in practice: knowledge is considered the most strategically important resource, and intellectual capabilities are strongly correlated to firm performance (Zach 1999). To this end, this strategy incorporates the concept of creating a Learning Organization, where the foundations are put in place to further develop and refine knowledge within the company, as well as the individual employees.
9.
Globally Born
The concept of Globally Born is a relatively new entrant into the field of strategy, having been appropriated from the world of marketing, and though while not an entire strategic theory of itself, it heavily modifies other theories by providing a unique context in which the formulation and execution of the organizational strategy occurs (Moen 2002). The driving force behind the emergence of this mindset is the high interconnectivity of customers and the idea that goods and services no longer need to be tangible; a company can sell a virtual item to anyone on the planet, and thus is operating in a global respect.
Startups, in particular, are often seen employing this strategy: they design their offering to quickly scale across borders and markets, and often pay no heed to geographic distance, though cultural, administrative, and economic distances must still be considered (Ghemawat 2001). Being a globally born company offers a particular set of challenges: no longer can a business cautiously expand into new markets, but rather the initial offering must withstand the scrutiny of a global marketplace from the onset, while still dealing with local circumstances.
This presents an interesting challenge when dealing with the strategic paradox of localization versus globalization: many startups wish to quickly scale and expand into international markets, yet must constantly evaluate different markets from a local perspective (De Wit 2010).
10. The Ten Types of Innovation
Innovation, within the context of new offerings of products and services, has been broken down into ten different areas which are placed into three separate groupings (Keeley 2013). A complete listing of the Ten Types of Innovation can be found in Appendix A. This framework was used so that G2G could classify different aspects of its offering as points of differentiation against current orthodoxies, with the intent of creating a disruptive service. There is strong statistical evidence that both the viability and the impact of an innovation is positively correlated to the number of innovation
types that product or service possesses (Varis 2010). A description of how G2G is addressing the Ten Types of Innovation can be found in Appendix C.
B.
Linking Strategy with Innovation
As previously discussed, both theory and evidence illustrate the importance of innovation, particularly within the startup ecosystem. In order to compete, and potentially disrupt, larger firms with greater access to resources, it is important that a technology based entrepreneurial venture focus on the creation and delivery of value to the customer in a novel way (Varis 2010). Startups, by their nature, have an interesting advantage against their larger competition, unburdened by history or institutional inertia, startups are free to challenge established orthodoxies in search of new business models and products, which represents a sizable strategic advantage (Hamel 1993).
Additionally, if we accept the premise of big bang disruption, there is mounting evidence that despite the resources enjoyed by an industry, innovative products and services can not only out-compete, but often completely devastate many legacy industries (Downes 2013). It is posited within this framework that a highly innovative offering, one which redefines as many of the Ten Types of Innovation as possible, holds the greatest chance to not only create economic performance, but secure a longer lasting competitive advantage (Varis 2010).
Finally, the theme of innovation is pervasive throughout the other strategy concepts outlined in the paper; nearly all of the organizational strategies rely on some aspect of innovativeness, particularly the newer theories, such as the knowledge-based view (Leonard-Barton 1995). Not only will developing a novel concept help set the stage for later strategic decisions and frameworks, but also is the underlying driver for the creation of value (Schumpeter 1934).
V. Framework Application
This section is an analysis and discussion of potential competitive advantages for G2G, vis-a-vis the capabilities of the founders, as well as the strategic and innovation concepts previously identified. The major themes discussed amongst the management of G2G will be further explored, as well as some of the theoretical and practical concepts that drove the thinking and decisions of the founders. While any entrepreneurial venture is chaotic and undertaken with great uncertainty, the initial formation of the company was exponentially more so. Decisions made during this seminal period will continue to drastically influence the direction of the company, frame the strategic decision making, and will likely determine the success or failure of the startup initiative. Because of the resources, capabilities, and mindsets of the founders, particular attention will be paid to both the Knowledge-Based and Blue Ocean strategies.
A.
Summary of G2G’s Strategic Vision
The business model of G2G relies heavily creating a unique value proposition by reimagining many facets of a traditional service platform within the context of the Ten Types of Innovation as described in the appendices, in an attempt to create a Blue Ocean in which to compete. Given the bounds of the skills and resources of the founders, not all aspects of innovation were reasonable, which will be further discussed in the appendices.
It is the aim of G2G to deliver value to its stakeholders by creating a decentralized electricity delivery service that provides the vehicle owners with convenience and anxiety alleviation, while simultaneously reducing the demand for nonessential investment in power grid infrastructure, via a mobile based platform. By combining a dynamic profit model, an open network of providers, and a structure that shifts assets to independent contractors, G2G can provide a touch-less service platform, via mobile application channels, that will redefine how the electric vehicle users view and interact with energy providers.
B.
Means-Driven Analysis
Startups, by definition, usually lack in many of the resources enjoyed by their larger counterparts, and is often cited as reasons that startups fail7. In general, one would
suspect that analyzing a startup’s competitiveness with the resource-based view is an act in futility - most resources are unavailable to microenterprises. This, however, is not explicitly the case when it comes to strategy formation, and its relation to the future business model of a company. Due to the enduring nature of strategic decisions, entrepreneurs must conceptualize and evaluate certain resource-based arguments, even if they are not pertinent at the time when the company is founded.
Extensive research exists linking the impact of strategic planning on the performance and profitability of businesses, though unfortunately not much of it has been focused on small and medium sized enterprises. However, some of the concepts are applicable, despite the differences in size and industry, and underscore the needs for strategic planning to increase performance and profitability (Schoeffler 1974). A key takeaway from the study, which predates Barney’s work, but fits in well with the resource-based view of organizational strategy, is the concept of efficient deployment of resources, particularly in terms of investment intensity and expenditure management.
In its current state, G2G is lacking many resources that it could employ to produce a competitive advantage: it has a negligible amount of capital and virtually no IT resources or assets. These potential threats are not lost on the founders: of foremost concern is the creation of a digital platform that the company can leverage to deliver value to its potential customers. Additionally, management recognizes that the acquisition of both resources and skills are essential to the establishment of core competencies (Prahalad 1990). However, given the current, exploratory nature of the startup, the lack of resources controlled within the bounds of the firm represents a significant challenge to future business prospects, as well as hurdles for the strategic shift towards exploitation.
1.
Managerial Implications
The lack of resources and core competencies within a startup such as G2G is not a surprising result, yet it represents a massive barrier to the continued existence of the firm. Though innovation can be considered a core competency, without access to valuable resources, the company is currently operating at a competitive disadvantage, and is unable to leverage a means-driven strategy to deliver value to the customer (Kandampully 2002). It is imperative that the management unify on a strategic execution plan to begin development of the platform, which has the potential to be a resource that will help the firm establish a competitive advantage, or the company will face certain failure.
Additionally, the dearth of available resources has significantly shaped the organizational strategy in terms of product performance and product system. These decisions were made from a resource-based view: redesigning batteries, or physical charging equipment, is an expensive process, which would require significant investments in research and development, and those resources are simply not available to the company at this time.
C.
Market-Driven Analysis
From both a theoretical and practical standpoint, the market-based view is extremely common amongst startup initiatives, and has been widely written about by both practitioners and theorists. Conceptually, it is very straight-forward: segments of the marketplace with few competitors would naturally be more appealing to new ventures, particularly when they have comparatively fewer resources (Kim 2005). If, as Kim states, “the market universe is composed of [...] Red Oceans and Blue Oceans”, it makes intuitive sense for smaller companies to seek out areas where there is less competition to improve their chances for survival (Kim 2005).
Additionally, there is evidence that companies that have a higher market-based view, or orientation, are also companies that tend to be more innovative and have higher
degrees of organizational learning (Hurley 1998). As previously noted, innovation is a key concept in strategic planning, but unfortunately, there is insufficient evidence that high market orientation causes or results from innovation (Hurley 1998). However, the issue of causality within the context of a startup is a moot point; because startups are able to define themselves and their strategies without concern for alienating current customers, they can specifically design their strategy however they please (Porter 1996).
In terms of creating “Blue Oceans”, empirical evidence suggests that the profit and growth consequences of seeking out untapped markets has an outsized effect on performance: while “Blue Ocean” opportunities represented less than one-seventh of product launches, they accounted for nearly two-thirds of profits realized by a company (Kim 2005).
The management of G2G believes that they have created a unique solution to the challenge of delivering energy to vehicles. An industry strategy canvas was created to compare the experience of a hybrid vehicle customer with G2G offering and three substitutes: gasoline, home charging, and charge stations (Figure 1). The offering has distinct points of differentiation versus all three substitutes: it excels in areas related to convenience, as well as user experience.
Key points to the Four Actions Framework: Eliminate:
Need for a vehicle to be stationary, in a designated geographic location in order to be fueled/charged. G2G’s strategic vision is to bring the necessary energy to the end user, regardless of where the vehicle is physically located. Reduce:
Cognitive and physical effort required in order to charge a vehicle. The platform will provide all the information to the energy supplier, so that a single interaction with the system is all that is required to initiate the service.
Raise:
Price. While the service will employ a floating price ceiling, which would make it cheaper than traditional gasoline, G2G does not intend to compete with other charging solutions in regards to pricing.
Create:
A pleasant user experience. G2G is shifting the customer experience of charging a vehicle from a physical task that needs to be completed, to a virtual experience via their proposed smartphone application. The strategic direction for later iterations will include a completely automated charge management system.
1.
Managerial Implications
Based upon an outside-in perspective, it appears that G2G is doing quite well, and has effectively identified a “Blue Ocean” in which it intends to compete. The firm has created several points of differentiation within the energy supply, and by innovating the business model, the delivery network, and the user experience, G2G is attempting to redefine the boundaries of the industry.
These are, however, somewhat speculative, and heavily rely on the proper execution of the development phase, as well as acquiring the necessary talent and resources. It is also incumbent upon the management to continually refine their value proposition in response to operating in different geographic markets, as well as changes in consumer
behavior. Additionally, the company needs to undertake significant market research in order to validate some of the assumptions that have gone into this analysis: it could very well be that the reason the “ocean is blue” is due to the fact that it is ultimately an unattractive space in which to operate.
D.
Identity-Driven Analysis
Though initially not considered, identity-driven concepts came to play a major role in determining how decisions would be made in the company. Initially, new ideas originated from a drive towards economic efficiency by the company, ranging from the mechanism for delivering electricity to the engagement of customers. However, many of these ideas were not congruent with the concept of sustainability that was at the core of the product offering - it made little sense for the company to use gasoline powered vehicles to deliver a green solution.
Additionally, there are other implications with a sustainable enterprise, such as the need to engage many different stakeholders, as opposed to focusing solely on the concerns of shareholders. Because G2G wishes to create a platform that engages both energy suppliers and energy buyers, certain aspects of the Ten Types of Innovation had to be addressed, particularly how to leverage the network aspect to deliver value to both parties.
1.
Managerial Implications
The concepts of “who we are as a company” and “how the world perceives us” are powerful drivers in the formulation of strategy within a company. The former deals with the internal motivations of management, such as the choice between shareholder and stakeholder views of the purpose of business, and the resulting strategic decisions therein (Freeman 2010). These are not decisions that are always rational from a for-profit business perspective, but must be accounted for nonetheless: if a startup places a greater amount of salience on a stakeholder than is the norm, it can be expected that they will make suboptimal economic decisions when accounting for that stakeholder’s demands.
But this is linked to the latter, or how the world perceives the firm, and can also be a source of economic benefit; a powerful and compelling brand has been identified as a competitive advantage in many studies, and can drive above-normal profits, even when other areas are lacking (Cravens 2006).
In this aspect, G2G may have a sizable advantage over established businesses; it can define its identity, while corporates often have to initiate a sizeable investment in order to change their identity. For example, by evaluating an identity driven strategy, G2G has structured its platform in such a way that economically encourages suppliers to also adapt a more sustainable model.
E.
Knowledge-Driven Analysis
The determination on how a startup initiative will foster and develop knowledge, as well as manage that knowledge within the firm, should be the primary focus of strategy development, as it has not only considered the most strategically important resource available to a business, but also has proven to be a determinant of many other aspects covered in this paper. While each company will require a different level of emphasis on knowledge management, the strong link between knowledge strategy and innovation has been well established (Grant 1996).
Particularly with companies that wish to develop a disruptive offering, defining and developing an organizational strategy that places high importance on the creation and diffusion of employee knowledge will prove instrumental in the ability of a startup to develop competitive advantages (Gold 2001). Most, if not all, of the strategic paradoxes play an important role in determining the knowledge-based strategy that a company will pursue, and specific care should be taken in crafting a strategy that matches the capabilities of the management and the company as a whole (De Wit 2010).
Based on extensive discussions among the founders, dialogues with local entrepreneurs, and extensive theoretical and empirical evidence, the development and
implementation of a knowledge based strategy was the foremost concern during the initial phases of the company formation. All of the founders understood the importance of innovation, and wished to create an institutional and cultural environment that would foster the development of innovative ideas. While the strategic survey of the founders did not produce a consensus in any of the strategic tensions, even amongst the dissenters, the importance of creating a company that fosters creativity, openness of communication, and a less structured organizational context, was recognized early in the process. It was also noted that a knowledge-based strategy was one of the few frameworks with which the founders of G2G thought the firm could effectively compete and hope to establish an advantage.
1.
Managerial Implications
The idea of establishing a knowledge based strategy was understood and favored by all of G2G’s founders, though the implementation of that strategy is not necessarily as clear-cut. The founders agreed that most sources of competitive advantage, particularly any which could be sustained, were reliant upon the knowledge possessed by individuals within the firm, and that creating an organization that would be conducive to the sharing of knowledge was a top priority.
To that end, extensive time and effort were logically focused on how to create and maintain human capital, and how to lay the groundwork to foster a culture that would enhance the competitive advantage that the firm wished to exploit (Li 2016). Though the company is currently a microenterprise, extensive care must be devoted to developing a coherent and comprehensive human resource strategy: the introduction of variability, by means of selective hiring, can be a source of organizational learning (March 1991).
F.
Globally Born Analysis
Under the assumption that a startup’s offering is truly disruptive, and highly scalable, consideration should be given to the idea that internationalization will occur in a very short time frame. Entering into international markets adds to the complexity of an organization; traditional firms have to deal with cultural, administrative, geographic, and
economic distances which are not always readily apparent (Ghemawat 2001). Despite these challenges, studies show that some startups are uniquely qualified to tackle these issues at an early stage: performance in international markets is significantly correlated to an entrepreneurial orientation and unique products, both of which are often a derivation of innovative capabilities supported by a knowledge-based strategy of the firm (Knight 2004).
G2G’s focus on innovative thinking and creating a highly-scalable offering lent itself well to the concept of immediate expansion into international markets. Though Amsterdam was selected as the initial test market, the platform is not bounded to a particular geographic region. This is, in part, due to the very low investment in hard assets; the offering of G2G, the marketplace, and the customer engagement, takes place in a virtual manner. As such, the complexity surrounding geographic distance is diminished, though the complexity of simultaneously operating in a global marketplace presents significant challenges.
1.
Managerial Implications
An analysis of the globally born nature of G2G provides insight into potential advantages and disadvantages that the firm will face as it nears the launch of the platform. The strengths focus on the abilities of the founders to adapt to different markets; two of the founders have experience in operating a startup venture, and the diversity of all of the founders is likely to help spur innovative thinking and the ability to address a diverse set of challenges. The weaknesses to a globally born strategy are primarily represented as a matter of complexity, and the resulting operational costs that are incurred as a business operates in different countries.
Unmanaged growth and entry into new markets could quickly overwhelm the capabilities of the firm, and establishing company and brand awareness in each market represents a significant struggle (Chetty 2004). Particular care must be taken when selecting markets in which to expand, as it represents not only a potential for the firm to incur sizable losses, but also identity related risks, such as G2G’s reputation.
G.
Porter’s Five Forces Analysis
Establishing the competitive landscape in which a firm competes is both difficult and essential, and will vary with the nature of the offering of the startup (Porter 2008). The five forces model is intrinsically linked to how the management views the network paradox: should the firm cooperate, or compete, and how will it position itself versus future rivalry (De Wit 2010). Firms that are entering an established industry may wish to evaluate this aspect with increased importance, while those that are attempting to create a new industry or niche, may find that this analysis is less important than other considerations. However, even in the latter case, it is important for a startup to engage in strategic thinking in regards to how the industry may look at a state in the future, which could impact decisions made in the present.
Within the context of G2G, not all aspects of the framework apply, though it was still carefully evaluated when creating the initial business plan. In particular, if a G2G achieves a high-level of success, the threat of new entrants increases exponentially, and consideration must be given as to how to deal with future competitive forces.
1.
Managerial Implications
The threat of new entrants into the industry, and the potential to disrupt G2G’s business is a threat that must be addressed from day one. In an attempt to mitigate this threat, G2G has purposely added complexity into their business model, given additional considerations to various stakeholders, and intends to globalize at a rapid pace. To prevent potential competitors, G2G needs to continue to erect barriers to entry, through the establishment of a strong brand, entering into agreements with car manufacturers and governments, and creating a robust network of suppliers.
Attention must be given as to how to potentially “lock” customers into the service in the hopes of increasing the switching costs, and continual iterative improvements must be made in order to dissuade potential entrants into the industry. Additionally, G2G needs to create some form of proprietary experience with the service that would be hard for a
