The Essence of Strategy Is Now How to Change

 

When environments are complex and dynamic, strategy is about adaptability.

B. Tom Hunsaker and Jonathan Knowles

A fundamental assumption underlying traditional approaches to strategy is that industry boundaries and economics remain broadly stable over time. This assumption is no longer realistic, given that digital technologies and other factors have caused the average age of the companies in the S&P 500 to decline from more than 60 years in 1958 to less than 20 years today. This has reduced the relevance of tools such as the GE/McKinsey matrix and the BCG Growth-Share matrix, the diagnostic power of which relies on relatively stable industry structures.

A second dimension on which strategy development has become more complex is the requirement that companies show that they are actively contributing to the broader society rather than simply serving as financial entities seeking to maximize their return on capital. The current emphasis on corporate purpose and environmental, social, and corporate governance are manifestations of the intense pressure companies are under to demonstrate their social legitimacy.

As a result, business leaders need to evolve how they think about strategy in two important ways to be relevant in today’s dynamic and complex environments:

• First, their focus needs to shift from what is stable to what is changing — and specifically how these changes may neutralize historical sources of advantage and how they may give rise to new opportunities.
• Second, they need to broaden the number of stakeholders whose needs and potential contributions are evaluated during the strategic planning, review, and refinement process.

In our previous article, “Changing How We Think About Change,” we outlined a framework to help business leaders evaluate the relevance and sustainability of their current strategy and identify what form of strategic adaptation is appropriate to their situation:

• Magnitude: “We need to strengthen our execution of the current path.”
• Activity: “We need to adopt new ways of pursuing the current path.”
• Direction: “We need to take a different path.”

The MADStrat framework uses two perspectives to determine what form of change (magnitude, activity, or direction) is appropriate in a given context:

• Fit to purpose evaluates your market context and involves assessing the closeness of fit between your offering and the needs of customers (both now and in the foreseeable future), and how your business model also delivers value for other stakeholders. What are the outcomes that you enable your customers and their stakeholders to achieve? What wider social value does your business generate? This axis considers differentiation from the perspective of Who are you different for?
• Relative advantage involves assessing your capabilities relative to alternatives, not just direct competitors. In which areas can you claim to offer a distinctive advantage to customers and other key stakeholders? This axis considers differentiation from the perspective of How are your offerings valuably different from those of others?

By identifying the factors that underpin the appeal of a company, business unit, or brand to its customers and other key stakeholders, together with the factors that cause it to be regarded as irreplaceable, the MADStrat approach provides the insight for companies to understand whether their context calls for a change in magnitude, activity, or direction.

This more nuanced and context-driven insight serves as an alternative to the polarized advice that companies are presented with today: to either double down on what they’re already doing or engage in disruptive transformation.

The MADStrat Matrix

A company’s change decision is informed by its performance on fit-to-purpose and relative advantage criteria.

Does your situation call for a change in magnitude to deepen your existing strengths, a reimagination of the activities involved in the design and delivery of your offerings, or a fundamental shift of direction to establish a more sustainable future for your business?

For some companies, this insight can be gained through self-assessment (a version of this self-assessment can be accessed at https://madstrat.com), but others will benefit from primary research among different stakeholder groups to validate that they truly have understood how they are performing on the key dimensions of fit to purpose and relative advantage.

Once a company has established the nature of the change that it should be considering, the task becomes that of identifying the actions that will be most effective in improving their fit to purpose and/or their relative advantage.

In the following table, we outline the actions that business leaders should consider, depending on whether their situation calls for a change of magnitude, activity, or direction.

What Strategic Actions Should Your Company Consider?

Business leaders can use the following recommendations to stimulate discussion about how to enhance the performance of their company, business unit, or brand according to whether the MADStrat analysis calls for a change of magnitude, activity, or direction.

We have applied a MADStrat lens to our analysis of the 500 largest merger and acquisition transactions over the past 20 years to explore the importance of congruence between actions taken and the type of change recommended by the MADStrat analysis. For example, what explains the divergence of Google’s experience between its hugely successful purchase of Android in 2005 versus its largely unsuccessful acquisition of Motorola Mobility in 2011?

Our conclusion is that mergers based on economies of scale are effective for companies seeking changes of magnitude, given that they already enjoy high levels of fit to purpose and relative advantage — think InBev’s merger with Anheuser-Busch in 2008.

However, merely getting bigger does not solve the underlying problem for weakly positioned companies (such as Kmart and Sears in 2004) that should have implemented a change of activity (like acquiring access to new forms of digital distribution — as Walmart did in 2016 with its acquisition of Jet.com).

Similarly, mergers predicated on economies of scope are only wise for companies that enjoy high levels of customer equity, since having high fit to purpose is the prerequisite for effective cross-selling. An example is Disney’s acquisition of 21st Century Fox in 2019.

A change of direction (often through diversification) is a necessary strategy for a company whose future fit to purpose is threatened by changes in technology (such as the threat to Ford’s and GM’s businesses from the shift to electric vehicles and alternative mobility options) and/or consumer preferences (such as the threat to Tyson’s business from the move toward meatless sources of protein). However, diversification can be a source of management distraction for companies that should really be focusing on changes in either activity or magnitude. GE’s forays into mortgages through GE Capital is just one of the company’s unwarranted diversifications.

In dynamic environments, understanding when and how to change is the essence of strategy. Tools that help you spot the opportunities and challenges that exist or are emerging in your company’s specific context are now more relevant than the traditional strategy frameworks that rely on the premise of long-run industry stability and competitor benchmarking.

The most successful businesses today are those that identify when and how to change to improve their strategic advantage. Whether it is Amazon embracing physical retailing to complement its digital capabilities and enable new business models, or Pfizer leveraging its marketing and distribution capabilities by partnering with other drug development companies, these actions can be traced to acting on change signals that indicated a focus on magnitude, activity, or direction.

Companies that recognize the change signals appropriate to their context are more likely to direct their management and innovation energies most effectively — gaining the advantage.

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How COVID-19 Has Impacted Business: A 6-Month Retrospective

 

Written by Kipp Bodnar

It's been over six months since COVID-19 was declared a global pandemic. As we reported in March, the initial impact was painful on businesses. But now, six months in, businesses appear to be adapting to the new normal. Digital transformation is accelerating. Inbound marketing strategies are working incredibly well, while outbound sales strategies are struggling. Buyers are more in control than they've ever been, and companies delivering a great digital customer experience are winning.

COVID-19 forced many businesses to start operating online, and since then we've seen a huge spike in online buyer interest that has steadily increased over the past two months. This digital transformation was already occurring before the pandemic, but COVID-19 accelerated its timeline pressuring businesses and buyers to pivot to an online environment. Now that brands are experiencing the benefits of on-demand tools like live chat, these features will be standardized as consumers come to expect them more over time.

We've also seen a simultaneous decline in the effectiveness of outbound strategies. Take sales emails as an example — sends have nearly doubled since March, but open rates continue to remain well below pre-COVID levels. It's not that buyer interest isn't there; it's that consumers now have the liberty to choose when and where they want to interact with businesses. This places greater emphasis on inbound tactics as brands need to prioritize new channels like chat where consumers can interact with marketing, sales, and service at their own pace.

As more businesses learned how to successfully make this pivot, and the global economy slowly started to reopen, sales outcomes started to gradually improve. In June, we saw a significant change in deal performance as both deals won and deals created increased from just below pre-COVID levels to well above the benchmark by the end of July. Currently, global deal performance is hovering at and above pre-COVID levels as more businesses are getting used to working under these new circumstances. While it's certainly still a difficult time for businesses, the sales data suggests that we are slowly starting to move forward.

In this post, we'll take an in-depth look into buyer interest, marketing and sales outreach, and sales outcomes over the past six months. We'll examine how different industries, regions, and company sizes have been impacted by COVID-19, and offer suggestions for investments that make sense right now.

HubSpot can't make predictions about what will happen, and nobody knows what the future looks like. But we hope this report from our customer base provides a helpful reference as businesses enter the next quarter, and that the insights are useful to you in some way. To explore the accompanying dataset on your own, you can find our interactive microsite here.

1. Buyer Interest

2. Buyer Outreach

3. Sales Outcomes

4. Takeaways

This data is based on benchmarks calculated using weekly averages from Q2 vs. post-holiday weekly averages from Q1. Because the data is aggregated from our customer base, please keep in mind that individual businesses, including HubSpot's, may differ based on their own markets, customer base, industry, geography, stage, and/or other factors. While certain data is reported by industry, please note that we do not track all industries, and that HubSpot's industry classifications may not correspond with standard industry classifications.

COVID-19 6-Month Marketing, Sales, & Service Retrospective

1. Buyers Are in Control.

Customer-Initiated Chat Conversations

Buyer research has shifted to a more on-demand, in-the-moment experience than ever before, and live chat usage strongly supports that. Chat volume has steadily increased over the past six months, and have been trending over 90% above the benchmark since September. Since businesses have moved online, consumers have flocked to chat as a resource for real-time help. Now, consumers expect a live chat option when interacting with brands and businesses are slowly starting to implement them on their websites.

Additionally, now that a significant number of people are working from home and communicating on their preferred time and channel, research is happening on the buyer's schedule -- and they want real-time answers, even if the sales team is asleep. Marketing teams have pivoted to chat to engage prospects. Sales teams are using it to nurture leads, and customer service personnel are using it to support customers. Live chat is proving to be one of the most effective channels for communicating with customers because it allows people to interact with a company on demand. The arc of technology bends toward convenience, so even if demand for chat doesn't stay at this level forever, we feel confident that the pandemic has made chat a table-stakes channel going forward.

Regionally, APAC engaged in the most chat conversations compared to LATAM, EMEA, and NORTHAM. Just three weeks ago, APAC reached 144% above pre-COVID levels and it's been the highest above the benchmark since July. While every region has experienced significant increases for live chat volume, APAC's chat conversations have increased 132% since March, EMEA 86%, LATAM increased 81%, and NORTHAM 81%.

We're not surprised that APAC has been leading the way when it comes to live chat conversations as we've seen this region using more chat and SMS technology for quite some time. Apps like WeChat have gained popularity in the region for years, not only because they make it easier for customers to chat with sales and service people, but also because they give brands the opportunity to launch engaging campaigns. For example, in 2019, India alone had 340 million WhatsApp users, which was a significantly higher proportion of the population more than any other country in the world. Countries in APAC have also been early adopters of SMS and chat — Japanese retailers were using WeChat to advertise and offer customer discounts as a way to incentivize Chinese tourists as far back as 2016.

Web Traffic

Two weeks ago, total web traffic was at a year-high 34% above the benchmark and we've seen this metric increase over 25% since March. Global web traffic seems to be holding steady at this rate as we push past summer and into fall. In fact, this metric has been over 20% above the benchmark for the past 10 weeks. As buyers continue to do their shopping online, businesses with the most established online presence seem to be seeing the most benefit.

If we look at the industry breakdown, computer software leads the way with the most web traffic at 51% above the benchmark. This reflects the digital transformation that was already occurring before COVID-19 but was sped up due to the effects of the pandemic. Compared to where we were in March, nearly all industries have returned to about pre-COVID levels. For example, entertainment, a structurally impacted industry, was 18% below the benchmark in July but has been above or right below the benchmark for the past seven weeks.

2. Inbound Strategies Continue to Prove Effective for Buyer Outreach.

Marketing Emails

With buyer interest so strong, marketers have reinvested in email. Marketing email volume has increased a total of 49% since the start of the pandemic and is currently a year-high 52% above pre-COVID levels. This is a continuation of the steady increase in traffic we've seen over the last few months. At the start of the pandemic, marketing email volume had increased nearly 30% by the end of March. Over the summer, send volume was steady at about 30% above pre-COVID levels and has risen again in the fall.

Response rates are also performing well, remaining at 10-20% above the benchmark since April. In the spring, we saw open rates shoot up immediately following the start of the pandemic, then they leveled out throughout the summer and fall. It's encouraging to see response rates holding up since email marketing has been declared "dead" many times over the last few years as channels like chat have been on the rise. But, in marketing, it's not what channel you're using, it's how you're using it. Highly relevant, helpful content will reach buyers in almost any medium, and we're glad to see marketing teams sustaining high-levels of engagement via email.

Sales Emails

On the sales side, email activity has also increased, but response rates have been on the opposite trajectory. Global send volume has increased 79% since March, but response rates have consistently stayed nearly 30% below the benchmark since April. Send volume continues to grow through the fall as it's increased 25% over the past five weeks.

It's not that this approach isn't working, it's just not great for customer experience. Consumers are getting overloaded with emails as sales teams try to engage their new online audience. Since the pandemic has placed even more control into the buyer's hands, they're really only engaging with sales teams on their terms.

Email is still a valuable channel for salespeople, but blindly emailing prospects isn't going to increase responses. You need to make sure you're being deliberate in your prospecting mix because buyers have a lot more options these days to signal interest (visiting a site, converting on an offer, signing up for a demo, etc.). The key is to understand the intent behind these channels instead of just doubling down where it's easy to spray-and-pray — like with email.

Sales Calls

Even though sales email engagement has been stagnant, a really positive takeaway for sales teams is that call events are now trending 21% above the benchmark and have increased 18% since March. This is a significant turnaround for call prospecting as it dropped to around 25% below the benchmark from March to June, but picked up again later in the summer — about the same time that deal performance began to return to pre-COVID levels.

If we look at call prospecting by company size, smaller companies seemed to have called their prospects sooner than larger ones. Companies with 1-25 employees saw their call prospecting return to pre-COVID levels at the start of July, while 26-200 and over 201 companies are just starting to return to those levels now. Since smaller companies have fewer customers and not as many "set and forget" channels, their sales reps typically have stronger relationships with their customer base. When the pandemic pushed buyers and businesses into a time of uncertainty, these trustworthy relationships are what both sides could lean on to get through hardships. It makes sense that as deal performance began to stabilize in July, smaller companies were the first to return to the phones because they rely so heavily on these close-knit relationships as well as traditional prospecting channels like phones.

Currently, call events are 31% above the benchmark for companies with 0-25 employees and are up 26% since March. We can compare that to other company sizes like 26-200 employees, which is 18% above the benchmark and has increased 17% since March. Over 201 companies are only 2% above the benchmark right now, but this number has increased nearly 30% over the past four months. We'll look for 201 companies to increase their call prospecting as sales outcomes continue to gradually improve.

3. Sales Outcomes Are Gradually Improving.

Deals Won

Over the last few months, we have seen businesses adapt to new circumstances very rapidly. There was a lot of fluctuation in sales outcomes due to changing buyer circumstances, economic uncertainty, etc., all driven by the spread of COVID biologically. At the 6-month mark, businesses are simply more used to operating under these circumstances, and while it's certainly a difficult time, the data suggests that companies of all sizes are starting to move forward.

In April, we hit the lowest point for total deals won at 36% below the benchmark. Following that, we saw steady recovery from late-April to mid-June where deals-won returned to the same levels they were at before the start of the pandemic. Deal performance continued to improve through July and August, and at the end of September, deals won reached 10% above the benchmark. That's more than a 45% increase since the first week of April.

The pandemic has changed the definition of what a "good fit" customer is. Cashflow issues rendered some customers unable to purchase products that they could afford in the past. Changing circumstances affected the urgency customers had around purchases in both directions, accelerating some deals while stalling out others. Businesses have had to reassess their target personas because buyers' circumstances had changed so dramatically. To be successful, brands need to update their definition of a "good fit" customer as well as their sales motions.

Deals Created

In April, we not only saw the lowest number of deals won recorded, but the lowest number of deals created as well. During the week of April 6, deals created fell to 30% below the benchmark and remained below pre-COVID levels until mid-June. Over the summer, deal creation continuously improved and now it's at 35% above the benchmark. That's 65% more deals being created now than they were at the start of April. As businesses pivoted their strategies and learned to operate in a digital world, many found success and are starting to benefit from their new prospecting channels.

Regionally, it appears LATAM was hit the hardest for deal creation in the first three months of the pandemic. It reached its lowest point in April at 43% below the benchmark, but fortunately, bounced back over the summer and is now 16% above the benchmark. EMEA also had a recent return to pre-COVID benchmarks as it was trailing behind all the other regions up until July and August. It was 18% below the benchmark while all other regions sat at least 10% above it. In September, EMEA deal flow surpassed the benchmark for the first time since March and is now 20% above pre-COVID levels.

Construction, Manufacturing, and Computer Software have all been trending above the benchmark since the start of September. Construction is the top-performing industry and has been trending roughly 20% above pre-COVID levels since May. This is expected though, as these industries haven't been as structurally impacted as others. Industries like Travel, Entertainment, and Human Resources are still working their way back towards pre-COVID levels. While they're not exactly at the benchmark, deal creation for these industries has been significantly better than it was at the start of the pandemic.

Takeaways

Online Conversion Isn't New and It's Not Going Anywhere.

Businesses didn't suddenly discover ecommerce and live chat when COVID-19 forced them to adapt their operations. Brands and consumers were already moving online before the pandemic, but COVID accelerated their timeline and pressured them to embrace a digital transformation at a rapid pace. What were once novelty features and services — like live chat — are now vital to day-to-day operations. Without these tools, businesses can't engage or prospect customers like they could before the pandemic.

Now that many companies have pivoted online and are discovering the benefits that come with it, there's no returning to the way things were before. Companies will continue to invest in digital channels as these are proving to be highly-effective options for engagement, prospecting, and support. And, consumers are getting more familiar with these channels as well. As they continue to interact with brands through a digital landscape, they'll come to expect this environment as the standard for businesses moving forward.

Resources to Help:

• Learn how chat should and shouldn't work in this blog post
• Get up to speed with this beginner's guide to conversational marketing
• Get your sales team started by learning how to add live chat to your website

Free Software to Get Started:

• Free conversational marketing tools are included in HubSpot CRM
• Facebook Messenger integration with HubSpot

Inbound and Buyer Interest Aren't Optional.

With businesses operating in a digital world, buyer interest has turned into an on-demand experience. More consumers are working from home and spending more time online, which means they're interacting with brands when and where they please. Buyers now have a variety of channels to choose from when they want to contact your brand and they also have the luxury of switching between these channels as they see fit. So, if you want to successfully engage your digital audience, your brand needs to be available on all of the platforms your customers are using. That will also help you maintain a noticeable digital presence as more companies follow suit and go online.

You'll also need to focus more on your inbound methodology since consumers now have more power to interact with brands at their preferred pace. If you prioritize quantity over quality when it comes to messaging — like what we've seen with sales emails — you won't get far with engaging your audience and you may end up damaging the customer experience in the process. Instead, try focusing on sending high-quality content to your "good-fit" prospects. You may have to reassess what "good-fit" means since COVID has significantly impacted buyer profiles, but this should get you on track in terms of engaging buyers that are an ideal match for your sales team.

Resources to Help:

• Use these prospecting strategies to find new channels to engage your prospects
• Watch the replay of our Adapt 2020 webinar on selling through uncertainty
• Refresh your email outreach with these sales templates
• Start using video in your sales outreach to engage more prospects
• Use this guide to increase your sales close rates
• Streamline your sales process with this guide to frictionless selling (and this course)

Free Software to Get Started:

• HubSpot CRM is free and comes with included advertising and sales acceleration tools, including free 1:1 video, meetings, and chatbot tools
• Gmail and Google Calendar integrations with HubSpot
• Zoom integration with HubSpot
• LinkedIn Sales Navigator integration with HubSpot
• Check out what HubSpot's app partners are offering at this time with this list of relief initiatives

Businesses Have to Adapt.

Compared to where we were in March, global sales outcomes look a lot better. But, for many businesses — especially those in structurally-impacted industries — we're nowhere near where we were prior to the pandemic. Businesses have had to adapt their approach to operate under very different circumstances and some have done this successfully while others are still working to come up with an effective plan. The good news is it seems like most businesses understand they need to adapt their strategies in some way if they want to continue to operate in a post-COVID world.

Resources to Help:

• Create an effective SEO strategy using this helpful guide and template
• Prevent traffic loss altogether using this guide to predictive SEO
• Use this editorial calendar template to plan educational content
• Get started writing with these blog post templates
• Optimize content and get found online with our guide to SEO

Free Software to Get Started:

• HubSpot for Wordpress integration
• Google Search Console integration with HubSpot

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