We’ve written and talked a lot about Upstarts of late, by which we mean the generation of newly established organisations that are rewriting the rules of business. Business in the digital age is different, and these startups-made-good are at the forefront of capitalising on the commercial dynamics of the modern world.
One of the most interesting aspects of what makes Upstarts successful is how naturally they have made the transition to service-led strategy – a total inversion of the traditional organisation-focused approach to strategy. The latter is still practiced by most established organisations, and is, I’d argue, one of the central reasons for their failure to adapt effectively to business in the digital age.
Conceptually, the shift is a very simple one. Traditionally, a business would define its strategy at an organisational level, before developing products and services to execute on that strategy. Services would only be explored and progressed if they fit the plan. Ideas for new services would only be considered if they fit one of the pre-defined strategic pillars. We've all seen that diagram.
This is an organisation-led strategy. It has been the mainstay of strategic thinking and the foundation of management consulting for decades. Essentially, it’s all about starting with a plan for the organisation and working out (or down) until you reach customers.
The service-led model simply reverses this: customer-facing products and services are the focus for strategic development. The role of the organisation is to support those services effectively, with its shape and structure built and adapted to suit.
Service-led strategy is founded on the principle that in an increasingly online world, the success of any customer engagement is determined by the relevance of a product or service to the customer and the quality of its customer experience. In today’s world, to start with the customer-facing services and the experience they deliver and then work inwards – to engineer the optimal organisation to support them – is the only logical approach.
Why do Upstarts exhibit service-led strategy so much? It’s obvious when you think about it: with very few exceptions, Upstarts start life as a single-service startup. They are borne of a customer-facing idea. The initial team is engineered to make that service successful, as is the very large organisation that might eventually grow to become. To think service-first is their nature.
The same is not true of almost all traditional organisations. Their nature is to think organisation-first. This means that they re-think their futures by re-thinking their organisational strategy. Few would consider the future of a traditional organisation to be a product of their future product and service strategies. Instead, they think the reverse.
To be clear, this inversion in strategic approach does not imply that an organisation is a dumb vehicle, existing purely to provide resources for its services. It requires a well-understood organisational purpose and a clearly articulated vision, underpinned by agile and imaginative leadership. Sadly, those are characteristics found in relatively few organisations, even today.
Service-led strategy is practiced frequently; organisation-led strategy is theorised periodically.
An organisation built around service-led strategy doesn’t need rigid pillars that define the boundaries of where and how it can operate. Instead, its purpose provides a foundation for what I would call its strategic domain: the space in which it offers services, with values underpinning each of them. It can experiment within its domain, exploring new service ideas and taking to market those that have strong customer appeal. It can then adapt intelligently to reflect the direction that its services – and by close association, its customers – take it in. It can adapt to the real needs of its market as that market itself adapts over time. Theory is minimised, which is critical.
Service-led strategy is practiced frequently; organisation-led strategy is theorised periodically. By building a future around the strategic development of services, an organisation can take more, smaller bets that are more likely to pay out. Judging by the fortunes of many Upstarts, even small bets can pay big.
The reality is that service-led strategy is at the very heart of the transition that big, established organisations need to make in order to thrive in the digital age. It helps them to build and focus their resources in exactly the right places, which allows them to compete effectively with both traditional peers and the Upstart generation.