Originally published in Harvard Business Review – Click here for the original article
By George Stalk, Jr. and Sam Stewart – April 23, 2019
To thwart possible disruption, pundits give legacy companies such advice as “disrupt yourself before you get disrupted” or “put frontline employees in charge of strategy and execution.” This counsel is of little help. Military history offers a much better way to respond. We call it tempo-based competition.
In 1976, U.S. Air Force Col. John Boyd explained why American fighter pilots had a far higher “kill ratio” (10:1) than opponents in the Korean War. At the time, the commonly held belief was that U.S. pilots were much better trained. If this was true, then dogfight victories should have been evenly distributed among all U.S. pilots. They were not; a few pilots achieved most of the kills while the others had very few, none, or were shot down themselves.
Pilot training, the innate ability of each pilot, and the jets themselves were the key factors. The F-86 that the U.S. pilots flew had vastly superior visibility from the cockpit than the enemy’s MIG 15 and was easier to maneuver at higher speeds. Consequently, Boyd postulated, these technical advantages combined with the skills of the few, best U.S. pilots could react to the enemy’s maneuvers at a much faster tempo than their opponents could react to theirs, causing enemy fighters to become confused, under- or over-react as the fight progressed, and eventually lose the ability to control the situation. “He who can handle the quickest rate of change survives,” Boyd said. He labeled this the Observe-Orient-Decide-Act (OODA) loop.
Despite all the differences between flying fighters and running a company, the OODA loop model is useful for understanding today’s uncertain business environment. Disruptors put the squeeze on competitors with a similar, dynamic loop: They continually scan the landscape, orient themselves to new circumstances, decide how to respond, and act quickly. Then they regroup and repeat the process. With experience and expertise, their “SODA loop” tightens and the tempo accelerates. Legacy companies can and should strive to play the same game.
To illustrate how the SODA loop works, let’s look at each aspect more closely:
Scan. Since competitors, technologies, and markets can change quickly, companies must systematically scan the horizon both for new opportunities and potential disruptions. Look for trend lines, new customer behaviors, anomalies, unexpected competitors, and changing demand patterns.
China’s Alibaba, the massive online marketplace, continually scans its customers’ behaviors by capturing and analyzing more than a petabyte of customer data every day. The insights drive a powerful innovation engine that delivers a continuous stream of new products and platforms. Similarly, Amazon looks for retail categories that are ripe for disruption. It brings these underperforming categories online, cuts costs, makes them more efficient, and improves service.
Look for “tipping points” that signify that a new trend or technology is gaining traction. For instance, the explosion in global demand for robotics was preceded by new price, performance, and adoption thresholds for component technologies that signaled a tipping point was near. By continuously scanning the landscape, companies maintain an external focus — and avoid becoming complacent or surprised.
Orient. After identifying potential sources of opportunity or disruption, companies must assess where they have gained — or lost — a competitive advantage and adjust their strategy accordingly. Doing this well requires a diverse leadership team that can analyze different scenarios, discuss and realistically evaluate the choices available, and look beyond the obvious.
Depending on the circumstances, options may include the need for a new product to be developed and tested, an offensive move to counter a perceived threat on the horizon, a new set of skills or capabilities, or an acquisition to quickly enter a promising new market. Evaluating the available options and how they affect the current strategy requires time, discipline and a common understanding of the situation throughout the leadership structure. This is a continuous process — it is “always on.”
Decide. Winning over the long term — and avoiding disruption — requires clarity on the key factors that determine competitive advantage. The executive team should identify a short list of critical questions about the business, the answers to which shape the company’s strategy. Potential questions include: Who are our target customers and how are their needs changing? Will other customer segments become more attractive over time? If so, what would we need to do to win them profitably? Do we have the talent and capabilities we need? Where are we most vulnerable and why? The process of answering these questions typically yields clear strategic decisions and priorities.
Act. Maintaining a rapid tempo requires the fast execution of strategy. Here, larger companies are often at a disadvantage relative to smaller, more nimble ones. To overcome this drawback, the leadership team of a larger company must distill and clearly articulate the firm’s strategic intent and context in the simplest language possible, so that people at all levels of the organization are aligned and can make better decisions more quickly.
For instance, Zappos, the online clothing and shoe retailer acquired by Amazon in 2009, has one overriding mission: to make its customers happy. The company’s service reps know they can do whatever it takes to meet that goal — without having to get approval from their superiors. So they’ll refund defective products and replace them for free, send flowers to a customer who says, “Mom is sick,” and spend as much time on the phone as necessary to resolve a problem.
To ensure alignment and fast action, individual and team missions must be explicitly linked to the company’s overall mission and strategy. Any incongruities among goals, resources, and constraints must be identified and flushed out early, so that time and effort are not wasted.
Most companies spend far too much time on things that slow people down, use up resources, and add little value. Tempo-based competitors like Alibaba, Amazon, and Zappos understand that the best way to avoid disruption is to keep an unwavering focus on the factors that confer a competitive advantage — and to never stand still. If you are standing still, you are a target.
