In the age of Industry 4.0, all sectors are facing profound changes. Some of these changes are structural in nature, while others have to do with the various players involved each sector. Volatility, uncertainty, complexity, and ambiguity are the hallmarks of today’s environment. Consequently, we have been hearing more and more about the ever-increasing need for business transformation—a challenge that eclipses, both quantitatively and qualitatively, the change-management processes of the past.
How can we use business strategy to meet the need for profound organizational change? Are the traditional tools for formulating and implementing business strategies still valid? Yes, they are, although we must also use complementary approaches if we wish to achieve true strategic management. Rather than discussing a strategic plan in great detail and undertaking an in-depth preliminary study, we must focus on major lines of action based on up-to-date business models. Management responsibilities should be assigned with a degree of flexibility and plans should be revised and improved periodically. We must chart an appropriate strategic course based on a current business model that makes it possible to stay competitive in today’s context.

 

A strategic management model

In order to set an appropriate strategic course, management teams must work on four management maps corresponding, respectively, to vision, deployment, execution, and energy.

The first map, which defines our vision for the future, involves six key steps:

Identify the critical variables of the strategic environment and detect opportunities.
Evaluate the company’s current situation, as well as its business model and capacities, in order to detect potential adjustments that would enable the organization to take advantage of opportunities.
Identify the areas of value required by stakeholders and use them to guide sustainable value generation and corporate social responsibility.
Review and adjust the strategic framework.
Outline the necessary adjustments in the company’s business model and positioning.
Plan the transformation of the business model in order to put change initiatives into action in accordance with the established lines of strategy.
For each line of strategy, we must establish objectives, initiatives that set a new course (abandoning “business as usual”), and a strategic budget on the basis of three key areas: income, expenses, and the investments required for the strategic initiatives.

The second map focuses on deployment. It begins with a roadmap based on goal-setting, management indicators, and target values (in the areas of finance, strategic resources, customers and critical service processes), as well as action plans to make the strategic initiatives viable and put them into practice. The deployment of this roadmap involves the following steps:

Design a strategy map based on a roadmap that makes it possible to align and coordinate everyone who has responsibilities as well as appropriate metrics based on whatever viable information is available.
Following the roadmap, deploy a strategy that facilitates the implementation and monitoring process.
For each line of strategy, we must establish objectives, initiatives that set a new course, and a strategic budget.
The third map—execution—includes implementation and the measurement of the progress of the established strategy. The key processes on this map are as follows:

Review the organizational model to confirm that each initiative has a supervisor empowered to move it forward.
Coordinate transversal projects with the responsibilities set out in the organizational chart.
Measure the value contribution of the various centers of responsibility and projects.
Align supervisors and their teams with the strategic vision.
Align and coordinate the operating budget, which is usually drawn up on a monthly basis, with the first-year strategic budget approved in the plan.
Monitor and control the strategy using metrics having to do with objectives, budgets, and the completion of initiatives and plans.
Hold effective meetings to determine the causes of deviations and take corrective measures as necessary.
The fourth map, focused on energizing the organization and its people, is also essential. In this phase, the following steps must be carried out:

Develop the necessary talent to carry out the functions described in the plan.
Implement work processes that energize people and improve their occupational sustainability.
Encourage commitment by adapting management systems (including compensation and incentive systems) to align people with the plan.
Embed the values of the new culture in the behavior of the leaders as well as everyone else in the organization.
Improve effective leadership competencies and governance processes in the organization.
We must manage the future not with a plan, but with a management process based on a decision-making framework.
Towards value creation

By integrating and aligning the content of the four maps, we can guarantee the implementation of this decision-making framework, which is essential to ensuring sustainable value creation in any organization.

Three key issues must be taken into account. First, strategic management is a must. Today’s organizations face rapidly evolving environments. We must therefore manage the future not with a plan, but with a management process based on a decision-making framework and guided by principles that allow a flexible, agile response to changes.

Second, this framework is based on the coordination of a series of tools and methodologies for envisioning, deploying, executing, and energizing, all with the aim of creating an agile decision-making process.

Finally, we mustn’t forget the pillars of strategic management. The management team must distribute its work hours among the seven pillars that support this process:

Reflection and rigorous analysis of the environment and the company’s situation.
Creativity to envision the necessary changes in the business model.
Capacity to plan and deploy objectives and initiatives.
Organizational flexibility to align and empower people.
Decision-making capacity to make corrections and adjustments.
Mental and executive flexibility to enable a diverse range of cultural profiles to coexist in a single decision-making and execution environment.
Framework of values to guarantee the sustainability of the project.
The management team plays a fundamental role in integrating the four maps and boosting results in the short and long run, while at the same time generating a virtuous cycle based on improvement momentum.

 

© IE Insights.
ABOUT THE AUTHOR
GONZALO REAL
ASSOCIATE PROFESSOR OF STRATEGY AND MANAGEMENT CONTROL AT IE BUSINESS SCHOOL
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JANUARY 21, 2020
ARTIFICIAL INTELLIGENCE: A COMPETITIVE CAPACITY
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COMPETITIVENESS & GROWTH | SMART SOCIETY | STRATEGY | TECHNOLOGYSHOW SUMMARY
Outside of scientific circles, artificial intelligence still generates a certain degree of fear. However, where some see the empire of the machines, others see a republic of opportunities—the fourth industrial revolution as a chance to better address social and business needs.
Is artificial intelligence (AI) a friend or foe? Even today, this debate remains highly polarized among non-scientists. AI’s critics can be somewhat alarmist, while its advocates see enormous potential to achieve competitive advances that would otherwise be out of reach.

There are two main types of AI. The first is artificial general intelligence (AGI), also known as “strong” AI. This is the kind that conjures up negative connotations for some people: self-aware technology with a will of its own and priorities not dictated by humans. The second type is artificial narrow intelligence (ANI), or “weak” AI. Nowadays, all intelligent computational technologies designed for well-defined purposes use ANI.

Both types of AI entail risks derived from poor management on the part of humans. Nevertheless, AI has clear benefits: smart algorithms are capable of processing previously unimaginable quantities of data, and machine learning allows predictions that are far more accurate than those generated by traditional models.

Therefore, AI is anything but a threat. It is actually a competitive capacity based on algorithms—integrated mathematical models capable of providing specific answers while also learning from their interactions, thereby increasing the accuracy of their predictions.

Smart algorithms are capable of processing previously unimaginable quantities of data.
The next wave

AI development has come in multiple waves. The first wave was all about the Internet: providing customer service via the web and mobile devices, developing better interfaces, and gaining a better understanding of user preferences.

The second wave involved using AI to make better decisions, understand consumers, focus marketing actions, and reduce costs and workloads through smart automation.

The third wave brought capacities related to voice, image, and video recognition. These technologies made it possible to extract previously untapped information and convert it into useful data for the creation of new systems and applications.

The next wave—autonomous AI—will bring automated mobility capable of detecting and responding to the environment. Examples include self-driving vehicles, robotics, and production automation.

This smart technology poses a fundamental shift, since it changes how we create value.
The fourth industrial revolution

This smart technology is part of a great transformation that has been called the “fourth industrial revolution,” which differs from its predecessors in certain key ways. The first three industrial revolutions were characterized by a massive displacement of labor: many jobs disappeared, while new work capacities led to the creation of others. The introduction of automated teller machines (ATMs), for example, led to the automation of this function and the streamlining of related jobs. Nevertheless, the number of bank employees actually increased to cover new functions made feasible by this technological advance.

In the case of AI, the revolution is profoundly different. Jobs are no longer directly transformed; instead, new jobs have to be created. This is where it is essential to see an opportunity. As the World Economic Forum has acknowledged, the current revolution is affecting physical, digital, and biological systems in ways that previous revolutions did not.

In addition, this smart technology poses a fundamental shift, since it changes how we create value. Returning to the previous example, whereas ATMs automated processes but did not alter the basic nature of banking, today’s blockchain technology is clearly transforming how value is stored and deep learning is revolutionizing our ability to make predictions. These technologies are taking efficiency to a new level.

The great challenge is to democratize the development and application of this technology, which is currently concentrated in the hands of a privileged few.
Artificial intelligence in practice

From a social perspective, it is important to note that AI is applicable to a wide range of fields where people have problems in need of solutions.

From a business perspective, in order to get the most out of these smart technologies, organizations must consider various aspects in order to determine real needs. The first step is to clearly define an objective, rather than trying to tackle an excessively broad range of goals.

Second, weigh the risk: if you consider all the implications, you might find that process automation or digitalization is the most effective way to achieve the desired result.

Another key point has to do with data, the most important asset of the 21st century. It is preferable to focus on small quantities, since quality is more important than volume. Finally, any organization that wants to initiate this sort of process must analyze what it needs to do in order to transform internally.

The great challenge is to democratize the development and application of this technology, which is currently concentrated in the hands of a privileged few, while at the same time nurturing a new connection between people and AI. Can the next wave make this dream a reality?