Strategy Development has followed a set path since the last century where a predetermined, rectilinear, and inflexible approach defined the process.
In the 21st century, however, business leaders are devising Strategy by evolving it into a probabilistic, repeated, and multifaceted process. An approach that can both endure and adapt to the growing pace of Change and Disruption that is manifesting itself in all industries.
Using gaming, AI, unremitting execution, and adjustment, with numerous scenarios to deliberate on, leaders create “Flywheels” that successfully tackle the not so deterministic world where the future is highly uncertain.
Flywheel is a concept originally used in the power industry to explain an origin of stabilization, energy storage, and momentum. The concept was propagated in the Strategy context by author Jim Collins. Employing the Flywheel concept, executives are able to validate assumptions through simulations as well as in the real-world scenarios.
Rather than using past assumptions and relying on instincts, using the Flywheel Strategy, decision makers exploit the power of Artificial Intelligence (AI) and Advanced Analytics. They model the multitude of variables and produce a sizable number of simulations that propose many strategic bets, option-value bets, and no regret moves.
Instead of numbing decision-makers with a profusion of options they created, the simulations render elucidative insights. Also, the AI system is made more capable through learning mechanisms called Reinforcement Learning by selecting from the above strategies.
The collection of strategic choices is increased exponentially and cost of experimentation is diminished by this approach. Decision-makers are also empowered by this tool to make better decisions. Likewise, organizations are able to select accurate market approaches, pricing, advertising, and customer strategies for several cities and communities, over a time span.
Strategy Flywheels can be used as a basis for developing Growth Flywheels by organizations. The Flywheel Strategy approach consists of the following 3 phases:
- Sense: Market Sensing
- Think: Strategy Formulation and Investment Planning
- Act: Performance Evaluation and Learning
The dynamic and resilient Flywheel Strategy of Sense, Think, Act has 3 parts, which are based on establishing policies, contending with dynamic models within the background of environmental assumptions, and handling randomness.
Let us delve a little deeper into the 3 phases.
Sense: Market Sensing
Environmental assumptions are formulated through this procedure of extraneous Market Sensing.
Uncertainties to which probability assignment is difficult are the target of Market Sensing activity. Most urgent strategic matters can be detected and senior leaders consistently engaged in devising a response to them by recurrently sensing extraneous market changes.
Improvements in Machine Learning and cutting-edge AI can aid in not only expanding the quantity of information scanned but also enhancing the quality of content evaluated.
Think: Strategy Formulation and Investment Planning
Conventional strategic thinking can be aided in the new way of strategizing by the 3-phase process for Gamification—Design and Build, Simulate, and Evaluate.
A stable strategy consists of a portfolio of investments and projects with diverse risk profiles. Diverse risk profile of performance is a mix of:
- No-regret moves
- Strategic bets
- Option-value bets
Act: Performance Evaluation and Learning
Performance Evaluation and Learning from the efforts has to be carried out so that improvement in proficiency to sense the market and experiment with new ideas occurs.
Interested in learning more about how Amazon and Uber used Flywheels, how the Gamification approach is used in Flywheel Strategy formulation, and what constitutes a diverse risk profile? You can download an editable PowerPoint on Flywheel Strategy here on the Flevy documents marketplace.
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