Developing Strategy in Chaotic Environments

Developing Strategy in Chaotic Environments

Constructing Spheres of Influence to deflect competitors: Chaotic environments, especially those that are suffering from all the effects of the five forces, can destroy stability and profitability. Similarly, chaotic change caused by endless revolution and innovation, can destroy stability and structure that used to provide profitability. In such circumstances, many companies try to create order in their competitive environments by building a strong and rational sphere of influence. Throughout history spheres of influence have been used to manage political relations between countries and nations continue today to try to create them.[1] They are also the best way for successful for successful businesses to establish and maintain order and create profitable industries. A sphere of influence goes beyond existing portfolio planning methods focused on exploiting core competences, creating synergies or transferring funds from cash cows to star businesses. A well constructed sphere of influence can manoeuvre competitors into a corner, reduce price wars through the equivalent of “mutually assured destruction”, encourage rivals to grow in non-conflicting markets and shape the industry to partners’ mutual advantage. A sphere of influence consists of:
    • Core geographic markets: The benefits of creating and maintaining the greatest market share in core geographic markets are well known. Dominance in market share brings lowest cost advantages that, together with value leadership, help to enhance profitability.
    • Core product markets: A core product market is the centre of an effective sphere of influence. Companies hope to dominate them in both market share and value leadership.
    • Vital interests: These are geographic or product zones critical to the core. They might be complementary products or businesses that provide resources such as know-how, raw materials or skilled labour. For example, Microsoft’s operating...