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The Viable Options Framework – A New Way to Organise Strategy

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There are signs that optionality is going to be the strategy framework of the future, despite the fact that right now it gets defined in ways that make it less than helpful. Why do you need to think about optionality in a more disciplined way? In the first post in this series on options I pointed out that (the infamous) Kodak disruption arose from the company confronting a new level of threat diversity.

To repeat, while they were struggling to stake a claim in digital cameras, and were locked in a price war with new entrant Fujifilm, Kodak were blindsided by another new technology convergence. NASA launched its new CMOS miniaturised camera on-a-chip technology, phone operators saw an opportunity for integration into their products and the camera phone and multimedia messaging followed, leading to the modern social network.

Perhaps this is the first example of diverse optionality overwhelming a company. What we had seen until then was companies overwhelmed by the effects of liberalisation and legacy monopoly behavior, low cost competition from Asia and the impact of breakthrough technology (e.g. flat panel displays destroying  cathode ray). The lesson anyway is the need for a method to create viable options.

Over the past ten to fifteen years there has been a proliferation of techniques and contexts for innovation, allowing enterprise leader more and more ways to create options.

In fact the growth of innovation method has been extraordinary and includes the new platforms described in this Gigaom Sector Roadmap.

The tools are there for creating more options but the process is lacking. Eric Ries and Alex Ostwerwalder have given us two very simple and effective ideas for working with startups: minimum viable product (MVP) and the business model canvas or business model innovation. These ideas have been formative for a generation of entrepreneurs. However the core ideas need to be adapted if they are to help companies facing disruption.

Osterwalder has focused on business model innovation but, in fact, for many organizations the key tasks are not how to validate new business models but how to change business processes in order to create and manage more options, how to do so quickly, and how to de-risk the journey at the same time as winning support for it  Ries’s work on the other hand is a framework for finding out if a new product is viable, when the core task might be to find find efficient adaptation processes.

To illustrate the challenge, I drew up one sample options table for a company in the payments industry. A player in the payments industry, whether established or relatively new, faces a myriad of possibilities:

  • Creating a platform to support subscription payment models
  • Focusing on remittance corridors
  • Building out a payments and financial services from a marketplace, as Alibaba did
  • Creating integrated payments around einvoicing, layering service onto the payment process
  • Price reduction in the FX component of payments, as per TranserWise, through creating a bespoke netting infrastructure
  • Integrating virtual and digital currencies
  • Offering working capital loans to facilitate payments, using new data models
  • Developing a distributed ledger or BitCoin currency solution
  • Offering new forms of escrow
  • Support of variable recurring revenue models
  • Flexible billing and metadata models
  • Creating a new infrastructure play as Ericsson has done in mobile payments
  • Mobile payments via NFRC
  • Creating a utility to provide Know Your Customer (KYC) utility
  • Creating ecosystem services to release working capital for payments from supply chains
  • Building new services in institutionally uncovered parts of the global economy, such as Africa
  • Mobile wallets
  • Redesigning credit scoring services to facilitate cheaper payments’ flows
  • Creating cash visibility services for large enterprises

Each of these is a valid option for any company in the payments space. Now can managers be disciplined in how they contemplate those options. the traditional mechanism is to ask – what is our core competency? But in volatile markets core competency is often a small part of the necessary skill set.

What the framework shows is that each choice has a range of requirements to go with it: new skills, new participatory obligations, new knowledge sources. There is a question around what level of investment a company needs to make to consider its options carefully. The table below shows the choices involved in considering one option. The list above has 19 potential strategic options. I’ll come back with some thoughts about balancing simplicity with diligence.

Table 1. A Snapshot of a Viable Options Framework

Options Path 1 Cost and competitive factors Process and skills Information needs
Choice of corridor US – Philippines Requires local agent network; can be run across third party networks – intensifies branding need, strong incumbents Partner development Local knowledge and brand presence;
Pensions payments to US middle class White space in middle class money flows Needs broad payments network Sources of emigrant activity, global channels to ex-pat communities
Etc
Remittances Choice of technology BitCoin Greenfield; potential cost reduction; price competitive Selling innovative services, market traction skills, cryptographics Need to monitor BitCoin environment, exchange rate movements, hedging
Mobile wallet Picks up on infinite endpoint potential of mobile, strong channel options App development, UX design, Platform integration know how; innovative product branding Consumer behavioral knowledge; switch out (ie from digital to cash)
Netting as a business model Cost reduction Algorithmic excellence Regulatory knowledge in each geography
Participatory options Agents as partners; customer incentive programs Strong tie in with community management Partner management at scale; ecosystem or community management Creditworthiness
Branding Many options here Deep pockets Competitor branding