Agility Update February 2021

Agility Update February 2021


Agility Update February 2021

Uncertainty is shaping up as the key challenge facing corporate leaders in 2021. With the disruptive influence of COVID-19 and the varied tracks countries around the world are on, Agility Update February takes a step back from the everyday details to focus on the bigger picture: How is technology changing the fundamentals, and how to craft a strategy to emerge victorious. And for the investors and entrepreneurs leveraging opportunities revealed by rapid change, UNSW Business School has helpful tips for both.

The Essence of Strategy has Changed

Understanding when and how to change is the new heart of strategy. With the uncertainty and constant change ushered in by the COVID-19 pandemic, traditional strategy frameworks that rely on the premise of long-run industry stability and competitor benchmarking no longer work.

MIT’s Sloan Review recommends the use of a tool like MADStrat analysis to help spot the opportunities and challenges that exist or are emerging in a company’s specific context. The MADStrat Matrix determines what form of change (Magnitude, Activity, or Direction) is appropriate in a given context through 2 perspectives to consider differentiation:

  1. Fit to purpose: Who are you different for?
  2. Relative advantage: How are your offerings valuably different from those of others?
  3. Mergers based on economies of scale are effective for companies seeking changes of magnitude, given that they already enjoy high levels of fit to purpose and relative advantage – think InBev’s merger with Anheuser-Busch in 2008.
  4. Mergers predicated on economies of scope are only wise for companies that enjoy high levels of customer equity, since having high fit to purpose is the prerequisite for effective cross-selling. An example is Disney’s acquisition of 21st Century Fox in 2019.
  5. A change of direction (often through diversification) is a necessary strategy for a company whose future fit to purpose is threatened by changes in technology (such as the threat to Ford’s and GM’s businesses from the shift to electric vehicles and alternative mobility options) and/or consumer preferences (such as the threat to Tyson’s business from the move toward meatless sources of protein).
  6. Internet of Behaviour (IoB) which combines existing technologies that focus on the individual directly – facial recognition, location tracking and big data for example – and connects the resulting data to associated behavioural events, such as cash purchases or device usage.
  7. Total Experience (TX), a strategy that connects multi-experience with customer, employee and user experience disciplines to offer key intersected experiences. Gartner expects organisations that provide a TX to outperform competitors across key satisfaction metrics over the next 3 years.
  8. The Cybersecurity Mesh using identity as the security perimeter will enable anyone to access any digital asset securely, no matter where the asset or person is located. Gartner observes that we’ve already passed a tipping point with most organisational cyber assets now outside the traditional physical and logical security perimeters.

Working out the form of change needed may be through self-analysis (try this 8-minute self-assessment of 32 questions) or may require primary research among different stakeholder groups. Next is to identify the actions that would be most effective. Click here to see recommendations to stimulate discussion according to whether the MADStrat analysis calls for a change of magnitude, activity, or direction.

Testing the efficacy of the tool, the authors applied a MADStrat lens to the 500 largest American merger and acquisition transactions over the past 20 years and found:

Read also the Boston Consulting Group’s 8 Practical Steps to Sense and Shape the Post-COVID Era.

The Future is Deep Tech

With the pandemic upending ‘normal’ and blasting open windows of opportunity, mentions of ‘deep tech’ are increasing in mainstream media. Deep tech refers to the fundamental innovations that provide the foundation for future generations of technology to solve the big problems that would change the world.

Specialist VC publication Sifted says, in Europe alone, deep tech makes up roughly a quarter of the startup ecosystem and together, the companies are valued at €150B, up from €25B just 10 years ago. And across the last 10 years, VC investment into deep tech companies has increased nearly eleven-fold, reaching €9.5B invested in 2019.

At a more granular view, Gartner points to people centricity, location independence and resilient delivery as the 3 main areas deserving investment attention. These areas, says Gartner, are creating a whole that is focusing on social and personal demand from anywhere to achieve optimal delivery. Over the next 5 to 10 years, the 9 strategic technology trends that will drive significant disruption and opportunity include:

Concurrently, investors should keep in mind the undercurrents. Innovation in deep tech is going global, increasingly decoupling from its historical roots in the US, Western Europe and Japan. China is leading this trend, and this could impact not only how the next generation of technology is built, but how it will be governed. Additionally, burnt by US sanctions, China’s push for a self-reliant tech ecosystem will have a huge impact on the rest of the world.

Finally, read TechCrunch’s interview with two leading deep tech VCs to gain an insight on what they view as some of the most impactful young startups right now.

Interpreting VC Forecasting and PE IPOs

Investors and entrepreneurs may find two articles in the University of NSW Business School’s Business Think newsletter of particular interest. One focuses on forecasting and the other on how to avoid picking a Dick Smith dubbed “one of the great heists of all time” or a Myer which “still rankles” a decade on.

In the financial forecasts entrepreneurs provided to their investors, the study found that, on average, they overshot realised revenues in the next year by about 22%. In particular, founder-CEOs overshot realised revenues by about 15%, while non-founder-CEOs do so by 27%.

Summing up, Associate Dean of Research and Professor of Management at UNSW Business School Frederik Anseel says: “First, a 0.1 multiplicator, as suggested by Guy Kawasaki, seems a vast exaggeration of the average optimism we observe; a 20% discount seems more in line with reality. Second, investors may also want to differentiate between founders and non-founders, because especially non-founders are more prone to over-optimistic forecasts. This observation runs counter to the intuition of many investors.” Read more here.

The second article, by Associate Professor School of Banking & Finance Mark Humphery-Jenner, states that the average private equity-backed IPO performs strongly but research shows 7 danger signals that it may not:

1. A short investment period of 1 to 2 years is likely insufficient time to fully transform a company and prepare it for listing. (See the Dick Smith 2012 and the Myer 2009 floats mentioned in the first paragraph.)

2. Prior litigations warrant further scrutiny.

3. The backer’s portfolio size may indicate they’ve spread themselves too thinly.

4. Geographic distance between the private equity (or VC) fund and the portfolio company could be a concern.

5. Having more backers is generally beneficial, but there are diminishing returns, with each additional supporter likely to have less scope to incrementally benefit the company.

6. Geographic diversification of the backers may indicate a breadth of experience and connections, but look to the fund’s records to see if such diversification has benefited the fund’s investments previously.

7. Continued involvement. The private equity fund’s continued involvement in the company exceeding the minimum time, or amount, legally required is generally a positive sign.


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