Shaping Strategies

What is a Shaping Strategy? In the broadest sense, a Shaping Strategy uses positive incentives to mobilize very large numbers of participants to help change the prevailing structure of a market or industry to the advantage of the shaping company. It harnesses distributed innovation among the participants and network effects to amplify the efforts of each participant. It is a powerful way to leverage the resources of the shaping company and accelerate learning to enhance impact.

What are the components of a Shaping Strategy? There are three key components to successfully pursue a Shaping strategy: the Shaping view, Shaping platform and assets and activities.

• The shaping view communicates a compelling view of the future structure of a market or industry and the clear upside for participants in achieving this new structure
• The shaping platform provides standards and protocols that significantly reduce the near-term costs of participation by third parties and accelerates and amplifies the rewards that they can generate from their initiatives.
• The acts and assets of a shaper help to overcome the natural skepticism that potential participants might have in times of high uncertainty by demonstrating the commitment and capability of the shaper.

Who can benefit from a Shaping Strategy? A Shaping Strategy is designed for an organization looking to create long-term structural advantage in its market or industry while at the same time achieving significant leverage by mobilizing others. From startups to Fortune 500 companies, any company that possesses the necessary characteristics of a shaper has the potential to execute a successful Shaping Strategy. Those who don’t have these attributes can still benefit from being a participant in the shaping strategy of another company. Increasingly, the choice in many industries is to shape or be shaped.

So what are the characteristics necessary for a shaper? A shaper is the key orchestrator of the shaping strategy. The shaper must mobilize large numbers of participants in order to achieve critical mass and unleash increasing returns. The potential for shaping usually starts with a tenacious and articulate senior executive (ideally the chairman and/or CEO) with a radically different view for how the industry might evolve.

To mobilize others, an individual must possess the following traits:

• A clear view of how and why market or industry structure will fundamentally change in next five to ten years
• Strong communication and persuasion skills
• Deep understanding of what motivates potential participants in a shaping ecosystem and the ability to communicate a compelling view of the rewards available to all participants
• The ability to align the entire executive team of the shaping company with this view
• Commitment to drive long term, market-wide change

On a higher level, the shaper may be an entire company. To mobilize others, a company must possess the following to be a shaper:

• A strong leader who possesses the personal attributes defined above
• Skill in mobilizing a very large number of independent participants
• High tolerance for risk
• Long-term time horizon

When is the climate right to implement a Shaping Strategy? Shaping strategies succeed when there is an impending significant disruption in the market, often generated by new technology or a major shift in the regulatory environment. Since these strategies depend on the ability to mobilize a large number of participants, they work best when there is already a high degree of fragmentation in key parts of the market or industry or where the barriers to entry are very low so that a large number of new participants can emerge quickly.

While there are many historical examples of Shaping Strategies they have become more feasible in recent decades given the advent of new generations of technology make it much easier to connect with and mobilize participants than ever before. Further, the potential rewards are also greater in today’s environment, where there is an increasing gap between the exponential improvement of digital technology infrastructure and the much slower advances in business productivity. This gap creates a growing potential for significant economic rewards that can be generated by efforts to close this gap. These potential rewards can help to motivate large numbers of participants More opportunity, more rewards and more capabilities create compelling incentives for executives to adopt Shaping Strategies today.

What industries are best for a Shaping Strategy? Recent examples of Shaping Strategies are most prominent in the tech industry. However, the applicability stretches far beyond tech. Shaping Strategies have significant potential in such diverse industries as healthcare, financial services, media and retail.

What distinguishes a Shaping Strategy from other successful strategies? Shaping Strategies focus on the use of positive incentives. By aligning the interests of a broad network of participants and fostering distributed innovation, the shaper creates the potential for a rapidly growing economic pie. Many of the more traditional approaches to disruptive innovation tend to rely on negative incentives to drive industry change – if incumbents don’t adopt the disruptive innovation they will suffer severe penalties, ultimately resulting in death to the laggards. The positive incentives used in Shaping Strategies can be particularly powerful when they unleash increasing returns.

Shaping Strategies also differ from broader platform-based strategies because they focus on creating platforms where large numbers of participants are motivated to innovate and experiment in parallel, rather than simply aggregating existing resources. In particular, Shaping Strategies also address the key obstacle to more generic platform strategies – how to rapidly generate the critical mass of participants that sets into motion the increasing returns. This is where most platform-based strategies fail. By focusing on a compelling shaping view, a shaping platform that materially alters the economics of early participation and shaping acts and assets that can overcome the natural skepticism of participants, Shaping Strategies help to generate the critical mass required for the success of the platform.

What are some examples of a Shaping Strategy? Shaping industries and markets through positive incentives has both historic and current precedence. Early examples of successful shapers using positive incentives include Malcolm McLean’s efforts to evangelize containerized shipping in the 1950s and 1960s, Visa in the financial services arena in the 1970s and Li & Fung in the apparel industry in the 1980s and 1990s. More recently, we have seen successful shaping strategies emerge in online advertising, online social networks, enterprise software and mobile telecommunications. In recent years, Facebook, Spotify and Google’s AdSense and Android initiatives are just a few examples of Shaping Strategies in diverse arenas.

Today’s Environment

Most companies believe that an adaptation strategy is the winning strategy in an environment characterized by accelerating change and growing uncertainty – sense and respond quickly to events and the company will thrive. More often than not, adapting companies undershoot the true magnitude of the opportunities presented and often spread themselves too thin in trying to respond to every event that surfaces. Even more troublesome is that companies often seek to adapt by looking inward rather than effectively mobilizing others in their ecosystem for help.

The Opportunity

While the ability to adapt is required in a world of constant disruption, there is a larger opportunity in the form of shaping strategies. In times of rapid change and growing uncertainty, companies often have far more degrees of freedom to fundamentally shape the structure of a market or industry to their advantage. They can shape the mindsets, economics and knowledge flows among a large number of third-party participants in ways that motivate them to support and amplify the initiatives of the shaping company. By its broadest definition, a shaping strategy fundamentally alters the structure of a market or industry in ways that transform competitive and market dynamics, as well as industry economics, to favor the position of the shaper. So, what distinguishes a shaping strategy from other successful strategies? Shaping strategies focus on the use of positive incentives. By aligning the interests of a broad web of participants, the shaper makes the economic pie bigger for all so that there is more for many. A successful shaper minimizes the perceived risk for participants while maximizing the perceived rewards. The use of positive incentives contrasts with the use of negative incentives often associated with disruptive innovation. In that model, a disruptive technology, product, process or business model shapes the industry by challenging rivals and the industry to come aboard. Rivals either change their practices or die. Shaping strategies using positive incentives helps to leverage the efforts of the shaping companies by mobilizing the diverse and specialized resources of a critical mass of third party participants, encouraging distributed innovation and experimentation across this web of participants so that everyone can learn faster, and unleashing powerful network effects so that the value delivered increases exponentially as the number of participants grows..

Shaping Components

Three very important elements come together to build a successful shaping strategy. An aspiring shaper needs to integrate a powerful shaping view, an appropriate shaping platform and relevant acts and assets to enhance the credibility of the shaping view and platform:

• The shaping view communicates a compelling view of the future structure of the market or industry, indicates why this future structure is inevitable and makes explicit how many participants, not just the shaper, can profit from this future state
• The shaping platform provides standards and protocols that significantly reduce the near-term costs of participation by third parties and accelerates and amplifies the rewards that they can generate from their initiatives. The most effective shaping platforms foster distinct niches for participants so that they minimize the risk of commoditization through direct competition with all other participants and these platforms also provide the tools and capabilities for participants to experiment or innovate at low risk.
• The acts and assets of a shaper help to overcome the natural skepticism that potential participants might have in times of high uncertainty. These acts and assets are designed to enhance the credibility of the shaper by demonstrating both the commitment of the shaper and the capability of the shaper to effectively achieve the shaping view and effectively support the shaping platform. These three elements reinforce each other and help the shaper to mobilize a large number of participants, build critical mass and achieve increasing returns for all

Shaping Examples

Shaping strategies have proven effective in the past across a broad range of industries. Early examples of successful shapers using positive incentives include Malcolm McLean’s efforts to evangelize containerized shipping in the 1950s and 1960s, Visa in the payments arena in the 1970s, Li & Fung in the apparel industry in the 1980s and Microsoft in the technology industry in the 1980s and 1990s. More recently, we have seen successful shaping strategies emerge in online advertising, online social networks, enterprise software and mobile telecommunications. With the bloom of web-based businesses and exponential development in digital infrastructure, more and more companies have become shapers. In recent years, Facebook, Spotify and Google’s AdSense and Android initiatives are just a few examples. We believe shaping strategies are relevant across a wide range of industries, including financial services, healthcare, media and entertainment, retail and pharmaceuticals.

Why Now?

Shaping strategies have broader application than ever before. The increasing gap between the exponential growth in the performance of digital technology infrastructures and the much more modest growth of business productivity creates both a growing potential for business disruption and an upside in rewards that will accrue to successful shapers. Today’s global digital infrastructure makes it much easier to mobilize and coordinate the activities of much larger numbers of participants than ever before. More opportunity, more rewards and more capabilities create compelling incentives for executives to adopt shaping strategies today.

For more information, contact:

Blythe Aronowitz
Chief of Staff, Center for the Edge baronowitz@deloitte.com