By W. Chan Kim & Renee Mauborgne
The world has recently enjoyed the longest business cycle since the National Bureau of Economic Research has kept records.
Despite the macroeconomic uncertainty and the unpredictable business cycle, companies need to develop their investment and growth strategies. The question they face is how do you build growth and resilience, irrespective of the stage of the business cycle? Fortunately, our research provides an answer.
As we identified in our research, there are two types of strategy. One is market-competing strategy that focuses on beating rivals in existing markets. The other is market-creating strategy that focuses on generating new markets.
When economic conditions are favorable, all firms tend to benefit by a rising economic tide. But it is market-creating firms—and the leap in consumer surplus they unlock through their innovative value—that gives them a growth edge, as they not only capture a greater share of rising demand, but also pull all-new buyers into the market.
Adverse economic conditions only magnify the growth edge attached to market-creating moves, because, when the economy is in a downturn, there is a natural flight to value for money. Under these conditions, market-creating moves—which break away from existing offerings and offer buyers a leap in consumer surplus—fast become the products and services of choice, allowing them to better buck contracting markets and rebound faster.
So, what actions should companies take to best manage growth through market cycles?
Make the competition irrelevant. Don’t wait for growth to slow to make market-creation a strategic priority. Act now. Ensure that your market-creating efforts are a core component of your corporate strategy. And remember, technology itself doesn’t create markets. What creates new markets is the use of technology.
Don’t wait for monetary policy adjustments or fiscal stimulus to propel your growth. Instead, look to yourself.
W. Chan Kim and Renee Mauborgne are professors of strategy at Insead.