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After speaking at the Yale CEO LATAM Forum in Miami, the CEO of one of the largest insurance companies in Latin America came up to me and said, "I hate Google." I replied by saying "that sounds pretty tough" and asked why he felt so strong. His answer was both simple and meaningful. He said Google "extorted a lot of my profits". He said that Google can now use our cell phones in his home country to show that driver A has a heavy foot on the gas, driver B does not leave enough space between his car and that in front of him, while driver C respects all traffic rules – including speed limits.

With such data from Google, insurance companies can therefore better compare their customers' risk profile profiles and calculate premiums for high-risk drivers. However, Google wants a significant "cut" in the resulting profits. According to this CEO, Google will sell similar information to competitors if an insurer doesn't pay. Non-payers are therefore significantly disadvantaged compared to their competitors. Overall, Google has an important strategic checkpoint in this industry – data on driver locations and speeds – and is therefore calling for a reduction in the insurance margin.

There are many things Google needs to have to exert such margin pressure. First and foremost, of course, they must be able to access the data. In the example above, Google accesses data via its Android operating system and a location-based app (Google Maps). According to the insurance manager, over 90 percent of the phones in his home market use one or the other. Together, this enables Google to access motion data for over 90 percent of drivers on the road. They also need digital map and navigation software (Google Maps, Waze). As a result, Google has slowly built the infrastructure to collect and hold the data needed to extract margins from this insurance manager's company.

The basic premise is that today's successful businesses are those that are able to exercise strategic control (i.e., "the whip") and incentives (i.e., "the carrot"):

1. The "stick" (strategic control points): A strategic checkpoint is part of a market that, if controlled by a party, can be used for superior margins. This can be done in the supply chain, a related company, or even in an unrelated market such as patented intellectual property (IP) or the delivery of critical means of production. By controlling critical input, a company can often use this to generate superior margins across the value chain.

In fact, many successful companies find strategic checkpoints and develop unique skills in core markets. However, companies that are successful in the long term in today's business environment are those that are able to use strengths in several (compared to individual) markets – the "competitive ecosystem". Successful companies can no longer concentrate only on their main industries: (1) Google's entry into the internet (i.e. via its fiber optic, loon and other related projects) enables, for example, various offers (e.g. mobile phones, search queries, Maps and provision of television content); (2) Amazon is now using an online platform – Amazon Marketplace – to reduce transactions in almost every legal industry in North America. (3) Amazon Blue Origin, Airbus Zephyr and OneWeb satellite constellation and Elon Musk's SpaceX threaten Boeing's satellite and space business. (4) Smaller, nimble cyber security firms are threatening Lockheed Martin's defense business. (5) Mobile payments (e.g. Apple Pay, Samsung Pay, Google Pay, Venmo) threaten to undermine traditional players. And the list goes on.

Business success is always about "competing in the right room". If you compete well, but in the "wrong" part of a market (e.g. where margins are low or where you are squeezed by someone else who has power in your core market), you will not be successful no matter how well or you compete vigorously. Today's markets are different and the competitive game can have an impact not only in the entire value chain of an industry, but also in all markets. In today's competitive environment, it's no longer just about being successful in an isolated part of the market – the new game is a game of competition between different markets.

2. The "Carrot" (Vertical Incentive Alignment): In contrast to the “stick” of strategic control, the “carrot” stands for the incentive orientation. Vertical incentive alignment refers to the concept of aligning upstream and downstream incentives (i.e. those from suppliers and customers) in such a way that they are compatible with your own: Set up your entire value chain and customer incentive structure so that it is in your best interest What is in your best interest.

Joint investment is often the key to aligning incentives. We'll call this “asset specificity”, assets that are specific to the relationship and harmonize the incentives of everyone involved – something like a common investment. However, “asset specificity” is only one tool with which incentives are coordinated both internally and externally. The overarching lesson is that the control and impact of incentives are critical to the management and leadership of businesses today.

The use of "carrot" and "whip" together is central to a successful, modern strategy. Indeed, the use of strategic control and vertical incentives is essential for corporate financial performance. For example, a detailed statistical analysis of companies' financial performance in the S&P 500 showed that earnings before interest, taxes, depreciation and amortization (EBITA) more than doubled compared to 2009 when companies do extraordinary work using strategic checkpoints and aligning vertical incentives perform until 2016 (with an appreciation of the share price of almost 70 percent). Conversely, those who underperformed both "carrot" and "whip" actually had an EBITA decline during this period – and a significantly worse price performance.

Therefore, the most important strategic principles required to win in today's competitive business environment are strategic checkpoints (i.e. the "stick") and alignment of vertical incentives (i.e. the "carrot"). Using these concepts together can offer you and your company unique competitive advantages.

Use it to your advantage.

Contribution to Branding Strategy Insider by: William Putsis, author of The Carrot and The Stick: A strategic control approach to win in today's connected markets

At The Blake Project, we support clients from all over the world at all stages of development. Redefine and articulate what makes them competitive in critical moments of change through online strategy workshops. Please email us for more.

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Illustration by Mario Wagner for POLITICO