Managing change is today's strategic challenge
A couple of years ago we held a workshop with executives from a $15 billion company. They faced a number of challenges and market shifts, but were concerned about making decisions in an “uncertain” environment. They wanted to wait for certainty rather than make decisions in “uncertain times”. So they waited. Today that company is worth $7 billion.
The period since then has indeed been volatile and defined by change and endless variability. But, none of this was uncertain. We knew then, and we know now, that the world around us is changing. We know that today’s business model will likely fail tomorrow.
Corporate managers who are waiting for the pace of change to slow before they make decisions are in for a long wait.
Consider Intel and Peabody both facing changing markets. Intel is dealing with the end of the PC's and Wintel, and though they have traditionally been very good at adjusting the current shifts will require fundamental change. Peabody energy also faced fundamental change but failed to adjust its business model and is now in bankruptcy.
The challenge is one of managing a corporate model geared towards maintaining the status quo, while also managing a constantly changing environment. The corporate mentality is one of reinforcing what we did yesterday and creating a strong, efficient organization that can deliver the same thing over and over again.
These organizations are inherently inflexible, which was ideal in the past. Inflexibility is perfectly suited for chasing the scale economics and efficient growth that businesses generally seek. It addresses the first key challenge that large companies face: Knowing themselves as well as acting in concert to deliver a product.
But today companies today must either be flexible and able to deal with the changes around it, or disposable, built-for-purpose and then dissolve when the purpose disappears.
We don’t naturally like the disposable company concept, but this is a model that Intel was able to make work - building one inflexible product system after another each cannibalizing the one before it. But today they face a business model shift, not just a new product - so Intel itself becomes the entity in question.
At least Intel is thinking about it and making changes in advance. They have a chance. Peabody Energy faced the same business model challenges. As their traditional market changed, they continued to operate as they always had. They ignored the change and tried to make the rigid system work, leading to bankruptcy.
Regardless of industry, from coal to microprocessors, long term survival for all companies means developing foresight to understand how the market may change and the flexibility to adjust.
There are four key elements to creating flexibility:
Tap into and incorporate new ideas from anywhere inside or outside the company. Ideas do not follow hierarchies or respect corporate boundaries so managers will need to listen to new internal voices and participate in external discussion.
Develop a culture of experimentation. Try things out and fail (or succeed) fast. Success is pretty easy to accept. The key is to address failure and not spend unending amounts of time and money trying to fix bad ideas.
Encourage decision-making. Corporate managers avoid decisions to avoid the risk of failure. Flexible companies are risk takers and decision-makers.
Focus on ideas and work with the right people. Firing somebody because an idea fails will ensure that no new ideas are promoted. However, keeping people around who cannot deliver is just as toxic. Managers need to measure performance and alignment to the culture on a regular basis and make adjustments to ensure the company can meet its objectives.
Of course everything else still matters: Businesses still need to understand themselves and the competition and they need to think about the external market and forces impacting that market. They must, however, do this while also considering how everything is going to change. Executive teams should make definitive decisions about whether they are going to die off or become flexible – especially when the market feels uncertain.
Traditional consulting companies have been built around helping companies build rigid systems and maintain their positions. At Stratist we help companies build foresight - through looking at trends, developing scenarios and bringing an external perspective to our clients' businesses. We then create actionable strategies with options to help companies manage in a changing environment. We accept change as a constant and help our clients manage it.