Adapt, or be crushed by the fourth industrial revolution

No business has ever had the luxury of standing still.

In the 1920s, American Express was founded as delivery service (hence the name), and Marriott originally specialised in root beer rather than hotels. Any company that has survived this long has had to adapt to the immense changes of the twentieth and early twenty-first century, which is no mean feat.

Still, as we approach a new era of technological and social transformation, defined by many as the “fourth industrial revolution”, businesses will need to be more adaptable than ever before, if they wish to survive.

Companies don’t last as long as they used to, and the survival rate is decreasing over time.

According to research by Oxford Leadership: “in the last 60 years, the average lifespan of a large organisation has dropped from 60 to just 18 years”. The Harvard Business Review reports that: “the percentage of companies falling out of the top three rankings in their industry increased from two per cent in 1960 to 14 per cent in 2008”.

In my industry, the disruption caused by Big Data and artificial intelligence (AI) is already well underway. The businesses that dominated media buying during the last three decades have had to rapidly adapt to a new skills demand, as marketers have increasingly weighted their budgets towards online rather than traditional advertising.

Nor is having the right skill set is enough in itself to sustain competitive advantage in a such a fast-moving industry. Every month there is new technology that needs to be assessed, understood, and potentially adopted in order to keep up.

New regulation, such as the GDPR, or the potential legal implications of the EU’s fine against Google, threaten to change the landscape. There is constant flux, and no room for complacency.

Future-proofing a business can take many forms, but an essential quality is decentralisation. Nearly all of the thousands of tech innovations my business has engineered to improve our client services have come from account managers rather than senior leadership. My input has been to establish a business model in which software innovation is democratised, enabling any member of staff to be influential on how we operate as a business.

We have also introduced a new process improvements, called Fast (Formalise, Automate, Share, Test). Using Fast thinking, every staff member is encouraged to find ways of heightening the efficiency of their work and the company as a whole.

Businesses need to avoid falling victim to the “Hippo effect” (becoming overly reliant on the Highest Paid Person’s Opinion).

One approach is to use data-driven decision making, another is to decentralise. Doing so will heighten the “dynamic capability” of a business, which David J Teece defines in an influential paper as the “ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments”.

Teece breaks down dynamic capability into three fundamental skills on behalf of senior leadership: sensing, seizing, and reconfiguring. That is, sensing opportunities and threats, exploiting or pre-empting them, and reconfiguring the business model accordingly.

Building upon this, researchers at Stanford suggest the need for chief executives to display “ambidexterity”, that is, “to compete simultaneously in both mature and emerging markets – to explore and exploit”. The difficulty lies in finding the right balance between honing current assets, and researching new possible directions for a business to grow.

There are numerous examples of companies which failed to adapt. Take Polaroid. An in-depth study of the reasons behind the company’s collapse indicated the primary cause to be obstinacy within the leadership team about their business model. Instead of developing their software offering, Polaroid stuck rigidly to hardware (cameras) – and suffered immensely during the disruptive rise of mobile phone cameras.

As a counter-example, it’s impossible not think of Amazon. Jeff Bezos’ insatiable appetite for new market expansion demonstrates remarkable adaptability. Love it or hate it, Amazon epitomises a business of the future: using automation, data, and adaptability to seize new opportunities (including, most recently, a first attempt at invading digital advertising).

The so-called super-platforms (Amazon, Facebook, Google), along with agencies like my own, are utilising the same technologies that will make or break businesses in any sector, given enough time. We are still at the early stages of a period of change that will be exponential, and, despite my own and many others’ attempts, unpredictable.

The only solution is to build a business that can continually be rebuilt. Greater adaptability is the most important adaptation any business can make.

Originally posted in City A.M.