In facing an unprecedented pace of change, drive fear out & ecosystem thinking in

Hi Everyone,

I was reading, this past week, a recent survey by Prof. Christian Stadler. In it, he posed the same question to C-suite executives and middle managers: what are the biggest challenges their companies face right now? On top of the list were technology shifts, such as AI and digital disruption, as well as rising inflation. None of these a big surprise. Yet for C-suite executives, recession was the biggest challenge.

One must therefore ask, is this heightened concern about recession a result of a well-calculated strategy or merely fear-driven? Here we must dissect the anatomy of a potentially transformative change, from economic slowdowns, to shifts in consumer demand, and accelerating adoption of new technologies - and understand the underlying motivations that drive executives' decisions during such times.

Historically, economic slowdowns, whether a prolonged period of low growth or an outright recession (meeting the technical definition of two or more quarters of negative GDP growth), are identified by shifts in consumer spending, high unemployment rates, and a general downturn in economic activity. As demand for products and services changes, key industries begin to shed jobs, restructure and, in some cases, incumbents may even exit the industry, to preserve their cash-generative activities. No executive would want their company to be caught off-guard in such an environment. Preparations to face an impending change therefore become a top priority.

However, if we delve deeper, we find that the preparation for such deep changes can be fueled by anxiety, an outsized fear of a shift without end (despite all the available data), rather than fueled by strategic thinking. The primary reason? Not lack of talent, or time, but rather the presence of fear.

Fear is a powerful emotion, one that can easily cloud our judgement. The fear of unknown consequences prompts us towards a defensive strategy. We see examples of this abound. Think of the automotive industry in 2023, as an example. Would you invest in the industry, when the risk of recession in the G20 countries loom large? New vehicle purchases are major financial commitment for many. Yet, in the midst of this uncertain global outlook, the total number of electric vehicles registered in countries around the world, during the first half of 2023, was approximately 7.373 million units, a 41.2% YoY increase on 2022. New vehicle registrations overall is still positive.

So, what are we seeing here? Should executives in the sector preserve cash, cut costs aggressively, and limit or delay new investments? Why spend when the future looks uncertain?

A quick reminder here. The top priority of middle managers in Prof. Stadler's survey, which I mentioned at the outset? Technological shifts, and our ability to respond to them, and seize them for opportunity. Here is where their view, being closer to the edges of their organisation, tells a different story. While they acknowledge the extent of the challenges facing the automotive industry, they know that cutting back on investments, would inadvertently stifle innovation. Their organisations would miss out on opportunities that could place them ahead of their competitors or allow them to pivot into new, profitable arenas. Time is not their friend, and in responding with fear, they can become 'future unfit'.

Preserving cash in the face of uncertainty is certainly important, but investing in R&D, technology, human capital, partnerships, and the capabilities which prepare us for the future, is equally, if not more, vital.

Here is where ecosystems should enter our strategic thinking (and execution). You see, economic shifts make competitor moves, especially by incumbents, more predictable (remember preserving cash?...). While rivals react in predictable ways, ecosystem-led firms can anticipate change and adapt in new ways, which seem unpredictable, even counter-intuitive to others.

This can be a game-changer, allowing firms to tap into new markets, engage in unorthodox partnerships which could de-risk their execution efforts, and remain adaptive to unforeseen changes.

Speaking at the World New Energy Vehicle Congress in Munich this past week, Mr. Wan Chuanfu, Chairman of carmaker BYD, who have recently broken into the Top 10 global manufacturers league, points to how the growth of EVs has been different across regions, and the opportunities to collaborate in R&D efforts, between the EU and Asia. We are no longer speaking of EVs alone, but a full spectrum of technologies and platforms, from Plug-in Hybrid vehicles to Hydrogen fuel cells, Automotive manufacturing to grid and charging infrastructure. Both markets, after all, are strategically important to global manufacturers.

Companies that prosper in challenging times, indeed, are those that strike a balance between caution and courage. Do we step in with fear or fresh strategic thinking?

Have a good week ahead.

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