A Perfect Storm

In 1991, a devastating storm struck off the East coast of North America. It was described as a Perfect Storm, with multiple weather phenomena colliding to unleash deadly chaos. The events were dramatised in the film of the same name, which hit the big screen in 2000.

The term Perfect Storm is highly evocative, since it implies the storm was greater than the sum of its parts, and this was certainly the case back in 1991. It also turns out that this is a useful analogy for the business environment we’re all experiencing today, which is a potent mix of three huge, swirling forces whose combined strength and impact are immense.

Forces of the Perfect Storm 

What are these forces? Well, first of all, there is sky high customer expectations, arising from the huge amount of choice available to everyone, along with a consequent demand from individuals to be treated as being unique and important. Then there is the almost infinite number of ways, enabled by rapidly-evolving technology, through which enterprises can create new value for their customers and themselves. And finally, there is the blistering pace at which everything now changes. Individually these forces are powerful; combined they are potentially lethal, and as a minimum transformative.

So, what caused this Perfect Storm? Advances in digital technology over an extended period of time have created two dramatic phenomena that are powering it:

The first is that technology has now become an environmental factor. It’s no longer the preserve of the IT team, it’s all around us. Huge rises in usability and affordability have driven mass consumerization of computing power, to the extent we all have at least one super computer in our pocket or on our wrist. Parallel advances in IT tools and cloud computing have greatly reduced the time and resources needed to build and launch powerful new offerings with global reach.

The result is an explosion in Digital Density (the volume of digital connections, information flows and interactions) which creates a sort of digital primordial soup from which new business models and competitors can emerge.

The second phenomenon is that time has moved from a linear to exponential tick rate. How can this possibly be? Well, imagine a chess board. Place a grain of rice on the first square and work round the board, doubling the number of grains on each subsequent square. By the time you finish, the number of grains on the last square will be vast. Now, imagine each square represents a cycle of advancement in computing power, as per Moore’s Law. By the time you enter the second half of the chess board (as we are now) the sheer amount of new technology is bewildering. The volume of possibility rapidly accelerates over time and you have to continually move faster to keep up or get ahead: time is effectively exponential.

So ... huge digital density and exponential time. A potent mix that has generated this perfect storm of massive expectations meets infinite ways to create value meets hyper fast change. The next obvious question is: what can you do about it? Quite a lot as it turns out, but as always it needs focus and, for most established enterprises, deep transformation. Let’s look at each of the three forces in our storm in turn.

1. Rising customer expectations

To respond to high customer expectations, the answer is obvious, if not simple to execute: become more customer centric. Learn to meet the unique needs of each customer to earn a share of their wallet and secure their loyalty. Your customer-facing IT systems are important here, of course, but even more critical is the data underlying the decisions you make about every customer interaction. This is a complex mix of structured and unstructured elements, about known customers and unknown prospects, drawn from disparate sources. This needs to be assembled into a coherent picture from which you can derive intelligence and create a basis for customer engagement. Not an easy task. But this is only part of the story.

Customer centricity goes way beyond the technology. It is a deeply cultural factor. It’s about earning profit as a by-product of delivering customer value as opposed to delivering value as a means to earn profit – a subtle but important distinction.

The evidence is that companies that focus on delivering value as their primary purpose, so called Customer Leaders, enjoy superior customer loyalty and financial performance over the long-term. But to become a Customer Leader you have to walk the talk and place the interests and wellbeing of your customers near the top of the priority list - a big change for many companies.

[Disclosure: I am employed by a company that offers Customer Experience solutions]

2. New sources of value

Let’s now turn to the second force at play: the huge increase in ways to create value. The answer here is to innovate to generate new value, and to do so in a highly purposeful way. Unfortunately, the term ‘innovation’ has all but become a buzzword, with the assumption that, by definition, it refers to highly disruptive change. This may of course be part of the story, but the full story is much more nuanced.

In his recent book, Creative Construction, Gary Pisano of Harvard Business School proposes a model for innovation that strongly resonates with me. It involves shaping a portfolio of projects that explore change to your existing capability set and business model respectively. Hence, you might have relatively low risk routine enhancements to existing offerings, radical innovations which introduce new capabilities and more disruptive innovations that explore new business models with existing capabilities.

Beyond the project portfolio, purposeful innovation requires a systematic process to ensure execution.

Again, here Gary Pisano proposes a powerful model, which involves searching for new possibilities, synthesising ideas into high value proposals and selecting the projects that will get delivered. The message is clear: innovation is essentially a complex system that involves iteration, judgements and trade-offs at every step and is much more subtle than coming up with great ideas for disrupting the world.

3. Hyper fast change

And so, finally, to our last force: hyper fast change. In many ways, this is the most potent and complex of the three, since it goes to the heart of the enterprise. The answer is to build an innovation culture: one that is attuned to the concept of constant, fast-paced change as the norm. Such a culture is powerful because it enables you to spot and respond reflexively to new threats and opportunities; and reflexes are very fast, much faster than any cognitive, strategy-led response. This is very hard for many established enterprises because, as they have grown, they have effectively engineered out creativity and experimentation, the very lifeblood of innovation, in the interests of efficiency and compliance.

The best example I see today of a business that has embraced innovation at a cultural level is Amazon. I don’t believe Jeff Bezos has ever had a crystal ball. What is clear though, is that he drives constant experimentation, takes large but measured business risks and demands both excellence and candour from his people.

This cultural orientation puts Amazon in a perfect position to constantly re-invent itself; something it has done to great effect, given its status as one of the world’s most valuable enterprises.

Beyond enabling hyper fast speed, it’s worth saying that an innovation culture is essential to the purposeful innovation we discussed above. The system Gary Pisano articulates relies on qualities such as diversity, judgement, collaboration and learning, amongst others. These are all functions of culture. So how do you infuse them into your team? This is a big topic on its own, but my top recommendations are as follows: create a transformative vision that gives people a reason to follow and commit; practice conscious leadership to unleash everyone’s best self; and foster an abundance mindset to open everyone's eyes to new possibilities. All easier said than done, but essential to riding the storm.

Conclusion

And so, a final thought on our Perfect Storm. As I said at the start, it’s a powerful analogy for the current business climate, but it actually breaks down in two important ways: 

First, whilst our storm represents a big threat, it also affords a big opportunity for those who learn to harness it – innovation can be an offensive play as well as a defensive one, just look at Amazon. Second, it’s pretty clear that our storm isn’t going to blow over any time soon, and for sure the seas are going to get a lot rougher before they get calmer.

Better build a strong boat.