Today is not what you think it is
Leading in an unpredictable world
co-authored with Oren Goldschmidt ( Flow Innovation )
Context matters
It’s fairly obvious that we are living in uncertain times, that the old rules don’t apply. We all sense that something has to change. Recent surveys by both Alix Partners and PWC highlighted that business leaders believe that, without radical change to their business models, they are probably going to lose their jobs and, perhaps more worryingly, that their companies will not survive more than 10 years.
The problem today is that business leaders are trying to navigate this moment with tools and approaches that are built around predictability. As we will see, this mismatch between the tools we have and the situation we are dealing with is the result of not understanding the context in which we are operating in.
This misunderstanding about the context leads to three challenges senior teams are faced with.??
Disruption and paradigm shifts
The context for these challenges is massive disruption. Disruption, as a business term, was popularized by Clayton Christensen in 1995. He used the term to refer to two kinds of threats: people making your product cheaper, and people making your product better.? The kind of disruption companies are facing today is very different, and actually far more difficult to deal with. It is a qualitatively different kind of change. The disruption occurring today is a consequence of large-scale, complex technological, social, political and economic change. ChatGPT and next-gen AI are just the recent examples of this transformation.
What is occurring is a tectonic shift. This tectonic shift is a structured, repeating historical process we call a paradigm shift. Each stage of the shift requires different responses and different tools. During this paradigm shift, businesses are confronted with the fact that what was done yesterday does not apply to the conditions today and what we do today is likely to be obsolete tomorrow.
In this context, senior leaders need to understand which strategic and tactical tools to use in a given moment in order to guide their businesses successfully through this continually evolving environment. These tools focus on helping the business identify and understand the signals of where we are in the paradigm shift and develop the mindset, relationships and business models needed for an adaptive, future-ready business.?
This is not an easy process. It requires leaders to manage three, interrelated challenges. These cannot be dealt with in isolation. They need a systematic methodology to manage competing demands for time, attention and resources. The next three sections detail the challenges leaders face and some of the responses to them, drawn on our experience. The final section summarizes the methodology that leaders can adopt to address these challenges.?
The shadow of the past
The first challenge leaders face in the context of a paradigm shift is “the shadow of the past”. The challenge arises from the fact that corporations are machines for exploiting a steady or slowly changing business environment. As a result, most of the strategy tools used are designed to work when things gradually change. Take one, well-known example: the McKinsey 9-box matrix. It’s a classic strategy tool: for each of your business lines look at how much potential they have in the market and how competitive they are in that market then choose the best place to invest. The problem with this model, and with so many models corporations have for thinking about strategy, is that it assumes the environment is relatively static. If your entire business model is becoming gradually less relevant because of a move to digital channels, or network models, or the rise of AI, all this kind of strategic planning does is give management teams and boards a false sense of security.
Local banks
The problem, therefore, is projecting the past onto the future in an environment where that link is irrevocably broken. This projection can be seen in many different situations. One example of this is banking. Traditionally, high-street banks have put a lot of thought and effort into how and where they build out their branch network. Thinking about growth in this sector is very closely tied to optimizing reach into local markets and communities. This geographic thinking works well when consumer priorities and behavior are stable, but when consumer behavior shifts rapidly, as it has done recently, you need to find new ways of thinking about the future. When your service model can go fully digital for almost every interaction, trying to engineer growth based on specific regions and localities is no longer viable. You need to escape the shadow of that thinking and find effective, new ways of investing in growth.
Trade associations
This projection can also extend to an entire industry. Trade associations of all kinds, from specialist bodies for child psychologists to general industry organizations were built around very specific conditions. They served an educational, advocacy and networking purpose in a pre-digital world where it was expensive to print and distribute books. Also networking was primarily face-to-face. This meant that the associations were restricted to the area that members could reasonably travel in. All of this created a high barrier to entry, which meant that being a member of the association was the only way people could practice the trade in that area.
Over the last thirty years or so, the conditions that made trade associations so successful have disappeared. Digital technologies have virtualized knowledge. The perfect copying and instant distribution of content has reduced the cost of distribution toward zero. In addition, globalization along with digital communications, has expanded the potential market, both for customers and competitors.?
In this environment, trade associations face diminishing membership and, with that, revenue and relevance. What we have worked with these organizations on is to radically reinvent themselves, using the knowledge, skills and resources they have to address the current context. This practice involves defining a new vision of the association that takes into account the environment and leverages what they have to provide new services to different customers within a transformed business model.
Escaping the shadow of the past
The first key challenge that this paradigm shift poses for leaders is escaping the shadow of the past. In order to do this, we need a change of mindset, then apply that mindset to new models of governance and execution.
The mindset change is made up of three steps:
Practically, this changed mindset leads to a transformed governance and operational model, one that can adapt as the environment changes. This means being able to take the business, stakeholders and customers on a journey full of uncertainty and potential pivots.???
The elusiveness of the future
One of the reasons that that shadow of the past is so big is the fact that the future is unknown and our standard response to the unknown is to use the past to predict it. Because of the structure of a paradigm shift, it is very difficult to predict what will come until almost the end of the shift.
Business leaders, therefore, cannot afford to sit and wait for the future to become clearer. Paradigm shifts, of the scale we are now living, take decades to play out. As a result, businesses need to respond to a constantly evolving environment. In the face of the elusiveness of the future and the need to act, businesses can either react or adapt.?
Reactive companies are unsure about exactly what the future will bring or where they want to be when it gets here, but they believe they’re ready to respond to change as it happens. Adaptive companies have a shared view of what the future will look like AND a clear picture of what they’re going to become to adapt to and thrive in that future. In a period of rapid change, ADAPTIVE companies flourish while organizations that are purely REACTIVE will struggle.?
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The adaptive organization is built around a vision. This is not the standard business vision. It is vision that is open enough to allow the business to pivot as circumstances demand, but concrete enough to encourage concrete steps today.?
A new vision: retail
One of our clients, a major retailer in the UK serves as an example of how this adaptive vision works. The retail industry is in massive flux for a host of reasons. No one knows what the future looks like, but our client knew they needed to move ahead, so we worked with them to define a vision that could be tested through data. They had a hypothesis that the future of physical stores was a mixture of leisure and retail. We framed their vision as the premier retail and leisure destination in the UK. The next step was to define how we could test out this vision and use the results to refine the vision. In order to do this, there was a business model transformation program covering people, operation, technology and communications.
A new vision: power production?
We also did some really interesting work a few years ago with the power industry, and this is really instructive when we talk about ADAPTIVE and REACTIVE ways of planning. One of GE’s historically most profitable BUs has been its power business -- they build the massive gas turbines that generate much of the world’s electricity. The problem they’ve had is that the equipment got so good it rarely has to be replaced, and at the same time they’re dealing with volatile energy prices and rapidly changing regulations. Rather than react to these challenges as they occurred though, GE Power developed a strategy that put more and more emphasis on the services that go along with the equipment they sell. They’ve really become remote plant operators for a lot of their customers and this is a high margin, recurring business that insulates them from a lot of the challenges that the market creates. This ADAPTIVE approach offers a lot of value to customers who face so much uncertainty in their own business -- they’ll pay a massive premium for that flexibility and it’s a great example of how being ADAPTIVE can offer a significant market advantage.
Moving in the elusiveness of the future
The key to addressing the second challenge, the elusiveness of the future, presents is to work toward what could be and not be paralyzed by what you do not know. In order to move ahead, businesses need an adaptive methodology that addresses the challenge of the future by recognizing there is no one future we have to guess. To draw on a biological metaphor, there are many niches that can be filled.?
The vision identifies that niche and guides the business as it moves toward it.? The vision points the business in a particular direction and gives it a means of deciding what to do now. It also responds to the changes in the environment. This adaptability is what sets the vision we are outlining apart from the standard vision statement.?
The tyranny of the present
The third, and final, challenge is the most difficult to address. It is the unrelenting pressure to deal with the demands of today that does not leave any time or space to address the future. This is our third and final challenge. The work you do in preparing for the future is always under pressure from the absolute necessity of keeping the business running, and usually not only keeping it running but growing it. ?Thinking and talking about the digital future of your company is great, but if you, like many of our customers, still have a basement full of mainframes that need maintaining, that limits your freedom of action in a lot of ways. The way that you deal with that challenge, with the tyranny of the present, is critical to how well you’ll deal with rapid change.
The question of how to innovate while keeping the lights on is important enough that an entire industry has developed around innovation. There are a lot of models available, from methodologies like design thinking and jobs to be done to strategies like corporate venture capital and venture studios.?
In our experience, the greatest challenge with innovation is that there is this gravitational pull towards what we call the outpost model. The outpost model says that innovation is hard, you need space and time and freedom from the tyranny of the present (you need to get out of that basement full of mainframes) so you need a space that’s detached from the day-to-day business where you can operate more independently, and where you can think about the future as more of a clean slate. But there is a fundamental problem with this approach. It doesn’t tell you how to do the really hard thing: to take a large corporation, and move it step by step towards a future state.
We like to use the? metaphor of building a bridge to the future. The practice of innovation / digital transformation must be focused on? how you build a bridge from the present to the future and move the entire business step by step along towards a future state. And that’s a very different, and much more difficult process, than building the business of tomorrow in miniature in some detached outpost.
The transformation we are talking about here needs to be structured so that it does not become trapped in trying to predict the future. Most transformation models are built on the assumption that we can know the end state and the steps to reach it. Given what we have said about the elusiveness of the future, transformation needs a methodology that is much more adaptive.
Solve for today, build for tomorrow
An example of this adaptive approach of building the bridge to the future is work we did for a global publisher. They recognized that the publishing industry was in transition and that they needed to transform. At the same time, they had publishing schedules and revenue targets to hit. In addition, the senior team was involved in a merger.?
We had worked with them to define the vision and direction they wanted to go. The question was now how to transform the company. One pain point they had was that each of their half dozen travel books had to update the information on the key attractions. This meant that each time a new edition of any title for an area was published, a junior editor would spend days researching this information. As a result, six different editors were looking up the same information on when the Met was open and its address.
We proposed a pilot project to create a central database of key attractions, along with a team and process for keeping the information updated and publishing into each new edition. Not only would this improve efficiency and reduce cost for each addition, it also helped the business begin to see themselves not just as book publishers, but as information providers. This shift opened up new ways of seeing the business and started to build a future company within the context of publishing books today.
Redefining community
Another example of escaping the tyranny of the present is the work we have done with banks globally. Most are facing a slowly dawning crisis: their relationship-driven, branch-based business is becoming less and less relevant as everything customers need can be done digitally. They need to keep growing but they know their current models are unsustainable.?
The work we’ve done focuses on solving two problems at once: how do you get better at what you're doing today and ?build a foundation for the future. In practice that means creating new technologies and operating models that enhance efficiency and growth today WHILE building new foundations for the future business. This includes developing various ideas about taking community and relationships into the digital realm. This is the process of building a bridge to the future.
Building a bridge to the future
Escaping the tyranny of the present is not easy. The pressures of delivering today and the constant barrage of demands on our time and resources does not leave space to work on what can seem like peripheral future-building activities.?
Often, businesses attempt to solve the tyranny by creating a separate, protected space to work on the future. The problem with this approach is that it does not show you how to move from where you are to the new innovative outpost. Instead we work on building a bridge to the future. This involves working on the problems of today, with the idea that the answer will also be a step toward a more adaptive business.?
An adaptive, strategic methodology
Senior leaders are confronted with an environment that is in transition, a paradigm shift. This shift raises three interrelated challenges:
In order to address these challenges, we need to understand the context: this tectonic transition that we are going through and adopt a methodology that is designed to navigate the paradigm shift.?
The adaptive, strategic methodology that we have developed give leaders the knowledge, tools and narratives to:
The methodology we have developed is based on over 25 years of intensive research and global experience with businesses across a range of sectors, sizes and industries. It is the only methodology that is focused on navigating the transition of a paradigm shift and successfully addressing the three challenges that result from this transition.?
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1 年Thanks to Padideh Tosti for facilitating our chat. Also the team at Flow Innovation and Ben Hart for your support in this.