“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”.
CHARLES DARWIN, THE ORIGIN OF SPECIES
WHAT DO THE MOST SUCCESSFUL BUSINESSES HAVE IN COMMON? OF THE WIDE RANGE OF POSSIBLE ANSWERS, AN ABILITY TO ADAPT TO CHANGE IS SURELY ONE OF THE MOST SIGNIFICANT. THIS QUALITY IS MORE IMPORTANT NOW THAN EVER, WITH TURBULENCE INCREASINGLY BECOMING THE NORM FOR BUSINESSES, BRANDS AND EXECUTIVES WORLDWIDE.
There are two things we can say for certain about the future: it will be different and it will surprise. Given the competitiveness of global and local markets, the pace of change in business and the sudden emergence of unprecedented challenges and opportunities, there is an overriding need for leadership that is flexible, capable and dynamic. If there is one lesson for organizations to learn from the events of the late 20th century and the first decade of the 21st it is this: it is not simply what we know that matters, but how we react to what we do not know. The time of the all-knowing leader is gone. Certainty is ephemeral and elusive: even if it is achieved, it soon becomes clouded and overtaken by events.
This book is based on a simple premise: that to succeed in these circumstances, leaders need to think holistically but act personally. It is this balance between strategy and tactics, big picture and detail, planning and action, corporate direction and personal responsibility that helps to ensure progress and resilience for the organization. In practice, this means succeeding in six broad areas: leading with a purpose and reason, generating and maximizing revenues, rousing people and dreams, building relationships, maximizing a strong reputation and becoming resilient.
In this chapter we set the scene and highlight the pressures that are now routinely encountered by executives. We believe that the implication is clear: executives can only resolve these challenges by learning to think holistically and act personally.
THE NEW REALITY
Certainty is a thing of the past. Companies no longer have the luxury of assuming that they can survive glitches in the market with a few last-minute tweaks: markets are now too changeable from too many angles for that to be a sustainable approach. It is not enough to simply develop an ad hoc, last minute response as changes occur; strong companies have a mindset and approach that anticipate change and have systems in place that can deal with any changes quickly and efficiently.
Change comes from so many different directions that companies and leaders can be forgiven for feeling overwhelmed or blindsided. Every day, we are facing a multitude of changes that affect every aspect of running a business. Laws, regulations, compliance requirements, customer preferences, technologies, competitors, changing demographics and shifts in lifestyles are only some of the forces at work. All of these present an immense challenge for any business, but when magnified by the many other countries, businesses and customers entering the global marketplace having different legal requirements, customs, cultures and consumer preferences, the challenge is truly immense. Time moves on and markets evolve. Success will only follow for those organizations that respond effectively and swiftly to the only constant left in business: change.
It’s hard to dispute the view that during the first years of the 21st century the world has experienced a frenetic pace of change and witnessed massive upheaval. Although change has always been with us, what makes this situation different is the realization that chaos and upheaval are now the norm rather than the exception. Companies need to desensitize themselves to the sensationalist, headline-grabbing scaremongering about recent events – from share prices tumbling and climates warming to threats to employment and governments defaulting on debts – and just accept the new reality that these things are here to stay; they will continue to occur. In particular, we need to be wary of falling into the trap of thinking that the need to cope with such drastic changes is only a temporary requirement. What we need to do is better prepare for the likelihood of change, control our responses and get better at anticipating and shaping events. Instead of assuming that there will be a resumption of business-as-usual and that ‘things’ will settle down soon, we now need to view change and the ability to adapt as an essential business skill.
IT IS A TIME OF CHANGE, INSTABILITY AND UNCERTAINTY AND THE NATURE AND IMPLICATIONS OF THIS NEW REALITY NEED TO BE PROPERLY UNDERSTOOD IF THEY ARE TO BE SUCCESSFULLY INCORPORATED INTO BUSINESS STRATEGY.
Leaders need to ask themselves: what are we doing to ensure the long-term success of the company? While dealing with uncertainty is hardly a new concept for businesses, it is the sheer scale of change that we now have to deal with that presents such immense challenges and that leaves the unprepared company vulnerable and such easy prey to their more battle-ready competitors.
In recent decades, several themes have shaped business life as a whole and executives’ thinking in particular. These issues include the rise of technology and its impact both on what customers want and what business can achieve. Interestingly, history suggests that the impact of technology is often overestimated in the short-term and underestimated in the long-term. The rise of globalization is another recurring theme, highlighted by the value of being both global and local. Closely linked with globalization is the need to appreciate difference and the implications of diversity, an issue long recognized by business executives and reflected in the concept of segmentation.
Another constant theme among customers, employees, shareholders and societies is the desire for an ethical approach to business with greater social awareness and responsibility. The need for an ethical approach crucially resembles the need for a clear customer focus: it has to be genuine and felt throughout the organization. The understanding of behavior, people and relationships is now an established mainstay of modern business and is an area that has grown rapidly in credibility. Issues of trust, engagement, loyalty and connection have become increasingly relevant. Managing for the long-term as well as the short-term is another recurring theme. The case for developing relationships with customers and greater shareholder value through intangible assets (such as brands) is nothing new, but it has grown in relevance in the 21st century.
These inexorable shifts in business are clearly significant, but change is taking place in other areas as well, ranging from economics and politics to society and attitudes to the future. Of all the changes that are taking place, perhaps the one with the most significant implications for the future – and certainly the most striking – is the world’s changing demography. At the time of Christ the global population has been estimated to have been around 150 million people, and it didn’t reach one billion until around 1800. By 1900 it had grown to 1.6 billion, and by 2000 it had almost quadrupled to 6.1 billion. Incredibly, by 2011 it had reached 7 billion. In other words, in the 12 years from 2000 to 2011, global population rose by 900 million; a figure that the entire global growth in population from the time of Christ to the year 1800. These changes combine with a significant decline in mortality, increased international migration and the growth of urbanization.
In addition, the composition of households and family structures are changing in the developing world, with the result that the influence of women is increasing and consumption patterns are changing. The trend is for future populations to be older, and this will have considerable implications for businesses and governments. As if that weren’t enough, urbanization is spreading like wildfire and in 2006, for the first time, the world’s urban population exceeded its rural population.
Other forces shaping the future include tribalism, an ever-present aspect of the human condition that cannot be ignored. We need to recognize the implications of this and adapt our businesses accordingly. In addition, the innate universalism and interconnectedness that is present in many societies affects our response to sudden changes. For example, a sudden event or disaster such as a tsunami in Japan or a virus outbreak in Hong Kong could easily move markets and swiftly impact other issues, such as exchange rates, legal requirements and consumer spending.
The consequence of all these changes cannot be ignored. For many, many reasons, the only thing companies can be sure of is that things will change quickly. Adaptable processes and a flexible strategy will become the basic, essential requirements for the successful businesses of the future. It is in navigating this new, volatile business world that fortunes will be made or lost.
VOLATILITY AND CHANGE AT WORK
Changes in society as a whole are, of course, leaving an indelible mark on business and organizations. The last decade has been tumultuous by anyone’s standards and it is understandable that so many leaders are feeling battered and are looking forward to the resumption of an easier time; a time when countering a hostile takeover was simple in comparison to facing financial meltdown and market turmoil. This would be a mistake. The fields of battle, both for today and the future, have been permanently redrawn. The harsh truth is that running a business is never going to be the same, and we all need to accept this fact and adapt. It is no longer enough to be the strongest or even the most intelligent: only those able to deal well with the vast array of changes, from constantly changing legal requirements to volatile markets, will survive and prosper. By definition, the survival of the fittest is the prosperity of the most adaptive companies.
IF YOU THOUGHT PREDICTING THE FUTURE WAS DIFFICULT, TRY IGNORING IT.
Dealing with volatility is no easy task. Investments are unreliable and usual sources of revenue are unpredictable. It is worth remembering that markets are not driven solely by cold, hard facts and, because of this inherent irrationality, cannot be predicted with any great accuracy. One only has to look at the price of crude oil to appreciate this. Despite a recession, crude oil jumped from a record high of $100 per barrel in January 2008 to $147 per barrel just a few months later. This may seem an arbitrary example but it matters because the price of oil affects so many other markets. As the high price of gas at the pump raises the end price of most other goods, it also affects consumers’ reluctance (or inability) to spend. In addition to the usual assessment of facts and figures underlying this volatility is the human factor: investors are no different from the rest of us; they are influenced by hopes, ambitions, feelings, insecurities, fears and uncertainties. At best, we can make approximations and plan accordingly. However, we also need to prepare for the unexpected, as the unexpected is exactly that: it has a nasty habit of blindsiding even the strongest of companies and catching us off guard.
Of course, it seems trite to say that the world is changing: it always has and always will. But this statement is not as simple as it may seem as it comes with one very important caveat: if you don’t adapt, and quickly, you will be left behind. Like the inattentive wildebeest at the back of the herd, the inevitable result of not paying attention is, to be frank, not going to be pretty.
This simple fact has caught out many leading businesses – firms such as Kodak, Bethlehem Steel, Chrysler, Daewoo, Firestone, Digital Equipment Corporation and others. In most of these cases, complacency and a commitment to the status quo escalated in a smooth, undisturbed fashion. The danger for any business is that their lack of awareness and connection to the outside world will increase gradually, incrementally and sometimes almost imperceptibly. This simple fact provides the foundation for most business difficulties. Firms that declined or failed simply did not do enough to understand or prepare for the future during the good times and suffered as a result. In retrospect, countless executives recognize that good is the enemy of great – meaning their firms were doing well, so they saw no reason to change. By the time they came to realize that the world around them had changed (notably customers, competitors and regulators and sometimes even their employees) it was too late to respond.
APPLE AND GOOGLE
If this talk of disaster seems distant or unlikely, then consider two issues. First, all businesses are affected by external views of the brand, and this can result from the action (or inaction) of only a few. Also, no one ever moved from good to great – or sustained leadership in their sector – by being complacent or failing to move with the times. Proving these points is the example of two giants of 21st century business: Apple and Google.
Apple
Apple is an iconic and rare business indeed, a technology business that is not only able to generate genuine passion among its customers but has come roaring back since being on the brink of near disaster in 1997. The renowned developer of the Apple Mac reinvented itself as a consumer electronics firm with the iPod and iPhone and is consistently ranked as one of the world’s most innovative firms. The story of its rise has several lessons for aspiring innovators.
First, Apple uses an approach known as network innovation – this is the process of acquiring good ideas from outside the business as well as from within. For example, Apple has been described by The Economist as, “an orchestrator and integrator of technologies, unafraid to bring in ideas from outside but always adding its own twists.” Highlighting this point is the development of the iPod. Originally conceived by an external consultant recruited to manage the project, the iPod was designed to work with Apple’s iTunes software (which was itself acquired from outside and then overhauled) and was prototyped in-house. Network innovation is achieved by cultivating external expert contacts, constantly searching for new ideas and avoiding the ‘not-invented-here’ syndrome.
Next, Apple emphasizes simplicity – chiefly by designing the product around the needs of the user. When introducing technology the temptation is to overcomplicate, often with technical experts including technical enhancements that appeal to them. This introduces a layer of cleverness and complexity that may seem genius in theory but leaves customers cold. So, the iPod was not the first digital music player but it was the first to make buying, transferring and organizing music fun. Similarly the iPhone was not the first cell phone to include a music player, web browser and email, but it was the first to be simple, cool and highly appealing.
Apple’s approach relies on its ability to understand customers – this is much more than ‘user-centric’ innovation or simply listening to customers. Apple believes that from time to time it is necessary to actually ignore what customers say they want today. This is clearly hazardous, but the risks can be reduced by understanding what customers value, how they typically work and what they want to achieve. It is important to innovate using a sophisticated approach to knowing your customers: understand them better today to predict what they will want tomorrow.
Fail wisely is another hallmark of Apple’s approach to innovation. Failure is disappointing and far from ideal but it is also an opportunity to learn and, most important of all, it is inevitable. Consequently, anyone worried about failure needs to get over it: we all fail at some time so it may as well be viewed positively. The alternative is, at best, staleness, timidity and incremental improvements – at worst, it can provoke blame, recrimination and a cycle of despair. For example, the iPhone resulted from the failure of Apple’s original music phone developed with Motorola. Apple learned from its mistakes and tried again. The leadership challenge is to overcome the concerns that successful, talented employees may have about failure and to make sure that failure is not stigmatized. Instead, employees should persist with new ideas, secure in their own expertise, ability to learn and improve with the support of colleagues.
Google is dominating the market for online searching and advertising. At times it is hard to discern which aspect of its business is most innovative: its ambition and ability to organize the world’s information, or its commercial ability to make money from its services. In fact, both are vital and reflect an important feature of the business: Google’s use of simple, clear directives. For example, paramount among these is the principle that information should be organized by analyzing users’ intentions.
Several other factors underpin Google’s remarkable rise and popularity.
Develop an infrastructure that is ‘built to build.’ Google has invested billions in its internet-based operating platform and its proprietary technology. This enables the business to guarantee service levels, respond to searches in fractions of seconds and swiftly develop new services. For users, Google’s service is simple and highly effective. These advantages result from its infrastructure. There are several attributes of Google’s infrastructure that aspiring innovators need to understand:
• Scalability – the business shares information globally to meet customers’ changing demands. It also has another characteristic of world-class businesses: a willingness to take risks and invest heavily in proprietary technology (and nearly one million computers) to meet customers’ needs.
• A fast product development cycle – Google engineers quickly develop prototypes and beta versions of products; those that are popular with users are then accelerated and emphasized, with Google’s enormous computing capability making room for them. Testing and marketing follows next and are almost simultaneous. This creates a close, unique relationship with customers, who become part of the development team. It also relies on a confident, listening approach and the ability to act quickly.
• Support for mashups and new developments – Google has a flexible infrastructure described as ‘an innovation hub’ where third parties can share access and create new applications incorporating Google’s functionality.
Few companies can match Google’s massive infrastructure investments, but that misses the point: its can-do attitude and the way that resources are gathered, shared and organized is what makes Google successful, not simply its technology.
Control your world. Google’s success and sheer size and ubiquity mean it dominates the industry. This fact, combined with its technology and flexible, sharing attitude, provides it with the ability to control its world. People come to it because they are the market leaders and Google responds by involving these third parties and customers in its business. It’s almost as if the firm has learned from other business giants and is ensuring that their rapid growth does not mean they become complacent or out of touch. The lessons are clear: have the confidence to be open and share expertise with customers and other third parties as far as possible.
Recognize vulnerabilities and deliver the essentials. Clearly, there are several fundamentals that must be delivered by Google, not just for it to succeed but more accurately, to ensure it avoids failure. For example, the business needs to protect customers’ data and preserve their trust. Innovation and dynamic, continuous improvement are vital but this needs to be balanced with an ability to execute and deliver the fundamentals.
Make time for innovation. Technical employees are required to spend 80 percent of their time on the core search and advertising businesses and 20 percent on technical projects of their choosing. New ideas are often generated from the bottom up by employees at Google. Their time is specifically allocated for innovation and the improvisational, empowering, can-do culture positively demands it.
Improvise and improve. People at Google have the authority to act on their own initiative and are encouraged to make improvements and to work on new developments. The result is that the firm is able to attract and retain driven people who enjoy improving and developing things and who value their freedom and autonomy. This situation then becomes a self-sustaining cycle: autonomy and empowerment lead to success and attract more talented people, and these people are then encouraged and empowered to succeed.
Finally, it can be argued that Google’s greatest strength is its ability to recognize the value of failure and chaos. This is shown, most notably, in its approach to product development. Google releases a wide range of products with the expectation that some will become blockbusters. (Clearly, this also relies on an ability to spot and then maximize a blockbuster as soon as it appears.) This way of working provides valuable insights that can then be fed back into future developments. While this strategy may not be sustainable or even desirable in the longterm, it is resulting in an impressive array of new products and enhancements. Google’s product development process has been described by The Economist as “frenzied and low friction.” As well as directly resulting in new products, the creative frenzy also has the indirect benefit of building a culture that is not only innovative but also dynamic, well-informed and determined. That, it seems, is surely one of the most elusive innovations of all.
Many industries are replete with examples of newcomers that virtually or literally destroy incumbents. Whether you are a newcomer wanting to assert your dominance or an incumbent wanting to protect your position, in very quick order the battle line will inevitably be fought over the ability to adapt, survive and dominate. For example, technological changes have changed the playing field leading to new companies, such as Microsoft, Google and Facebook, coming to dominate markets and leaving older companies behind.
We do not live in a fair, equal world where we all have access to the same information and opportunities. But neither do we live in a world where we can rely on being the sole beneficiary of potentially lucrative information or market preferences. We must anticipate the unlikely, the unexpected and the unfair. We must be ready, perhaps despite being the current top dog, to deal with better competitors wanting to usurp us or new legislation that could undermine us. The only way forward, the only way to ensure our long-term survival, is to put in place the right processes, culture and leadership to equip us for the myriad of changes that our companies will have to deal with.
TO SUCCEED, INDIVIDUALS AND ORGANIZATIONS ARE BEST SERVED BY TAKING A BROAD, SYSTEMS APPROACH AND BALANCING THIS WITH A DEEP HUMAN UNDERSTANDING AND A PRACTICAL, ‘CAN’DO’ DESIRE TO MAKE THINGS HAPPEN. THAT’s WHAT WE MEAN WHEN WE SAY WE NEED TO THINK HOLISTICALLY BUT ACT PERSONALLY.
This may sound like an easy-to-achieve instruction. It isn’t. Changing a whole company, from culture to logistics, is no small task, but is the only true means of survival for the companies of tomorrow. Leaders can no longer rely on the view that they have proven their worth. It is not an individual’s reputation or ability that matters anymore: it is only a company’s intrinsic, structural ability to adapt to change that counts.
THINK HOLISTICALLY, ACT
PERSONALLY
So, why do companies persistently fail to adequately prepare for change when they know that change is such an inevitable, essential aspect of doing business? I would suggest that it is not because they are unaware of the constancy of volatility, ever-changing legal requirements and market conditions; it is more likely because they do not know how to best fit their companies for this new challenge.
There are some companies, however, that stay the course. In fact, there are those that thrive through the years: entities of every size in industries and geographies across the board that fend off challenges of all kinds. The insights from these firms are revealing as they suggest several actions that are needed to fortify your business. In other words, they highlight how to position your company for distinctive, long-running, profitable progress.
In summary, it’s a matter of Rs. To be precise there are six Rs that, when used together, help businesses achieve their objective of sustained, gainful growth. These are explained in detail in later chapters but they are based on several key elements, including: focusing on the reason behind the business, generating and maximizing revenues, rousing people, developing a reputation, building business relationships and ensuring resilience.
Focusing on the reason
Everyone, at every level of the business, needs to understand the company’s vision, values and mission. Taken together with other related issues such as its culture – the way things are done – and strategy, form the firm’s reason for existence. If people explicitly understand these issues then they are much more likely to consistently pull together, and in the right direction.
Maximizing revenues
Every major business is a significant, long-term investment. Shaping and managing it requires the right strategy and the right structure. Keeping it fresh and vital requires a mix of entrepreneurial and innovative input. And all elements, including the tactics employed, must support the organization’s mission, underlying values, and, of course, its growth.
Resources are also vitally important because these are needed to generate a return. That return can take various forms. In can be tangible or intangible, financial or non-financial. Each offers the promise of the same fundamental attribute: value. This can take the form of the ka-ching of a cash register or may be qualitative and socially oriented in character. The point is that value creation is central to an organization’s growth and sustainability.
Rousing people
The next building block of corporate success is the ability to set the wheels of a business in motion so that it generates the necessary revenue and value. After all, strategy, structure, operations, what an organization stands for, and how it wishes to be perceived both inside and outside its walls, must resonate with its stakeholders. This happens by actively engaging and rousing people and the path is from the top down. Martha Maznevski, professor of organizational behavior at IMD (International Institute for Management Development) business school highlights this point, saying, “The leader’s role is to create direction and meaning and to encourage autonomy. This requires clarity, curiosity and courage.”
A responsible leader serves as the champion of an organization. This person is the one who articulates the right messages, supports the right postures and provides the funding for the organization to achieve its goals. This advocate provides an understanding of mission and brand and, most of all, ignites and excites stakeholders. This person sets the tone, guides activities and is the force to be known here as the Rouser.
Building reputation
Rolf Classon, former CEO of Bayer HealthCare, likes to talk about how to manage change in today’s dynamic environment. He focuses his remarks on the major trends taking place worldwide. He closely follows that with comments on how the firm’s partners and their teams can address these developments. In linking the two, he provides the context and content for another critical ingredient in the R growth mix: reputation. “Why do we use a preferred supplier? Because you know our industry and our issues. You continuously bring us ideas and perspectives that our organization would not come up with on our own. You deliver – and exceed – excellence in service. You help us and add to our success. At my company, you often need five signatures just to buy a chair. Thanks to your brand, I don’t have to explain to my people why we should use you. You have earned our trust with your reputation.”
Building relationships
What drives transactions in the B2B and B2C sectors? The ‘B’ letters used may give the impression that exchanges in the marketplace come about through brick and mortar, e-commerce, or some other inanimate object. That would be a mistake. It is people who generate receipts and ensure value creation. The best people build relationships, engage clients, share with them, take an interest in them and show it. When you know your clients and they know you and the good work you and your teams do, the result is a much greater willingness to remain loyal, buy more and improve your business. Our organization relies on people: the people who work here and those who receive our services.
Ensuring resilience
As this chapter has highlighted, the capacity of an organization to respond quickly and effectively to opportunities, threats and changes is vital – now, more than ever. This capacity or skill is the last of the six Rs: resilience. Organizations need to know how to handle both disaster and triumph.
In fact, these six Rs, Reason, Revenues, Rousers, Relationships, Reputation and Resilience, provide the foundation for developing high-performing businesses, brands and careers. Subsequent chapters present research-based evidence, experiences and examples to show why this works and how it can work for you and your business. Before exploring these issues in detail, the next chapter highlights several firms that have weathered the storms of business, as well as those that have merely managed to survive and others that have faded into business history. The point is simple: an illustrious history may be an asset, but it is absolutely no guarantee of future success. What is increasingly significant, however, is the ability to think holistically and act personally. This is the subject of the next chapter.