How to shape a business strategy when change is coming thick and fast
Our human capabilities to develop and deploy technology is amazing and still expanding. But deployment of technology faces numerous impediments that slow its adoption. This doesn’t mean that business breakthroughs and disruptions won’t occur, challenging even the largest and long-standing organisations. To navigate these circumstances, business leaders need to embrace an informed, pragmatic and action-oriented approach to change. With some clear principles to work by it’s possible to craft a business strategy that enables real progress.
We live in a world of contradictions. Take, for example, our relationships with change. Today, many people feel overwhelmed by the pace of change. Just think how it would feel to be a taxi driver in an Uber world. Yet the same people can also express great frustration at their perceived lack of change. So, talking about change in sweeping generalities isn’t very accurate or helpful. We need to be more articulate about the changes that concern us and why. This is especially true if we’re tasked with setting a strategic direction for an organisation.
The potential for transformative change
When people talk about how quickly things are changing, they’re often referring to digital technology and the way it influences our lives.
In 2007, the first Apple iPhone went on sale. In the past decade smartphones have become ubiquitous and influential, enabled by computers of escalating power and shrinking size. Their magnetic appeal is amplified by engaging applications and internet connectivity that gives us global access to information, friends and even an audience.
It’s the maturation and combination of digital technologies – small computers, the internet, sophisticated sensors, cloud computing, artificial intelligence, robotics and 3D printing – that is ushering in the “fourth industrial revolution”. The potential exists for fusion in our physical, biological, cyber and virtual worlds.
As the next generation (5G) wireless networks become available, we might enjoy data transmission speeds one hundred times faster than exists now. This will enable a whole new “Internet of Things” (IoT). Everything from dog collars to dialysis pumps could be connected. Remote robotic surgery may become routine and autonomous vehicles could cruise safely along smart highways.
So, to be clear, there is enormous potential for technological change that significantly influences our work and personal lives.
The pace of realisation
While the potential exists for rapid change to occur, it doesn’t mean it will happen. There are many impediments to change.
We humans normally avoid and even undermine changes that push us outside our comfort zone. We might love the personal benefits of smartphones but push back against use of the same technologies in ways that affect our jobs.
When groups of people are involved – such as the customers, staff and suppliers to businesses – change can be even more difficult to achieve. Conflicting interests can exist, and some people will have a vested interest in preserving the status quo.
The pace and capacity for change can also be impeded by institutional inertia. Physical infrastructure, for example, is often complicated and expensive to develop taking months if not years to achieve. Laws and regulations can be equally slow to evolve.
Thus, what could occur and what does occur might be markedly different in nature, scope and pace.
Disruption remains plausible
Despite all the factors impeding change, disruption of organisations, industries and even communities remains entirely plausible.
Businesses can be disrupted when change happens faster than they can manage. It could be triggered by a competitor offering a better or cheaper product, or even a shift in social expectations or government policy.
Realistically, small “start-up” businesses have an advantage in this respect. They’re not encumbered by history, entrenched mindsets, rules and processes or the inertia of existing plant and equipment. They can move quickly, try things, learn and adjust.
While many start-up businesses fail, those that don’t can scale up quickly. First-mover advantages can accrue – like customer ‘lock-in’ – bringing the data, insights and capital that follows.
Such disruptive changes are unlikely to come from the ‘middle of the bell curve’ – from the big, long-standing organisations in an industry. It’s why you need to look to the fringes of an industry, or different sectors altogether, to spot new opportunities and emerging competitors. It only takes one successful disruptor to catalyse a transformation.
Benefits and risks of organisational scale
Of course, existing organisations are not without their advantages.
Larger corporations and public enterprises have scale, history and experience. Business rules, processes and regulations protect against (mostly operational) risks and waste of scarce resources. Size and stability provide investors and customers with confidence in the quality and reliability of the goods and services they provide.
But this strength can be overplayed. It can permit a lack of customer intimacy and general complacency. History is littered with examples of big-name corporations caught “asleep at the wheel”. We need only think of the disruptive influence of Uber and AirBnB.
Government agencies are not immune. Failure to anticipate and prepare for water shortages (triggering large and costly investments in desalination plants) and the challenges presented by coal-seam gas development are two recent examples.
Indeed, failure to anticipate and engage with change can undermine investor, customer and public confidence. It can create the conditions in which “disruptors” can change the rules of the game.
So big changes in technology and markets will undoubtedly occur but probably not quite as fast as the hype suggests. When, then, do you need to act?
Change takes time
Even when everything is going your way – you’re keyed into emerging trends, understand your customers unmet needs, and are actively enhancing your customers’ experience – change takes time.
Embracing modern technologies can require major shifts in organisational practices and structures. Even when these shifts are achieved, it can take some time for the benefits to accrue. So, business change and transition can take months or years.
During this period, your operating environment will continue to change. Transitions at an industry scale can also present new and unforeseen risks and challenges (e.g. customs and tax structures as value shifts away from physical to intangible assets). There’s a risk your plans will become redundant.
With so many dynamic forces at play there is perhaps greater uncertainty about future market conditions and customer needs than ever before.
The cumulative, overlapping ‘error bands’ in predictions of future needs make big, long-term investments (such as those associated with major infrastructure) increasingly risky.
Consequently, organisations need to develop assets and business practices that are more adaptable.
Technology as an enabler
New technologies can be the catalyst for new businesses (e.g. big data analytics services, rooftop solar panel installers).
The mistake that many established organisations make, however, is seeing technology only as a means for doing existing jobs more efficiently (e.g. putting what was once a paper form into an online web portal). And just because a process could be digitised and automated doesn’t mean it’s necessary or going to be profitable.
While it’s true that digital technologies can and do generate substantial efficiency gains and cost savings, the organisations that are transforming markets and industries are focused first and foremost on the outcomes they want to create for their customers.
Increasingly customers – whether citizens seeking services from government or customers of private enterprise – are wanting to buy outcomes and experiences, not products and services.
Successful businesses are focused on their customers’ value drivers. Then they look to technology to see how it can help best enable those value drivers. Often, smarter leverage of mainstream technology (not new cutting-edge technology) proves most useful and profitable.
Furthermore, when those technologies enable personalised products and customised solutions, they usually generate significantly higher margins than mass-produced offerings.
Hence, technology needs to be seen through a customer lens, as an enabler of new offerings and business models, not just an efficiency vehicle for an old business model.
Adopting an informed approach to change
To deal constructively with the challenges of anticipating and navigating change in the modern world, it’s particularly important to understand how people perceive risk and time.
Four human behaviours are particularly relevant:
- People tend to over-estimate the level of change that’s likely to occur in the short-term but under-estimate it in the medium term.
- People are twice as likely to avoid pain (risk, uncertainty, loss) as to pursue gain.
- People replace difficult questions and complex situations with simpler questions and explanatory narratives.
- Everyone is innovative, but people have varying appetites for being disruptive.
This means that even progressive organisations and leaders keen to embrace modern technologies will require structured support to think about, plan for and achieve beneficial change.
Principles to work by
With these insights about the pace of change, the nature of change and our human and institutional relationships with change, there are some principles we can employ to bring structure to strategic thinking. Craft your business strategy with these principles in mind:
- Be articulate when describing change. Is it the potential for change, the pace of change, or the impact of change?
- Work with meaningful timeframes. Recalibrate expectations of short-term disruption to that of substantial change over, say, a decade.
- Embrace a customer focus. Focus on things people want and value, which you can deliver better than anyone else.
- Review your whole business model. Examine how changing conditions and technologies could drive improvements in all areas of your business – and the organisation’s design.
- Use scenarios. Recognise your assumptions about the future and that they’re likely to be flawed. Use divergent scenarios to help develop and test your business model and strategies.
- Plan backwards. Decide what future outcomes you want and by when. Then, work backwards, designing suitable tactics to achieve those outcomes. This avoids the usual incremental steps forward that ultimately leave you well short of your goals.
- Keep it simple. Find ways to keep your organisation and its assets as simple as possible to provide flexibility and adaptability to emerging conditions. Root out and eliminate complexity that doesn’t create value.
- Be positive about the opportunities. Changing conditions and new technologies offer great opportunities. Explore how you can create value and reap rewards.
We are at a pivotal moment in history when change over the medium-term is likely to be substantial. The upside is that you have a good chance of dealing with it profitably if you adopt a methodical approach now to driving change deliberately over time.