Will your company survive the next disruption?
Stephen Wyatt, Professor of Strategy & Leadership at the University of Bath shares his thoughts on the best practices for businesses to follow in anticipation for another global disruption event.
Pausing for breath to take-stock of how your business is doing can seem like an impossible luxury as we deal with disruptions, volatility, competitive surprises, new technology, government policy changes, weather shocks, pandemics and more! It’s exhausting just thinking about it.
VUCA (Volatile, Uncertain, Complex, Ambiguous) is the new normal; the speed of business is accelerating, the contexts in which we operate are increasingly dynamic, the rate and scale at which value is created or lost is increasing. We need to equip ourselves to thrive, not just to survive, in this environment, as tomorrow will likely be even faster.
Over the 5 years Dec 2014 to Dec 2019 we worked with executives at over 80 corporations globally to identify what management and leadership capabilities differentiate corporate stock-price performance in dynamic marketspaces. We found that it is the same set of capabilities that differentiate the performance of those companies in highly dynamic marketspaces (such as IT, Tech, Media, Semiconductors) as those in moderately dynamic markets (Construction Equipment, Metals, Alcoholic Beverages) – but with greater resulting impact in the higher dynamic marketspaces. The reality is that we are all operating in dynamic, VUCA contexts; just some more so than others.
The ability to adapt in a timely manner to seize emergent opportunities and pivot away from challenges is at the heart of those companies which outperform their competitors. The higher the capacity to act dynamically the better able to adapt and change in a timely manner. The Dynamic Capacity of any company can be measured and monitored by the executives – and as the saying goes “if you can measure it, you can manage it”.
On average for the companies in our research, the stock-prices of those with a higher than average Dynamic Capacity out-performed their own industry peers by over 30% (over the 5-years). Whereas for those whose Dynamic Capacity was lower than medium, their stock prices under-performed their own sector peers by over 15%.
We found that the product of the strength of three complementary sets of capabilities produces the Dynamic Capacity of the company.
- Sensitivity to the forces and events that could drive change (and the ability to make-sense of these, to distinguish which are most important to pay attention to). A corporation that is actively engaged in territories globally, could have a structural advantage in sensing what’s driving change, but only if it configures processes and has the culture of listening to the periphery. Rapid in-market experimentation can also help probe what might be evolving.
- The ability to quickly decide how to respond and to implement actions that seize on an emergent opportunity, combined with the ability to rapidly scale-up and replicate these initiatives elsewhere. Moving people fluidly between markets can help to accelerate knowledge development and reapplication. This can be facilitated with an organization structure designed to develop, share and apply insight rapidly; for example, grouping markets by similarity of demand or competitive dynamics rather than by geographic proximity.
- The ability to adjust the activities and assets of the corporation, how they are configured, what is within and what is outside the boundaries of the enterprise, and how they collaborate externally. For some corporations, such as Unilever and Honeywell, this has resulted in significant series of divestments and acquisitions. Others such as Caterpillar have shown prowess in supply chain flexibility. Collaboration skills, inter-firm and within the business eco-system have become core differentiators of performance for firms such as P&G (for example, the recent creation of the iLab in Singapore). The desire and ability to develop Dynamic Capacity is driven by a strategic outlook that is forward-leaning; a hunger for the ‘to be’ rather than comfort with the ‘as is’. This also has three identifiable components.
- A clear, ambitious vision for the future that aligns and energizes stakeholders. Often such visions are based on the pursuit of a societal impact (Purpose-led). For example, Paul Polman’s vision for Unilever to halve its environmental impact whilst doubling the size of the business and to positively impact the lives of a billion people. The primacy of the pursuit of the longer-term purpose provides direction which can help to resolve difficult choices, particularly short-term results vs. longer-term objectives.
- Empowering managers to own and to resolve seemingly conflicting goals; such as enhancing operating efficiency and also seeking greater flexibility, or the tension of delivering on current period budgets and forecasts whilst building the capabilities and processes for tomorrow. We found that the greater the proportion of the management cadre that was empowered to think ambidextrously (resolving such tensions), the greater the Dynamic Capacity of the firm.
- The organization needs to be energized by continuous adaptation and adjustment. Organizations can become ossified due to their existing practices and organizational structures. A technique that assists ensuing evolution through continuous change is to designate and empower a C-suite executive to drive and coordinate acceleration. Another technique is to ensure that a common doctrine of change management is understood throughout the organization and that doctrine includes disseminated, empowered, yet coordinated, leaders and teams.
The ability to leverage and maintain the Dynamic Capacity is dependent on being effective in developing and deploying 4IR capable talent. In 2020, the World Economic Forum predicted that 50% of employees will need to reskill, adopting 4IR relevant skills, by 2025. There is a significant and growing deficit of the skills required for 4IR, both technical skills and managerial and leadership skills. Most people haven’t had the relevant education or experience to manage in 4IR.
The higher the Dynamic Capacity, the better able is the corporation to anticipate and manage through disruptions and hence the leadership is better able to catch their breath and take-stock of how the trajectory of the firm. The chances are that you already know whether the level of the Dynamic Capacity of your company is high enough – are you leading or following the evolution of the sector? Are you racing from pillar-to-post reacting to disruptions or do you thrive on the pace of change? An indicative assessment of the current level of Dynamic Capacity and insight as to which capabilities to focus on enhancing, is easily achieved by executives with inside knowledge of the firm.
One way of assessing this is to complete the questionnaire we developed in our research and then discuss the results. An abridged version of the questionnaire can be accessed online for free at https://www.corporaterebirth.com/. On completion of the survey, the executive immediately receives a report in which the strength of the elements of Dynamic Capacity are compared with the median of all participants to-date. Once you have determined the overall level of Dynamic Capacity at your firm and the strength of the component capabilities, then decide what you wish to increase, and monitor your improvement. By building the Dynamic Capacity of your company you might find you are able to ‘pause for breath’ a little more often even as the business continues to accelerate in the VUCA world.