A recent survey noted that the top global risks included concerns over disruptive change to the business model and the organization’s resistance to change. As Protiviti’s Jim DeLoach explains, this incongruence captures perhaps one of a board’s most fundamental fears.
No established incumbent wants to fall into the category of companies that were yesterday’s success but are in decline today, suffering “death from a thousand cuts.” Yet, as sad as that is to watch happen, these declines occur all too frequently. One well-known CEO says it begins with “stasis,” or a state of inactivity, which leads to “irrelevance,” and is followed by an “excruciating, painful decline,” until ultimately there is an abrupt demise of the enterprise.
This kind of decline is unmerciful. Its low velocity is one of the primary reasons why it is so difficult to spot early on. Left unabated, it leads a once-proud company and brand to that point of no return where very little can be done to save it as it continues downward along its committed path. Management may cut unnecessary costs, lay off people, restructure debt, pare back underperforming operations and make other changes that add a few years to the organization’s life, but these measures are mere window dressing, lacking the transformational power needed to address the real problem. This is what happens when the status quo business model is not adjusted in the face of significant change in the marketplace.
In the digital age, cloud computing, robotic process automation and cognitive computing using advanced data analytics, pattern recognition and natural language processing are disrupting every industry by making it possible to design hyperscalable business models that eliminate the formidable entry barriers of the physical age. With physical locations, people and infrastructure barriers virtually gone, it’s possible for startups to disrupt an established business with a scalable business model that can accommodate rapid growth without significant up-front capital. In exposing incumbent businesses and their market shares to “born digital” players, these new realities reduce the window of opportunity to act as an early mover and avoid the dreaded downward spiral of becoming captive to events.
The Relevance of Time and Speed
Time is often a revealing metric, especially when benchmarked against competitors. How long does it take for suppliers to deliver raw materials and component parts? What is the elapsed time for requisitioning raw materials and assembled components to the shop floor and converting them to ready-to-ship products? How long is the customer wait on the phone or the sales floor? How long does it take to fulfill a customer order? In industries with short product life cycles, how long does it take to develop a new product from initial concept to launch and, once released, achieve a critical mass in sales volume? On top of all of these questions is the big one: “Are we fast enough?”
Continuous process improvement tenets have stressed the importance of compressing cycle time as an element of increasing quality and reducing costs since the advent of total quality management methodologies over three decades ago. These methodologies emerged as companies in the United States and Europe responded to Japanese competitors offering higher-quality products at competitive costs. The quality differential offered was enough to enable these foreign competitors to gain market share. As a result, companies had to adjust to remain competitive.
Generally speaking, the longer a process, the more inefficient and costly it is. Therefore, taking time out of idea-to-market, procure-to-pay, order-to-cash and inventory-to-product cycles by eliminating nonessentials and streamlining and automating process activities reduces costs and improves quality.
That’s why businesses have been simplifying and focusing product design, speeding up inventory conversion, time-to-deliver and other processes and tightening the coupling of supply chains to customer fulfillment processes for decades and are expected to continue doing so in the future. A simpler process with fewer moving parts is more cost-effective, and thus more conducive to higher profitability. The digital age has placed even more powerful tools at the disposal of management to reduce elapsed process time through automation and higher-velocity decision-making.
Managing to the Speed of Business
In the digital age, time and speed in business have evolved beyond the tactical to emphasize a more strategic and holistic view with the objective of challenging conventional thinking and disrupting recognized ways of working and long-established value chains. Armed with a deep understanding of maturing technologies and the ability to apply them in imaginative ways to drive fresh innovations, management must constantly rethink the business model and the role of key players in the value chain.
It is not enough to achieve excellence in the company’s internal operations. When evaluating business model performance, the focus is on the bigger picture of how technology, data and alliances can alter the customer experience. An obsessive focus on the customer is at the heart of all decision-making, creating new types of value for existing customers while opening up new markets. This pursuit is a constant, never-ending effort to reimagine and improve business models and processes in an ever-changing environment. It is fueled by attention to speed in both (a) gathering and learning from feedback and (b) making and executing decisions. Anything short of that is tantamount to playing to lose in the digital economy, because it breeds lethargic sluggishness as the world flies by.
Managing to the speed of business may seem like a strange notion to some, but why shouldn’t every organization evaluate its processes in view of the speed of change in the marketplace and within the industry? To ground this discussion, following are 10 thoughts on managing to the speed of business:
- Set the tone for speed at the top. Executive management, with the support of the board, should set the tone for speed through actions and words, with emphasis on the importance of staying close to the customer, keeping an eye on relevant market trends, organizing the business for speed and embracing change.
- Focus on high-velocity, high-quality decision–making. Decision quality is not enough. In his 2016 letter to shareholders, the CEO of Amazon, Jeff Bezos, stated that “to sustain … energy and dynamism,” leaders must “keep … decision-making velocity high.” Many large companies make high-quality decisions but make them slowly. To speed up decision-making, Bezos suggests:
- Avoid a one-size-fits-all decision-making process – Many decisions warrant a “lightweight process.”
- Follow the 70-90 rule – Most decisions should probably be made with about 70 percent of the information decision-makers prefer to have. Waiting for 90 percent, in most cases, slows down the process. Either way, leaders need to be good at course correction in case initial decisions are flawed.
- Save time with “disagree and commit” – Building consensus when there is a genuine disagreement after a candid and full exchange of views often takes too long. It may be helpful to agree to disagree, but agree to gamble on the matter (e., “disagree and commit”).
- Recognize misalignment early and escalate immediately – If teams are not aligned because of different objectives and fundamentally different views, don’t waste time – quickly escalate for resolution.
The context of Bezos’ advice can be summed up as “remember what it was like to be a startup” (i.e., keep things simple, avoid overplanning, focus on the customer, take necessary risks and listen to feedback). There is a time and a place for formality, but for many activities, an unstructured approach is sufficient to move forward.
- Inculcate a culture of speed. Members of the executive team should have a stake in initiatives to improve and sustain speed. For example, people performing administrative, data entry and other manual tasks can represent bottlenecks and barriers to growth; accordingly, these tasks should be automated. If the organization doesn’t do it, the potency of digital age tools virtually assures that a competitor will. In this sense, business in the digital age is like a Formula 1 car race. If a car isn’t fast enough, its driver has no chance of winning. To manage at speed, the company must be at least as fast as – with emphasis on being faster than – the industry’s agile followers.
- Focus on the customer experience. The organization is customer-centric, putting the end-to-end customer experience at the heart of decision-making. Management knows that customer preferences are changing constantly and customers will always gravitate to something better. Customer loyalty is fleeting unless it is earned continuously with superior products and services.
- Establish an organizational structure that directly supports lean behaviors. With the board’s support, the CEO should encourage an open, flexible and agile organizational structure with a flat hierarchy that drives efficiencies, speeds up innovation cycles and facilitates collaboration, communication and rapid decision-making and execution. Focused, dedicated teams armed with purpose and clear objectives are empowered by executive sponsors to tackle well-defined tasks, assisted by appropriate alliance partners. Executive sponsors set expectations and keep the effort on the fast track.
- Select the talent that will lead to success. The best and most diverse talent wins in the digital era. Directors and executive leaders should understand technology and digital business models and take an active role in digital leadership. Considered vital core competencies, digital capabilities are assessed on a regular basis, and the organization focuses on attracting the talent it needs to be competitive. Significant investment is made in training, education and development, as employees find it easy to access sandbox environments to test data and experiment with new technologies.
- Understand external trends. Market volatility, changing technologies, reduced entry barriers, moves by existing and potential competitors, rapid shifts in customer preferences, evolving demographics and growing concern over environmental, social and governance issues have placed a premium on recognizing global megatrends and their impact. Growing dependence on suppliers, market channel partners, service providers and other third parties have made organizations boundaryless. Executive management and the board should focus on becoming more future-oriented, mindful of external developments and resilient in the face of these dynamics and growing complexities as they challenge the viability of business models.
- Speed must deliver desirable outcomes. It is one thing to speed up processes and decisions, but that is not the end game. Desirable outcomes validate a faster process, particularly outcomes that are directionally on-strategy. Without such outcomes, the pursuit of speed is misguided. No one should ever be in a rush to make a serious mistake. As legendary UCLA basketball coach John Wooden would caution his players, “Be quick, but don’t hurry!”
- Learn at the speed of business. Oracle likes to point out that “speed matters; the faster an organization learns, the faster it evolves.” The learning organization fosters a positive culture that embraces open-mindedness, critical thinking, fresh ideas and contrarian points of view. It is a transparent environment consisting of ongoing knowledge sharing, networking, collaboration and team learning. Admission of errors and learning from them in the spirit of continuous improvement is encouraged and viewed as a strength. It promotes feedback loops regarding interactions with customers, suppliers, regulators and other outside parties that maximize broad employee participation. A commitment to learning also helps to root out unconscious bias.
- Speed requires effective change enablement. When processes and functions are reimagined and products and services require improvement, the organization must have in place an established process to organize the necessary stakeholder commitment and drive the needed change.
What do Atari, Blockbuster, Borders, Palm and Polaroid have in common? Each failed to keep pace with the market and suffered a lengthy decline before entering bankruptcy or being acquired or liquidated. Each case illustrates how difficult it is for a company to turn away from a business model or a segment of the market that has served its stakeholders well over the years. Each demonstrates the lethal danger of clinging to the status quo in the face of changing business realities and serves as a reminder that ignoring or fighting trends rarely works. In the digital age, resisting global and technological trends carries more risk than embracing them. It’s a question of choosing to manage with a tailwind or always facing a headwind.
Confidence in facing a dynamic future is what every director and leader wants. Speed is dictated by the market, meaning it is influenced by external and internal factors. The tailwind effect from embracing change in the pursuit of opportunity breeds this confidence.
Questions for Senior Executives and Boards of Directors
Following are some suggested questions senior executives and their boards may consider, based on the risks inherent in the entity’s operations:
- Does the organization have a deep understanding of digital business concepts, building digital ecosystems and the potential of digital hyperscaling platforms that can facilitate global growth? Is the company driving innovation in the industry by investing in data analytics and digital technologies to enable continuous improvement?
- Do management and the board have access to sufficient intelligence regarding changes in competitors, customers, suppliers, new technologies, regulators and other relevant external forces? Is the velocity of the organization’s decision-making sufficient to manage the business – including the initiation, development and deployment of new capabilities – at the speed of change?
- Are we fast enough in the core processes that matter? Are we keeping pace, or are we lagging? For example, are we able to aggressively pursue important opportunities at speed by freeing up resources locked down to servicing the core business?
- Does the organization view success and failure as equivalent experiences, with emphasis on avoiding proactively the plague of complacency with past successes becoming ingrained within the culture? Are learnings used to continuously transform the organization to become more competitive in response to dynamic market forces through the ability to convert lessons learned into process, product and business model improvements?
 For example, cloud computing offers the ability to scale up and down on demand faster, at lower cost and with less risk than traditional IT infrastructure and legacy systems; big data solutions enable data-heavy companies to uncover insights and early alerts from large amounts of data to facilitate decisions regarding customer behavior, pricing strategy, operational improvements, fraud investigation and risk management much faster and more efficiently than traditional business intelligence solutions; and robotic process automation can be applied to perform manual repetitive administrative and data entry tasks pertaining to accounting, procurement, purchase order creation and new customer onboarding faster and more reliably than people.
 “2016 Letter to Shareholders,” Bezos.