Lessons in Business Transformation

By: Kay Plantes

Is the world turbulent and hard to predict or changing in discernible ways? Two prominent strategists have different views, but draw similar lessons for business leaders.

In The Upside of Turbulence: Seizing Opportunity in an Uncertain World, strategist Donald Sull argues that “Unexpected changes are not bugs in the world’s operating system; they are a feature.” Netflix unexpectedly lost a significant streaming partner. Nothing like raising prices only to discover weeks later your product is orders of magnitude less beneficial to a newly angered customer base. Ouch.

Yes, the world is more turbulent, a situation characterized according to Sull by growing variability, complexity and competitive intensity in our economy. In Sull’s view, today’s markets are akin to what you’d see through a kaleidoscope, a far cry from yesterday’s telescopic views. As a leader, you must understand your mental map yet at the same time your eyes to anomalies that indicate your map is no longer the right depiction of reality. Evolve your map steadily and you can capture the upside of turbulence.

Evolve your map steadily and you can capture the upside of turbulence.

So what’s in a map? In Sull’s view it starts with core assumptions behind the business’ design that drive metrics and business boundaries. Blockbuster’s frame was that of a retail video store versus a provider of movies and games. The map also includes relationships, core values, specialized resources that build advantages, and processes.  Apple could not morph into Dell or vice versa because of different maps. Border’s map was wrong when, in underestimating the speed of e-book adoption, it dismissed an opportunity to work with Amazon.

In Sull’s view, open, diverse minds, with the curiosity of great intellects must look at situations from multiple angles before making choices. Experimentation – the ability to fail often but fail cheaply and use failure to build better maps – becomes a key skill for sense making in a turbulent world.

The notion of sense making is also at the core of Good Strategy/Bad Strategy: The Difference and Why It Matters by another respected strategist, Richard Rumelt, but it’s a different kind of sense making. This is a man who calls it the way he sees it. “Simply being ambitious is not a strategy,” precedes his pummeling of many a once-grand company.

In Rumelt’s view, strategy is a diagnosis of obstacles to forward progress, a guiding policy for how to address the obstacles, and a coherent action plan that goes a long way towards implementing the guiding principle.  A great strategy accomplishes more than drawing on strength. It creates new strength through fresh viewpoints and a coherent design of the business consistent with that viewpoint.

Bad strategy is more than an absence of good strategy. Bad strategy avoids acknowledging much less analyzing obstacles, and mistakenly treats strategy as goal setting rather than problem solving. And it avoids the hard choices.  (Sounds like our US Congress dealing with the loss of seven million plus jobs or HP deciding to become a software company, but I digress.)

Where the two men differ is in their view of market change. Sull views markets as complex systems in which patterns are unordered and you must probe (experiment) to make sense out of the world. In Rumelt’s view, the world is complicated, but far more ordered and, therefore, logic can take you far.  In his words,

“Stability, one is told, is an outmoded concept, the relic of a bygone era. None of this is true. Most industries, most of the time, are fairly stable. Of course there’s always change, but believing that today’s changes are huge, dwarfing those of the past, reflects an arrogance of history.”

Like Sull, Rumelt wants leaders to be alert to the winds of change. But in his mind, the evidence is in plain sight if you understand the past, present and what has changed and look for the underlying dynamics that will transform yet more things.  Cisco, as an example, concluded that a universal communications protocol would develop for the Internet, as it was the best and therefore logical consequence of how the Internet would unfold. Other companies held onto their proprietary protocols and lost opportunity in networking hardware.

The Cisco example demonstrates a fundamental principle in business model innovation: If you are maximizing your value at your customers’ expense, your value will fall (through disruption, customer exits, etc.). The goal of the business model is to maximize customer and company value.

Both men remind leaders that an open and curious mind and a willingness to transform any business built on an increasingly inaccurate map – are critical leadership skills in today’s confusing economy. Sunk costs are just that. Sunk. Don’t let them shape the design of your business models going forward.