Why do Organizations Struggle with Evolution?
Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason, which today arm you against the present.— MARCUS AURELIUS
Revolution, Evolution, Innovation, Reinvention, Disruption. As our world physically is always in vibration and rotation, so do our societies and businesses constantly move. Not neccessarily in loops or cycles, but maybe even in jumps of exponential measure. Many organizations fail in the game of long-lasting success. But why do so many organizations vanish, especially in times of big changes and events? Well, besides being absorbed by daily business and firefighting, to put it simple: It is due to a robust coherence related to its assets and processes. And the common fear of the unknown. Analyzing this in more detail, and figuring out, what crucial traits are, is focus of this series of articles about the evolutionary quest of Versatile Anticipation.
As already slightly touched, organizations usually show a strong adherence to the business model that has been so keenly conceived and is just in place to finally get harnessed. The field is tilled, the fence around it, the scarecrow set up, the harvest abundant. By doing this, the field is simultaneously blurred into a delusion of a wellspring of infinite prosperity. This can be further corroborated by a viscid pride and strive for glory, to lead exactly what was crafted to eternal or, even worse, short term success.
Innovation must not be a disruption. It can be sustained innovation, too. But if it is a disruption, then your Geiger counter must be finely adjusted and deflect early. Disruption might turn not just a world upside down, but mix it like turning the dial and lens of the Kaleidoscope. In addition, disruption may either occur more on the demand side, or on the supply side of a market or organization, as Robyn Bolton is examining in her 2019 article, “Big Companies Can’t Self-Disrupt but Here’s What They Can Do”, by comparing Joshua Gans’ theory on the disruption dilemma with the one of Clayton Christensen. Well, if at all, organizations tend to pay attention just to one side of this spectrum, being blind on the other.
Shooting Flame: Throwing Some Petrol into the Fire
What is to give light must endure burning.— VICTOR FRANKL
Change appears easily as decay, a loss of what one stands for. As a threat, not as essential boundary condition. But as change is itself a boundary condition, what has been crafted that adequately might not fit anymore. Well, when reading this, you might agree. But, true and practical activity is way another world. And indeed change is a also a threat – especially when disrupting.
Complacency as fire accelerant, like the conviction of invincibility. Misjudgment, veils of ignorance, retarded events and nonlinearity, the mere complexity, or no sense of urgency. The insecurity and fragility, the fear to fail. Restricted plasticity (as discussed elsewhere) makes continuous transformation an exhausting task. But what to do, when fewer and fewer customers want to eat what I have to offer in my restaurant? What, if even nobody wants my stuff anymore at all? Ignorance, for sure, will not be the best way. Covering your eyes and ears, like in a horror movie, will not help. The real horror movie in this case will even take place after the supposed performance in “cinema”. But this time in reality. Not fiction. And all this is not meant to spread fear or panic. But to make the implicit explicit, to bring it before your eyes, to support the acceptance of these natural laws, and to develop the courage, the bold braveness, to shape the future activly. Taking into account, that culture is key or curse – extinct ancient cultures prove this impressively and hopefully instructive, as the ones that are existing do it from another perspective. That might provide equally invaluable insights. Therefore let us have a look on the components. The levers of struggle that are defining and deciding success or failure.
Any Culture’s Glue: Resources, Processes, Profit Formula, and Value Proposition
Culture eats strategy for breakfast.— PETER F. DRUCKER
The glue that keeps together any organization’s business model consist of 4 major parts: It’s Value Proposition, Profit Formula, Processes and Resources. Simultaneously, the junction of these components, constitutes an organization’s culture. Let’s have a look on these parts in more detail.
This contains all aspects of an organization that can be hired and fired, bought and sold, deprecated or created. They are movable, flexible and usally measurable. Resources consist e.g. of people, brands, money, buildings, equipment. Also partnerships and alliances are part, too. Recources can be considered as the competences that restrict an organizations possibilities with respect to what they can and cannot do.
Processes are the way how organizations transform input into putput. I.e. how decisions are made, interactions, information flows, communications, manufacturing, and the like. These are specialized and optimized over time to meet exactly the specifications for which they are designed for. They are designed for consistency. Therefore they are not meant to change (unless it is necessary) and subsequentially inflexible. People development, market research or budgeting processes are examples for processes. They materialize business or administrative parts likewise. Many of the processes in a company are hard to diagram, because they are embedded in working styles, decision making or coordination between people. You need to understand complicated processes, do know what your organizaion can or cannot do. In combination with an organization’s resources they build an organization’s capabilities.
Another aspect of an organization that determines what they can realize and what they ccannot, is their so-called Profit Formula. Simply said, it determines how much money a company must generate in sales, how this money is reinvested, it is a main criteria used to make prioritization, on which opportunities resources and processes are directed to. If an organization needs to do something that does not match their Profit Formula it is not able to realize this, even if the resources in combination with the processes would be theoretically capabale of doing it. It defines i.a. the revenue model, it replicates the cost structure, which in sum eventually leads to how much each transaction should net to achieve a desired level of profits, i.e. the margin model.
The Value Proposition consists of the offering, i.e. what is sold and how it is sold, the definition of the target customer, and, eventually, the job to be done. The latter consequentially solves the important problem or an imortant need for the target customer, based on the offering.
Aggregated, these are the three main aspects of any organization that determine what they are made for, i.e. they define their purpose and what they can realize and what they cannot. They also define the Value Proposition, an organization is able to promise, bidirectionally influenced: Outside-In, from the market, Inside-Out, from the Organization on the market. The Value Proposition is therefore implicitely and explicitly connected to the Profit Formula as well as the processes, affecting through Processes and Profit Formula the realm of Resources. Now it should also be clear, how and why all of this influences and creates the Culture of an organization. Therefore, if the market is changing, each of these aspects must be considered and understood on the micro and macro levels, specifically and holistically, in order to derive measures for a future partaking. And Organizations often fail, because they force new innovations through their existing resources, processes, and profit formula, wondering, why it is not working. The ones at the top of an organization ask, why their people are not able to execute a new strategy. The ones at the bottom may contest that the top is sure what they are doing, concluding they are confused. Well, both might be right, if we consider the aspects on the glue. If Value Proposition, Profit Formula, Processes, and Resources are not compatible with the innovation’s requirements and the job to be done, obviously an organization will not be successful. In fact it cannot be successful and will fail. Not because of Karma, destiny, fate, or Kismet. But due to an inappropriate business model, that needs to be adjusted. But to formulate a general rule: Organization’s cannot disrupt themselves on low-ends or new markets. They have to do it through a separate business unit. But they can transform over time. All their inflexible parts will counter-attack any change effort of higher complexity. Either by the Value Proposition, by its Profit Formula, due to its processes that do not fit, or by the resources – by an organization’s culture. But reinventing one’s business model is just, and only, indicated, if the new model is changing the industry or market. Otherwise it is not worth the effort. (Christensen, Johnson, and Kagermann, 2008)
At this point I want to remember Kotter’s depiction on change in systems of varying interdependence. Which is saying in simple terms: If you touch one point of an highly interdependent system, you need to adjust (at least almost) all parts of an organization. This implies that it is not impossible, but of high complexity, intricacy, or time consumption. Not mentioning the more irrational or (more) immeasurable aspects of any organzation in detail, like resistance to change, due to fear of a potential job loss. Compared to a living, organic system, there is much “dead material” within an organization that might also be inflexible (like processes) and in any case not capable to morph intrinsically.
Leaving the Machine Mindset
Exactly this asepect is indicating that other ways of management, business leadership, of business strategies and tactics, methods are required. As Wheatly (2007) is concluding: “We want adaptable, flexible, self-renewing, resistant, learning and intelligent organizations – features that are only found in living systems. The tension of our time is that we want organizations that behave like living systems, yet we only know to treat them like machines.“
Globalization, Changing Demands, and Operational Obsession
As order exponentially increases, time exponentially speeds up.— RAYMOND “RAY” KURZWEIL
Our highly connected and intertwined, globalized world, is establishing new rules. What is happening in one country of the world has direct and almost real time impact. Some events that took already place are retarded, having huge impacts at the other side of the globe or in the own garden. Organizations are also often struggeling with the balancing a global mindset while showing local presence and unterstanding. Interconnected global supply chains are increasing dangers in supply, when a link in the global chain fails. This is even more complex and dangerous as global supply chains are prone and exposed to different political circumstances of different countries, following different rules. (Bawany, 2016)
Somehow deeply associated with Moore’s law, even though he once received Harvard’s Anti-Nobel-Price, are “Black Swan” events. Which are rare, but not impossible. Such events describes unexpected events, with an significant impact in societal, geographic, economic, and chronological aspects and even smash boundaries. Even of correlated things. “It derives from a theory developed by Nassim Nicholas Taleb and can be thought of as disruption on a broad, universal scale” (compare Hagel et al, 2015).
On the other hand, globalization and high availability of data, information, and, in a best case, knowledge shifts the focus from production and material goods more on creation of further knowledge and innovative ideas, in order to be at the competitive edge. Half-life period of products and technology has incredibly decreased. Nowadays it is not unsual that your product ist copied and marketed within 6 months or even shorter. Therefore traditional incumbents have to deal with a huge shift in the ways the game is played, focussing more on capability maps or grandiose fit of activities, like schematically depicted in Porter’s Activity Systems (Porter, 1996), which states that it is more important how activities within an organization interact with and reinforce each other. But exactly this map or activity system can also lead quickly to an organizations exctinction, as we have seen above, and also Porter (1996) concludes that the mere improvement of operational effectiveness is a necessary part of management, but is not strategy. Continual improvement is simultaneously an essential part in areas, where no trade-offs are possible, as this would create vulnerability even for organizations with good strategies. But the “strategic agenda” differs, according to Porter (1996) from the operational one, as it is essential to define a unique position – as we may have seen, around the job to be done, rather than around a technology though – making clear trade-offs, and tightening fit. But “a company may have to change its strategy if there are major structural changes in its industry”. Which might occur in a globalized and interconnected world rapidly.
Many organizations that struggle, underestimate that positioning trade-offs are pervasive in competition and essential to strategy. This is due to the fact that they create a need for choice and limitation, that some organizations try to avoid, ending up in many products or variants nobody needs, over-serving customers. They miss to deter straddling or repositioning, which then lets specialized competitors undermine their strategies and degrade the value of their existing activities. Other organization’s struggle with evolution, because they are addicted to operational effectiveness and efficiency. Obsessivly trying to further enhance their products, processes, and services. Putting best practices into the garment of the chalice of eternal life, not considering the productivity frontier. This means they are focus on best practices, forgetting the market and that there is a frontier related to lowest cost and highest value deliverable, as depicted above. Additionally many organizations struggle with evolution, due to oversized, monolithic, and cumbersome structures, which may end up in apathetic letargy. Especially, when speed and flexibility are crucial, faster in the eternal hunting grounds than the eagle can fly down from the mountain, i.e. one is faster disrupted than one can immediately streamline one’s structures.
Versatile What? In a VUCA-World?
But the guitar, when you think about it, is the most versatile, really. I mean you can pick it up and take it with you wherever you go.— ERIC CLAPTON
Mastering the VUCA-World is a challenge. Volatility, Uncertainty, Complexity, and Ambiguity are high-demanding influences in our fast-paced and increasingly automated world. Versatility can be an answer to this challenge, if we are able to materialize this in orgnaizational design and strategy. Versatile means to have many applications, being diverse, and capabable to change quickly by adapting to the environment and circumstances. To be volatile is therefore a trait from an inside-out perspective, as a response to your environment. Like a basketball player in a Play-Offs Game. It is also a habit, that will emerge when practiced regularily. It can be gained for example when applying agility in a recurring way. This also helps to increase envision and understanding capabilities over time. All of which is also often derived from VUCA, as a survival strategy, literally, Vision, Understanding ‚ Clarity‚ and Agility. As the third comes from professional appliance of the latter, which amplifies the first two.
Details on the traits and components of Versatile Anticipation, will be disclosed and presented in the second part of this series on “The Evolutionary Quest of Versatile Anticipation”, which will be published in the near future. Diving deep, to derive a model, on how to apply concepts tangibly on the organizational context in order to handle evolution with increased survival possibilities.