August 2005

LLeading in Times of Disruptive Change

 

by Doug Berger, Managing Partner, Innovate

In times of disruptive change your expected future is no longer valid.  Leaders need to think and act differently in order to chart a new course for the enterprise.

There are two types of change … two types of challenges.  The first are everyday challenges faced when running a business – ‘little c’ challenges:  closing a difficult sale, expanding into a new market, implementing a new manufacturing process.

Then there are the challenges associated with being in an industry that is undergoing disruption, discontinuity and upheaval.  Let’s call them Big C Challenges

Disruptive change is characterized by a shift in the underlying forces of an industry segment.  It is not localized.  It affects the entire value network.   We see examples of industry disruption in computers, telecommunications, retailing and pharmaceuticals, to name a few. 

Sound business management aims at dealing with ‘little c’ challenges.  However, these principles won’t produce long-term success when dealing with ‘Big C’ challenges.

How do you know when you are entering an era of Big C challenges?  For what can you be on the lookout to identify disruption in your industry?  When you have Big C challenges, how do you think and act differently? 

How do you recognize disruptive change?

There are recognizable indicators of Disruptive Change.  Let’s start with a specific industry and look for indicators of disruptive change.   Pharmaceuticals are a promising choice.   As recently as 5 years ago, few industry insiders were anticipating the now obvious disruption.  Similar to the internet bubble, disruption was unseen until it was upon the industry and there was little to no transition time.

What are indicators that we can now see in Pharmaceuticals?

  • Industry consolidation to gain mass in an element of the value chain
  • Shortage of blockbuster drugs with broad market appeal, in the R&D or FDA approval pipelines
  • Accelerated trend to direct consumer marketing
  • Financial model becoming irreversibly less profitable
  • Managed Care providers trending towards qualifying new drugs based upon improved medical benefits over existing, less expensive drugs.
  • Uncertainties of new government policy, i.e. Medicare B
  • Growing distrust of the industry by consumers
  • Physicians becoming increasingly unavailable to the traditional ‘detailing’ sales model

Patterns emerge when looking at indicators across a spectrum of industries.  From the perspective of an executive, the following trends are strong indicators of approaching disruption:

  • Your specialties are becoming commodities 
  • Consolidation of vendors within your industry
  • Customers are being over-sold
  • Change in customer accessibility
  • Increased customer dissatisfaction
  • Consolidation within your customer base
  • Fundamentally more affordable or convenient product / service
  • Government pronouncements – policy, legislation, regulation
  • Tipping of public sentiment

If you can place a check mark next to five or more of these indicators, you are in the midst of disruptive change.  If 3-4 of these trends are applicable to your company, consider yourself forewarned.  The impending change should be considered irreversible, not cyclical.  The entire industry will be operating from a different business model in the future. 

What stops people from pro-actively responding to disruptive change?

In any period of disruptive change there will be companies who win.  There will be companies who do business as usual and struggle.  And there will be companies who exit the industry or will be swallowed.  This is the inevitable end result of disruption. 

Executives work hard and put much thought into building their enterprise toward an expected future.  When disruptive change hits, that future ceases to exist.  There is a normal range of human response to a break in an anticipated future. (1) Minimize the disruption, (2) recognize the disruption but not realize the magnitude of consequences, or (3) deny the disruption and remain blind to it.  Disruption causes a flood of negative feelings.  This onslaught of emotions makes it all the more difficult to recognize and respond to the break in the expected future of the organization. 

Do a quick thought experiment.  If you are emotionally concerned about a situation do you take action or not?  Your immediate response is ….?

If you are like most, your answer was, “my concern leads to action.”   Upon closer scrutiny, however, you will find this response to be inaccurate.  While we want the situation to trigger a readiness for action, in the very moment that we are feeling deeply concerned, that which is actually triggered is hesitancy.  Although it is unconscious, our immediate thought is, ‘Given the uncertainties, I don’t know what to do next.’  This concern for action creates hesitancy, a normal human response. 

Process for Responding to a Disruptive Change

Aspiration and Passion

Where does the future come from?  In corporate business, it has become fashionable to think of business direction as an analytic endeavor.  The future of the enterprise arises from analysis of the marketplace and of the enterprise.   

Consider a different perspective: Strategy is the fulfillment of an executive's ambitions for the enterprise.  The future is determined by a defining act of leadership, not a circumstance to which the enterprise falls victim.  Executives create futures as expressions of their aspirations.  Your personal top 10 list of business leaders would likely be people who lead their organization in new directions. 

  • Apple iPod and iTunes
  • General Electric
  • Fox Broadcasting
  • SAP and Oracle

Whether or not you agree with the leader’s direction is irrelevant.  The key point is this - executive ambition for the enterprise is the source of strategic direction.

Disruptive change is a call to action for executives to re-think their ambitions and strategy for the future of the enterprise.

Becoming an Explorer of Possibility

There are two lenses through which to view the future. Each offers a very different response to the future.

1) The Lens of the Past.   We see today’s customers, today’s products and services, today’s economics and today’s competition.  We project today’s conditions forward.  This then, unknowingly, becomes our expected future.  Our future has today’s customers, products and services, economics, and competition at its core.  The future is an extrapolation of recent trends.  When we look through the lens of the past it is as though we are driving the car focusing on the rear-view mirror.  This view permeates management thinking and business processes in areas such as budgeting and forecasting, performance and career management and product development.  We know who we are and we project that forward into the future. 

Carly Fiorina’s merging of HP with Compaq, using today’s products, customers and business model to grow the company, is a classic example of operating a business looking through the lens of the past.   

When operating in times of disruptive change … there is a break in the trend-line.  We can no longer reliably project the future from recent trends. 

2) The Lens of Possibility.  To be a winner in times of disruptive change, you must learn to think differently.  Gary Hamel, a leading thinker in today’s business arena, says: “in the absence of nonlinear innovation, the destiny of the industry is your destiny.” 

Determine which lens each of these companies has used to create their futures.

  • AT&T  or Verizon, SBC, Cablevision
  • Colgate-Palmolive  or Proctor & Gamble
  • Merck or Genentech
  • Sony or Samsung

Many of these companies, AT&T, Colgate-Palmolive, Merck, and Sony to name just a few, have built their future based on their past; their past successes, past customer experiences, past environment of competition. 

When you put the past firmly behind you, possibilities no longer arrive with labels.  You are now free to create from entirely new vistas.  New possibilities often come from challenging industry-wide assumptions.  Amazon challenged assumptions.  Dell Computer challenged assumptions.  E-bay challenged assumptions.  Market disrupting companies challenge assumptions.  While these companies often emerge from start-ups, existing companies, too, can create new futures when their executives look through the Lens of Possibility.

New possibilities also arise from the discovery of your customers’ new and future problems.   You will not have ready made answers yet, after exploration, you will see the possibilities for your enterprise. 

Enterprise-wide possibility evolves from challenging your own assumptions.  However, your assumptions are generally hidden.  These undetected assumptions organize your thinking without your knowledge.  When you become an explorer of possibility you set out to discover these undetected assumptions. 

Avoid this mistake: that of framing your exploration against what you do now and viewing and listening to your customers through that lens.  If you fall into this trap you will miss the real growth opportunity!   

Places to look for possibilities:

  • New problems for your customers
  • Least-demanding value delivered through a low cost business model
  • Re-segmenting the industry value chain or market
  • More convenient products / services
  • Addressing points of customer dissatisfaction
  • Unique performance advantage
  • Acquiring today’s non-customers

Challenging assumptions and listening to the marketplace with new and impartial ears is a powerful approach to creating a new trajectory for breakthrough growth. 

Mobilizing Commitment

When you’re ready to say, ‘this is the future I want’ and you have explored the possibilities, the next step is Commitment.  When you commit, entirely new levels of power and effectiveness become available.  Being committed makes a critical difference in tackling all of the difficulties that occur from the time you state a bold aspiration for your organization to the time it is actually achieved. 

Commitment = Aspiration + Determined Action.

Your personal commitment to a new future is a defining moment.  You begin to look at things differently.  Commitment alters your relationship to accomplishment.  A future that had been merely hopeful transforms into a future that is now achievable.  This is not akin to the magical thinking of a 5 year old – I think it, therefore it happens.  Commitment requires a thoroughness of thinking and preparation.  When people are unprepared for problems, the problems stop them dead in their tracks. 

When your golf pro says “to get your game from 90 to 80 you’re going to have to completely change the way you hold the grip.  You’re going to have to putt very differently.”  Your commitment to taking your game to the next level will carry you through your discomfort of practicing a new swing and your frustration of learning a new skill.   Absent your commitment, you will continue to play in your comfort zone and your game will not improve. 

While your personal commitment is crucial as the starting point, mobilizing a critical mass of commitment is required for building the future.  You will see people acting differently and you will hear a buzz of new conversations as a critical mass of commitment is building in your organization. 

  • Big picture conversations about the future
  • Collaboration taking on new forms
  • New ideas being encouraged, stimulated and acted upon
  • Wasteful activities being eliminated
  • Emerging opportunities outside business traditions being resourced
  • Serendipity in favor of your new future

Implementation from the Future

On the macro scale you build bridges from your future back to the present.  Success in the future will come from new offerings to existing customers, new customers and reaching customers in new ways.  These new drivers for success are built from your future backwards.  In practice, however, you need to do more than build bridges from the future backwards.  You can’t stop running the business.  Both need to happen simultaneously.  We act differently by building bridges in two directions at the same time.  You can take innovative action in the present, informed by your future.  Do things now that make sense in light of your new future.  Say “No” to those things which you used to do automatically, but no longer make sense given where you are now going. 

In times of disruptive change you only get so far by depending on planned changes and analytic thinking.  You have to feel and experiment your way into new and emerging opportunities.  Thinking and leading bi-directionally on a ‘macro level’ is the key to success. 

One of our clients is a great example of this.  The leader of this organization thought backwards from the result – to build a new product line for which he did not have the funding resources.  Having committed to the new product line, however, he immediately identified existing brands which were over-resourced for their status in the marketplace -- their return on investment and lack of future growth potential.  His future-backward thinking enabled a large portion of the funding from the mature product to be redeployed to support the new product line.

In Summary

Disruptive change is an irreversible change in your expected future. 

Consider these questions to guide you through the Disruptive Change Process:

  • What future lights me up? What are my aspirations for the enterprise?
  • What do I need in order to commit myself?
  • From the future backwards, what needs to be true to achieve this future?
  • What actions does my new future tell me initiate?
  • What actions does my new future tell me to stop?

We wish you much success on your new journey!

 

 

Doug Berger is Managing Partner with Innovate (www.Innovate1st.com). Innovate specializes enterprise-wide innovation and breakthrough growth. Doug can be reached at doug@Innovate1st.com or tel +1.732.564.0945

©2005 Innovate LLC (all rights reserved)

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