Change or Else
I’m mad as hell and I’m not going to take it anymore,” Peter Finch famously screamed in the movie Network. The same level of frustration is true of today’s management teams. Price erosion, margin compression and shrinking net profits are creating a mandate to change or suffer the consequences of falling into a “drift” versus “drive” mode. What’s causing business models to age more rapidly and approach their Stall Point?
The Stall Point idea came from the 2001 study, “Unbroken Growth,” by the Corporate Strategy Board. The study analyzed the Fortune 50 since its inception (1955 to 2000) and concluded that (almost) all of the companies stalled, that is they stopped growing, they failed to change at the same speed as their markets. In most cases, the stall came immediately after a period of rapid growth and the companies perceived very little warning. How could this happen so consistently to a group of respected companies with some of the best management teams in the world?
The study concluded that four strategic errors were made:
- Atrophy of the innovation genes
- Breathing their own exhaust, i.e., believing what they said about how well they were doing in
the market - Leaving a core business
- Defocusing of their strategy
I would propose a fifth reason: “The information puck moved.”
Wayne Gretzky was asked once how he scored so many breakaway goals. “I skate to where the puck is going to be, not where it is,” he answered. In other words, he anticipated the future. As I read the Stall Point study, I couldn’t help but think that, during that same period of time, the last 45 years of the 20th century, there was an unprecedented growth in the information assets of these large organizations. But I wonder whether the management teams considered the dramatic change in the value and role of their information assets. Did they fail to anticipate the future?
Imagine the role of information in most large organizations at the beginning of the study period in 1955. It was almost entirely confined to supporting the accounting and finance departments—receivables and payables, payroll and taxes. The value and role of information could be characterized as “back-office” support.
Fast forward to today and observe the value and role of information in high performance organizations. Now information optimizes virtually every process for maximum efficiency. It provides timely, accurate fuel for managers to make decisions and generate competitive advantage by leveraging organizational effectiveness. The value of information now is derived from business systems that deliver the right information to the right employee at the right time. The value and role of information can be characterized as enabling the “front office” to operate at the optimal level of management’s capabilities.
In other words, the management teams of high performance companies must have anticipated the future and made investments in their information infrastructure in advance of the information puck moving. They changed at the same speed as their markets, and in some cases they changed faster.
To be fair, not all industries are the same when viewed through the information lens. The world could be divided into those organizations that are strategically dependent on information and those that are operationally dependent on information.
What this means to management is quite profound. Strategically dependent organizations approach information as a key asset. They invest in terms of financial capital and human capital allocated to create and maintain business systems that manage the information asset. Partnerships are formed between the business systems organization and the business units/departments of the enterprise. Investment banks, insurance firms and publishing companies are essentially information (or “bits”) based. In most cases, this makes them strategically dependent on information.
Operationally dependent organizations approach information as a by-product of their business. They take a cost-center approach in terms of financial and human capital allocated to create and maintain business systems that manage their information. Often there exists an adversarial relationship between the business systems organization and the business units/departments. The goal is to reduce the spend rate of the cost center, thereby creating a self-fulfilling prophecy: “We are behind in the use of information.”
Manufacturing, metals and chemical companies are raw material/product (or “atoms”) based. In most cases, this makes them operationally dependent on information. Having an effective information strategy can directly impact the performance of both types of organizations and knowing when to invest is equally
as important.
Today we are in a transition economy as the Industrial Age gives way to the yet-to-be-named economy. There are lots of unknowns, but I believe one dimension is becoming clearer with each passing quarter. The value and role of information is changing and the impact that has on business models is premature aging. Companies are reaching their Stall Points at the most rapid pace in history. The symptoms of this are the fundamental redefinition of the enterprise boundaries and the shift from mass production to mass customization.
At least one of the root causes is the inability of management teams to drive change in their organizations at the speed of change in their markets. Customers have become the economic authority in the market, and those organizations that have invested in customer information assets are better able to read the demand signals and make the necessary changes to remain competitive. The source of value has shifted from manufacturing and operations capacity to knowledge and innovation. Therefore, those companies with efficient processes for channeling intellectual capital are better able to capture the maximum amount of value before the product/service becomes a commodity, i.e., the product/service matures.
No one said it would be easy to lead an organization in today’s highly competitive environment, but not changing just isn’t an option. The mandate is change or else. Remember it’s not where the information puck is today, it’s where it’s going to be in the future.
If you find yourself frustrated with your organization’s performance, you might ask yourself a few questions. What is the value and role of information in my organization? Do I have an effective information strategy that allows me to anticipate the future and change as fast as my market is changing? If I claim to be a customer-centric organization, do I have the systems in place to make that a reality? And if you do not get the answers you want, you should run to the nearest window and scream at the top of your lungs: ”I’m mad as hell and I’m not going to take it anymore.”
Anthony Paoni is a professor of technology and innovation at the Kellogg School of Management at Northwestern University.