How to Build a Nimble Company
Excerpted from "The Future of Management," by Gary Hamel with Bill Breen. Look for new excerpts weekly.
There’s little that can be said with certainty about the future except this: sometime over the next decade your company will be challenged to change in a way for which it has no precedent. It will either adapt or falter, reinvent itself or struggle through a painful restructuring. Given the recent performance of industry incumbents around the world, the latter is more likely than the former. Few companies, it seems, are able to change ahead of the curve.
There have always been dinosaurs—companies like Kodak, Sony, Sears, General Motors, Toys “R” Us, and Sun Microsystems—that have failed to reinvent themselves on a timely basis and have paid the price.
Yet in recent years, entire industries have been caught behind the change curve. Television broadcasters and newspaper publishers, record companies and French vintners, traditional airlines and giant drug companies, American carmakers and European purveyors of haute couture—all have been struggling to rejuvenate seriously out-of-date business models.
Sure, many of the companies in these industries will regain their footing—eventually. But in the meantime, billions of dollars and millions of customers will be lost. Such is the price of maladaptation.
What accounts for this epidemic of senescence? Is it that executives around the world have suddenly become dull-witted? Unlikely. If once-immortal business models are abruptly going toes-up, it’s because the environment has changed—and what has changed most remarkably is change itself. What distinguishes our age from every other is not the world-flattening impact of communications, not the economic ascendance of China and India, not the degradation of our climate, and not the resurgence of ancient religious animosities. Rather, it is a frantically accelerating pace of change.
Over the coming decades the adaptability of every society, organization, and individual will be tested as never before. Luckily, perturbations create opportunities as well as challenges. But the balance of promise and peril for any particular organization depends on its capacity for adaptation. Hence the most critical question for every 21st-century company is this: Are we changing as fast as the world around us? As we’ve already seen, the answer for many companies is “no.”
While executives readily acknowledge that products and services need to be periodically refreshed, they often assume that strategies, business models, competencies, and core values are more-or-less immortal. Such an assumption is increasingly foolhardy. Companies miss the future when they mistake the temporary for the timeless; and today, just about everything is temporary.
A review of the extensive library on managing change reveals a disturbing fact. Nearly all the accounts of deep change—entailing big shifts in a company’s business model or core mission—are stories of turnarounds, with a new CEO typically cast as the hero. It seems that deep change is nearly always crisis-led, episodic, and programmatic—accomplished through a top-to-bottom cascade of tightly scripted messages, events, goals, and actions. Sadly, it is rarely opportunity-led, continuous, and a product of the organization’s intrinsic capacity to learn and adapt. While one can celebrate Lou Gerstner’s turnaround at IBM, Carlos Ghosn’s Lazarus-like resurrection of Nissan, or Rosemary Bravo’s revitalization of the Burberry fashion brand, a turnaround is transformation tragically delayed—an expensive substitute for well-timed adaptation.
The goal, then, is to build organizations that are capable of continual, trauma-free renewal. An apt analogy is found in the body’s autonomic systems. When you step on a treadmill and start to jog, your heart automatically increases the blood supply to your muscles. When you stand up in front of an audience to speak, your adrenal gland spontaneously pumps out a hormone that accelerates your heart rate and heightens your faculties. And when you glance at someone who is physically attractive to you, your pupils dilate reflexively, drinking in the agreeable visage. Automatic. Spontaneous. Reflexive. These aren’t the words we typically use to describe deep change in large organizations. And therein lies the challenge: to make deep change more of an autonomic process—to build organizations that are capable of continuous self-renewal in the absence of a crisis.
Many factors contribute to strategic inertia, but three pose a particularly grave threat to timely renewal. The first is the tendency of management teams to deny or ignore the need for a strategy reboot. The second is a dearth of compelling alternatives to the status quo, which often leads to strategic paralysis. And the third: allocational rigidities that make it difficult to redeploy talent and capital behind new initiatives. Each of these barriers stands in the way of zero-trauma change; hence each deserves to be a focal point for management innovation.
Visit the Gary Hamel home page
MORE ON CHANGE MANAGEMENT:
Adaptive Enterprise: Creating and Leading Sense-and-Respond Organizations (Hardcover)
Lead Change--Successfully, 3rd Edition (HBR Article Collection)
What You Really Need to Know About Change (HBR Article Collection)
The Future of Management (Hardcover)
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Gary Hamel is Visiting Professor of Strategic and International Management at the 
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Dear Prof. Hamel,
Thank you for another brilliant insight.
It would be interesting to analyze the three barriers you have outlined in the last paragraph: Ignoring the need for a strategic reboot, Strategic Paralysis and Organizational (Attitudinal?) rigidities.
1. One of the world's largest manufacturers of scooters postponed the introduction of four-stroke engine technology till it was mandated by regulation. As a result, other players moved in to fill the vacuum and displaced the market leader. With oil prices going up by the day, and fuel efficiency being a critical factor in the buying decision of vehicles in emerging economies, the writing on the wall was visible to everyone but the organization itself.
2. A second player in the same industry successfully developed a highly fuel-efficient four-stroke engine. However, top management shot down the proposal for commercialization with the argument that the price differential was too large. The firm was later forced to introduce the technology but could not leverage its initial innovation due to its late-mover status and the consequent perception that the firm was only a follower and not a leader.
3. With pollution and carbon emissions sounding alarm bells all round, an auto-parts manufacturer developed an Electric Car. A gearless vehicle, capable of a top speed of 40 mph and a range of
50 miles on a full battery charge, the innovation could have proved to be a boon to both environmentalists and those looking for an alternative to gasoline. And yet the firm has had very limited success thanks to the myopia of limiting the capacity to 1500 vehicles per year. At this level, the firm was unable to derive the advantages of scale economies and the experience effect. The final price was much higher than the expected price. Not surprisingly, the limited success has come about primarily from countries where concern for the environment is high and not in the home country.
4. Even in high-technology industries, adaptation has been poor. The top three Indian IT companies have not come out with a product and are quite happy providing services. Thus, during the time that Microsoft moved from zero to US$ 40 billion, the Indian companies celebrated reaching the billion dollar mark in revenues. The paradox here is that a significant number of professionals developing products at Microsoft and other organizations are of Indian origin.
5. In stark contrast, Intel was able to seamlessly move from being a memory company to a microprocessor company through an adaptation that was driven from the bottom of the organizational pyaramid- sales force people picking up microprocessors and passing them on to R&D.
Looking at these examples, it would appear that the three barriers outlined are inter-linked. Inertia is a result of cocooned executives who are risk-averse. Strategic paralysis is bound to occur so long as organizations adhere to the top-down approach under the wrong assumption that all wisdom resides in the C-Suite.
Rigidities have emanated from an emphasis on specialization that might have served a useful purpose during a certain era but is not relevant today. Only organizations that are prepared for a bottom-up approach with great ideas being generated by anyone, and a leadership that is humble enough to recognize its own falliabilities are likely to thrive in the future.
Warm Regards
- Posted by B V Krishnamurthy
November 13, 2007 11:54 PM
Dear Prof. Hammel:
Thank you for the provocative article.
Tragically, many of the tools and infrastructure exist to support the notion of continuous change. Employees have the data, the insight and the intelligence to choose both the ends and means for nearly every meaningful function in a business yet are constrained by the current mechanistic and/or uni-minded structure in which they operate ...a structure which has been in operation since the inception of the neoclassical 'predict and prepare' school of management. The same executive teams that approve capital expenditures for knowledge management systems and personal productivity and information technology tools unconsciously restrict their use by deploying them in a business architecture where 'the boss' should have the information and 'the worker' should execute tasks the boss develops.
Jamshid Gharajedaghi does an exceptional job describing the need for and potential of a design methodology based on Systems Thinking for the development of business architecture which supports individual choice of both the ends and the means of various functions in a system in his groundbreaking text titled Systems Thinking: Managing Chaos and Complexity - A Platform for the Design of Business Architecture. In this text, he argues that the type of agility you describe the markets demand to remain competitive can only be achieved by a resign of the business system which takes advantage of the collective knowledge and individual aspirations of the employees - a bottom up approach as PV refers to in his response to your article.
The significant increase in the rate of change is certainly the culprit. It beckons a response which I suspect will require a fundamental shift in management's thinking on how to design a productive organization that takes advantage of individual choice rather than surpresses it. Certainly, in quantitative terms it's intuitive that the sensitivity to the need to change increases as the number of people empowered to sense and response to that need increases.
Thanks again for a provacative and insightful article.
Best regards
- Posted by Bradley K. Arnold
November 19, 2007 5:41 PM
I concur with B V Krishnamurthy, regarding that all wisdom does not start and end in the "C Suite" and yet the trend to "flatten" out organizations continues, without a thought to the spillover effect of removing their brain trust--a critical source of innovation, market responsiveness, and honest feedback.
- Posted by BJ Higgins
November 19, 2007 6:40 PM
It is a tought provking article for many growing companies besides companies who have already made the mistake. R&D department for developing new business avenues and forecasting changing business environments should be an integral part of all companies to meet the chalanges of rapid change.
- Posted by Anonymous
November 20, 2007 4:43 AM
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Excellent article and Feedback
We too (in Canada) have noticed the impact of the accelerating pace of change. Once upon a time, when dealing with Strategic Planning, we were dealing with 3-5-10 year time horizons - several years ago, we encouraged Companies to (start to)think in shorter time cycles - 1-3 year; and in particlar for Hi-tech / IT / IS businesses 1 year was becoming too long.
We have and are encouraging - as appropriate to the Business almost an "ongoing / continuous" scan of the business "Sandbox".
There is a need for constant re-examination of and anticipation of emerging business / customer -driven needs
While Strategy can / does continue to articulate some sense of overall direction (the compass?), there is an increasing blurring and merging between Strategic and Operational/Tactical (1 year)planning. I still believe we need elements of both, but they are becoming ever more intrinsically "joined at the hip". In order to continue to improve and enhance the "value proposition" in and through the eyes of the Customers - and at the same increase Shareholder Value, more vigilence and diligence are needed within the Marketplace (what is the Competition doing? - what does the Market need? - what is the next "big thing" )
As for Mission-Vision-Values - there still needs to be some discussion to establish a common understanding (consensus?)of the overall direction (in the moment). While we have helped (sometimes agonizingly) Companies develop these, what is unfortunately lacking in many instances - initially in the C-suite (they set the tone)- is a set of articulated visceral behaviours that bring these to life - hour by hour - day by day - to help and enable the workforce to release its potential
Too many Companies fail to use their "Human Capital / Potential".
In doing numerous business process improvement projects, I never cease to be amazed at the inate - and often untapped - creativity that exists on the "Front-lines".
Given the on-going challenge and acceleration of change, those Companies who can tap into this (front-line knowledge and capability) will be eminently more successful, providing they support this with increased authority and decision-making - and take a "leap of faith", with guard-rails, and LISTEN!
One of my favourite questions is: "What are you going to do differently" - in deference to the old saw of the definition of being crazy!
On being asked what I do - one of my responses is "I turn lights on"
This is all about managed common business sense.
Tony - the Lamplighter!
- Posted by A.w. (Tony) Lindop
November 23, 2007 20:22
- Posted by A.w. (Tony) Lindop
November 23, 2007 8:27 PM
I agree completely that "Companies miss the future when they mistake the temporary for the timeless," however I don't agree with your statement that "today, just about everything is temporary."
There's as much timeless as there has always been. Timelessness can't vary with time. We've just lost touch with the timeless. Time has been sliced and diced into clock pulses and that's had consequences. As you observed, we mistake their products, such as commications and computing, for the real thing.
There's a lot of timelessness around. For instance, the autonomic systems you mentioned span eons and species.
- Posted by bob roan
December 4, 2007 3:26 AM