A turnaround, says Gary Hamel, is transformation tragically delayed. In this month's Harvard Business Review, Hamel and co-author Liisa Valikangas argue that in today's turbulent times, turning a company around after the market slips out from under it might be too little, too late. Your company needs to continuously morph to meet new opportunities and challenges, to constantly build the future rather than defend the past. Hamel, director of the Woodside Institute, a nonprofit research organization in Woodside, Calif., that focuses on management innovation, spoke with Kathleen Melymuka about resilience and its implications for IT leaders.
Q: You say it's getting harder and harder for successful companies to stay successful. Why?
However you slice the time scale -- 15 billion years or 15 months -- you find change is accelerating, and two tech-related things are driving that: raw processing power and our communications capability. That puts enormous strains on institutions, yet somehow they don't seem to be all that resilient.
Q: What is resilience?
You can rejigger your supply chain without ever asking fundamental questions about what business you're in. But that's very different from having to deal with a business model that's going toes up. If I'm in the traditional music industry, figuring how to get CDs more efficiently into the aisles of Best Buy isn't going to solve my problems. If I'm Sun, a nimble supply chain won't help me deal with Linux. Most companies have not had to face the challenge of a long-term, irreversible decline in the economic efficiency of their core business model, but more and more are facing that today. Strategic resilience will be the fundamental challenge.
Q: How is strategic resilience different from a turnaround?
Typically, the work of renewal only starts once a company is in crisis. IBM goes from making $6 billion to losing $8 billion and realizes it needs to deliver solutions, not just products. But in all turnarounds, there's an enormous amount of wasted energy. You pay a very high price for recognizing the challenge so late. Renewal shouldn't come in a once-a-decade cataclysmic burst. We want it built into the systems. We want it to be continuous, opportunity-driven and intrinsic.
Q: You say that, philosophically, companies are too invested in the goal of optimization. What's wrong with that?
Many IT professionals spend most of their energy improving transactional efficiency: the flow of goods through your supply chain, handling customer requests more quickly, figuring out how to do business with less inventory. Basically, it's about better, cheaper, faster, which is fine. But almost all of those huge productivity gains have gone back to the customer in the form of lower prices or better goods and services at the same price. Only about 1 percent ever makes it to the bottom line. What is missed is the chance to use technology to create new value for customers. Where has your use of IT allowed you to create something so cool that you can raise prices? Deep strategic innovation is the only way you can create new wealth. IT needs to be seen as a positive force for business innovation, not process innovation.
Q: Give me an example.
Why is it that when I go to check in at United Air Lines, there's a special line for the best customers, but when I go to the supermarket, there's a special line for the worst customers? Why don't supermarkets have a line for people who spent US$5,000 in the store last year? Why don't they deliver superior service and carry out my groceries? IT folks need to look outside their industry and ask where IT has made the biggest difference to the customer experience, what we learn from that example and how I can bring that back to my own context.
Q: How does a company begin?
You can't predict what the world will look like in 10 years, so you try a variety of things. Some will work. The crunch comes because in many organizations, it's very hard to move resources from old things to new. All the resources are devoted to perpetuating legacy programs. A young employee has a cool idea for a new merchandising approach. He needs access to technical help, a small amount of money and consulting help. How does he get that money and talent? In most organizations, it's extremely difficult unless there's a 90 percent chance of success. Ideas go up a chain of command, and rightly so. How do I divert at least a small amount into things that are more experimental and have a chance to create new alternatives -- and not just products -- new distribution channels, new customers, new pricing strategies?
Q: Has anyone found a way?
(As part of a consulting engagement at] Shell, we created a secondary resource process to fund experiments. Anyone with a new idea can go to an eclectic peer review panel made up of contrarian thinkers and say, "I need funding to take this idea to the next step." There's a small, dedicated pool of capital for funding these things, and you're guaranteed to have an answer back in five business days. They have funded dozens of these, and they have delivered economic returns as good or better than anything at Shell.
Q: What role should IT leaders play in building resilience into their companies?
The challenge for IT is to use the Internet to build internal markets for ideas, experimental capital and talent to dramatically decrease the time it takes to connect these things. Lots of companies have re-engineered business processes to reduce the time from order to cash flow. But now the challenge is to reduce the time between idea and cash flow. That requires us to re-engineer not business processes but management processes, like capital budgeting and strategic planning. I think IT can play every bit as big a role there as it did in the supply chain.
- This is the latest in a series of monthly discussions with Harvard Business Review authors on topics of interest to IT managers.
Spotting Strategic Decay
Leaders often miss the signs when business strategies start to decay, says Gary Hamel. Answering these questions honestly will help you recognize strategic decay in your business while there's still time to do something about it: