April 30, 2018
It’s said that a company cannot endure without transforming itself. Nowadays that transformative change has to happen iteratively and fast. Why? Because the lifespan of successful large companies is shortening.
In 2014, Dr. Peter Diamandis, a pioneer in the field of innovation and chairman and CEO of the XPRIZE Foundation, warned, “…many of today’s F500 are in danger. A study from the John M. Olin School of Business at Washington University estimates that 40 percent of today’s F500 companies on the S&P 500 will no longer exist in 10 years.”
In the last seven years, great companies that were founded in the nineteenth century, including Sprint, The New York Times and Eastman Kodak, have lost their spots on the S&P. Twentieth-century companies like PayPal, Netflix and Seagate Technology have reached the S&P’s liquidity-based size requirements, including the $6.1B market cap, much faster than their predecessors. Behind them are rising waves of twenty-first century decacorns (start-ups valued at over $10B) like Dropbox and Lyft and unicorns (start-ups valued at over $1B) like Udacity and Evernote. What’s behind many of these recent billion-dollar fledglings? Innovative thinking, disruptive technologies and a desire to change the world at warp speed.
If you think you can pause change, you can’t. Our new reality has put change on fast-forward.
As Howard Schultz, executive chairman of Starbucks, warned us, “Any business today that embraces the status quo as an operating principle is going to be on a death march.” At Ankura, we’re committed to helping our F500 and private equity-backed growth clients drive continuous evolution and transformation. We proactively facilitate tough conversations with C-suite leaders about performance that go beyond merely improving efficiencies to iteratively accelerating change throughout their own companies. In those organizational performance conversations, we:
- Optimize for tomorrow, not today
- Cut through the hairball of legacy, and
- Operationalize for growth.
Optimize for Tomorrow, Not Today
As early as the 1960s, Peter Drucker was insisting senior executive leaders should question the theory of their business. Reached your goals? Growing rapidly? Experiencing unexpected success? Or unexpected failure? Back then, any of these warning signs of theory obsolescence meant it was time to start looking at the assumptions on which your business was built.
Today, however, we can’t afford to wait for these signs. Things are just changing too fast. We can’t rely on a five-year strategic plan to get us where we need to go, hoping we’ll have everything we need to keep winning at the end of that time. We also shouldn’t optimize today’s people, processes and technologies without a clear focus on tomorrow. We need to be proactively and iteratively questioning our business theories and course-correcting to capture real growth as it emerges.
Every theory of the business will—eventually—become obsolete. Why optimize performance of a dinosaur? Better to look at performance optimization through the lens of disruption and transformation if you want to keep securing your future growth.
We need to stop the fruitless pursuit of sustainable competitive advantage and embrace the fact that we need to start building multiple transient advantages at once, each of which can last two seasons, two years or two decades. As Richard Foster and Sarah Kaplan revealed in Creative Destruction back in 2001, even the best-run and most admired companies have been unable to sustain market-beating levels of performance for more than ten to fifteen years. In 2016, an Innosight study updated Diamandis’s warning and predicted that, within the next ten years, nearly half of the current S&P companies will be replaced. That is, unless they embrace “creative destruction” and abandon incremental performance improvements in favor of a portfolio of strategic initiatives that constantly generate new competitive advantage and transform the business in response to changing markets and disruption.
Overcoming business theory “lock-in” and keeping organizational transformation front and center is definitely not a game for sissies. C-suite executives must own and champion this foundational aspect of performance acceleration and be willing to make the tough decisions to abandon what must be abandoned in order to make space for the new.
CUT THROUGH THE LEGACY HAIRBALL
Ask people to do something new in your business and you’ll probably notice an interesting phenomenon. Everyone gets stuck orbiting around a giant hairball of legacy stuff. This is where creative destruction comes into play again.
Forget what exists. What would this look like if it were easy?
To avoid getting mired down in what worked in the past, you have to be willing to throw all of your legacy hairball away—at least in theory. This is the only way to really figure out how to do what you need done in the future in ways that are easy, frictionless and competitively advantageous. In our work with C-suite leaders, we find those who are willing to go to the edge of possibility in thinking about their business—without being bound by their legacy—find their way forward much faster and can see much more clearly what they have to do to change the organization and processes they currently have.
DESIGNING SOMETHING BETTER
Start with your new theory of the business and a blank page. Drop all your current constraints. What will our customers need in the future? Are we the right player to meet those needs? If so, what do we need to change to be ready? Don’t let old assumptions and beliefs drive your answers. Likely, that thinking is no longer relevant.
OPERATIONALIZE FOR GROWTH
In the past, performance optimization was all about improving efficiency. Today, performance optimization is all about building the strongest foundation possible for growth in a rapidly changing environment. Growth is now our driver and our goal: efficiency, an additional outcome of all our efforts.
How do you lay the foundations for growth? Orient your company towards tomorrow and cut through the legacy hairball that’s in the way of transforming and accelerating your people, processes and technologies. Get the operationalization of these right and you’ll have a strong foundation on which to grow. The challenge lies in getting these right while running the day-to-day business.
This is where having an objective outside change catalyst in organizational performance conversations adds the most value. Unlike your in-house experts, they are not caught up in your hairball. Instead of thinking in terms of developing one winning solution for each problem, they can help you uncover the great ideas you’ve already got and figure out whether a SWAT team or an innovation group is necessary to generate better solutions and bring them to market. They can nudge, push and, if necessary, drive your leadership team to decide what you really need to focus on and cascade that alignment throughout your organization.
Admittedly, disengaging from old success formulas and implementing new ways of doing things and relating to each other can be uncomfortable. It’s a matter of creating new habits so you can give up old ones. While there will be some things you can abandon, there will be some things you must keep doing. Just as there will be some existing things you can simply modify and new things that you have to start doing. This can be especially hard and tedious work if you’re navigating the complexity of a shifting regulatory environment or dealing with the intricacies of running a public company. Yet, postponing this work puts your organization at risk of a shorter lifespan.
We’ve all placed our trust in the value of performance optimization. But we have to do better than that now. We have to continue to deliver products and services that customers value. We have to accelerate our performance to meet faster and faster shifts in their needs. Constantly question our business theory, invest in the future and drive change through our organizations. These are not optional.
1 Lori Ioannou. “A decade to mass extinction event in S&P 500”, CNBC, June 5, 2014. Accessed online December 4, 2017 at http://cnb.cx/2wZppzX.
2 Scott Austin, Chris Canipe and Sarah Slobin. “The Billion-Dollar Startup Club,” Wall Street Journal. Valuations as of October 2017. Accessed online December 4, 2017 at http://bit.ly/KKOAw1.
3 Ilan Mochari. “Why Half of the S&P 500 Companies Will Be Replaced in the Next Decade”, Inc., March 23, 2016. Accessed December 4, 2017 at http://on.inc.com/2k81SKx.
4 Accessed online December 4, 2017 at http://bit.ly/2ATFXOx.
5 Rita Gunther McGrath. “Transient Advantage”, Harvard Business Review, June 2013.
6 Scott D. Anthony, S. Patrick Viguerie and Andrew Waldeck. Corporate Longevity: Turbulence Ahead for Large Organizations, Innosight Executive Briefing, Spring 2016. Accessed online December 5, 2017 at http://bit.ly/2p0xIap.