When I guest lecture with the MBA students at the University of St. Thomas, I often begin with a question: “What do the following have in common?”
“They are all extinct!” comes the response quickly.
“Why?” I say. “Why are they extinct?”
“Because they failed to adapt.”
“Adapt to what?” I tease.
With a bit of exasperation, they respond with something like this: “CHANGE!! THEY WERE UNABLE TO ADAPT TO CHANGES IN THIER ENVIRONMENT.”
“EXTERNAL,” I add. “Unable to adapt to changes in their EXTERNAL ENVIRONMENT.”
In order to adapt to changes in your industry, you first have to understand what industry change is. Next you have to know what to look for. Then, when a change is recognized, you have to know whether or not it is important, and if so, only then should you make plans to act on it.
Understanding Industry Change
Industry change is EXTERNAL. It originates from outside the organization rather than internally. Market demographics, technology, customers and competition are examples. These external factors, called ‘change drivers’, are less controllable, harder to forecast and can be more disruptive than changes that originate internally in an organization. Just think about the dramatic effects that the Coronavirus has had on our economy and entire way of life in 2020!
Industry change is also RELATIVE. All organizations have several fundamental relationships. In fact, a business organization is defined by relationships with its customers, employees, suppliers, investors, lenders, government regulators, communities in which they operate and other stakeholders. And while firms may not have relationships with direct competitors, they are perceived relative to competitors and substitutes by customers and others.
As industry stakeholders respond to external changes, these relationships change, and it is the changes in these relationships, within the context of the external change drivers, that are important in understanding adaptive change.
- The dinosaurs lived in an environment that allowed them to flourish until, of course, climate change would eventually wipe them out.
Monitoring Industry Changes
Start at the end. The first step is to know what to look for. It is well known that data volumes are exploding. In 2016, it was written that more data had been created in the past two years than in the entire previous history of the human race. [1] Luckily, only a small fraction of that data would ever be relevant to your organization.
By starting at the end, and determining what the data would be used for, it is possible to focus your efforts. For example, when considering how to not become extinct, the data that would represent a threat to our existence is most important. Best practice organizations start by defining a set of ‘key topics’ based on the assumptions in their current strategic plan or potential opportunities and threats, and are used to guide their change monitoring activity.
- In 2000, when Reed Hastings, the founder of a fledgling company called Netflix, flew to Dallas to propose a partnership to Blockbuster CEO John Antioco and his team, Hastings got laughed out of the room. While Blockbuster had paid attention to its retail competitors, it did not recognize a business model that relied on sending DVDs through the mail as a threat. [2]
‘Movie’ versus ‘snapshot’. Change, of course, happens over time. Changes in the external forces and stakeholder relationships can only be recognized using a longitudinal approach, which compares data points in time. Most organizations today find themselves in a world where the pace of change is fast and accelerating. Best practice companies do constant surveillance and continuous updating by an individual, group or outside partner with this responsibility. The U.S. military may have the world’s best capabilities for this, as designated intelligence officers constantly gather intel from the front lines.
- The demise of pay phones was a predictable result of the adoption of cell phones. It was easy to see the adoption curve and predict when the large carriers would exit. Sprint left the business in 2006. AT&T exited two years later, and Verizon got out in 2011. [3]
So What? Just because change is occurring and relevant to an opportunity or threat, doesn’t mean it is important. To understand if the change is significant, it is necessary to apply relevancy filters such as: Is the data real or is it only an outlier? Is it outside of expectations? What is the size of the change? What market segments are being impacted? What are the possible consequences and implications of the change? This is where human analysts with knowledge of your business, aided by text analytics and artificial intelligence (AI) tools, apply their experience and raise red flags where appropriate. These red flags are called out in the regular updates and summary reports routinely circulated to managers and executive teams.
- In BlackBerry’s downfall, managers didn’t take seriously the idea that the market was changing. BlackBerry’s leadership was based on enterprise and government markets, and never took the consumer market, and Apple’s iPhone, as a serious threat to its business. At least not until it was too late.
“BlackBerry proves that Andrew Grove really did have it right when he said, ‘only the paranoid survive.’ That’s probably the best lesson CEOs can take away from BlackBerry’s fall.”
— Craig Hanson, General Partner, Next World Capital [4]
What Now? Once recognized as important and relevant, executives can begin making plans for appropriate response. The first step in the response planning is a ‘deep dive’ analysis that is focused on the specific opportunity or threat to check assumptions, manage risks and develop a set of strategic options. Those options can further be played out in scenarios or war gaming exercises.
Acting on Intelligence
Ultimately, adaptive change means that executives must make investments and allocate resources to address the opportunity or threat. These are the ‘bets’ that executives make and are at the core of business strategy. Developing and utilizing a systematic process for gathering industry, market and competitive intelligence enables executive teams to make those bets swiftly, efficiently and confidently.
[1] https://www.forbes.com/sites/bernardmarr/2015/09/30/big-data-20-mind-boggling-facts-everyone-must-read/#32a007d817b1
[2] https://www.forbes.com/sites/gregsatell/2014/09/05/a-look-back-at-why-blockbuster-really-failed-and-why-it-didnt-have-to/#222daa451d64
[3] https://money.cnn.com/2018/03/19/news/companies/pay-phones/index.html
[4] https://www.forbes.com/sites/tomtaulli/2013/09/23/lessons-from-the-fall-of-blackberry/#3674057d544d
