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Opinion 12-07-2017 0

The times, they are a changin’

A lot was going on in the 60’s (I do wish I had been there to see some of it!). Hippies were making their pilgrimage to Woodstock, Neil Armstrong was preparing for his moonwalk and the very first information technologies were being developed and refined.

Just a few years earlier the Standard and Poor’s 500 index was amalgamated. An American stock market index based on the market capitalization of 500 of the largest publicly listed companies in America, each a juggernaut of their respective industry and believed to be untouchable.

Fast forward just 60 years and only 74 of the original 500 companies still remain and interestingly the average lifespan of an S&P listed company has reduced from 67 years, when the indice was first introduced, to just 15 years today and this number will likely continue to reduce.

So how did over 400 of the world’s largest companies fail so hard in just over half a century? Let’s take a closer look at where older businesses are now falling short – ironically it is the very same structures and business models which allowed them to grow so big which are now making them so vulnerable to disruption.

 

Mind Shift

All our lives we are taught to be logical and methodical in our thinking but, as we all know, the human psyche is immensely irrational.

People in the power seats of industry-leading organisations have to make hundreds of time-sensitive decisions on a daily basis, resulting in mental shortcuts being taken; personal experience is relied upon to make common sense judgements based on outcomes experienced in the past. The problem with this approach is that the environment in which we operate is changing at a rapid pace. No longer can we make decisions using retrospectively gained insights.

What is driving this rapid change? It’s the increasingly complex nature of goods and services. We need to accept the consequences of the transition from atoms to bits (physical products to digital products) and realise that development is accelerating. This means that we need to shift our mindset from the step-by-step, linear developmental path experienced by the physical world and start to align our thinking with the exponential trajectory that the digital world is on.

 

Everyone Can Scale

Remember how banks used to occupy huge, ornate, marble-pillared structures? They did this to create a sense of permanence, as if to say “we aren’t going anywhere, your money is safe with us!”. Many years were spent establishing a network of branches to create reach and convenience. This strategy is now defunct with most people interacting with their banks over their mobile phones – the old linear scalability is no longer a barrier to rapid growth.

Giants such as Kodak have proven that scale is not everything in the face of disruption. With new technology becoming more accessible and the ability for start-ups to quickly adapt to market changes and customer needs, industry dominant corporates are under more pressure than ever to reinvent themselves to not just stay ahead of the competition, but to remain relevant – just look at how Uber, Airbnb and Alibaba have transformed their respective industries.

Even the capital constraints experienced by more traditional companies have been overcome through crowdfunding and private equity; a person on the street has almost instant access to funds to develop their next ah-ha brainchild so long as they can get someone to buy in to their idea!

Technology is the next global commodity. It will be those who apply it innovatively and augment it with the necessary combination of human interaction that will be able to shift industries and win over customers.

The old rules of the game have been changed.

 

The Lunatics Run the Asylum

Your client facing employees are everything. Customers don’t care about who your CEO is or what he/she says at the annual financial report.

The bureaucratic organizational structures of the past make effective management and communication impossible, no matter what measures are implemented – what you end up with is an organization incapable of making any decisions and which is then destined to remain behind the competition.Businesses need to place more emphasis on creating the right culture, allowing employees to think freely and develop a true sense of purpose for growing the business and caring for customers. Yes, it is easier said than done, but more weight should be placed on your people – Mr. Manager, you are not as important as you think.

If this rattles your cage a bit, then do some reading on the culture that Starbucks has created amongst its employees, then relate this to the fact that Starbucks currently opens, on average, 6 new stores a day!

 

Vested Interests

I mentioned Kodak earlier. Did you know that Kodak invented the very first digital camera technology?

Delusion and fear of the unknown can break even the biggest companies. Kodak developed industry altering technology but were too scared of using it in fear of it potentially hurting their existing business. The people high up were too scared to pull the trigger. They were so comfortable in the space they were in so why risk it right? Who would’ve known that not doing anything would be the biggest risk they could take.

When a business is enjoying success, it breeds adversity to taking wise and necessary risks. Traditional businesses stamp out innovation as if it is a disease; innovation is now only truly possible from the outside.

Risk management is a tricky but fundamental requirement of a successful and continually relevant business; if there is not enough risk appetite then performance will eventually suffer, whilst if there is too much then…  well look what happened in the 2009 financial crisis.We live in interesting times. The 4th industrial revolution is currently changing the way we live and do business, with no indication that the disruption is even close to done. The S&P 500 will look completely different in 10 years’ time, so you had better make sure that your business is completely different in 2 years’ time, otherwise, like Kodak, it will be destined to fail.

So, in the prophetic words of Bob Dylan, “you better start swimmin’, or you’ll sink like a stone”.


By jonathon@icononline.co.za


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