It’s become empirically obvious to every executive that the world is changing, and that this change is accelerating.
Artificial Intelligence is disrupting business models across retail, banking, insurance, health, and professional services, and everything in between. Climate change will force the rethink of manufacturing, construction, transport logistics, mining and aviation. Geo-political developments are reforming global supply chains, as onshoring and the movement of previously outsourced activities to more ‘friendly’ geographies is contemplated.
It’s a fair bet that every industry will be impacted by these macro forces. What’s less obvious are the impacts of forces that are unique to your organisation, and the potential business disruption, investment crowding and just plain hard (and ofttimes thankless) work required to address them.
Company centric forces
As the general technology, industry and societal forces play out, every organisation (yours included) is also inevitably facing its own unique forces that generate the need for transformation.
These forces are those things that have been bubbling along quietly, sometimes noticed by the more strategic or astute leaders who realise that significant investment and effort is going to be required to solve them, or sometimes they’re not noticed or acknowledged at all.
They’re those big things that, if they’re spoken about, might be discussed in hushed, frustrated or resigned tones, or worse, are buried on page 79 deep within the operational risk register. These are the forces that are about your organisation and only your organisation.
Example themes that are inevitably relevant for your business include:
Product obsolescence – without ongoing investment, it’s quite easy for your company’s main product offering to fall behind those of your major competitors. This problem is industry agnostic, and all companies can (will) at some stage fall prey to it. It’s literally economic Darwinism, where natural selection thins the herd of competitors and only the more adaptable survive.
Quite simply, product obsolescence becomes apparent when your competitors introduce features that improve and differentiate their product from yours – or worse, a new competitor introduces a product that blows yours out of the water. (For example, the Apple iPod smashing the Sony Walkman).
Technical debt – can be defined as the fact that your legacy technology systems or physical assets are constantly wearing out and therefore need replacement. The state of your assets, whether physical or technological, is a function of the preventative and corrective maintenance, and the straight out replacement you’ve done over the years to keep them in optimal condition.
Problems arise when short term financial considerations crowd out the maintenance and replacement cycle, and if this isn’t corrected early, companies can reach a point where the effort, financial burden and opportunity cost makes it almost impossible to catch back up. (For example, Qantas Airways is rumoured to have deferred investment in their fleet, so that not only do they now have old aircraft impacting their customer value proposition, but they also have a looming multi-billion dollar investment that will crowd out other priorities or reduce future earnings).
Skills demographics – most companies pride themselves on the degree to which they invest in the skills of their people, and in improving the correlation between these skills and the quality and profitability of their outputs. All organisations claim some kind of competitive advantage from the recruitment, training and retention of a skilled workforce.
But what happens when industry dynamics are changing, and the value and relevance of these existing skills diminishes?
The introduction of new technologies, industry shifts and changing customer preferences will inevitably put pressure on the existing skills demographics of organisations, and thereby change the organisation culture, radically shift what’s valued, and rip at the very fabric of the workforce. (Traditional automotive companies are already grappling with this as their industry migrates to electric vehicles, requiring completely different research, design, engineering and manufacturing skills than those needed for internal combustion engine vehicles.)
Growing Headcount and the emergence of bulls@#t jobs – in his book, ‘Bulls@#t Jobs’ author David Graeber described the emergence of jobs that were “so completely pointless, unnecessary or pernicious that even the employee cannot justify their existence”.
When economic times are good, companies tend to recruit staff to perform a range of activities that, when all is said and done, don’t directly relate to the production of the company’s products or services, or deliver value to the customer or shareholder. These roles proliferate over time, and when economic headwinds inevitably return, the company is faced with a round of layoffs to better right-size for the prevailing conditions. Many US-based technology firms have discovered this the hard way, being forced to downsize after covid, and collectively laying off thousands of staff.
Regulatory pressure – unfortunately, a feature of our modern business environment is that industry regulators do not kick back over the holiday period dreaming up regulations to remove. Instead, there’s a growing volume of additional regulation being introduced across nearly every industry.
This naturally places pressure on the decision making, scheduling and execution of strategy within all organisations, and the mandatory satisfaction of regulatory requirements can crowd out investment in more customer or shareholder focused outcomes.
Over the last several years, financial services companies have had to cope with so many national and global regulations that successfully monitoring and managing compliance now represents a very real source of competitive advantage and barrier to entry for would-be competitors.
Investment slate pressure – not many companies have an infinite ability to invest more capital because even with deep pockets, there’s a limit to how many skilled resources you can deploy, and on your business’s capacity to absorb significant change. There are some business problems that can’t be solved by simply throwing more resources at them.
In these cases, the company’s investment slate will itself become the limiting factor on what can be done. Not just the quantum of funds available, but also the relative priority of all the many competing initiatives that are jockeying for a finite amount of money. A company investment slate full of the wrong things at the wrong time can be deadly to future growth and profitability.
So, as you look out at the external changes impacting the world, don’t forget to also look inwards at your own company, and consider and manage the range of very real forces that are driving the need for transformation uniquely to you.
Written by Adam Bennett.
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