For the past thirty years I've heard business leaders make impassioned speeches about living and working in times of accelerating change. Ironically, talk of relentless change in management circles has been one of the most enduring constants throughout my career. But the types of change to which those leaders referred were generally linear and incremental: more supply chains were moving to areas of less-expensive labor, consumer habits were evolving, imports were challenging the market-share of local incumbents, technology was altering the way we work, more business was being done online or remotely...just to cite a few examples.
While many of these changes were disruptive and, in some cases, entire industries were displaced, most of these trends moved at a manageable pace. Changes that can be captured in annual reports and in business forums and can be articulated by managers at business enterprises around the world are addressable with enough lead time and resources. These are the kinds of changes we as human beings and business leaders can meet and master through effective strategic planning and execution.
There are, however, two types of changes that throw us off of our game in major ways. One is instant, abrupt change, particularly when the circumstances involved haven't yet been commonly captured in the minds of contingency planners or societal leaders. There is a difference, for instance, between the impact of 9/11 and that of a hurricane. Hurricanes are known to happen at random intervals; they are part of our general risk consciousness. So are earthquakes and other natural disasters. Yes, they represent instant, abrupt change for the affected communities, but they are not unimaginable. Those events are in the minds of risk managers, insurance companies, governmental leaders and others.
The follow-on effects of 9/11 were different. Terrorism on United States soil had never happened to that extent or in that dramatic, instant fashion. Here was abrupt change that was not on the minds of risk mitigation experts. It was a sudden mind shift that literally took hold overnight. That is one kind of change we are not equipped to deal with well.
The other type of change we don't handle efficiently is exponential change. We are programmed to think in linear ways, not geometric ways. Think about walking to your mailbox, perhaps taking 27 linear steps. While each step will be about 1.2 yards, let's simplify things and say one step = 1 yard. Your mind can clearly see where you will end up: at the mailbox, roughly 27 yards from where you started.
Now try to imagine taking 27 exponential steps -- with a doubling distance each time. We know we'd end up a little further away than our mailbox, but how far? With each step doubling (and again, assuming artificially that one step = one yard), we would find that we had circled the diameter of the earth roughly one and a half times. Exponential progressions are just not something we as humans are naturally equipped to consider as part of our everyday lives.
What changes do we encounter that are exponential? Moore's Law is a common example, named for Gordon Moore, the man who first articulated the view that the number of transistors in a dense integrated circuit would double about every two years. That's an exponential rate of growth, although some physicists say after about 40 years that relationship is no longer as valid as it once was. But computing power continues to grow at a rate that is much faster than a linear relationship, and the next wave (quantum computing) is just beginning to be realized.
What's another example of progression in an exponential fashion? Consider the replication and infection rate of viruses, such as COVID-19. What we are seeing play out on our various screens these days is an exponential progression assaulting the senses and reasoning of a linear-minded populace. It's just very difficult to wrap our brains around progressions that work in that fashion. As a result, fear is amplified.
What we are dealing with in the current business environment is a combination of the two types of change that we are least equipped to handle: sudden, unexpected change and exponential change, all rolled into one. How is a business leader to respond?
Much research and thinking have been done around the usefulness of checklists for everyone from airline pilots to investors (I'd recommend the book The Investment Checklist: The Art of In-Depth Research by Michael Shearn as one example of the latter). For business strategists dealing with components of both sudden and exponential change, think about the following eight insight points and how they might serve as your own checklist for maximizing opportunities and minimizing during a challenging period:
1. Disruption is magnified and optionality reduced by lack of liquidity. The most important factor for any business is the ability to be around to compete another day. Strong cash flows and multiple sources of liquidity matter. Job #1 is to stay solvent. Creative approaches can include new partnerships, equity sharing and other creative types of debt or ways to secure new capital. In any period, longer-duration capital is better, especially when public commercial paper, equity and bond markets are in disarray. Now, some may say this point is an obvious one, but there are many companies that delay too long in making strong moves to protect cash, thinking times will quickly get better. Erring on the side of conservatism is a good path to follow. Make the tough financial decisions early.
2. Distress for some competitors equals opportunity for others. In no period of dramatic change are all competitors operating as equals. Take the current COVID-19 circumstances as they apply to restaurants, for example. Some eateries have been building up strong digital engagements with customers and thriving take-out franchises for years. Others are facing closures of many dine-in facilities without those tools and levels of customer awareness in place. Those with off-premise capabilities will find themselves in a position to take market share.
3. Competitive advantages tailor made for the brave new world may be hidden in plain sight. Always lead from the customer's perspective. In the case of the COVID-19 pandemic, what is the best way for customers stuck at home to interface with your brand and offerings? What does that engagement look like across the demographic spectrum? How can having customers working from home and being in their houses constantly be a positive for your business? If you are providing certain services to homeowners, you may have a better chance than ever before -- assuming customer finances remain strong -- to find people willing to engage you for work (whether that's landscaping, certain types of home or roof repair, or other services, assuming they are allowed under the various lock-down rules in jurisdictions where you operate). Even in circumstances where your core business operations are not able to function, you might have a strong delivery/distribution resource that you could use for food or other types of delivery by forming an interim strategic partnership with another firm that doesn't have those capabilities. We sometimes think partnerships must be long-standing to be of strategic value, but in times of rapid change, connections of convenience can be advantageous for all parties involved. Start by taking a hard look at the capabilities you have, then "rematch" those capabilities to the world your customers are facing now.
4. People matter more than ever in times of abrupt change. Many companies say that people are the most important resource they have. In times of change, that assertion is truer than at any other time. Make sure the ideas are flowing in 360-degree fashion: from senior management, from line employees, from customers, from investors and from vendors and suppliers.
5. Fear is an inhibitor of creativity. The only thing we have to fear is...a lack of good ideas on ways to move the business forward. Fear paralyzes. Psychologist Robert Epstein, PhD, has characterized stress as a creativity killer. In his research, he suggests people who want to be more creative focus on four habits: (1) capturing new ideas as they occur to you; (2) looking for challenging tasks that stretch your capabilities and don't have an easy solution; (3) broadening the base of your knowledge in unrelated fields; and (4) exposing yourself to new ideas, new people, new books and new ways of thinking on a regular basis. For a business leader in a time of change, you need to make sure the people on whom you are depending feel secure enough to maximize their creativity and contributions.
6. Find new glasses, new lenses. A different perspective can change your business for the better. Whether you bring in resources from outside the company or encourage leaders to think across divisions or departments, generating a new paradigm can help your company both survive and thrive in a new environment.
7. Those out of the headlights first win. We've all had that experience of being frozen in time, of not being able to function until we fully process what's going on around us. The "deer in the headlight syndrome" is very real, and slow response times in a crisis period can have disastrous outcomes. Are you analyzing the limited data you have too much, trying to make certainty emerge from circumstances that by definition are uncertain? Or are you, instead, approaching the situation by thinking in probabilities? Some of the greatest investors and business leaders of all time have been probability thinkers to an exceptional degree. There are elements that are important, but unknowable. There are elements that are knowable, but unimportant. Make sure to concentrate on what is both important and knowable. The rest of the data is largely noise. Then make maximum use of what you do know to be the first one out of the headlights and back in the fight.
8. Jack and Jane be nimble, Jack and Jane be quick. The old nursery rhyme was right: the ones who are nimble and quick are the ones who make it over the candlestick without putting out the flame (supposedly a sign of good fortune in old English lore). As a business leader, are you running toward the action with alacrity? Are you willing to quickly discard what isn't working in favor of what might? Do your colleagues share your same sense of urgency for satisfying an entirely new set of customer needs?
Change is with us now, just as it has always been. But when it is most sudden and evolving exponentially, we need to take a deep breath, rally our forces and meet the challenge head on. For the companies that do that well, their competitive advantage will be a lot stronger on the other side.
If you want to talk about any of these ideas or are looking for another perspective on how your business can optimize the current environment, let's meet virtually at a friendly social distance and have a conversation!