General Electric CEO Jack Welch once said: “If change is happening on the outside faster than on the inside, the end is in sight.”
Judging by the survival rate for companies in the Top 20 of the Fortune 500, external change is outrunning internal change at many of the world’s top companies. Organizational effectiveness experts Edward Lawler and Christopher Worley found that 35% of the companies in the Fortune 500’s Top 20 in 1973 were gone from the list by 1983.
By the end of 2013, they predict, 70% of the companies in 2003’s Top 20 will have dropped off the list.
It is a pattern of accelerating turnover that Dave Gray, author of The Connected Company, calls the “Red Queen Race,” inspired by the chessboard scene in Lewis Carroll’s Through the Looking Glass in which Alice and the Red Queen run ever-faster without moving a millimeter – a scenario many 21st-century business executives know all too well.
RUNNING WITH THE RED QUEEN
Few corporate executives believe their companies are equal to the race. In “Analytics: The Widening Divide,” published in 2011 by the MIT Sloan School of Management’s Management Review and the IBM Institute of Business, one in three business leaders reported that they must make critical decisions without sufficient information. In IBM’s “CMO 2011” study, 53% of business leaders said they don’t have access to the information needed to do
Not surprisingly, therefore, the “High-Performance Workforce” study by global management consulting firm Accenture found that 58% of the 674 executives surveyed doubt their companies’ ability to quickly mobilize to serve new markets. Half do not believe their corporate culture is adaptive enough, and 44% doubt their workforces are prepared to manage change in times of economic uncertainty.
Those concerns reflect the fact that most companies are not structured for change but for stability, which Gray calls a liability in today’s increasingly fast-moving economy. “The producer-driven economy is giving way to a new customer-centered world in which companies will prosper by developing relationships with customers – by listening to them, adapting, and responding to their wants and needs,” Gray said.
One major driver of this trend is the rise of the “connected” customer, who is more informed and, therefore, more powerful. Ranjay Gulati, Harvard Business School’s Tiampo Professor and an expert on leadership and strategy, explains that as markets become more transparent, customer choice expands.
“Companies are struggling to maintain differentiation, but it gets harder when imitation is easy, product lifecycles are short and the rate of change is so dramatic,” Gulati said. “You have to know your customers a lot better so you know what they want and can create meaningful experiences and solutions for them. You have to stand out in what some call the ‘sea of sameness.’”
To “stand out,” executives recognize that their companies must become as connected as their customers. But most admit their organizations are not equal to the challenge.
In an October 2013 study, MIT Sloan Management Review surveyed 1,559 executives worldwide across a broad range of industries and found that 78% believe achieving digital transformation will become critical to their organizations within the next two years. But nearly as many — 63% — said the pace of technology change in their organizations is too slow.
Using an index of digital maturity developed by the MIT Center for Digital Business and Capgemini Consulting, the study concluded that only 15% of companies are advanced in their digital transformations; 65% are at the bottom of the scale, with minimal commitment to change.
The study’s authors believe such inertia is a fatal combination. “The connected world creates a digital imperative for companies,” they wrote. “They must succeed in creating transformation through technology, or they’ll face destruction at the hands of competitors who do.”
DATA AND COMPLEXITY
Companies that forge deep connections to their markets and customers can outpace both change and competition. The rapidly escalating data created by connected consumers and devices should help generate valuable insights. But sorting it for market and customer trends is a daunting challenge.
Market research consultant Gongos Research reports that 92% of the world’s data was created in just the past two years, and global analyst firm IDC estimates the world’s data resources are growing by 60% annually. The data-proliferation challenge is particularly difficult for corporations; according to data security firm Imperva, 80% of all enterprise data is unstructured – and will grow tenfold by 2016.
Cisco attributes the data boom to two trends: growth in the number of people who are connected to the Internet and growth in connected “things.” Cisco estimates that about 200 million devices were connected to the Internet in the year 2000; by 2020 – just six years from now – Cisco estimates that 50 billion people, processes and things will be connected worldwide. “The resulting Internet of Everything will drive the next wave of explosive Internet growth, with cloud (computing) as a pillar of the transformation,” the company reports.
When companies had far less data, they often took years to study an issue and months to make a decision. Today, with significantly more inputs, more competitors and rapidly shifting markets, they often have just days to act.
“Software is absolutely integral to how we reimagine our businesses as the world continues to change,” Accenture wrote in its “Technology Vision 2013” report. “How we redesign and produce things, how we create and manage new commercial transactions, how we begin to collaborate at unprecedented levels internally and with customers and suppliers. In the new world, our digital efforts will be the key to how we innovate and expand our business.”
Soon, every consumer will be a connected one, so companies must become connected too. “To win the Red Queen Race, organizations must detect, respond and adapt on many fronts simultaneously, something most of today’s organizations are not designed to do,” Gray said. “When the world is constantly changing, the speed at which you can learn
is the only thing that can give you a long-term sustainable advantage.”
To learn at the speed of a connected world, however, companies must do a better job of collecting data, interpreting it, and sharing those insights with employees.
“What we’ve done very badly as companies is to put data in the hands of the people who could use it immediately to make better decisions,” said Jeanne Ross, director and principal research scientist of the Center for Information Systems at the Massachusetts Institute of Technology’s (MIT) Sloan Center for Management. “You can empower people to make great decisions at the place and time they need to be made but, unfortunately, that’s not the way it’s usually done.”
Ross advises that companies apply technology to remove complexity and stimulate cooperation by bringing every employee closer to the real reason their job exists: to serve the customer. She points to a well-known Japanese convenience-store chain as a strong example.
“7-11 Japan epitomizes what is possible,” Ross said. “The company has about 16,000 very small stores that use great point-of-sale systems to track inventory in real-time. This allows local store workers to make quick, informed decisions about what to order from suppliers, who deliver fresh food up to three times daily. Many of these workers are part-time, but the company trusts them to know what their customers are buying. There’s good reason 7-11 has been Japan’s most profitable retailer for more than 30 years. They’re empowering their employees to give customers what they want by giving them the data.”
Technology makes empowerment easier for those leaders willing to share data. Frank Leistner, retired chief knowledge officer of software giant SAS and now a consultant and author, advises that companies can speed the flow of knowledge by providing a foundation of tools and technology. “Technology is a great enabler, and its existence can actually change people’s behavior over time,” Leistner said. Due to the gap between information (which lives in a system) and knowledge (which resides only in the human brain), however, Leistner advises that users look at technology primarily as “a repository of pointers to the one who knows.”
He cites the example of a SAS user of “ToolPool,” a collaborative online SAS database of software tools, who posted an urgent request to update an existing tool so it would work with the company’s latest software release. Leistner suggested she talk to the author of the existing tool, whose contact details were listed in ToolPool. She learned the author had already updated the tool, but hadn’t had time to post it. By using ToolPool to identify and contact the author, she met her customer’s need immediately.
Leistner’s example demonstrates how powerful search, collaboration, social networking, and dashboarding solutions are migrating inside companies to connect people, ideas and data.
Marc Carrel-Billiard, Accenture’s managing director for Emerging Technology Innovation in Europe, Africa and Latin America and a lead author of the company’s “Technology Vision 2013” report, said such solutions represent a key new approach to consumer engagement and loyalty. “Applications must be designed to specifically produce data that answers more of an enterprise’s questions,” he said. “Data is a strategic asset. A recent MIT Sloan Center for Management study suggests that companies that employ data-driven decision-making have 5% to 6% higher productivity levels.”
Leistner, who implemented an enterprise social network (ESN) at SAS and wrote a book on the experience titled Connecting Organizational Silos, said ESNs are an effective way of “loosening control” on data. A well-run and widely used ESN, Leistner said, can drive an improved sense of global connectivity and teamwork; deliver better answers fueled by the full diversity of an organization; enable improved agility in business processes; and stimulate increased collaboration, which in turn spurs innovation.
“You could call the water cooler or the coffee machine one of the great social media tools of the last century,” Leistner said in his book. “The issue with the water cooler and coffee machine is that they do not scale. Scale and high-cardinality, multi-point connection are what the recent social media tools offer, making them very good enablers to support that need for human interaction across distance and facilitate better chances for discovery, faster connection to experts, and faster and wider idea sharing, which all together can drive innovation.”
OUTRUNNING EXTERNAL CHANGE
The popularity of such tools in everyday life means that employees instinctively understand how to use them at work. “By aligning users’ newfound tendencies for transparency and social interaction with business goals, companies can deploy collaboration in a way that their users will actually adopt,” Accenture’s Carrel-Billiard said.
At Deutsche Bank, John Stepper is global managing director of efficiency technologies, charged with deploying collaborative platforms, communities of practice and social media networks to change how the global bank works. “One of the best and cheapest ways a firm can increase innovation is to connect employees with a corporate social network and encourage them to use it,” Stepper said. “Since creating such an environment, we’ve seen improvements in customer service, elimination of waste, executive communications and other areas. Social isn’t the headline; value is.”
Paul Daugherty, Accenture’s chief technology officer, advises that “organizations and their leaders need to hit the reset button on how they use technology to drive market differentiation, deepen customer relationships and deliver growth and profitability. The power and reach of converging IT trends such as mobility and cloud mean that business leaders need to understand the implications of a software-driven, ‘connected everything’ world.”
From social networks and dashboards to data search and real-time collaboration tools, technologies that bring employees closer to one another and their customers are helping companies solve some of their toughest challenges. “Implementing all of these technologies isn’t just about gaining efficiencies,” Stepper said. “It’s about agility, which will allow us to take advantage of opportunities we’d have otherwise missed.”
Platforms that federate these technologies offer companies a chance to capitalize on their greatest opportunities – and ensure that in today’s increasingly connected world, change on the inside outpaces change on the outside.