There are few businesses without major competition. Such enterprises are often state-owned, state-protected, or monopolies. Patent protection offers only a short-term respite. If your organization does not fall into any of the above categories, you are in a race for survival.
The success of every organization consists in how it approaches the future. Management is entrusted with the responsibility of identifying and espousing a winning approach. Considering what´s at stake-the organization´s existence, shareholders´ interests, employees´ careers, value to customers and society, reputation of leaders, etc.-business leaders have good reasons to be cautious, conservative, and risk averse. The irony, however, is that an overdose of caution, conservatism, and risk aversion impedes an organization´s ability to adopt a winning approach to the future.
What is a winning approach?
Executives can guide their organizations in one of three ways.
They can react to the future. This approach is characteristic of organizations least disposed to change. These organizations typically cling to long-established traditions and methods of conducting business. They hold on because the traditions and business practices produced great results in the past. Indeed, reactive organizations are likely to have had a successful product, service, or historical epoch. However, much of their present credibility derives from past glory. If reactive organizations understand the yearnings and aspirations of customers, they fail to convert that knowledge into products and services in a timely manner. They frequently function in a maintenance mode, favoring cost containment and efficiency at the expense of innovation. In consequence, they wind up playing catch-up or second fiddle to organizations that, instead of waiting for or bumping into the future, take a more assertive approach.
Tower Records bears the stripes of a reactive organization. Starting modestly as a music store in the early 1960s, the company spread throughout the United States. By the mid 1990s, it had stores in eleven countries and did over $1 billion in sales. Contemporaneously, the Internet was gaining popularity and a few online music stores emerged. As online music retailing grew, Wal-Mart, Best Buy, and Amazon.com entered the market. Wal-Mart quickly gained prominence through its pricing strategy. Amazon.com´s aggressive Internet strategy, which included free delivery and discounted prices, made it a favorite. Best Buy appealed to customers by offering an array of enticing electronics. By the time Tower realized the threat it faced, millions of its once loyal customers had disappeared.
The company has been for sale for the past three years. On October 3, 2006, Laura Sydell of National Public Radio did a story titled "Tower Records May Fall Before a Deal Is Done." Sydell´s introduction to the story is the inevitable diagnosis of any organization that persists in the reactive mode: "The major labels recently cut it off for new product, and no matter what happens, it will not be the company it once was. What it "was" was an oasis of what was known in the trade as "catalog"-a cornucopia of back titles, imports and hard-to-find classics. It all sounds quaint today, now that music fans have virtually every album ever made at their digital fingertips"(All Things Considered. http://www.npr.org/templates/story/story.php?storyId=6189889. October 10, 2006).
In the cannibalistic global market, where market size is limited and the need to grow market share is insatiable, reactive organizations wind up in the lunch menu of nimble, dynamic, forward-thinking competition.
They can respond to the future. Responsive organizations are those that accept that they cannot invent the future. Their ability to predict customer needs is determined by forces over which they have no control. For instance, the fate of the companies that manufacture accessories for handhelds is tied to that of the handheld makers. If the handheld makers go out of business, so will the accessory makers, unless they pursue another business.
Speed is a critical success factor for responsive organizations. For instance, the success of the companies that build accessories like scratch-resistant screens and carrying cases for iPods is determined by their turnaround time. Since Apple hardly ever discloses details on new products, these companies have only a few days from the time a new iPod is announced before the accessory market is flooded.
To win consistently, responsive organizations must be intimate with the inner workings of the external forces that determine their future. They must closely follow the plans and aspirations of such forces in order to effectively predict their next move. Some hire lobbyists to help secure their future.
Only a small number of organizations fall into this category. However, many organizations´ products, or an aspect of a product or service, face the limitations described above.
They can invent the future. Why did Tower Records not anticipate the changes that occurred in the music industry? If it peered into the future, why did it not create or at least embrace it? While pundits would have a field day debating the responses to these questions, suffice it to say that Tower would still be thriving had its leadership innovated as often and as swiftly as would have been necessary to succeed.
Organizations, like the people who run them, are either growing or dying. There are no periods of stagnation. Innovation is the process by which a company renews its life. It enables the organization to convert its knowledge of the customer into valuable and desirable products and services. Innovative companies not only embrace change, they initiate it. They view speed as a critical competitive advantage and, as a result, establish a culture that facilitates rapid and constant change. Steve Jobs´s iPod is one of countless examples of a product with a short lifespan. For the iPod to remain on top, Apple must continuously innovate.
The need for continuous innovation cannot be overstated. Industry leaders who lose their innovative edge lose their place in the market. For Dell, a formidable leader in the PC business, 2006 is the most challenging year. Customer surveys suggest generic, unimaginative, and uninspiring products are among the chief culprits (FORTUNE. September, 2006). Beyond improving existing products, Dell was on the sidelines as competitors redefined the PC industry with fashionable, multipurpose, highly portable products. Apple´s iTunes and iPods are great examples. Unless Dell returns to its innovative roots, its woes are unlikely to disappear.
In addition to leading the way in improving existing products and creating new ones to meet customer demands, innovators continuously create, test, and market products and services for needs that customers might not even realize they have. In other words, they help customers define value, preempting the competition and shaping the future in the process. Richard Branson, founder and CEO of Virgin Atlantic Airways, is a case in point. He was first to introduce stand-up bars, nail treatments, and massages in commercial airplane cabins. Since his background is in the entertainment industry, the competition mocked him for what they thought was proof of naïveté. Today, Branson has more than 700 therapists on his payroll. Virgin and Southwest are the only major airlines that have not filed for bankruptcy in recent years.
All CEOs are not as hands-on and techno-wired as Virgin´s Branson, Eric Schmidt (the brain behind the money machine Google), or Tom Anderson and Chris DeWolfe (the dynamic duo running MySpace). They don´t have to be. As most executives would appreciate, you can get more work done in the backseat of a limo than behind the wheels. The key is to hire a great driver, impart your destination (vision), and trust him to drive. Translated, surround yourself with visionary, creative, and daring leaders and empower them to innovate. Empowerment includes cultivating a corporate culture that´s conducive to rapid and unceasing innovation. Look for the sequel to this article for actionable recommendations on how to cultivate this culture.
Conclusion
In organizations that are serious about winning, continuous forecasting of the future must drive change. Whether they´re behind the wheel or in the passenger seat, executives have a responsibility to ensure their organizations always reach their destination-success. As Tower Records demonstrates, the quickest way to derail or crash is to take your eyes off the road-lose sight of the future. Dell proves that when leadership´s future-focus is diverted even to such critical improvement as process optimization and efficiency, the organization loses forward momentum and inevitably yields ground to a more focused competition. Executives must therefore learn to juggle the critical function of execution while keeping their eyes on the future.
PETER ADEBI is a seasoned Human Resources and Organizational Development consultant. He is founder of Star Leadership ® and author of The Star Principle. Contact: padebi@starleadership.org
