Many have been the descriptors proposed for the period we’ve been living through since about the middle of 2007, but few strike me as more apt than “turbulence.” Why?
- Turbulence implies unconscious, or at least unintended, forces at work causing the disruption;
- Turbulence is unforeseeable, both from a distance, and locally, while one is in the midst of it;
- Turbulence is unpredictable; it doesn’t rise and fall in a convenient sine-wave pattern, it ebbs, flows, circles, eddies and creates water-spouts, becomes violent and quiescent.
And most importantly, it’s almost impossible to “train for” turbulence. The best one can do is try to keep one’s head while all around are losing theirs.
This brings me to Don Sull’s recently published The Upside of Turbulence: Seizing Opportunity in an Uncertain World. Don is a professor of strategy at the London Busness School and–full disclosure–someone I count a friend. He also writes a regular column for The Financial Times.
Don begins by disabusing us of the notion that the current economic crisis is our first or our only encounter with turbulence. Instead, he posits that it’s been on the rise for 20 or 30 years. By one measure (the likelihood that a firm will be knocked off its leadership position), turbulence increased three-fold. The frequency of currency or economic crises has increased four-fold.
What’s driving this?
Primarily, the accelerating integration of the world. Technology now diffuses worldwide in utter disregard of “national” borders (what a quaint concept indeed, China’s censoring of Google notably notwithstanding). According to Don, one-third of the world’s population that was not heretofore part of the market economy has recently entered it.
How should leaders respond?
Let’s start, perhaps, with how they should not–but how they typically do–respond. By digging in their heels.
Well, to be fair, we can be a bit more nuanced than that. Many organizations confronted with turbulence decide, perhaps not unreasonably on the surface, to dig down and do what they’ve always done best, only do it better.
So the world is changing a lot, you see the changes coming. You’ve got the data, McKinsey or somebody else helps you to get your arms around what’s happening. And instead of changing what you’re doing, you just step on the gas, spin the wheels harder, and hope to get out of the rut. Usually you end up digging yourself deeper.
This is what Don memorably calls “active inertia.”
Another response is to try to focus especially hard on the telescope in order to predict the future, in the belief that if you just “squint hard enough” you’ll be able to accurately anticipate the future.
Get real. (That’s my advice.) Don is a bit more diplomatic:
“I’ll be able to see through this foggy future. I’ll be able to predict what’s going to happen. I’ll know what to do.” That’s just not going to happen. The record of people’s predictions in business, or in any domain, is very, very poor. And as turbulence increases, the effectiveness of that approach decreases.
The final trap is trying to do what everyone else is doing. Now he’s talking our language. As he succinctly puts it, if you’re mimicking firms that are making the wrong responses, “it’s unlikely that you’re going to have a better outcome than they do.” This observation of course is first cousin to Einstein’s famous quip that the definition of insanity is doing the same thing again and again while hoping for a different outcome.
What, then, is to be done?
Be agile. Easier said than done, I know (and I’ve counseled agility myself). “Agility” is simply the ability to identify, and then seize, opportunities more quickly than your peer set. I’ve analogized it to running a race, where winners are dependent on native running ability, to be sure (but you have that, right?), but even more so on situational awareness of your competitors, seeing opportunities (a flagging competitor, or the fact that you’re 200 yards from the finish and feeling strong), and taking advantage. But “seizing” the opportunity is apt, because in moments it will be gone.
We measure business opportunities in months or conceivably years, not moments, but the principle is the same.
First, you can be “agile” within your own operations: This is Toyota, or the Six Sigma god-head in general. Get smarter about what you do best, and do it better still.
Second, you can change your own firm’s portfolio mix: Pull back from geographies and practice areas that may have outlived their usefulness (if they ever had a usefulness–topic for another day), and invest the saved resources in what you think the growth areas will be. Be attuned, in short, to opportunity costs.
Third, be strategically agile. Downturns provide, among other things, the opportunity to buy assets (office leases, most importantly talent) at below what-market-was a year or two ago. Be disciplined, be purposeful, but consider investing. Seriously.
Why? Don writes:
Many complex interactive systems–such as weather patterns, seismic activity, and traffic–follow what mathematicians call an inverse power law: the frequency of an event is inversely related to its magnitude. In turbulent markets, an inverse power law implies that companies face a steady flow of small opportunities, periodic midsize ones, and the rare chance to create significant value. Examples of golden opportunities include major acquisitions, transformational mergers, the opening of booming markets such as China or India, launching a breakthrough product like the iPhone, or securing hard assets on favorable terms during an economic crisis.
Given the unpredictable nature and uneven distribution of golden opportunities, a combination of patience (to wait for the right time to strike) and boldness (acting when that time arises) is crucial.
All this, of course, guarantees precisely nothing.
For one thing, how do you communicate the firm’s strategic objectives to the partners, associates, and staff who will actually be the ones carrying it out? Don’t you run the risk of inundating them with messages if you’re trying to turn, relatively speaking, on a dime?
Well, yes.
All the more reason to stay focussed and decide very carefully about your priorities. Communicate those you truly believe in, in your gut. No more than three a year. Better, fewer.
But do not, above all, miss this opportunity.
A downturn brings hard choices into stark relief, provides an external rationale to justify difficult decisions, and offers “air cover” to reverse previous decisions. In the current market, senior executives should consolidate their major initiatives into a single list and make the hard choices needed to select a handful that are truly critical. To ensure that everyone gets the message, they should communicate the priorities throughout the entire organization, along with a list of initiatives that are no longer key objectives, to ensure that people do not waste resources on unimportant matters.
One final thought: economic crises can provide an ideal opportunity to invigorate the cultural transformation that is often needed to cultivate operational agility.
Cultural transformation? Indeed: That’s where the rubber meets the road.
