by Rod Collins, Director of Innovation at Optimity Advisors
In the late 1990's the recording industry was in the midst of an incredible financial bonanza when a whole generation of music lovers happily replaced their vinyl album collections with superior quality compact discs. With the development of an essentially scratch-free technology, the industry appeared to have perfected its business model by creating the perfect record album. Unfortunately, unexpected events can dampen perfection, as happened in 2001 when an unknown college student working in his dorm room created the file-sharing platform Napster, and large numbers of music lovers started swapping songs over the Internet. Despite their successful legal action in shutting down Napster, the music executives could not preserve the dominance of their longstanding business model. The Internet genie was out of the bottle and it wasn't long before Apple and its innovative iTunes platform spawned an innovative and legal business model that permanently changed the way we buy music. Had the music executives recognized that the Internet would permanently disrupt their world, perhaps they would have bought Napster rather than put it out of business and miss what turned out to be a new business opportunity.
Failure to Adapt
The recording industry is not alone in failing to adapt its business model to a world transformed by disruptive technology. Blockbuster, the king of video rentals, saw its business model disrupted twice--once by a disgruntled customer who hated late fees and responded by starting Netflix, and then again by the technology of on- demand video. By the time the managers at Blockbuster realized their world had drastically changed, it was too late for them. In 2010, they were forced into bankruptcy and eventually auctioned off to Dish Network in 2011.
In 2001, Borders was at the height of its popularity when online sales became a new way to purchase books. Although the brick-and-mortar business briefly considered developing an online capacity, the managers at Borders saw Internet book sales as a sideline at best and made the shortsighted decision to outsource their e-commerce to Amazon, a mistake that would prove fatal when Borders shuttered its doors in 2011.
Even supposedly "great" companies can fail to recognize when the world around them has suddenly changed. Circuit City and Fannie Mae, two of the eleven companies that met Jim Collins's rigorous criteria as "good-to-great" businesses, succumbed to the difficulties of managing in fast-changing times. In 2008, Fannie Mae found itself at the center of the storm in the worst financial crisis since the Great Depression, and in 2009, Circuit City collapsed into bankruptcy, falling victim to hubris and a series of poor management decisions.
Increasingly, as more companies and their managers are confronted by their own unprecedented challenges, many are beginning to come to terms with the unavoidable reality that the world most of them have known is indeed rapidly changing. As they continue to watch household brands they once considered invincible fall by the wayside, many of these managers are anxious about making sure their companies respond differently. As unwelcome as the new reality may be, they are determined not to experience a similar fate.
The Right People or the Right Bus?
In their search for new solutions to effectively avoid the pitfalls of rapid change, a popular image that has connected with many managers is Jim Collins's notion of "getting the right people on the bus." In his best-selling study of businesses that made the leap from good to great, Collins found that, unlike most companies' usual practice of figuring out what to do and then finding the people to do it, the leaders who guided these extraordinary organizations did the opposite. Collins discovered that "they first got the right people on the bus and then figured out where to drive it." Given the increasing uncertainty and complexity in today's fast-moving markets, it is not surprising that perplexed executives would latch onto the notion that many of their problems would be solved if only they had the right people.
But what if having the right people is not enough? For most of their long lives, Blockbuster, Borders, Circuit City, and the various major players in the music industry were very well-managed businesses. Surely, getting the "right people on the bus" was not a problem for them. Perhaps their fatal flaws had less to do with the deficiencies of the people and more to do with the limitations of established management practices. Perhaps it wasn't the people on the bus, but rather the bus itself that was the problem. While "getting the right people on the bus" is important, isn't it just as important to be on the right bus? After all, you can gather all the right people you need and you can even determine the right direction that you need to take, but if you're on the wrong bus, you're not going to get where you need to be going. That's a problem when getting to where you need to be going is management's most important job.
The Unprecedented Combination
The bus of business is management. It is the primary vehicle that businesses use to create products, coordinate operations, build market share, and remain profitable. Most businesses today continue to employ a management discipline that was initially formulated in the late nineteenth century and solidified in the early twentieth century. However, with the advent of the Digital Revolution over the last two decades, traditional ways of managing have faltered as the way the world works has been radically transformed by the unprecedented combination of three developments: accelerating change, escalating complexity, and ubiquitous connectivity.
We now live in a fast-forward world where the speed of market evolution has over- taken every industry and dramatically altered the business landscape. While most managers across all industries readily acknowledge that the world is moving faster, what they often fail to comprehend is that the increment of time for market change is now shorter than the increment of time for moving information up and down a chain of command. This means that the social structures of hierarchical organizations cannot keep pace with the speed of change in today's faster moving markets. When you have to manage at the pace of accelerating change, organizations have to be built for speed.
Industrial Age problems were, for the most part, issues of complication. They were mechanical in nature and could be solved by applying linear thinking. Today, our challenges are more likely to be issues of complexity involving paradoxes where a balance needs to be struck between apparently contradictory perspectives or where problem resolution involves crafting a holistic solution that creatively integrates a collection of elements. As our issues grow increasingly more complex, organizations are learning that they cannot succeed unless they are built for innovation.
Ubiquitous connectivity is the most transformative of the three factors because it is this element that makes the combination unprecedented. There have been times in the past when we have experienced both accelerating change and escalating complexity, especially during the early stages of the Industrial Revolution. However, the sudden emergence of a hyper-connected world made possible by the Digital Revolution is truly unprecedented. We now live in a world where, for the first time in human history, we have the technology that makes mass collaboration possible, practical, and pervasive. Today, large numbers of geographically dispersed individuals can effectively and directly work together in real time--and they can do it faster, smarter, and cheaper than traditional businesses. That's why the best companies in a world reshaped by the network effect are built for collaboration.
The Right Bus Is a Network
With the rapid convergence of these three factors, we have been suddenly thrust into a world where navigating the future can no longer be easily accomplished by linear extrapolations from the past. Managing the future no longer begins with a managerial elite setting the direction for the business. Instead, the future is more likely to start on the fringes of a hyper-connected world far from the control of traditional hierarchies. The management thought leader Gary Hamel correctly observes that, while the future may no longer be an extrapolation from the past, it is nevertheless often hidden in plain sight. Quoting the author William Gibson, Hamel counsels, "The future has already happened, it's just unequally distributed." According to Hamel, companies miss the future not because it's unpredictable or unknowable but because it's unpalatable and disconcerting. Nevertheless, if companies are to thrive in a rapidly changing world, they are going to need to learn how to manage very differently. Rather than leading functional silos, they will need to become comfortable at building well-connected networks of people if they want their organizations to be built for speed, innovation, and collaboration.
Changing how we manage is not easy, given the pervasive presence of hierarchical management. For a long time, power was about being in charge, and hierarchies were the right bus for traversing the challenges of the complicated issues of the twentieth-century industrial world. Today, with the rapid emergence of the digital revolution, power now comes from being connected, and networks are the right bus for navigating the complexities of the hyper-connected world. The leaders of these networked organizations understand that their mission is to lead collaborative communities, not hierarchical bureaucracies. Are you on the right bus?
Rod Collins (@collinsrod) is the Director of Innovation at Optimity Advisors and the author of Wiki Management: A Revolutionary New Model for a Rapidly Changing and Collaborative World (AMACOM Books). He writes for this column on the first Thursday of each month.