Dealing with Change in an Ever-changing Business Environment

Stephen DeAngelis

July 24, 2012

Business leaders don’t need to be reminded that the business landscape is ever-changing. Nevertheless, a KPMG article states, “The resources on which business relies are becoming more difficult to access and more costly. Changing patterns of economic growth and wealth are likely to strain infrastructure and natural systems. The unpredictable results of a changing climate will affect physical assets and supply chains. And businesses can expect an ever more complex web of sustainability legislation and fiscal instruments.” [“Expect the unexpected: Building business value in a changing world“] Each new dawn brings with it new challenges. The KPMG article cited above introduced a KPMG study of the same name. The study discussed ten megaforces “that will impact each and every business over the next 20 years.” I discussed these “megaforces” in a two-part series entitled KPMG Identifies 10 Megaforces that Will Shape the Business Landscape, Part 1 and KPMG Identifies 10 Megaforces that Will Shape the Business Landscape, Part 2. As the introduction to the article concludes, “We can never know the future. But it is good business sense to be prepared for the possibilities: to expect the unexpected.”

Michael Skapinker believes that part of expecting the unexpected requires businesses to develop a world view of their own. By that he means that businesses should have a sense of how they are going to respond when world events affect society as well as business. [“Business needs a world view of its own,” Financial Times, 27 October 2011] Skapinker understands that the subject of a company’s “duty to society” is a sensitive one. He was not surprised, therefore, when the chief executive from Royal Dutch Shell didn’t respond specifically to a question about what his company was going to do about the situation in Syria. Skapinker points out that “Shell has a joint venture with a company controlled by a regime that has recently killed an estimated 3,000 of its citizens.” As companies expand internationally, they are going to be confronted time and again with such circumstances and need to have thought through how they are going to respond. Skapinker continues:

“When I asked [the question about Syria], [Shell’s chief executive] began by observing that being in the oil business meant you worked in incident-packed parts of the world. Shell was complying with US and European Union sanctions against Syria, which ban oil exports from the country. But there were 3,000 people in the Syrian joint venture and he had a duty to ensure they could continue to work safely. He added: ‘We are not in charge of sorting out the political problems in Syria.’ This reply has a certain coherence. Unless they are to ignore many of the world’s markets, companies end up doing business in unpleasant places. They cannot effect political change themselves. If governments want them to limit or cease their operations in a particular country, they need to say so.”

Although Skapinker agrees that companies shouldn’t be in the business of regime change, he says that the problem with the approach taken by Shell and most other international companies “is that events often undo government foreign policy, leaving companies exposed.” And that kind of exposure is generally not a good thing. Skapinker continues:

“Stephanie Hare, a senior analyst at Oxford Analytica, a consultancy, and Timothy Fort of George Washington University argue in an unpublished paper that companies need to go further and formulate their own foreign policies. They point out that there is nothing new about corporate diplomacy. The East India Company served as the business arm of British foreign policy. What has changed, they write, is that companies are more international and less tied to the government of a particular country. I am not sure that this is entirely the case. Shell is binational – Anglo-Dutch – but it is identifiably European. Vodafone is unmistakably British. Google and Facebook are American.”

My initial response to the idea that companies need to develop their own foreign policy was that it was a bad idea. It sounds dangerous and inappropriate. Skapinker points out, however, that (like it or not) some companies get caught up in political intrigue regardless of their best intentions. He explains:

“What is true, as Ms Hare and Prof Fort argue, is that telecoms and internet companies such as the last three [i.e., Vodafone, Google, and Facebook] are more than a commercial presence in the countries in which they invest. The nature of their business makes them players in the political process. Communication companies are often central to modern-day revolutions, as Facebook and Twitter were in the Egyptian uprising. Governments try to control them. … The internet has changed things for non-communications companies too. It is easy to whip up campaigns against them. Companies need to prepare for this by analysing the risks in their worldwide operations and preparing contingency plans. But foreign policy is hard. Who can say with any confidence what sort of countries Egypt, Tunisia or Libya will be five or even two years from now?”

Skapinker’s point is that without a corporate “foreign policy” companies risk being carried by the tide of world events into situations they might not wish to face. He continues:

“Companies can decide they will operate worldwide but take care not to get too close to unpleasant governments. That can be difficult too. In Syria the government controls all oil production. Shell is a minority shareholder in three production licences. Nokia Siemens decided that, while governments everywhere required it to supply interception facilities for law enforcement purposes, it would no longer  provide the monitoring centres to activate that interception. These nuances matter. A corporate foreign policy has to be based on what, at root, a company stands for. Shell says its duty to staff is paramount. Its real test will come if the Syrian government turns on those employees.”

Skapinker’s objective is to awaken companies to the reality that they are going to have to make strategic choices as the business landscape changes. Without prior thought (i.e., developing a corporate foreign policy) things could get ugly fast. Professor Paul J. H. Schoemaker, Research Director of the Mack Center for Technological Innovation at Wharton, asserts that “adaptive strategic leaders — the kind who thrive in today’s uncertain environment – do six things well.” [“6 Habits of True Strategic Thinkers,” Inc., 20 March 2012] Those six things are: anticipate; think critically; interpret; decide; align; and learn. I believe that companies that do those six things well will also thrive. Schoemaker discusses each of this attributes in turn beginning with anticipating events. He writes:

Anticipate — Most of the focus at most companies is on what’s directly ahead. The leaders lack ‘peripheral vision.’ This can leave your company vulnerable to rivals who detect and act on ambiguous signals. To anticipate well, you must:

  • Look for game-changing information at the periphery of your industry
  • Search beyond the current boundaries of your business
  • Build wide external networks to help you scan the horizon better”

As I’ve noted in numerous posts about risk management, leaders need to keep their heads on a swivel. You never know from which direction the next challenge will come. Implementing a “what if” process goes a long ways towards helping a company achieve good peripheral vision.

Think Critically — ‘Conventional wisdom’ opens you to fewer raised eyebrows and second guessing. But if you swallow every management fad, herdlike belief, and safe opinion at face value, your company loses all competitive advantage. Critical thinkers question everything. To master this skill you must force yourself to:

  • Reframe problems to get to the bottom of things, in terms of root causes
  • Challenge current beliefs and mindsets, including your own
  • Uncover hypocrisy, manipulation, and bias in organizational decisions”

One way to do this is to ensure that you establish cross-functional teams. Participants from different disciplines will bring with them different perspectives, different questions, and different biases.

Interpret — Ambiguity is unsettling. Faced with it, the temptation is to reach for a fast (and potentially wrongheaded) solution. A good strategic leader holds steady, synthesizing information from many sources before developing a viewpoint. To get good at this, you have to:

  • Seek patterns in multiple sources of data
  • Encourage others to do the same
  • Question prevailing assumptions and test multiple hypotheses simultaneously”

You will never be able to eliminate all ambiguity; however, Schoemaker is correct when he writes about the importance of obtaining and analyzing good data. Businesses are quickly learning that integrating the massive amounts of data they gather is critical in today’s business environment. Modern analytic techniques are allowing companies to discover patterns they didn’t know existed. Technology is critical to this endeavor.

Decide — Many leaders fall prey to ‘analysis paralysis.’ You have to develop processes and enforce them, so that you arrive at a ‘good enough’ position. To do that well, you have to:

  • Carefully frame the decision to get to the crux of the matter
  • Balance speed, rigor, quality and agility. Leave perfection to higher powers
  • Take a stand even with incomplete information and amid diverse views”

I would have used the word “act” instead of the word “decide.” I’m reminded of the teacher who asked little Johnny this question: “If there are five frogs on a log and three of them decide to jump off, how many frogs are left on the log?” Johnny’s anwwer was, “Five.” Confused, the teacher asked, “How do you figure?” Johnny responded, “There’s a big difference between deciding to jump and actually jumping.” Nevertheless, Schoemaker is correct that at some point you have to act. We’ve all heard the adage “better is the enemy of good enough.” The search for perfect information is a never-ending endeavor. I’ve often stressed the best way to get good answers is to ask good questions. I believe that is what Schoemaker means when he says that you must frame the decision. Ask the wrong question and I can guarantee that you will get the wrong answer.

Align — Total consensus is rare. A strategic leader must foster open dialogue, build trust and engage key stakeholders, especially when views diverge. To pull that off, you need to:

  • Understand what drives other people’s agendas, including what remains hidden
  • Bring tough issues to the surface, even when it’s uncomfortable
  • Assess risk tolerance and follow through to build the necessary support”

You cannot achieve alignment if stakeholders are dealing with different sets of data. That is why data integration (i.e., having one version of the truth) is essential if alignment is to be achieved. It probably goes without saying, but achieving alignment also requires good leadership. Schoemaker’s final attribute deals with learning. He writes:

Learn — As your company grows, honest feedback is harder and harder to come by. You have to do what you can to keep it coming. This is crucial because success and failure–especially failure–are valuable sources of organizational learning. Here’s what you need to do:

  • Encourage and exemplify honest, rigorous debriefs to extract lessons
  • Shift course quickly if you realize you’re off track
  • Celebrate both success and (well-intentioned) failures that provide insight”

Inculcating these attributes into your company’s culture will go a long way towards making it resilient to an ever-changing business landscape. Ignorance is not bliss when it comes to the future. Companies know that things will change and they will have to respond and adapt if they are going to survive and thrive.