Is Your Company Capable of Disruption?
In last week’s blog what makes your company disruptive?, we set up the principles & parameters that disruptive companies share. Today we will look at the three elements that a company requires to be disruptive. Over the next few weeks we will build upon this by delving into the drivers of personal disruption, which like corporate disruption follows the ‘famed’ S-Curve (see below). This curve shows how at point A many executives can underestimate the projections of a disruption. Conversely at point B, the same executive can overestimate the sustainable impact of the disruption. This is largely due to the capability challenges inherent in pioneering new strategies.
A surprising number of disruptions fail not because of some technological flaw or because the market is not ready. They fail because responsibility to build these businesses is given to managers or organisations whose capabilities aren’t up to the task. Corporate executives make this mistake because often the very skills that propel an organization to succeed in sustaining circumstances systematically bungle the best ideas for disruptive growth. An organisation’s capabilities become its disabilities when disruption is afoot. This blog offers a theory to guide executives as they choose a management team and build an organizational structure that together will be capable of building a successful new-growth business.
What does this awfully elastic term capability really mean? I have found it useful to unpack the concept of capabilities into three classes or sets of factors that define what an organization can and cannot accomplish: its people, its processes and its purpose – a triptych that will now be forever be known as the creatively titled – 3P framework. Although each of these terms requires careful definition and analysis, taken together they provide a powerful way to assess an organisation’s capabilities and disabilities in ways that can make disruptions more likely to succeed.
People or ‘things’ that enable people to work can be hired or fired, bought and sold, depreciated or built. These elements are visible and often are measurable, so managers can readily assess their value. Of all the resource choices required to successfully build new growth businesses, the one that often trips a venture up is the choice of managers. The selection process for key managerial resources can be so unpredictable, especially for disruptive efforts. People with the right stuff are often the wrong people. Are your people quipped to be disruptors? We will delve more into this next week.
Organisations create value as people (aka employees) transform inputs of resources into products and services of greater worth. The patterns of interaction, coordination, communication and decision making through which they accomplish these transformations are processes. Processes include the ways that products are developed and made and the methods by which procurement, market research, budgeting, employee development and compensation, and resource allocation are accomplished.
Processes differ not only in their design, but also in their visibility. Some processes are ‘formal’ in the sense that they are explicitly defined, visibly documented and consciously followed. Other processes are ‘informal’ in that they are habitual routines or ways of working that have evolved over time “that is the way we do things around here.”
Disruption managers often try to start new-growth businesses using processes that were designed to make the mainstream business using processes that were designed to make the mainstream business run effectively. Disruption typically take root at the low end of markets or in new planes of competition at a time when the core business is still performing at its peak. It seems simpler to have a one-size fits all process for doing things, but very often the cause of a new venture’s failure is that the wrong processes were used to build it.
The third class of factors that affect what an organization can or cannot accomplish is its purpose. Some Corporate Purposes are ethical in tone (especially the values component). But in the 3P framework, purpose has a broader meaning. An organisation’s purpose encapsulate the standards by which employees make prioritization decisions – those by which they judge whether an opportunity is attractive or unattractive, whether a particular customer is more important or less important than another and so on.
The larger and more complex a company becomes, the more important it is for senior managers to train employees at every level, acting autonomously, to make prioritization decisions that are consistent with the strategic direction and the purpose of the company.
For more on Purpose, please refer to my previous blogs at:
A Migration of Capabilities
In the start up stages of a business, much of what gets done is attributable to its resources – particularly it’s people. The addition or departure of a few key people can have a profound influence on its success. Over time, however the organization’s capabilities shift towards its processes and purpose. As people work together successfully to address recurrent tasks, processes become defined. And as the business model takes shape, and it becomes clear which types of business need to be accorded highest priority, purpose coalesce. In fact, one reason that many soaring young hot companies flame out after they go public is that the key initial resource – the founding team – fails to institute the processes or the purpose that can help the company follow up with a sequence of hot new products.
Success is easier to sustain when the locus of capability to disrupt successfully migrates from people to processes and values. It actually matters less which people get assigned to which project teams. In large, successful management consulting firms, for example, hundreds of new MBA’s join the firm every year, and almost as many leave. But they are able to crank out high-quality work year after year because their capabilities are rooted in their processes and purpose rather than its people.
As a new company’s processes a purpose are coalescing, the actions and attitudes of the company’s founder typically have a profound impact. The founder often has strong opinions about the way employees ought to work together to reach decisions and get things done. Founders similarly impose their views of what the organisation’s priorities need to be. If a founder’s methods are flawed, of course, the company will likely fail. But if those methods are useful, employees will collectively experience for themselves the validity of the founder’s problem-solving methodologies and criteria for decision-making. As they successfully use those methods of working together to address recurrent tasks, processes become defined. Likewise, if the company becomes financially successful by prioritizing various uses of its people according to criteria that reflect the founder’s priorities, the company’s purpose begin to coalesce.
As successful companies mature, employees gradually come to assume that the priorities they have learned to accept, and the ways of doing things and methods of making decisions that they have employed so successfully, are the right way to work. Once members of the organization begin to adopt ways of working and criteria for making decisions by assumption, rather than by conscious decision, then those processes and purpose come to constitute the organisation’s culture. As companies grow from a few employees to hundreds and thousands, the challenge of getting all employees to agree on what needs to be done and how it should be done so that the right jobs are done repeatedly and consistently can be daunting for even the best managers. Culture is a powerful management tool in these situations. Culture enables employees to act autonomously and causes them to act consistently.
Hence, the location of the most powerful factors that define the capabilities and disabilities of an organization migrates over time – from people toward visible, conscious processes and purpose and then toward culture. When the organisation’s capabilities reside primarily in its people, changing to address new problems is relatively simple. But when the capabilities have come to reside in processes and purpose and especially when they get embedded in culture, change can become extraordinarily difficult.
Every organizational change entails a change in people, processes, or purpose, or some combination of these. The tools required to manage each of these types of change are different. Moreover, established organisations typically face the opportunity to create new growth businesses – and the consequent requirement to utilize different people, processes, and purpose – at a time when the mainstream business is still very healthy – when executives must not change the people, processes, and purpose that enable core businesses to sustain their success. This requires a much more tailored approach to management change than many managers have felt to be necessary.