The Case Against Radical Change

The barbarians are at the gate!  We are on an burning platform in the ocean!  This is no time for incrementalism, we need radical change!

We hear this stuff a lot.  It’s become the Henny Youngman one-liner for the digital age.  A rousing call for sound and fury… signifying nothing.
 
The truth is that radical change rarely works.  It is neither strategy nor action, but rather cry of desperation.  It’s a sign that someone who hasn’t been thinking seriously now yearns to be taken seriously.  Most of all, it’s an indication that the worst is still yet to come.  Here’s why and what you can do about it.

Value Networks

As I noted in an earlier post, a business does not stand alone, but is part of an ecosystem. There are customers, employees, suppliers, shareholders and so on.  All of these have a symbiotic relationship with the company; they need each other in some way.

The concept of value networks is not a new one.  It arose out of Michael Porter’s concept of value chains.  No product or service spontaneously springs forth spontaneously, but is the result of a process and each step requires coordination and collaboration.  The success of any venture is a direct result of those interfaces.

While value chains focused on individual firms, value networks recognize that processes for value creation are often far flung.  Auto companies, for instance, routinely have hundreds of suppliers, thousands of dealership partners and millions of customers.  Verna Allee has pioneered the field of value network analysis to track these relationships.

What should be obvious is that for radical innovation to work on a large scale, the entire value network has to be aligned.  It’s not a simple matter of waking up one day and deciding you would like everything to be different.

The Curious Case of Disruptive Innovation

Clayton Christensen pointed out in his book The Innovator’s Dilemma that firms go to great lengths to keep their value networks happy.  They listen to their customers, find out what they need and work closely with suppliers to deliver it.  Successful companies continually innovate to meet the rising requirements of their value networks.

At some point, their products get so good that they are really better than what anybody needs.  Then, along comes a competitor from outside the value network with a crappy solution.  The existing network rejects the low performance, but those outside think it’s great.  It’s cheaper or smaller or more user friendly or whatever.

That’s the essence of disruptive innovation.  Incumbent companies have a hard time competing because their current consumers demand more and there aren’t enough new customers to support their existing cost structure.  So they usually cede the lower margin segments of their market to the young upstarts, their margins rise and they feel great.

Of course, as the new idea catches on, performance rises and the new firms migrate upwards.  The established players aren’t turning up their noses anymore.  They’ve had enough!  Time for some radical change!

The Flywheel and The Doom Loop

The problem is, as I mentioned above, that radical change rarely works.  In his study of companies that went from good to great, author Jim Collins wrote this:

We kept thinking that we’d find “the one big thing,” the miracle moment that defined breakthrough.  We even pushed for it in our interviews.  But the good-to-great executives could not point to a single key event or moment in time that exemplified the transition.

Further, he found that there was a period of buildup, often ten years long, before all the little things finally rolled into a truly powerful business model.  When the market and the press finally caught on, they would portray it as on big revolutionary idea.  In actuality, it was the result of years of experimenting with and perfecting small ideas.  Collins calls this the flywheel.

He contrasts this approach with comparison companies that went nowhere.  Instead of a flywheel, he found a “death spiral,” where firms lurch from one big, radical idea to the next.  Failure means starting over (often, with a much bigger idea).  All too often, the companies that gpofor the “bet the company” gamble never get any traction.

Outside of the companies Collins studied, there is more evidence that successful innovators take an incremental approach.  Jeff Bezos recently remarked that “Ninety-plus percent of the innovation at Amazon is incremental.”  Andy Grove wrote that his famed decision to pull out of memory chip was mostly confirming factory level moves already made.

True innovators make change a integral part of doing business, there’s nothing radical about it.

Consistent, Unrelenting Change

The dirty little secret of revolutionary change is that it requires an evolutionary mindset.  It’s the thankless day-to-day discipline, rigor and privation undertaken over a period of years that makes things happen, not grandstanding pronouncements and transformative visions.

The future has no formula.  After all, if we knew what the next big thing was it would be the present big thing.  Nevertheless, there are some steps we can take to prepare for our uncertain future:

Skills, Not Strategies:  As I wrote in a previous post about media companies, firms that make big strategic moves usually end up in trouble, while those that take a skills approach succeeded quietly.

So if you want to make a change, bring in new skills; and not just people that can code and and do UX, but sales and marketing people who can integrate those new skills with the rest of the business.

Think Small:  Big companies tend to throw around big resources.  That’s usually a mistake.  Small pilot projects and acquisitions can bring in important new ideas and capabilities without making a large balance sheet impact.  Once they gain traction scaling up is no problem, scaling down always is.

Heroes, Hold-outs and In-Betweens:  I noted in a previous post about turnarounds that you can usually split your people into three groups: about 10% are heroes, excited for change, another 10% holdouts who will resist new initiatives and the rest who will sit on the fence and see which way the wind blows.

It’s important to identify who these people are and then celebrate the heroes and sideline the holdouts.  If the situation is not dire, this can usually be done quietly and without drama.

Once you have these three things in place, you are ready for long haul, constant and unrelenting change.  That might not be as sexy as big radical change, but in truth it’s the small things pursued rigorously that make the real difference.

– Greg