What is the basis of competitive advantage in today’s business landscape? Many observers say it is the power to harness information.
Businesses need to adopt a “Fast/Forward” approach if they are to succeed in a rapidly moving world, say Julian Birkinshaw and Jonas Ridderstrale
Authors Erik Brynjolfsson and Andrew McAfee argue we are entering the Second Machine Age, with information technology as the engine of human progress. The McKinsey Global Institute has called big data the “next frontier for innovation, competition and productivity”.
We take a different view. We believe the case for big data and advanced analytics is overstated. These will of course continue to be important techniques for staying in the race, but as information becomes ever more ubiquitous and search costs trend to zero, their capacity to provide any modern organisation with a leading edge is diminishing.
That’s not the only problem. Information overload at the individual level leads to distractedness, confusion, and poor decision-making. At a corporate level, we end up with analysis paralysis, endless debate, and a bias toward rational, scientific evidence at the expense of intuition or gut feel. As a result, many companies end up standing still, even as the world around them is speeding up.
So what is the alternative to Slow-Motion Inc.? Thoughtful executives understand both the potential and the pitfalls of information. They recognise that the notion of competitive advantage is more fleeting than it used to be. They adopt what we call a “fast/forward” approach to business: they emphasise decisive action ahead of detailed analysis, and they are comfortable relying on emotional conviction alongside rational judgments.
For example, Amazon’s phenomenal growth defies all the established rules about firms focusing on their core competencies. Its success is built on deep insight into the needs of its customers and an assumption that if you create value for customers, growth and profits will follow. Jeff Bezos, the company’s cerebral founder, started his career developing mathematical models for a hedge fund, and is a great believer in systematic analysis. But at the same time, he is known for what Fast Company called “harrowing leaps of faith”. His most important decisions are not based on studies or spreadsheets; they are “nervy gambles on ideas that are just too big to try out reliably in small-scale tests”.
In other words, rather than getting bogged down in analysis and introspection, fast/forward companies are open-minded, and they have operating cultures that promote action and experimentation. Their leaders know when to listen to the data and when to be decisive. As Jeff Bezos says, “There are decisions that can be made by analysis. These are the best kinds of decisions! They're fact-based decisions. Unfortunately, there’s this whole other set of decisions that you can't ultimately boil down to a math problem," namely the big bets on new businesses like the Kindle or Amazon Web Services.
We suggest that, in future, two strategic imperatives will dominate. It won’t be the firms with the greatest processing power or the smartest data scientists that come out ahead. Instead, it will be the ones that move forward faster than the others by developing the capacity for decisive action – the ability to address opportunities as they emerge, to experiment with new offerings and to make big bets when called for.
But action without direction is a dangerous commodity. To channel it in an effective way, firms also need to develop emotional conviction – to listen to their own intuitive reasoning, and to create meaning for their employees and their customers. A single-minded emphasis on logical-mathematical type knowledge helps firms to create clever and unique offerings, but with a risk that beauty, joy, surprise, spontaneity and individuality are driven out.
In every industry, there is a battle between the more ‘technical’ brands (think Samsung or Toyota) and the ‘emotional’ brands (think Apple or BMW). While both can be successful, it is the latter group that captures the imagination and typically get the higher margins as well.
The twin imperatives of decisive action and emotional conviction have consequences at multiple levels of analysis:
The classic approach to strategy was to think of a cascade of decisions: what do we want to achieve, where will we play, how will we win? This logic was reasonably effective in a stable environment, but in a complex, fast-changing world it is too slow and too formulaic. So, we need to turn this approach on its head. Insights based on interactions with customers drive the reflection and sense-making process, which ultimately informs the big-picture strategy.
The default management model of the industrial age was the bureaucracy – where coordination of activities occurs through standardised rules and procedures, and an individual’s formal hierarchical position is what matters. In today’s information age we typically favour the meritocracy – where coordination of activities occurs through the mutual adjustment of self-interested parties and an individual’s knowledge and expertise is what matters. The emerging model that we believe is now required is the adhocracy – where coordination of activities occurs around external opportunities and an individual’s action is what matters, particularly when it is backed by emotional conviction.
One example: ING, the Amsterdam-based banking giant with 52,000 employees around the world. Over the last decade, its executives have embarked on an ambitious transformation program, first of all a cleaning up and simplification of internal processes, then a strategic push into digital banking. Now, over the two years it has reorganized its 3,500 HQ employees according to “agile” principles, with everyone working in nine-person “squads” focused on servicing specific user needs with freedom to shape their own workflow and physical space. It is action-focused, flexible and fast-paced, and it is already paying dividends in terms of customer satisfaction, employee engagement and cost/income ratio.
When using bureaucratic or meritocratic ways of working, leaders could afford to work in traditional, top-down styles. But if your business is built on decisive action and emotional conviction, you need to make sure people across the organisation have the means, motive and opportunity to be entrepreneurial – to pursue opportunities wherever they arise.
This puts a big burden on leaders to do their job properly – to articulate a clear, overall sense of direction, to build a safe working environment where people have the space to try out their ideas and to provide the resources where needed to support these individuals. Of course, these have always been elements of a leader’s job, but they become even more vital in today’s fast-paced business world. Essentially, leaders have to become ambidextrous – they need to be able to deliver on results today, to get efficiency out of existing operations, while also scouting and investing in whatever is coming along next.
Many of these ideas will be familiar to you, but don’t be fooled into thinking they are easy to implement. Our hope is that by pulling these strands of thinking together – across the worlds of strategy, management, organisation and leadership—it will become easier to develop the language and methodologies of a fast/forward approach to business.
This article is drawn from the authors’ forthcoming book, Fast/Forward: Make Your Company Fit for the Future, Stanford University Press, 2017. You can register for the book launch event here.