Managing in times of disorder
by Mitchell P. Koza
Professor of International Strategic Management and
Director of the Centre for International Business
Challenging times for the global multi-business company demand a new managerial
logic which encompasses elements of animating and assembling - techniques distilled
from the practices of several leading edge companies to help businesses adapt to
increasing disorder in their environment - in a major departure from the conventional
wisdom of international management.
Managers are frequently heard to say business is more difficult today than it has ever
been before. Afterall, when have managers ever reported discontent because the business
world is too comfortable or that the marketplace is not challenging enough? In a world
where both the pace and direction of change have become increasingly uncertain and
unpredictable, it is safe to say that an increase in turbulence and volatility is the most
likely continuing trend.
In today’s competitive environment, discontinuous transitions are the norm as companies
are forced to evolve from the ‘Industrial Era’ and adapt to the emerging ‘Information
Age’. The macro forces driving these changes and contributing to this transformation
include globalisation of markets, interdependence of economies, falling trade barriers, the
cyber revolution, massive population movements, deflation and the like.
Big changes they may be, but they are not unique. In the transitions which led up to the
Renaissance and the second Industrial Revolution, similar discontinuities were the order
of the day. The mid to late 19th century saw the invention of railroads, telegraphs and
telephones, massive population movements, war in Europe between France and Germany
and the American Civil War, as well as the emergence of the modern multi-divisional
corporation.
The political, economic and technological forces propelling the transition to the
Information Age, which are producing the dramatic changes in contemporary competitive
environment, may be different from those that fuelled the transition to the Industrial Age,
but they are hardly unique in terms of their impact. While the challenges to adapt are not
new, the difference lies in the required strategic and organisational solutions.
To produce winning strategies, perception of the environment and establishment of an
environmental ‘fit’ are no longer enough, whereas silver bullet solutions, such as building
in ‘customer value’ or infusing ‘stretch’ into companies, have often proved elusive in
practice.
Assembling and animating the global organisation
Involvement with companies from a range of industries and every continent has shown
that managing in times of increasing disorder requires a new managerial logic - one that
recognises the importance of firstly assembling the global company, and secondly
animating the total enterprise’s capacity for self-renewal.
Assembling the global organisation means recognising that the modern large global
company consists of what Jack Welch, chairman of General Electric (GE) in the US, calls
‘multi-businesses’. These new business assemblies are very different from the old
multinationals or their modern variant - the ‘transnational’ corporation. The first
addressed the need for diversification; the second responded to the problem of crossdivisional co-operation. The new challenge of strategic assembly refers to the imperative
of simultaneously accessing geographic and product markets or market segments,
managerial competencies and skills, and technologies and brands. It involves the
traditional vehicles of internal development and acquisition, as well as the full range of
strategic alliances, partnerships, networks, and inter-company relationships necessary for
success in the global marketplace.
However, the fundamental difference involves the managerial task. In the old
multinational corporation and the traditional conglomerate form, the focus was on the
allocation of capital across the various business units. In the transnational form, the new
focus was on the transfer of learning and capabilities across the global enterprise.
Managing the global multi-business, however, involves the need to continuously animate
self-renewal of the total enterprise. Leaders must firstly execute the assembly choices but,
even more important, infuse the whole organisation with the life force necessary for
institutionalising change. Animating the global organisation means implanting and
nurturing the ideal of continuous self-renewal.
Historically firms seem to have followed the inevitable life cycle of growth, maturation,
decline, rejuvenation and the return to growth. Rejuvenation, as distinct from
transformation, has entailed restructuring, rationalisation, re-positioning, cost reduction,
and diversification. The anticipated new growth trajectory was expected to result from
the redirection of resources into new opportunities, mostly through mergers and
acquisitions, augmented by new internal investments. These restructurings were intended
to achieve economies of scale and scope.
In the new environment, a reliance on rejuvenation, once decline has already set in, risks
being too late to avoid extinction. The managerial challenge is to animate the firm’s
internal rate of change to match or exceed the rate of change in its environment. This is
the keystone strategy for countering the build up of structural inertia, which is the root
cause for the growth, decline and rejuvenation life cycle trap.
Animating change as a way of life
But how does a firm animate change as a way of life and develop the capacity to compete
on what complexity theorists call the ‘edge’? For the past 20 years, managers have been
inundated with a barrage of management fads from total quality management and reengineering to leaders as entrepreneurs and free agents, and companies as jazz bands and
football teams. A succession of management gurus have exhorted companies to become
hyper-competitors, learning organisations, intelligent enterprises, network organisations
and, most recently, knowledge-based organisations. However, companies like Germany’s
Daimler Benz and General Electric have clearly eschewed the search for the silver bullet,
learning instead to manage by adopting the new counterintuitive maxim: ‘if it ain’t broke,
fix it anyway’.
The logic of the new global multi-business company
Growth Logic
Managerial task
Control mechanism
Leadership
Multi-business
Multinational
Transnational
Diversification
Leveraging
competencies
Strategic assembly
Capital allocation
Interdivisional
co-operation
Balancing exploitation
& exploration
Financial controls
Behaviour controls
Enabling emergent
process
Command and
control
Coaching
Animation
Animating change begins with the fundamental insight that rationalisation and
transformation must be simultaneously balanced as ongoing intertwined and co-evolving
actions. This requires balancing exploitation and exploration initiatives. Exploitation
refers to the never ending opportunity to improve, extend, refine, elaborate and reduce the
costs associated with existing products, technologies, skills and competencies.
Exploration, however, refers to prospecting new landscapes and investing in new
opportunities, generating new innovative products, technologies and markets, and
supplanting existing competencies. Managers practising this balancing act also
understand that, in the long run, above average returns cannot be realised from over
reliance on exploitation, as advantages gained from sources of efficiency can invariably
be copied and competed against.
Sadly, the ability of managers to sustain this ongoing balance has generally proved
elusive. The primary cause is the asymmetric reward structure of the financial markets,
which leads managers to prefer the more assured immediate returns achieved through
exploitation efforts and avoid the risks of the more variable returns associated with
exploration activities. These preferences are self-reinforcing when companies experience
negative returns associated with the typical ‘off and on’ exploration behaviour of most
firms, which tend to explore when times are good and hold back exploration activities
when times are tight.
However, animating change as a way of life goes beyond learning to simultaneously
balance exploitation and exploration. It also requires constant attention to managing the
rate of change in these activities by, for example, benchmarking competitors’ rates of
change, with the strategic aim of getting one step ahead of them. It requires managing all
available sources which can induce change, such as managing strategies of disruption and
surprise, instituting flexible formal structures, keeping bureaucracy in check, nurturing
emergent processes and practising leadership based on trust.
Self-organisation at every level
Sustained self-renewal requires leadership that understands the importance of anticipating
and initiating new directions which does not mean embracing every new management fad
and changing for change’s sake. For example, in the 17 years that Jack Welch has been
CEO of GE, he has unleashed a new change initiative at a rate of one every three years.
These initiatives extended and reinforced earlier ones, emphasising the importance of not
standing still. In addition, he also directed GE onto new strategic landscapes, such as
investing in Asia following the expansion into Eastern Europe, or most recently, directing
the move into e-business. Overall, the objective should be to pace change and to
institutionalise anticipation for change. The new leadership logic accepts the tenet of selforganisation requiring leaders and managers to focus on articulating and teaching the
frameworks that constrain and enable self-organisation at each and every level of the
organisation.
Stimulating and nurturing emergent processes represents the most under-utilised source
of change and self-renewal. It implies the leveraging and supplanting of past
competencies to create new markets or new products - such as when Mercedes Benz
introduced the A Class model and the Smart Car. It involves nurturing and supporting
improvisation, encouraging rule breaking and rewarding change agents. It also requires
the need to train and select leaders who are comfortable not only with managing
ambiguity, but also with the democratic implications of accepting and supporting
emergent outcomes. Moreover, the new managerial logic requires that managers be
trained and become proficient in articulating and establishing the boundaries and process
controls that stimulate and enable emergent action.
Contingencies
The principles of managing the internal rate of change, balancing exploitation and
exploration, and utilising emergent processes are universal. However, the specific
adaptation practices, and the character and direction of self-organisation that companies
pursue, will be contingent on and reflect such attributes as administrative heritage,
industry, social and political context, and national identity and culture. In companies with
an administrative heritage of strong top down management or in cultures where small
managerial elites exercise hegemony, stimulating and nurturing self-organising emergent
processes will represent an especially major challenge. Similarly, in a culture
characterised by individualism, self-reliance and high mobility, realising the cumulative
benefits of collective self-organisation could be a limiting constraint.
Managing the global multi-business company in times of increasing disorder represents a
major departure from the conventional wisdom of international management. The
traditional multinational followed the logic of diversification, centralised capital
allocation, strong financial controls and command and control leadership. The
transnational form emphasised leveraging competencies, fostering inter-divisional cooperation, applying complex behavioural controls, and expected managers to mentor and
coach. In contrast, animating the global multi-business organisation requires a strategic
assembly perspective, adaptation through the simultaneous and continuing balancing of
exploitation and exploration, process controls that stimulate and enable emergent
processes and self-organisation, and most importantly, depends on leadership without
control.
This feature is adapted from an article which originally appeared in the Financial Times
and was co-written by Mitchell P. Koza and Arie Y. Lewin, Professor of Business
Administration and Sociology at the Fuqua School of Business, Duke University, USA.
Suggested Reading: In Search of Strategy, Special Issue of the Sloan Management
Review, Vol 40 No 3 (1999). Co-evolution of Strategy and New Organizational Forms,
Special Issue of Organization Science, Vol 10 No 5 (1999).