While most enterprise organizations know that change is the only constant, many find themselves falling behind as they struggle to adapt to technological advancements that are changing the digital landscape in an exponential way.
Some might say that executives in the 20th century were lucky. They could expect the rate of technological change to be somewhat linear, while 21st century execs no longer have that luxury. In fact, according to Ray Kurzweil's Law of Accelerating Returns, leaders should expect the rate of technologically driven change to double every ten years, creating a widening the divide between digital leaders and laggards.
To overcome this challenge, organizations must learn not only to change what they make, but also how they make it.
This requires ruthless prioritization, focus, and the ability to articulate precisely why, when and how the organization will invest their resources—while also defining a strategy that maximizes their strengths as an established enterprise and minimizes their weaknesses.
While this may seem challenging, it doesn't have to be. To get started, consider implementing the principles outlined below in order to adapt to rapid change, and balance the demands of the present and the future.
Focus and Prioritize
Simply put, you can’t do all the things. In fact, you probably can’t even do most of the things, but that’s exactly what many organizations attempt to do.
This inability to focus and prioritize has stumped all but the very best of companies.
This is because adding a net new line of business on top of the existing ones places far too much demand on a finite set of resources and will often require a different skill set than those you are likely to have.
Taken together, these factors tend to overwhelm the operating model, resulting in underwhelming results, burnout and turnover.
To gain focus, start with customer value as the baseline and ask, “How many of our current initiatives contribute to an improved customer outcome?”
To help with priority, the next question to consider is, “How soon can we realistically deliver?”
Timing and cadence are crucial
To avoid over-burdening the operating model, it’s important to time the allocation and investment of resources at the right cadence.
Consider McKinsey’s 3 Horizon Model as an effective starting point:
In brief, Horizon One encapsulates your core business and provides the bulk of today’s profit and cash flow. These are mature businesses that will eventually decline as new technologies and services come to the fore and consumer preferences change. Therefore, the key to successfully managing Horizon One is to invest in only moderate product improvements and operating efficiencies that can be implemented quickly and directly increase value.
Horizon Two, on the other hand, is your next big play. This represents a single net new line of business and has the potential to become tomorrow’s profit and cash flow. These are typically one to three years in the making and require considerable commitment, resilience and oftentimes, a completely new set of skills. These initiatives are so complex and taxing that you should only attempt one at a time.
Finally, in Horizon Three, the goal is to create space for pilot programs and research projects to scale, in the hope that in three to five years, there will be one initiative strong enough to move into Horizon Two.
Learn to play offense and defense
While McKinsey’s model provides an effective entry point, it doesn’t sufficiently address the potential for well-funded and technology-savvy startups to not only change the game, but change the players too.
In his 2015 book, Zone to Win: Organizing to Compete in an Age of Disruption, Geoffrey Moore provides a useful playbook for organizations to effectively navigate exactly this scenario. The solution, says Moore, is to segregate operations into two halves. The intent of the first part is disruptive innovation which seeks to create net new businesses and or operating models. The intent of the second half, known as sustaining innovation is to extend and improve the existing one to maximize value.
This model allows the organization to compartmentalize initiatives using appropriate and distinct measures of success, i.e. revenue performance on the sustaining side, and customer validation on the disruption side.
As summarized in the table below, zone management uses four unique areas of focus, with each aligned to a single investment horizon.
The Four Zone Model
This segmentation provides a useful model for differentiating and developing the leadership traits and tactical capabilities needed to successfully execute the Four Zone model. It also provides an effective model for enterprises to take advantage of their established place in the market and execute offensive and defensive strategies.
While adapting to an increasingly complex and rapidly evolving technology landscape is challenging for even the best of companies, it is possible. The key is to adopt practices and principles that allow for current lines of business and disruptive new products and services to co-exist.
If you’d like to read more about digital leadership, check out How to incentivize a digital transformation.