Thursday, May 14, 2020

Thriving in Volatility

I think it is important that we consider future competitive conditions as they are likely to be, not as we wish them to be.  Too many people are talking about "new normal", as if they know what the new normal will look like.  Just a few years ago, IBM moved almost all of its Raleigh staff from home offices to IBM buildings, with the argument that the occasional encounter or the hallway conversations created collaboration that could not occur when people worked remotely.

Now, we are hearing that many Fortune 500 companies and others (Twitter) think that people can work from home "forever".  Well, did the outcomes change or the circumstances?  Was IBM right?  Or is Twitter making a decision based on a response to COVID or based on what's best for the company and how it operates?  Time will tell.

If you think that the debate about working from the office versus working from home is the only source of volatility you'll face in the near future, think again.  Almost every facet of business life is uncertain and volatile.  Consider just a handful of factors and the changes underway:

  • Travel - what will it look like to travel?  Are your employees willing to fly in an airplane?  Stay in a hotel?  Eat at a restaurant?
  • Energy - oil prices are at a record low, and we are oversupplied right now.  What will happen in 3 to 6 months?  
  • Inflation or deflation - as consumers buy less and save more, we could enter a period of zero growth or even deflation.  How prepared are you for consistently falling prices
  • Price increases - except of course for the price increases for food and health care.  The supply chain for food looks iffy, and the demands on the health care system will hold prices constant if not increase prices
  • Labor availability - the post-COVID world may see some experienced people simply check out of the workforce or go independent, while other new graduates flood the market.  It's not a question of finding workers - they'll be out there - but finding the ones who can add value almost immediately.  These will be in high demand, and may find it advantageous to shift between companies.  What does the employment world look like if we bid for employees in all industries and see little loyalty similar to the employment models in Silicon Valley?
  • Financial markets - we may need to prepare for wild swings in the markets as an ongoing reality, and dramatic shifts in the availability of capital and the price of money.  Investors will be quick to rush in to markets or opportunities that seem good, but will also have few qualms about rushing out.  There will be little patience and a search for quality and returns.
Slow and steady no more

The old slow and steady approach still works, as long as the slow and steady approach is built to tolerate big swings in all of these factors.  For some time we've talked about living in VUCA, but VUCA (volatility, uncertainty, Complexity and ambiguity) has been accelerated and amplified.

What to do?  Build a company that thrives in volatility.  What does this mean?

First, stop talking about the new normal and recognize that the new expectation should be volatility, in a number of dimensions.  Almost all of your inputs are likely to change in availability or pricing in an unexpected fashion, at unexpected times.  Supply chains are stretched and were already fairly brittle.  Become more resilient in your sourcing and procurement.  Set the expectation that volatility is the new normal.

Second, create some agility and nimbleness in your organization.  Note that I am not talking about "agile" development, but true agility in your structures and culture.  When faced with adversity and unexpected change, how does your organization react?  Companies that will thrive in this environment will be able to correct course, pivot and continue working.  Companies that are too rigid, too hierarchical or too bureaucratic will flounder.  Delegate decisions, reduce communication barriers, provide flexibility in how you operate.

Third, start thinking ahead.  Try to anticipate what may happen by examining trends and developing short scenarios to help understand complex behaviors in the market.  You may not be able to exactly predict the future, but you can definitely establish and identify signals that indicate volatility may occur and prepare for a breaking wave. Designate people to spend time examining trends and developing future scenarios to signal your best paths.

Fourth, become proactive rather than reactive.  With the insights you gain, move to segments or markets that you think will be favored before the crisis hits.  Find adjacent markets, pivot your capabilities to new customers or new needs. 

Burning boats or building canoes?

The old story told about the conquistadors comes to mind.  Supposedly, one of the Spanish conquistadors arrived in the new world, and to demonstrate his commitment to conquering the new territory he burned his boats so there would be no turning back.  This is akin to doubling down on your existing business models and structures, waiting for the new normal conditions to emerge.

What I always wondered was:  why didn't he use the boats to build canoes.  Sure, he didn't need ocean going vessels as he was headed inland, but I have to believe he could have used other means of transport.  For your consideration - what are you doing to ensure your business stays healthy, even if it means new business models or new more flexible and agile business operations? 

New and sustained volatility means becoming adaptable to situations, anticipating and reconfiguring on the fly.  Rather than expect a stable and consistent environment with predictable inputs and outputs, plan for and build for volatility.  Build a flexible, adaptable and resilient organization that can respond, if not take proactive action, in a volatile market.

This is the best way to thrive for the coming few years.
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posted by Jeffrey Phillips at 9:39 AM


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