The average lifetime of businesses continues to shorten. New emerging technologies, pressure from consolidation and subsequent M&A activity, new entrants and even climate change and geopolitical events disrupt complete industries. The need for organisations to keep learning and innovating to succeed is greater than ever. But how can they do that in these times that seem more complex and volatile than ever? Three main insights to help you move forward.
Balance value creation and value capturing
Professor Paul Verdin’s research highlights that businesses that thrive and survive master the capability of balancing value creation (for customers) and value capturing (for investors). “They are capable of reinforcing one with the other in a truly virtuous fashion.” Leaders often experience a strong gravitational pull towards value capturing. Executive team agendas have a tendency to focus more on value capturing issues (monthly P&L line item discussions with focus on variance analysis, FTE counts, dashboards etc.) than on value creating (R&D, new market exploration, etc). Important value creation topics, such as customer experience design, customer feedback, innovation, next generation people and capability development do not always get proportionate attention.
You can create value by improving on each and every element of the customer experience, or even eliminating non-value-adding elements of your offer.
Professor Paul Verdin
To get back on track, it’s important to find the right balance between value capturing and value creation. Verdin: “Value creation is not always a question of big leaps or even of adding more to your proposition. You can create value by improving on each and every element of the customer experience, or even eliminating non-value-adding elements of your offer.”
See strategy as a learning process
Most organisations work with 3 to 5-year strategic planning horizons. These are then translated in yearly plans and budgets. Deviations from plans are often considered failures or shortcomings. The mindset underneath this is: reality needs to fit the plan. Many unproductive executive practices follow from this paradigm.
According to Verdin, business leaders should change their paradigm on strategy as well as on their role in developing strategy. This approach to strategy invites to escape a top down or bottom up dichotomy. You need both: a sense of direction and a strong connectedness to what is really happening around you.
What is needed and what is vital in today’s environment is a mindset shift for senior executives.
Professor Amy Edmondson adds: “What is needed and what is vital in today’s environment is a mindset shift for senior executives. Not one that does asks them to cede direction setting or delegate strategic decision making to the front lines. But rather one that invites them to seek and embrace constant feedback from those in direct contact with customers and technologies – where information about what is happening in the environment, and changing, comes from”.
Professor Amy Edmondson
Create psychological safety to foster learning
If ‘strategising’ is what we need more of to allow for maximum value creation and capturing in an organisation in an increasingly dynamic market, it requires a specific climate and set of behaviours that encourage fast learning: getting insights from experiences and sharing these to enhance the collective knowledge and performance of the organisation. It is not a one-off but continuous. It doesn’t happen by itself. It needs a certain context to flourish. A context for which the most senior executives in any organisation are responsible.
The way most hierarchies are managed is counterproductive.
Research has revealed that those lower in hierarchy experience stress and fear in the presence of those higher in hierarchy. Edmondson: “Hierarchy is not bad; indeed, it is useful. But the way most hierarchies are managed is counterproductive, starting with the interaction of CEO’s with their team and of boards with their organisation. No wonder most executives are afraid that they don’t know what REALLY happens in their organisations…”
The role of leadership is to help people overcome their natural instinct to “play it safe.” So, how do they do that? Edmondson: “By being approachable, consistent, predictable, and values-driven. They are pro-actively seeking input and ask questions being really interested in the answers”.