Optimisation vs adaptation: Building your business from Lego
Leading an established business is all about optimisation. Or at least, it long has been.
In an ideal world, as a leader you don’t work in the business on day-to-day delivery. Your job is to work on the business to increase returns, one way or another. Grow revenues, cut costs, whatever you must do, you need to tune the engine of the business to peak performance.
The timescale over which your success as a leader is measured against these expectations has declined. The time to deliver is always now. Everyone is focused on the next reporting period, whether it is the next quarter or the year end. If the results in these periods go the wrong way, you are often gone soon afterwards. In the US, almost half of CEOs of large organisations last fewer than five years. In fact, five years is the average tenure, down a full 20% since 2013. The UK is no different. In the FTSE 100, the average CEO tenure is also just five years, even if the speed of turnover has fallen very slightly in recent years. It seems the only leaders on a more uncertain footing than CEOs are football managers. Or maybe the leaders of political parties.
Focus on the future
The result of this extreme short-termism and focus on immediate results is that in most organisations, there is little scope for leaders to focus on the future. The objective is not sustainable success, but immediate success.
This shapes the behaviour of the leader, blinding them to opportunities beyond the scope of day-to-day operations. And it shapes the organisation itself. Every asset and every process are progressively honed to maximise returns over the near term. The business becomes a machine optimised for the work that it does today, not for what the customer might require tomorrow.
This is where the problem lies. This approach may well deliver results in the short term. It may be the means by which the company achieved its current levels of success. It may even leave some leaders with healthy bonuses before they inevitably find themselves moving on. But it is ultimately a recipe for disaster.
In an age of high frequency change, that disaster looms ever closer.
High frequency change
There is a new type of change affecting people and organisations today: high frequency change. It is the result of globalisation combined with the lowering of friction in business enabled by high-speed digital communications technologies. Together, these two factors have produced fast moving waves of change that appear on the near horizon and flow through a single industry or company. In a low friction environment, you can develop, scale, and distribute many things more quickly than before, from ideas and memes, to software and hardware, consumer products and services.
These waves of high frequency change tend not to have broad impacts: they won’t transform every aspect of our lives. Big cross-societal changes that do this, like the introduction of the affordable motor car, or the development of the connected computer, still take decades to have their effect. But inside narrowly-defined sectors, high frequency change can be utterly disruptive. The result is that the lifespan of products, services, and the business on which they are based is declining. Leaders are therefore forced to rethink their approaches to development. Suddenly, a successful moonshot (a radical change in business model) might be required in the next couple of years, not the next couple of decades.
Moving with the times
Businesses have always failed when they did not keep up with changing times. The coach builders who failed to make the leap from pony power to the internal combustion engine were left behind. But that was a transition that took decades. Today, businesses can be completely undermined by a high frequency change that appears on the near horizon and takes effect in just a few months.
Avoiding this fate takes more than just foresight and accelerated decision-making. It takes a readiness to act. Building that readiness means changing the very structure of the business to refocus it from absolute optimisation, to ultimate agility.
What does this new structure look like? No item is more over-used in analogies than the humble Lego brick. I acknowledge this as a pre-emptive request for forgiveness for the cliché that follows. Because I have yet to find a better way of explaining the difference between being adaptable, and being optimal, than the comparison between a die cast toy car and a Lego model of the same vehicle.
A tale of two toys
Imagine that you give a child a die-cast toy car at Christmas. She is obsessed with Ferraris, so you give her a beautiful model of the classic Testarossa. With its deep red sheen and perfectly modelled body, it is an exact replica of the real thing, right down to the fluted sideboards, scaled steering wheel and sports seats inside. It is, you might say, optimised.
The toy Testarossa is fun to play with, for a time. What it cannot do though, is hold the child’s attention for very long. Sometime in the next few hours, days or weeks, she will tire of the car scudding across the kitchen floor and over tables, and move on to something new. The car cannot change to meet her new interests. At least not without major metal surgery, the application of an angle grinder or liberal amounts of superglue.
Imagine instead, that the car you bought the child was made of Lego. This model is not optimised. It does not have the same sleek lines or accurate internal details. It is still recognisably a Testarossa, but it is an approximation, sheathed in knobbly bits that allow it to hold together. The car still rolls along the floors and sideboards in a pleasing fashion. But critically, when the child tires of this simple game, the Lego Ferrari can be ripped apart and reassembled into something new. What was a supercar can be a speedboat or a spaceship, a lion or a dinosaur. This transformation takes a fraction of the energy and time that it would take to similarly transform the diecast car. Within a few minutes, the same functional blocks can be reassembled into a form that is recognisably a new model.
An agile business, ready to transform to meet changing demands from customers and the market, is one that is assembled from the corporate equivalent of Lego bricks. Just like the Lego car, it will not be as optimised as its sleek, die-cast peer. It will be less efficient, and most likely therefore, less profitable. The corporate equivalents of the knobbly bits have a cost, an overhead. But this business assembled from building blocks will be much more resilient. Much more able to weather changes in markets, trends and customer demands. And it will be capable of extending more quickly into new markets and services.
So, companies and their leaders have a choice. Do you want to be hyper-optimised for today’s environment? Or do you want to be agile so that you can adapt to tomorrow’s? You cannot be both.
This is an extract from Future Proof Your Business by Tom Cheesewright, available from bookstores and Amazon. Tom Cheesewright is an applied futurist, helping people and organisations around the world see the future more clearly, share their vision and respond with innovation. An accomplished speaker and broadcaster, he specialises in connecting tomorrow’s world to today’s experience, making sense of what’s happening next and why. Tom’s clients include global 500 corporations, government departments, industry bodies and charities. Notable clients include Accenture, Audi, Bacardi, Barclays, BASF, Bertelsmann, BP, BT, Kellogg’s and Sony.