Shock absorbers: how to prepare effectively for external volatility
Question: How do you position your whole organisation to respond effectively to external shocks and global volatility?
How can organisations protect themselves from external shocks that nobody can predict?
Answer: You don’t. There is another way (read on).
Global volatility and uncertainty – the new reality
We live in a world of geopolitical (governmental, trade and market), economic (inflation, energy prices and supply chain disruption) and technological volatility (AI, cyber, crypto and associated regulations struggling to keep pace). The current pace and impact of this global flux and the associated uncertainty is only set to increase.
Couple this turbulence with the ever-increasing pace of customer demand and expectation and we have a situation where, understandably, a lot of organisations are struggling.
In the face of global uncertainty and frequent shocks to the system, organisations are struggling both operationally and strategically.
Running your business and meeting the demands of your customers when you’re incurring additional costs (for example, diversifying supply chains, increasing spend on cyber, hedging against currency risks and inflationary pressures) and while you’re dealing with any number of unexpected events (that seem to be increasing in number and frequency) is a significant challenge.
Defining a strategy is fraught with difficulties due to the range and nature of external factors over which you have no control.
The perfect strategy doesn’t exist, but even if it did – within the current unpredictable environment – by the time this is executed on the ground the world will have moved on significantly.
Big conundrums
You know that your organisation needs to adapt quickly to this new reality, and you’re being advised that the only way to do this is to adopt a wholesale approach to transformational change.
However, your change budget is being allocated to other more pressing needs in the face of the innumerable operational challenges that the organisation is facing.
The problem:
- You need to transform your organisation.
- You’re being advised that you need to embark on a multi-year, organisation-wide transformation programme with the associated large dollar signs next to it.
- Your change budget is dwindling.
The ask:
- You want a means of transforming your organisation at lower cost, quickly and with significantly reduced risk. You don’t want your organisation to become just another statistic contributing to the 70% failure rate of transformation initiatives.
- Oh, and wouldn’t it be nice if in doing this, you can set up your organisation to absorb the impact of unexpected changes more effectively?
So, how do you square this particular circle? (In this case, it’s a triangle – there are three competing pressures in the problem statement – but you get my meaning).
Firstly, don’t transform your entire organisation
Adopting a wholesale organisational approach to transformational change will not get you to your end goal faster and will increase the risk of failure significantly.
Create a new organisational structure: The Island – a transformation station
This new structure is a discreet, dedicated and autonomous innovation environment, unencumbered by the processes, procedures, tooling and ways of working of the parent organisation. That is, it is free of the red tape and bureaucracy that often cause organisations to get in their own way when attempting to deliver transformational change.
Let’s call this new structure The Island.
The Island is essentially an organisation within an organisation, consisting of a cross-functional group of individuals tasked to deliver, initially, on a single transformational objective (yes, that’s right, just a single objective – we will talk about counterintuitive ideas a bit later). It has all the resources, skills and budget required to deliver on its goal.
Business and operational model innovation
Within many organisations, business and operating models have been created and modified over many years and have become rigid and brittle. They cannot pivot quickly enough to absorb/exploit any external shocks. Thus, the impact of these events reverberates throughout the organisation – that is, the blast radius is large.
The Island is free to develop its own business and operating models which are lightweight and better suited to fluctuating global circumstances. Using this structure allows organisations to become more fleet of foot and nimble, allowing them to pivot quickly and effectively in the face of unexpected events.
An insurance policy
No-one can predict the future with any certainty, other than the fact that this volatile environment is likely to be with us for some time, so organisations need to prepare themselves for the unexpected.
A further positive effect of having this discreet structure within your organisation is that The Island acts an insurance policy against unexpected shocks.
Due to its inherent flexibility, the resources on The Island can be re-oriented to direct their firepower in a different direction, and as such, The Island can be used to absorb the impact of external shocks much more effectively and without impacting the business/operating models of the core business.
Reaction times matter
In a world where small margins separate the leaders from the laggards, the pace and effectiveness of responding to change really matters.
With The Island structure in place, you now have an environment where the pace of decision making is fast, the communication lines are clear and where the processes and procedures are flexible and efficient (they are not bound up in the red tape and bureaucracy of the parent organisation).
Secondly, get your head around some counterintuitive ideas
Do not run multiple, interrelated streams of transformation in parallel.
Parallelism is never free and attempting to transform multiple, interdependent areas of your business concurrently negates any benefit from running the streams in parallel in the first place.
Cost and complexity are nonlinear. Multiple concurrent, interrelated streams of activity have a nonlinear cost curve when run in the context of an existing business structure that is delivering products and services in a predominantly non-digital way. In other words, the costs of interdependent parallel work streams don’t just steadily increase, they skyrocket exponentially as the number of work streams or dependencies increase.
As well as cost increases, the increase in complexity actually slows the pace of change execution, so a (mostly) sequential approach will deliver your transformation quicker.
Quicker? Really? A mostly sequential approach to transformation will get the organisation to its end goal faster? Absolutely!
Adaptability, scalability, flexibility and resilience
OK, so you’ve got over the intellectual hurdle of the parallelism problem and you’ve also got this new organisational structure that allows you to transform your organisation.
Both of these elements, if structured and led correctly, will give your organisation adaptability, scalability (you can spin up another instance of The Island to cater for fluctuations in demand), flexibility and resilience.
They will also deliver your transformation at lower cost, faster and with reduced risk (remember you’re only transforming small sections of your organisation at any one time, so the pace of change is increased, and the cost and risk are lowered).
Finally, adopting this approach will allow your organisation to absorb the impact of external shocks more effectively (without hitting the core business).
Closing thoughts
Organisations need to adopt adaptive and resilient transformational frameworks in the face of global volatility and uncertainty.
The structures and approaches outlined above will allow your organisation to transform more effectively and provide a shock absorber when you hit the inevitable bumps in the road that global volatility is introducing.
You don’t need a burning platform to put your organisational insurance policy in place, as by that time, it’s already too late.
This article contains extracts taken from my book, Evolving from Digital Transformation to Digital Acceleration using The Galapagos Framework.
About the author
Brian Harkin is the founder of DigitalXform and a visiting lecturer at Bayes Business School (City, University of London).
He is passionate about the intersection of people, technology, and innovation and has developed the Galapagos Framework to help leaders and organisations transform the way they direct digital change.
All opinions are his own and he welcomes debate and comment!
Follow Brian on Twitter @DigitalXformBH and LinkedIn.
