Is it possible to succeed with a strategic change and adaptation to new times without the need for a "crisis"?, challenges Erik Wilberg at BI Norwegian Business School.

KNOWLEDGE @BI: Strategy in Action

In the strategy literature, we have a term called path dependency, which says that companies adhere to what they have been good at too long, even if there are obvious signs that one should also look and embrace other opportunities. As a result – a situation of strategic drift emerges, where the environmental changes out paces the organization’s ability to change – ultimately resulting in drastic change or demise.

In the media industry, we have seen that the newspapers have kept the paper circulation as a key development area while all signals indicate that the public is moving away from printed newspapers.  The mantra of the industry has been that it is “not possible to make money on the internet”.  We now have ample evidence, Schibsted is a striking example, that it is possible.

Breaking the pattern

So - is it possible to break the pattern of path dependency without going the process of growth, maturity and decline? Are companies able to “reinvent themselves” along the way?

An interesting study published in Sloan Management Review in the spring 2012 points to the fact that this might be possible.  The researchers studied 215 of the largest British public companies over the period 1984 to 2003. 

They started with the premise that companies that could sustain long periods of financial success and also make major transformations would be an exception to the rule, and that it would be interesting to find out how they did it.

Keys to exceptional performance

The researchers ended up with three exceptional performers and compared these to similar companies that had not made major transformations. The companies that were exceptional were characterized by three fundamental advantages over their peers:

  • Building alternative coalitions with management
  • A tradition of constructively challenging business as usual
  • Exploit “happy accidents” to make strategic changes.

The first one is about both having senior management taking care of business as usual and also having managers with seniority, usually younger, that actively challenged and searched for new opportunities. This parallel system became a part of how they did their business.

The second one is about challenging the status quo and accepting quite high levels of conflict as a natural thing, without resulting in breakdowns.  Open conflict moved over to constructive challenging.

The third one is about exploiting the happy accidents which means that when a situation occurs that might push new strategies forward, that have been hampered by resistance to change into a new direction, one uses the opportunity to do so.  Agendas-in-waiting spring to life, and the strategic transformation can move forward. 

8 learning points

So – is there a blueprint for change that one can learn from?  The researchers conclude by the following 8 points:

  1. Build on history.  This requires managers to reflect on the company’s legacy. What traditions are present, how can they be used to develop alternative strategies?
  2. Select and develop a new generation of leaders.  This requires building different capabilities that develops alternative thinking and business models.
  3. Accept and encourage constructive mobility.  The successful transformers groomed their leaders internally rather than only relying on outside recruitment.
  4. Ensure that decision making allows for dissent. This will work in an organization that can welcome change as a natural factor.
  5. Create enabling structures that encourage tension.  Creative tensions between opposing views are welcomed. This can be accomplished by the way one set up project groups or handle new initiatives in order to nurture different views of the world.
  6. Expect everyone to get behind decisions once they are made.  At some point when all the tensions and conflicts have been aired there is a time for decisions and for the initiatives to fall in line.
  7. Develop and overarching rationale. An emphasis on a clear rationale of what is most important supported by strong values lived after by senior managers. Organizations need simple rules that they can use as filters for dissent and at the same time allowing for different views. 
  8. Beware of market size and dominance.  Each of the successful transformers in this study was competing against a bigger player.  The researchers concluded that the capabilities to avoid strategic drift must be nurtured over a long time.  They also concluded that ongoing strategic transformation requires relatively focused businesses. 

Are there any lessons in here for Norwegian companies? Always searching for new opportunities is good for all companies, and also to have a long term view. 

Maybe the biggest challenge for our organizations will be to use the openness that we have in our Scandinavian model of leadership constructively and not dig into the trenches too early.

Reference:

Gerry  Johnson, George S Yip and Manuel Hensmans: Achieving Succesful Strategic Transformation; MIT Sloan Management Review; Spring 2012.

This article is published in BI Strategy Magazine 2013/2014, an English/Norwegian language public outreach magazine published by the Depratment of Startegy and Logistics at BI Norwegian Business School.

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