As the region matures into a diversified economy and continues to progress at a break-neck pace, the speed of change across a range of sectors has been phenomenal. The huge influx of international visitors has continued to fuel the growth of the lucrative tourism and consumer industries, while the region’s urban skyline grows taller and more impressive by the hour. Although this rapid transformation is great news for local markets, it has also made the job of Middle Eastern chief executives even harder. According to Professor Gary Hamel, widely regarded as the world’s leading expert on business strategy, the biggest challenge for CEOs in the region is “accommodating yourself to this pace of change”. So, with revolutionary transformation taking place all around you, how do you keep your finger on the pulse of what is happening in your industry, and, more importantly, overcome your increasing number of competitors?
We speak exclusively to Professor Hamel — best-selling author of Leading the Revolution and Competing for the Future — to help you always stay one step ahead of the game.
GENERATE NEW IDEAS According to Nobel Prize-winning scientist Linus Pauling, the greatest chemist of the 20th Century, “the best way to have a good idea is to have lots of ideas.” And Hamel agrees. “It takes 1000 kids playing rock music in garages to find 100 that are good enough to get paid to perform, to find 10 that could secure a record contract, to find one that becomes a global superstar,” he says. “So how can we generate the delivery of thousands of new wacky ideas?”, he asks.
One method is to take inspiration from the world’s corporate leaders of innovation, such as Mexican cement producer, Cemex. Every year the company holds nine ‘innovation days’, each hosted by a different vice-president. All staff members are invited and given access to a range of online tools. Breaking into pairs staff are then set a challenge to solve, such as ‘how do we help the world’s poor build more houses’. One employee sends an idea to a colleague who must try to create an even better idea and send it back. This ‘innovation ping-pong’ continues back and forth between each pair, with the creators of the best ideas progressing to the next round of a knockout tournament, with incentives for the ultimate winner of the competition. “If I play that game across an organisation of hundreds of thousands of people, just think how many new ideas are going to come through,” says Hamel.
As well as generating ideas internally, harnessing the vast pool of creative talent of non-company outsiders could be another vital step towards business invincibility. Richard Branson’s Virgin empire achieves this by simply having a link on its website asking internet users “Do you have an idea?” Similarly, online search engine business, Google, allows the public to give feedback on the company’s latest innovations, which are piloted on their ‘Google Labs’ webpage. DABBLE TIME Mention the notion of allowing staff to play around during work hours to most CEOs, and they will no doubt respond with a firm dismissal at the waste of precious resources and capital. According to Hamel however, the introduction of ‘dabble time’ to an employee’s day, is a great way to unearth new profitable ventures and diversify your business. Hamel draws on the example of US company WL Gore, best known for making all-weather resistant Gore-tex fabric, as a prime example of how dabbling can pay dividends.
Regarded by Hamel as one of “the most innovative businesses around,” the company’s researchers are allocated 10% of their time to develop their own ideas, while an oversight team evaluates the viability of the idea and decide whether they can go on to be ‘winners’. One such ‘winner’ was born in the early 1990s when a WL Gore employee coated his bicycle cables with PTFE and ultimately created gunk-repellent guitar strings, which are now the leading brand (Elixir) of acoustic strings in the US. SHADOW COMMITTEE For the CEO of a firmly established company, it is likely that much of your day is spent working alongside long-serving board members with a career entwined in the history of the business. While their expertise can be a valuable tool in the running of the company, they can often inadvertently blind you from changes happening in the market.
“You need to filter out the people in your organisation between you and reality, who feel it’s their job to protect you from what’s going on the outside,” Hamel says.
“One of the risks you have is that senior executives have most of their emotional equity invested in the past, their management models were built 15 to 25 years ago and they often feel they have to defend decisions that were taken a long time ago.” Before throwing out every board member over the age of 50 however, by creating a shadow executive committee made up of a range of ages from 25 upwards, you can hold on to the vital experience of your long-serving colleagues while keeping your finger on the pulse of your industry. This also helps in finding the CEOs and executives of the future.
“In most companies, you find the situation that there’s only one person to go to with an idea — if there’s only one source of experimental capital, no wonder there’s not much innovation,” says Hamel. Expressing the need to spread the power to innovate and contribute new ideas across the corporation, Hamel compares IT giant Microsoft to Google. “Until recently, Bill Gates was Microsoft’s chief software architect — the message that that sends to employees is that if you have a bold new idea, it ultimately has to go through Gates to get final approval. That is a very dangerous thing because Gates has his own model based on past success.”
“Google (however) is a decentralised organisation where the power to innovate and initiate change is broadly distributed throughout the company.”
If you feel your business’s model needs an overhaul in the way the power to experiment on new ideas is spread, you could adopt the ‘game changer’ strategy used by global petrochemical group, Shell.
Hamel assisted the oil giant in implementing a ‘game changer’ panel of six creative people that could be approached by anyone within the company with an idea that could “change the rules” of Shell’s strategy.
If the panel believed in an employee’s idea, they would give them US $25,000 to develop it over 30 days. After that period, the employee would return to the panel having established the critical hypothesis behind the idea and designed a tactic to test it. If the employee didn’t discover a fatal flaw that disproved the hypothesis, they would be given an additional US $25,000 for another 30 days to do more work and research.
This process, during which the employee is given an automatic buyout of their job responsibilities, could go on for a matter of months until it hit a critical barrier. At some point, they would have the chance to pitch their idea to a senior team member and, if they showed no interest in investing further, the employee would have the right to seek outside investment. According to Hamel, Shell has invested in 300 of the 1100 ideas they have had, and the initiative has created their most profitable investment portfolio in terms of returns across the entire company.
One of the best ways to ensure your business is constantly re-adjusting to the ever-changing marketplace and the actions of your competitors is to remember that everything within the corporation is “just a hypothesis”.
“There are no certainties in business and nothing is eternal, so you have to take everything as a hypothesis — from who your partners are, how you fight in business, to how you go to market,” says Hamel.
This means you will be constantly looking for things that might challenge or support your strategy enabling you to bolster the business in preparation for any changes in the market.
As Hamel says: “My argument is that as the pace of change accelerates so must the pace of strategic renewal inside organisations.”
CHANGE BEFORE THEY DO “In military strategy people talk about getting inside your enemy’s decision cycle,” explains Hamel. “This means, if you can see what’s happening on the battlefield more quickly and more accurately and react to it, then you are always on the offensive instead of the defensive — and it’s the same in business,” he adds. Military analogies aside however, how exactly can you stay one step ahead of what your competitors are doing in the market? “While you don’t need to change infinitely fast,” says Hamel, “you need to change before your competitors do”. One of the best ways to do this is to be honest about the limits of your business model. It is also important to be aware of the fact that your business strategies can die and often need to be replaced by new ones. According to Hamel, the death of a strategy — your signal that it’s time for a change — can occur in four ways:
1. Strategies are replicated by competitors and lose their distinctiveness
2. You supplant your strategy and transform it into a better idea
3. Your strategy becomes exhausted and reaches a natural conclusion
4. Customers or suppliers suck out all the profits of an idea until it eventually loses its potential
By evaluating the health of current strategies and looking for potential failure points, decide whether it is time to change your plan of action or to keep things moving in the same direction.
INVEST IN TOMORROW “Organisations fail when they over invest in what is, instead of what will be — they over invest in today’s programs and initiatives instead of tomorrow’s,” says Hamel. While it is easy to talk about being a forward-thinking, futuristic company however, constraints on budget, capital and resources can mean that focusing on developing tomorrow’s projects isn’t always easy.
Hamel encourages executives to bring about more interaction between company divisions, in terms of sharing staff and ideas. He also believes that funds to experiment with new ideas should be made more accessible to employees by removing the time-consuming bureaucracy that comes with applying for development capital.
BREAK THE DENIAL CYCLE One of the highest hurdles in the race to speed your business to the frontline of innovation is what Hamel entitles the “denial cycle”. When companies are approached by cutting-edge ideas or solutions representing future profit-making ventures, all too often they waste time going through a process that limits their chances of getting and staying ahead of their rivals. Hamel refers to the music industry’s initial cynicism towards MP3 files to explain the cycle:
1. Dismiss: Initially, companies in the music business believed that MP3 files were inferior to CDs, and that getting online music was a clumsy process.
2. Rationalise: They then shared the common view that people would not pay to download music as the whole model was based on theft.
3. Mitigate: Next, they tried to stamp out the phenomenon by suing those who downloaded music and introduced Digital Rights Management (DRM).
4. Confront: Finally they accepted that digital downloads were the future of the music industry and realised that they needed a new business model.
As the denial process can take years to complete, overcoming it is an essential part of building a resilient company that can quickly adapt to changes in the market. “If you can be less prone to denial, arrogance and nostalgia than your competitors, that means you are going to see things that are changing faster,” says Hamel.
So, next time you are approached by what you think is a half-baked idea that will never take off, consider the experiences of those in the music industry — now buoyed by online enterprises such as i-Tunes — and ask yourself whether it has any future potential. And remember, as Hamel says, “no big idea ever looked like a big idea in the beginning.”
“There are no certainties in business and nothing is eternal so you have to take everything as a hypothesis.”
“My argument is that as the pace of change accelerates so must the pace of strategic renewal inside organisations.”
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