Cut the Zeros: Is the $4 smart phone proof that business is speeding up?
Indian phone maker Ringing Bells launched a $4 (251 rupees) smartphone today — one with similar capabilities as the first Apple iPhone of 2007, which was priced more than two orders of magnitude higher, at $499 for the 4GB model.
The pace of change seems to be increasing, and what was groundbreaking technology only 9 years ago has become a commodity today.
In businesses everywhere, CEOs cite agility as a new business imperative. And as a recent article in The Economist noted, bestselling books on the topic abound. The forces purportedly accelerating the pace of change include rapid shifts in technologies, business models, competitive dynamics, financial flows and customer preferences. At a more intuitive level, the sheer volume of emails which managers process daily vividly creates the impression of increasing speed.
Certainly, there’s plenty of evidence supporting this acceleration hypothesis. We found that 70% of US public companies circulate around the BCG Growth-Share Matrix at twice the rate compared to 30 years ago. The turnover of public companies, as measured by their five-year mortality risk went from roughly 5% to 30% in the same period (with some leveling off recently). And as Fortune magazine editor Alan Murray pointed out (citing an article by Geoff Colvin), the average life span of companies in the S&P 500 has fallen from 61 years in 1958 to 20 years today.
The Economist article offers a more nuanced picture, suggesting business may not be moving ever faster in all respects. In fact, on many measures, the speed of business has remained the same or even slowed down. For instance, the number of inventory turnover days hasn’t changed much since 2000. Employees are staying longer in their jobs. And new-company birth rates are near their lowest since records began.
How to reconcile this apparent contradiction? Business environments are moving faster in some important ways, but the impact differs markedly across industries, depending on their unique characteristics (compare for example, the pace of change in confectionary and software). And the deceleration of decision-making in large, mature corporations doesn’t mean that companies don’t see the need to become more agile in adapting to their environments. Rather, it points to a lack of ability to do so. The sheer size and complexity of large corporations makes it extraordinarily challenging for them to adapt flexibly to changing circumstances. The result: the confrontation of the dynamism and diversity of business environments and the inertia of large established companies creates the paradox and also highlights a critical challenge.
The upshot? Seeking comfort in the notion that business environments and the rules for success are stable could be fatal– a topic we explored in a recent article.
Instead, each business needs to adjust its approach to reflect the characteristics of the specific business environment it faces, including its “clock speed”. In our book Your Strategy Needs a Strategy, we examined this notion in depth, drawing on analysis of 65 years of data for 35,000 US public companies. Our conclusion: businesses must choose an approach to strategy formulation and execution that reflects the unique characteristics of each environment. The approach will differ across industries, geographies and life cycle stage.
Take confectionary giant Mars. The company has long operated in a “classical” business environment — where managers can generally predict and plan for what’s coming but can’t easily shape it. Companies facing this situation must craft strategies of position, which hinge on advantage based on scale or differentiation. Such strategies are best executed through systematic analysis and planning. Accordingly, Mars has focused on categories and brands where it can lead and obtain a scale advantage, and it has created impressive value by growing those categories.
On the other hand, businesses facing an “adaptive” environment (which they can neither predict or easily shape) need an entirely different approach to strategy, one centered on continuous experimentation. Indian IT solutions leader Tata Consultancy Services is a prime example. TCS continuously adapts to repeated shifts in both technology and how corporations deploy it. The result: consistent growth and performance in a very dynamic industry.
With companies facing an increased diversity of business environments, picking the right approach to strategy and execution for each specific business is more critical than ever. Master this matching process, and you sweeten the odds of achieving — and sustaining — competitive advantage and strong performance.
