Why the 21st century is different
The world enjoyed very unusual conditions during the so-called Great Moderation. Interest rates and inflation were at historical lows, global political disputes appeared to be resolving themselves and the world’s work force doubled. Science and technology rained down new possibilities, and the future appeared unbounded.
Organisations responded in ways that suited the times. They cut costs, outsourced activities and focused on what they did best. Asset prices soared to levels which made a large number of people in the industrial world feel rich, and able to borrow. Consumers borrowed as never before. Employment remained high, inflation low and even the Internet bubble was unable to dislodge the underlying confidence in the economic model.
This period is not going to return. The business model that underpinned organisational behaviour is also obsolete. The orthodoxy of the pre-crisis world held that everything that could be delegated beyond the bounds of an organisation should be; and that what remained when this was complete should focus on uniformity, on reducing its costs and bureaucratising its processes.
Organisations pursued these goals through increasingly generic procedures and so, inadvertently, became increasingly similar to their peers in cost profile, customer offer and internal organisation: well aligned to the prevailing conditions but lacking the means to anticipate change or respond to it.
The 21st century is one of very fast change. How can organisations aligned to the Great Moderation respond? How can anticipation and adaptation be combined with relentless pressure on costs and quarterly results? Curiously, implementation is relatively easy once the understanding is in place as to what needs to be done.
We distinguish five qualities which will allow an organisation to renew itself while keeping its competitive focus.
First, it must respond to the nature of the external environment – that is, to everything from competition to customers, regulators and voters. Rationality emerges from the application of Insight, which is the first of five key qualities which we are going to advance.
However, renewal is a journey that has to go where the organisation “wants” to go. This seemingly obvious statement conceals many complications. For example, how does it know what it wants? What is actually practical and possible? What, and judged by which criteria, is the “best” kind of destination: what it wants, or something else? This second set of concerns can be analysed into three distinct contributory factors, each of which is on a par with Insight.
The organisation has Values. These are balances that it has struck throughout its history concerning issues where it has to exercise judgment that is more or less unsupported by evidence or fact. For example: how should an organisation ‘best’ treat its staff? What generates optimal motivation and performance, given the kinds of people and tasks that the organisation has to deploy? Each organisation has to settle on a set of balances around such issues, which reflect its history, the background ethos of the industry or government to which it belongs and, in general, the weight of accumulated pragmatism and habit against which it works. Each organisation will typically arrive at more or less different positions to its peers in solving these issues. The complement of such decisions constitutes its Values.
The third of the five qualities is the organisational Narrative. This is a way of thinking and speaking about limits and potential that permeates the organisation, often without people being entirely aware of its existence. It makes coherent choices essentially automatic, and drives everything from strict innovation to generic renewal. Narrative is derived from the other four key elements. Narratives can be strong or weak, but they can also be right or wrong. A poor Narrative will sink an organisation faster than no narrative at all.
The organisation which has a coherent and broadly correct Narrative can use this to interact with the realities of its resource base, with the people, contacts, physical and financial assets that it has in place, its intellectual capabilities and management talent. It can plot a series of alternative (but still highly constrained) Options about how it might be some years into the future. Options offer a different way of thinking from the Narrative, being more concrete, more focused on specific numerical targets and more closely integrated with mechanisms that question established choices and filter investment and other proposals against non-numerical criteria. The Options are shifting alternative destinations towards which the organisation is migrating, shedding some parts of itself and acquiring new ones.
These four qualities – Insight, Values, Narrative and Options – are simultaneously generated by and held together though the operation of the fifth quality, that of Machinery.
Machinery is made up of processes – some of them organised spontaneously, to meet need, others formal and repeating in a predictable manner – that are nevertheless organised into structures that operate interactively, sequentially and in repetitive loops. Each repetition refreshes the knowledge base of the organisation. Machinery directly supports the iterative nature of renewal and also the motivation of people and knowledge management.
All of this has to be formally structured and managed. It does not emerge by accident. It has to be resourced, organised, overseen and sponsored by the power structure of the organisation. It embraces not just a specialised cadre of people, but a wide range of expertise across all sources of insight and knowledge. While every organisation will be unique, there are tools for building and supporting such an organisation. They need to be more widely known, and are described in “Beyond Crisis” – together with case studies of their use.
Any Chairman or CEO needs to be alert to the need to renew their organisation for the 21st century, and to look for help in how to do this.
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