Generating growth in an era of global instability

06/01/2017 Subscribe to de-cooded

Welcome to the first edition of ‘de-cooded’, a regular digest of the latest news and events in business, viewed from the angle of leadership and organisational culture. At Coode Associates, we believe that how people think, interact and behave in organisations are major drivers of success. Yet these topics are not well understood and are often relegated (and delegated) to a peripheral topic or an after-thought with leadership teams usually preferring a focus on the more familiar financial measures of performance. The de-cooded blog is intended to correct that imbalance and bring the world of leadership and culture into the foreground of current events and business – where we think it belongs.

This edition focuses on the twin challenge faced by many organisations today: that of stimulating growth following an extended period of retrenchment amid the dissolving of a stable world order which had quietly underpinned the last 50 years of growth. The macro-political landscape is leaning away from openness and global trade, creating a more unpredictable, multi-polar world presenting companies with unprecedented challenges. We will explore the implications of both dynamics below.

The return of Growth

Since the financial crisis, business has been in a ‘perfect storm’ of lower growth, government indebtedness, increased regulation, a down-turn in the commodity cycle and over-capacity, all leading to substantial restructuring both within and between businesses. This has meant that growth has had less of a focus than reducing costs, efficiency and restoring companies’ balance sheets. Growth is now returning to the foreground with many aiming to grow amid the continuing economic uncertainty. Some are turning to acquisition to solve this puzzle (we’ll touch on the recent surge in M&A later), but all are realising that generating sustained growth will require a fundamental shift in both organisational focus as well as mindset.

In addition to the headline growth challenge, organisations that do not have a major transformation programme underway, an ambitious ‘Vision 2020’ and ‘Target Operating Model’ are few-and-far-between. Handling these multiple, often competing, agendas in a coherent and value-added way is a major challenge for organisations used to executing at an operational level and focusing on only one strategic theme at a time. Our experience has shown that it is vital that all major changes need to be placed in context of an overarching strategic narrative where the need for change is made clear and the company’s purpose and direction is articulated in terms of Purpose (‘Why’), Ambition (‘What’) and Strategy (‘How’).

Getting the right culture must also be placed at the centre of the change. If the mindsets and behaviours necessary to succeed (which are often markedly different to the historical culture) are not in place, the strategy will never make it beyond a nice looking PowerPoint presentation. Organisational cultures can be shaped and aligned but it doesn’t happen without sustained focus from the leadership, and recognition that successfully transforming the culture must be at the heart of a successful strategic transformation.

For leadership teams to get to grips with their strategic challenge it is also essential that they focus on their effectiveness. Those that place having a shared and compelling strategic narrative for their organisations, collective success and effective mutual support will be the ones that pull ahead of competition, whilst the leadership teams which remain stuck in a tactical busy-ness with a muddled focus on the immediate will continue to struggle.

Dealing with 21st century problems with 20th century organisations

This growth challenge is being played out against a backdrop of a rapid and multi-faceted shift in the established world order. Given recent events in USA, the UK, Europe and at Europe’s fringe, it will be clear even to the casual observer that we are entering a phase where the established politico-economic framework is being rejected and is being replaced by a world with increased political risk and – more importantly – greater uncertainty. A friend working in the European Council in Brussels caught the mood by describing a sense that “Events are moving faster than the machine. We are dealing with 21st century problems with 20th century organisations, with their silos, lack of connectedness and slow decision-making”. Whilst he was referring to the political machine, I suspect that leaders running international organisations today will relate to the sentiment. How is business to respond?

Leaders must ensure that information flows freely around their organisations, that the leadership is not disconnected from what is really happening and the real sentiment across the organisation is known and understood (in stark contrast to the staid and stolid annual engagement surveys that currently prevail). Decisions must be made quickly and plans created that can be easily flexed when the situation demands it. Decision-making and accountability needs to be pushed down to the lowest levels possible and managers need to become accustomed to not controlling everything they are responsible for – both attributes being profoundly counter-cultural for many established businesses and experienced managers.

Annual planning cycles, which demand predictions as to what will happen more than a year ahead, will no longer suffice. What is needed now is a more ‘sense and adjust’ approach, where an organisation’s focus is external and approaches are developed quickly, tested and adjusted. The traditional ‘plan and control’ model, where plans are set well in advance and with operations and budgets rigidly managed to this pre-set plan, taking little heed to what is going on in the external environment or of any changed circumstances is too inflexible to be suitable for today’s unpredictable world.

Achieving ‘Agility’

We are talking about organisational ‘agility’ – an over-used term – and one which is popular but tricky to achieve – more difficult the larger an organisation gets, with its inevitable drift towards bureaucracy, permission-seeking and status quo.

To achieve a truly agile organisation, the mind-sets and behaviours need to be addressed with the same rigour as that used on organisational structures, supporting processes and procedures. Too often, becoming an ‘agile’ organisation is announced as a new strategy but little changes as a result. Tackling the management practices and underlying beliefs in an organisation, which will underpin the current way of operating, need to lead any structural change in order for the intent to be met. If managers believe that they are expected to make every decision and any loss of control is a sign of weakness, don’t expect decisions to speed up or employees lower down the organisation to be more empowered, no matter how many re-organisations take place.

A Continuing Surge in M&A

Digital disruption and industry consolidation in the west, coupled with increasing international investment by middle and far eastern companies has also led to a surge in M&A activity, with 2016 seeing the second highest deal value since 2007 (after 2015). ChemChina’s $44bn acquisition of Syngenta marked a new high water mark for Chinese deal-making but the recent news that Bright Foods was putting its stake in Weetabix (acquired in 2012) up for sale demonstrates that such cross-border deal-making, with the promise of access to new markets, is not an automatic success.

The biggest challenge in well-intentioned mergers is ‘culture clash’, so often the barrier to realising planned benefits. Completing a deal is a complex and time-consuming process, as is the difficulties of integrating businesses once the deal is closed, with their different histories, ways of operating and cultures. Given the enormous challenge of completing the mechanical aspects of an integration (branding, organisational design, rationalising sites, etc.), perhaps it’s understandable that it can turn into an exhausting ‘tick-box’ exercise, with the task of creating a unified culture relegated to a sub-task or left until later.

The difficulty is culture never feels as urgent as the other aspects of an integration, but if not dealt with up-front, the effort and time required to do all the other tasks drastically increases as the existing cultures act as a brake and source of friction. Our hope is that the deals completed in 2016, and those lined up for 2017, recognise this fact and act on it.

Thank you for reading – we hope you have found this first edition of de-cooded enjoyable and stimulating. Have a successful and fulfilling 2017.

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Coode Associates supports and advises companies on leadership and organisational effectiveness and alignment, identifying Purpose and Values and on culture-shaping more generally. If you’d like to speak with us, we’d love to hear from you: info@coodeasssociates.com.