British Home Stores and Woolworths in the UK, Radio Shack and C&J Energy Services in the US, Japan’s Skymark Airlines and Brazil’s fourth largest telecom operator Oi, are just a few of the many sizable companies that have recently fallen from grace and filed for bankruptcy. Although each faced a unique collection of circumstances, it can be said that all failed to adapt to significant trends reshaping their industries.
This is not a new phenomenon; it is a persistent characteristic of capitalism. History shows us that companies die. Furthermore, company lifespans, which have never been very long, are continually decreasing. In 2014 Eric Knight, a senior lecturer of Sydney Business School, reported that over the last 50 years, the average lifespan of S&P 500 companies shrunk from 60 to 18 years. Companies are now dying in their mid-teens because the beat-rate of every industry in all parts of the world has rapidly increased.
Executives are typically talented, energized, committed and hard-working. Alas they can also be wrong. They can be mistaken in their reading of market trends, in their understanding of customer requirements and their competition. It doesn’t need to be this way if senior executives commit to systematically reassessing and resetting their world-view, their industry-view and their self-view. Doing so will open the opportunity for some breakthrough thinking, setting them and their company on a fresh growth trajectory.
Breakthrough thinking, that is, seeing opportunities for value creation, however, is insufficient. The real challenge is one of leadership. Breakthrough leadership is required to motivate and enable an organisation to embrace the change journey so it can adapt and thrive in new circumstances.
The importance of breakthrough leadership
Top executive pay is often seen as a symbol of everything that is wrong with capitalism today. However, what these leaders are paid to do should be examined. Their value derives from their successful navigation of the ever-changing markets in which they operate. They are paid to ensure that the enterprise survives against the odds.
The best executives take advantage of the breakthrough opportunities that arise when there are significant gradual or sudden technological, political, regulatory or socio-economic shifts that can be taken advantage of to move the business forward. A great breakthrough leader knows when their business model is not aligned to one of the opportunities opened up by one of these big shifts. They are masters of change management.
Good leadership today or breakthrough leadership for tomorrow?
Most of today’s top executives have an enhanced ability to execute the existing business model. Their track record is a testament to their understanding of their market, organisation and culture. The challenge they need to open up to is: will this remain the right way? Is now the time to change? The difficulty is that as markets change around a company, who is going to lead the evolution of the company and business model itself? Without the leadership of the most senior executives and go to people, change cannot happen.
What is therefore required of breakthrough leaders is persuasive strategic insight, an understanding of the changes needed to address opportunities and the leadership, courage and ability to champion and lead the transitions required. Breakthrough leaders have to listen, perceive changes and not become too vested in how a company achieved success in the past. This is simple advice, but mostly this is a path few choose.
Netflix started out as a successful mail order DVD rental business and created its now ubiquitous online streaming service before its previous service went into decline. Aldi challenged its already successful business model by re-engineering its product offering, its in-store experience and its communications to become the UKs most loved brand. DBS, one of Singapore’s leading banks, successfully challenged its approach to customer service and leveraged the insights garnered in its customer-led digital transformation. It was recently named the “World’s Best Digital Bank” by Euromoney in 2016.
Leading through purpose to sustain success
In young companies, senior executives are extremely close and hands on with their people and their customers. But that disappears as a company gets more successful, bigger and more complex. More processes and management layers are added, while company purpose gets diluted. Senior executives spend more time on stakeholders like investors, unions or regulators and slowly lose focus on customer-centricity and values.
However, companies that are able sustain success for long periods have a stronger set of beliefs about company purpose that are resistant to short-termism and doing whatever it takes to hit the quarterly numbers. At these companies, beliefs and impact are cherished. The “one right way” syndrome is fiercely challenged. The Toyota Way, the Hilti Culture Journey and Apple University all embrace the adaptation challenge and embody the type of commitment to company values that breeds long term success.
Today’s senior executives should not get caught up in pursuing growth at all costs. Their primary focus should be on being stewards of the values and beliefs that were essential to creating the conditions for success and knowing when to adapt to changing circumstances.
Breakthrough leaders are emotionally engaged and know what to do next in terms of selling beliefs and values to bring the organisation on board to make change happen.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
