The days of business strategies based on competitive advantage are gone, writes Columbia Business School professor Rita Gunther McGrath in “The End of Competitive Advantage.”
And they are.
In the industrial economy, companies operated in protected markets that were local or national in scope. These markets consisted of a limited set of competitors operating similar business models to provide similar products and services to relatively homogenous and uninformed customers. The winners secured a competitive advantage by doing so a little bit better or a little bit cheaper.
Capital was the key resource. Leaders in these organizations focused on planning, directing and controlling all aspects of the business to secure and maximize a return on capital for shareholders. They worked with a mindset of scarcity, competition and preservation; they focused on delivering results despite people.
In today’s digital economy, companies and their leaders face a different reality. Markets today are open and global, with a wide range of players serving diverse, demanding and empowered customers with an array of solutions. All stakeholder groups — including customers, investors, employees, partners and communities — have more choices and are better informed about those choices than ever before. In this new reality, we need agile leaders who are able to quickly sense, adapt to and proactively shape constant change.
The key resource today is human. It is expressed in intangible assets such as intellectual property, brands, relationships and culture. These assets flow from a company’s only truly unique and sustainable strengths: the knowledge, creativity, focus, effort and passion of its people.
To build the agile companies necessary to succeed in 2015 and beyond, executives need to have a mindset of abundance, collaboration and evolution as well as a focus on delivering results through people. Rather than planners, directors and controllers, today’s agile executives need to become catalysts, architects and coaches.
The Leader as Catalyst
In a world of choice, companies can no longer be led by decree. Leaders need to catalyze stakeholders’ voluntary participation and commitment. They need to facilitate the co-creation of a compelling purpose and a powerful vision, and enable cultures that engage the hearts and minds of large numbers of autonomous, passionate and creative people.
The most effective leaders do this by involving all stakeholder groups in an open, collaborative and iterative conversation over time, backed by transparent sharing and a regular review of key market, operating and organizational data. The conversation begins with senior leaders framing a limited set of possibilities drawn from careful analysis of the data and their experience with each stakeholder group. This enables a large group of people to participate in and contribute to a series of discussions. Over a period of time — anything from a few months to a year or more — agile executives distill out an organizational purpose, vision and culture that authentically represents the interests and values of, and links directly to, economic value creation for all.
NRG Energy, a U.S. energy company, has focused on this kind of stakeholder engagement. “We are re-imagining and transforming the energy industry,” said Tanuja Dehne, chief administrative officer and chief of staff for NRG Energy. “Our distinctive vision, purpose and culture are fundamental to our ability to engage and focus a wide range of stakeholders in building a new future for our company, our industry and our society.”
The Leader as Architect
Secure in protected markets, companies in the industrial economy were built for control and efficiency to maximize return on capital for shareholders. Today’s companies need a new architecture designed to maximize value for all stakeholders in open markets.
Rather than a single traditional business model, agile company leaders will build a constantly evolving portfolio of innovative business models, each targeted at distinct customer groups and all leveraging and contributing to a common resource pool. They also will apply distinct management approaches to each of their emerging, growing and established businesses, and make sure the overall mix of businesses maximizes enterprise cash flow and value.
Paul Norman is group chief human resources and corporate affairs officer of MTN Group, a market telecommunications company in 22 different markets across Africa, Asia and the Middle East. He is helping rearchitect MTN from a traditional telecommunications service provider to an innovative company that “delivers a bold new digital world to our customers,” he said. “It is critical that we become an agile organization, able to move quickly in each market and coordinate effectively across the group as a whole.”
To support this type of business architecture, agile executives can design their organizations as a network of interconnected platforms that support many participants. Leaders distinguish between, and assign network roles to, groups focused on markets, products and functions. Typically, they assign network platform roles to corporate functional groups, network participant roles to market-focused business units, and both platform and participant roles to product-focused lines of business. Agile leaders then maximize the power of this network organization by designing and building modular, flexible systems and deep skills in autonomy, accountability and collaboration across the organization.
To guide and support this network architecture, agile leaders redesign their company’s operating modelfor rapid cycles of innovation and execution. They pay close attention to build teams with the capability to innovate and problem-solve quickly, creatively and effectively, and to execute through clear, agreed action plans, performance and systems support. They also closely monitor operating and financial metrics.
Agile leaders transform their corporate planning and budgeting processes, replacing traditional top-down annual processes with a rapid-cycle model comprising rolling 12-month operating plans that are reviewed and updated in quarterly strategy sessions at every level of the organization.
The Leader as Coach
The third primary task is to build the human capacity needed by the company. At its core, this means leaders must help their team members build the competence and commitment they need to perform independently and effectively in an open environment. To do this, leaders must develop new ways to manage individual and team performance. This begins with an understanding that what is required is not managing but guiding and supporting — in other words, coaching.
“It is critical for leaders to develop strong coaching skills, so they can help their teams innovate, collaborate and perform at a higher level,” said Tobin Cookman, senior vice president of human resources at ON Semiconductor, a semiconductors supplier company.
Cookman is leading the implementation of a corporatewide initiative to help leaders at every level learn and apply a best-practice coaching model. Senior operating leaders are actively participating and modeling the new approach, visibly demonstrating their commitment to the importance of coaching to ON Semiconductor’s continued success.
Agile leaders must develop a profound understanding of people — their individual strengths, preferences and personal values. They must leverage this knowledge of others and of themselves by meeting frequently with team members to agree on goals, solve problems, get and provide feedback, and build stronger relationships.
In addition to serving as an individual coach, leaders need to be skilled at coaching teams. Whether they are permanent (intact), temporary (project), or coordinating (leadership), teams have become the core work unit of organizations today, and leaders need to develop their skills in building high performing teams. They must be able to help team members develop shared goals, roles and values; manage their evolution as a team; and navigate continuous change.
An Agile Approach
Learning leaders can put the same three skills of catalyst, architect and coach to work in the way they build the leadership capacity their companies need.
As a catalyst, learning leaders can help senior leaders develop a clear, aligned and agreed-upon synthesis of the mindsets, skill sets and behaviors required to build a successful 21st century company. To translate this leadership model into skills, learning leaders can build programs that are powerful learning journeys over time, rather than traditional training events. As a coach, learning professionals can help leaders develop new mindsets and skill sets, apply them on the job, and use them to drive business impact and results.
To thrive and succeed in today’s open markets, agile companies will view building leadership capacity as the most urgent and important investment they can make. They will recognize that this investment is dwarfed by the enormous positive effect it has on the thinking, actions, decisions and communications across the organization for every leader, at every level, every day.
The flexible models of leadership that can be found at companies like NRG Energy, MTN and ON Semiconductors are becoming endemic to a rapidly growing number of highly successful global companies. Leaders who practice this agile, people-centered approach can unleash the brilliance and passion in their people, enable their companies to fully leverage the opportunities made possible by the digital economy and create unprecedented value for all of their stakeholders throughout the world.