Rouse on Transformation

Over the past two decades, I have often asked executives about their toughest problem.  Not surprisingly, they use many different words to answer this question.  However, there is quite a consensus around, “Running the enterprise I have while trying to create the enterprise I want.”

Keeping the existing enterprise running tends to be a very demanding job.  Enormous human and financial resources are needed to stoke the fires of the business.  Pressures to “stick to the knitting” are usually compelling, both financially and within the social network of the enterprise.

As a consequence, I have found that even enterprises that entertain a broad range of future scenarios will, in the end, focus on the “business as usual on steroids” scenario or the equivalent.  This is especially true when resources are tight and time pressures enhanced.  The need to support the reigning business model becomes heightened, regardless of whether or not this model is obviously becoming obsolete.

Nevertheless, there are usually executives that realize that the reigning business model is threatened.  Often, this possibility has been discussed long before the resource constraints and time pressures mounted.  However, it often was the case that it was socially unacceptable to openly recognize the need for change, much less attempt any fundamental change.  The stewards of the status quo would vociferously defend the viability of the current business model.

One or more possibilities for enabling change might emerge — for example, a new product line or new market channel.  However, this nascent solution would whither, subject to Christensen’s innovator’s dilemma.  The near-term revenues and profits associated with these alternatives would invariably be too small to provide the silver bullet everyone was seeking.  Instead scarce resources were sunk into the status quo.

Eventually, Schumpeter’s creative destruction emerges and many enterprises share the fate of the 1,000 companies who have departed the Fortune 500 in the past 25 years. This is great for the economy, but a defeat for each enterprise, all because the executive team could not solve the enterprise’s toughest problem.