Archive for the ‘The New Normal’ Category

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Navigating the Age of Volatility

January 14, 2011

How did your organization cope with the Financial Crisis in 2008? If the answer to that question is “not as well as we should have” then ask yourself the following question:

  • How are we going to manage a future crisis that will be twice as deep and twice as long?
  • Will we even survive?

 The World has Changed

 The world of business is in the midst of a paradigm shift that is changing the economic reality profoundly. Consequently, the global economy has entered the Age of Volatility; a faster pace commercial environment that shifts gears suddenly and unexpectedly.

 

[The diagram above is a graph of global crude steel production over the course of the past century. Crude steel production, tied to industrialization and urbanization, is used as a global growth and GDP indicator. It reveals a succession of roughly 30 year growth patterns that have characterized the economy over time.]

 What it Takes to Succeed Today

In a global economy as volatile as today’s standing still is not an option. The question is what steps should a leader take to ensure success?

Ultimately successful companies need to be more adaptive, resilient and strategic. However, this scale of organizational change doesn’t happen overnight.  In the meanwhile there are some measures you can take immediately to prepare your organization for disruptive change, whatever its origin.

  1. Improve your Situational Awareness, most people today are finally starting to relax, they’ve come through the recession of 2008, business is returning to normal and, as far as they can see, no storm clouds are on the horizon. Don’t follow the complacent crowd, develop a High Altitude Mindset. In other words operate in what appears to be a normal world with the attitude that crisis could strike at any moment.
  2. Do not delay, develop options NOW. You have a plan, now is the time to stress test it and build in greater resiliency.
  3. For instance, rationalize your corporate finance, renegotiate terms on your debt if necessary to provide you the flexibility to manage through a sudden spike in interest rates sometime in the next five year interval.
  4. Strengthen your balance sheet, identify and sell non-essential assets, pay down debts prepare your organization for ‘heavy weather’.
  5. Raise awareness within your leadership teams and begin contingency planning. Revisit foundational assumptions; revise your strategy where necessary. Every departmental VP should have options laid out for a variety of futures, with tactical plans ready for implementation at short notice.
  6. Begin planning for the kinds of business you’ll be able to do profitably during and after a major correction; identify the necessary plant and machinery, core employees and supply partners that you’ll need.
  7. Prepare the board and shareholders, make them aware of the risks and brief them on your heightened level of preparedness.
  8. Where possible practice executing your options – remember fear and panic could cripple your organization’s ability to act in a crisis situation – it’s why we do fire drills.

Consider that you may not be able to survive on your own. Once you have examined your own situation and have a clear idea of the weaknesses and strengths, start having conversations up and down your supply chain. It is the entire supply chain that is potentially at risk, work with your partners to:

  •  Identify important areas of commercial interdependence, remember your customers tend to be adversarial in good times, but they would definitely not want to see their vital sources of supply disappear in a crisis.
  •  Be creative in your joint planning, even a deep downturn must end sometime – plan accordingly. For instance you could agree emergency business minimums with important suppliers, emergency sales volumes with important customers, all with terms agreed in advance to ensure your mutual survival.

Remember that volatility is not necessarily a bad thing; it’s really only a problem for the unprepared. With proper planning and appropriate timing you could gain significantly market share and competitive advantage if you are ready and your competitors are not. 

Never forget the old adage,  flexibility is priceless in a crisis

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New Normal: Strengthen your Social License to Operate

November 16, 2010

An Adaptive Organization is deliberately designed to survive in tough times. In the new volatile business climate today it is important to think of adaptability in business as you would in nature; it’s a key to survival.  Many leaders think their organizations are fit and competitive, but how adaptable are they to sudden changes in the business environment?

Consider a new and virulent threat to business in First Nation activism. Consider TransCanada Corp, who at present is finding out the hard way that its social license to operate can’t be ignored, or left to chance. TransCanada Corp. (TSX:TRP) is in a dispute with the Lubicon First Nation, a northern Alberta aboriginal group over a proposed pipeline. The pipeline is planned to go across Lubicon territory, land which the Lubicon claim they never ceded to Canadian government. The Lubicon have gone on a major blitz and as a consequence, their approval is going to be required for any development. The strategy of TransCanada was first to ignore the Lubicon, claiming they had no jurisdiction in the matter, and then to deal with them as a problem.  Neither strategy has worked particularly well, as a consequence the fate of their billion dollar Northern pipeline project hangs in the balance.

Given this and similar events of the past few years, it’s becoming obvious that CEO’s are going to have to pay more attention to the ‘softer’, sides of their businesses. In particular many businesses are going to have to identify the important asset quality in their ‘social license to operate’ – and start to treat it like the important asset it is.

This kind of problem is not confined to local resource based companies. British Petroleum is facing a similar hurricane of bad press, litigation and demonization, as a result of its handling of the Gulf ‘blowout’ disaster, which is seriously affecting its ability to operate in this important market. We should remember the words of Pierre Lassonde, President of Newmont Mining Corporation: “You don’t get your social license by going to a government ministry and making an application or simply paying a fee… It requires far more than money to truly become part of the communities in which you operate.’

The lesson many companies refuse to learn is the social license is rooted in real relationships with real people: customers, employees, government officials, the media and the public. In the particular case of TransCanada it’s a function of their relationship with the Lubicon people. Clearly they’re failing the test.

Things to Think About

  1. Adaptive Organizations accept change, adapting as required to new circumstances. It is important to avoid becoming trapped by your own often outdated ‘winning strategies’. This applies to organizations large and small. Consciously avoid an automated repetition of older success strategies; face the new and unfamiliar realities head on.
  2. If you’re in business, particular in the resource business in Canada, it’s time to think ahead and start becoming part of the solution instead of the problem. For instance with First Nations;  business could support programs at a very personal level, perhaps utilizing charitable organizations to work directly with First Nations helping identify youth leaders on reservations, building programs to reach disaffected youth, helping native leader discourage harmful addictions and other bad practices. It might just help build relationships of the most important kind, trusted personal connections rooted in our common humanity. This may not be the complete answer to the problem but it could strengthening the social license to operate so that when, not if, you need a friend, you might actually have one.    
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New Normal: The Naked Corporation

September 18, 2010

Big news today in London’s Financial Times, “computers set for quantum leap”, apparently a new computer chip has been developed that works on light rather than electricity. This new development will “pave the way for the production of ultra-fast quantum computers with capabilities far beyond today’s devices.” In the not too distant future quantum computers will be able “pull important information out of the biggest databases almost instantaneously… making it easier for people to search with precision for what they want.”

This is good, right! Well that’s hard to say, but there’s no doubting it is inevitable. The disturbing thing for managers today is that it is the beginning of the end for secrecy. The effect of quantum computing and generational attitudinal change spells the end of corporate anonymity and perhaps any meaningful corporate security.

I’m old enough to remember a time when corporations operated with a strong sense of employee loyalty, a supportive public and little if any press coverage. It was a world that respected privacy and where, even if discovered, an admission of regret solved most problems.

How the world has changed. Corporations, once considered champions of our material wellbeing are today looked at very suspiciously by large sections of the population. Simultaneously to this fall from social grace, technology is rapidly unraveling the corporate veil. The Internet, social media and iPhones have created a stunning new world of immediacy in communications. If this immediacy happens to be pointed at your poor environmental record, or your mistreatment of minorities, these ‘problems’ can instantly become front page news around the world. And once your company is ‘framed’ in the public’s mind, no amount of traditional communications and PR support after the fact is going to completely repair the damage.

This situation is critical and, assuredly, is getting worse. Consider a recent contest: “How to steal corporate secrets in 20 minutes.” No, it’s not a joke. Turns out it is surprisingly easy to steal even the highest security information from Fortune 500 companies – in a matter of minutes.

Things to Think About

  1. Prepare for transparency, a volatile combination of rapidly advancing technology, changing attitudes and instantaneous global communications is unraveling the corporate veil. Pumping up the PR machine or clamping down hard on security managers will not get the job done. This is a strategic issue that requires a new mindset and a new approach. Don’t delay.
  2. Singularity – most people don’t know what this means. In the technological sense ‘singularity’ describes a point in the not too distant future when technology simply runs away from us all – becoming an uncontrollable force. As Y2K proved beyond question, the technology revolution can be confusing and can have dangerous unintended consequences. This is another strategic issue that can’t be wished away.
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