relaxing on the edge of cliff about to break off

Try this simple math exercise:
 
If you had one cent on the first day of the month and you doubled it every day for the next 30 days, how much money would you have at the end of the month?
 
The answer may surprise you: $5,368,709!
 
Equally surprising is that since the money in this example grows exponentially, it takes time for the dollars to become significant. Halfway there, on day 15, you would only have $163. Even at day 20, you’d only have $5,242.
 
The counter-intuitiveness of exponential growth illustrates why it can be so dangerous to a business that is trying to assess and respond to potential threats. Even if we see the danger coming, we are likely to dismiss it as too small or too distant to worry about. And yet, it’s precisely because we tend to downplay these things that they can cause such significant, long-term harm.
 
Examples of misreading threats of this type are everywhere, with our collective lack of urgency around climate change being the most notable example. In the business world, Blockbuster tends to be the poster child for this type of blind spot. By the time it passed on the opportunity to acquire a then-struggling Netflix, the game had already been lost.

Why Don’t Organizations Respond Sooner?

I can think of three reasons…

#1. The threat does not seem urgent.

Consider some of the quick actions taken by organizations in response to the pandemic: doctors switched to telemedicine, restaurants converted to all take-out, colleges went entirely virtual. These weren’t easy changes, but since the urgency was obvious, they happened quickly.

Conversely, emerging competitors and technologies tend to feel less threatening – they often move slowly (at first) and early iterations rarely stack up against the existing solutions. For example, many phone executives dismissed Apple’s entry into the mobile phone business as a nonevent since they were “just computer guys.” Cell phones themselves were initially not seen as a threat to landlines, even though by 2019 only 30% of US households would still have one!

#2. Change is difficult.

When things are going well, even if not perfectly, organizations tend to respond by fine-tuning what already is: working a bit harder, trimming costs here and there, etc. But exponential change requires more than incremental adjustments.

This may involve new processes, realignment of roles within the business, discontinuation of products or services that had been successful previously, and more. None of these kinds of changes tend to be welcomed by those inside the organization. As a result, in the absence of urgent pressure, the needed changes are delayed or watered down, if not dismissed out of hand.

#3. Too much uncertainty.

Even when leaders have a good sense of a future threat, it is not always clear what the best response should be. Particularly if an organization’s strategy is not specific about who it serves and what its competitive advantages are, it is challenging to chart a future course that is significantly different than what was done in the past.

The best way to address this uncertainty is to do the critical research that is part of a good strategy development process:

  • Who are the current — and potential — customers that matter for your organization, and what jobs are they trying to do?
  • How might they react to the new potential offerings or approaches?
  • Can you envision a way that new offerings might make yours less special — even obsolete?
  • Are there changes you can begin to make now — small or large — that can reduce the risk of your being left behind?

These questions and others like them help businesses develop a clearer picture of how the future may play out and plan accordingly. As the scientists keep telling us regarding climate change, the longer you wait, the harder it can be to respond.

Reflections

While it may be hard to justify changing course or investing in new technologies in the absence of an immediate threat to the business, it is far better to work through that challenge early than to wait until it is at your doorstep – at which point it is likely too late.

As Steve Jobs famously said when introducing the iPhone in 2007 — knowing full well it would hurt sales of the iPod music device, at the time Apple’s main source of revenue — “If you don’t cannibalize yourself, someone else will.”

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