Heraclitus, the Greek philosopher once said, “Change is the only constant in life” and this stands true even today. If we can be sure of anything about the future, it is of change.
In this article, we will focus on changes from the perspective of businesses.
We know that most business entities do not last forever. Worse still is the fact that the average expected lifespan of businesses has been decreasing over time. A recent study by McKinsey found that the average lifespan of companies listed in Standard & Poor’s 500 was 61 years in 1958. Today, it is less than 18 years. It is imperative then for us to understand why the lifespan of businesses has been declining in general and if there are any measures that we can take to elongate the lifespan of existing businesses.
In the past century or so, we have made huge technological prowess. We have switched from bulky handheld mobile phones to smartphones within a matter of a decade. Storage has moved from physical in-house servers to cloud-based storage and computing. This level of unprecedented development has only served to increase the rate of change in the business environment. The status quo of yesterday is not the status quo of today. In such a volatile environment, it is no surprise that most businesses struggle to stay relevant.
It is not just technology that is causing significant disruptions in the market. The brand loyalty of people has also been dying. No longer do people work for or buy from a single brand their entire lives. With the increase in options available, people are realizing that sometimes it is better to buy from smaller, less recognized businesses who offer better prices and products. Employee turnover meanwhile has been rising and we find that the youngest generation in the workforce spends approximately 3 years in one organization before moving to another.
So, the question now arises: Why are businesses not able to cope with the changes in a modern-day environment?
A quite simple answer is the fact that businesses do not focus on adaptability as a core concept. Most businesses believe very strongly in what they offer and have an inherent bias whereby they believe that what has worked in the past will continue to do so. This behavioural bias is exhibited by most managers who work for their performance linked incentives. Why try out new things instead of continuing to do what has worked so far?
This tendency to not analyze and improve in conjunction with changes in the market slowly builds into a massive problem. And all it takes is one major change in environment to bare the structural problems accumulated over time in an organization. The pandemic for example has led to the closing of several businesses. And it can be argued that rather than the pandemic creating problems that didn’t exist before, it was instead the underlying problems that accumulated over time in prior years which was laid bare that led to shutting down of businesses.
This is where concepts like continuous improvement and contingency planning are helpful. Continuous improvement helps to prevent companies from feeling too comfortable doing what they are doing. It focuses on actively looking for potential opportunities for strengthening the business. Contingency planning helps to address the tail risk that events such as the pandemic which occur outside the usual business scenario do not end up being a death knell to the business. Instead, a successful contingency plan will ensure that no matter how bad the tail events are, the company has a plan on managing to continue doing business albeit with lower profits without having to shut its doors.
Going forward post-pandemic, I believe that it is of utmost importance that businesses plan for change and take the route of continuous improvement to increase their chances of survival to weather such unforeseeable events.
If you would like assistance in preparing a contingency schedule or placing your organization on a path to business excellence, please feel free to contact us at Leap and we will be happy to assist you with the same.