The change gap means businesses are too slow to adapt
On January 16, 2020, Volkswagen Group CEO Herbert Diess told VW’s senior managers: “If we continue at our current speed, it is going to be tough. . . . The storm is just beginning. The era of classic car making is over.”
We would only add that both our formal research and our advisory work suggest that the long-term change trend has reached a point where the era of classical business and government may be over or may soon be over.
Whether dealing with threats from low-cost competitors or opportunities for growth from innovative products or acquisitions, organizations today need greater speed and flexibility, sometimes much greater, not just to deal with extraordinary events like COVID-19, but to deal with the shifting reality of our present and future. More broadly, the need to adapt rapidly is equally important for society to resolve threats like climate change or food security, as well as to continue capitalizing on opportunities for progress toward a more equitable and prosperous world.
A few enterprises have become adept at facing these challenges by identifying trends early, changing quickly, and successfully maneuvering at speeds that feel like 100 miles per hour.
The need to adapt is nothing new; after all, Benjamin Franklin said, “When you are finished changing, you are finished.” What is new is how often we need to change, the pace at which we need to move, and the complexity and volatility of the context in which we are operating.
The challenge: A more volatile, uncertain and rapidly changing world
For centuries, the world has been speeding up, changing more and more often and in increasingly complicated ways. This trend has accelerated as we’ve moved from an Industrial Age to an Information Age.
Examples of this increased pace and complexity are easily found. The total number of patents granted by the United States Patent and Trademark Office doubled from 1960 to 1990. Then the number of patents quadrupled in the last three decades. While it took the telephone 75 years to reach 50 million users, cell phones took only 12 years, and the iPhone took just three to hit that milestone. A 2018 IBM study estimated that 90% of all data on the internet was produced in the immediately preceding two years.
The average tenure of companies on the S&P 500 in 1965 was 33 years. Today, it is half that. Reputational risks, though hard to quantify, have certainly increased with the growing use of social media, constant news alerts, and venues for publicly accessible employee feedback. Glassdoor has 32 million unique visitors each month. These examples are representative of changes that can be found in many different contexts.
The increased change around us drives an increased effort to change within the organizations that employ us, supply us with needed goods and services, and govern us. There are many variations of what this looks like by industry, sector, or region. But in general, the sheer number of organizational initiatives to produce change is now much larger than 30 years ago. Fifty years ago, virtually no organizations talked about changing their cultures, while today this is commonplace. The growing number of initiatives has led to more and more companies adopting formal project management offices (PMOs).
Along with, and directly related to, the increase in the pace and complexity of change, the last two decades have seen a steep increase in the level of uncertainty. Complex change does that. The high level of economic and political uncertainty can make it difficult to know what initiatives will be necessary to stay competitive and to take advantage of new opportunities.
Unfortunately, the internal change in organizations is not keeping pace with external change and volatility. This challenge affects everything: the quality and availability of health care; the stock market; the environment; the affordability of products that make life easier, more interesting, or more fun; the economy; the responsiveness of government; poverty; our ability to deal with medical emergencies, including pandemics; how many of us will lead comfortable and satisfying lives; even how many of us will die needlessly. The list is endless.
The change problem and solution
The good news is that we have learned much over the past few decades about why so many people and organizations struggle with change, why a minority thrive, and why more than a few literally do not survive. For perfectly understandable but correctable reasons, much of this knowledge is not yet used in most organizations.
Our collective struggle with change often seems to be the result of ill-equipped, seemingly incompetent or stubbornly myopic people. The stories of companies like Kodak, Blockbuster or Borders are often told as cases of arrogant, stubborn leaders who refuse to see what should have been obvious. In hindsight, we question whether they even tried to change. To some degree these critiques are true. But they are not the whole story and hence are misleading.
The bigger story is that neither the core of human nature, hardwired into us many thousands of years ago, nor the central design of modern organizations, very much a late 19th- and early 20th century invention, were built to change quickly, easily, and smartly. People and organizations were designed mostly to be efficient and reliable enough to ensure survival. We do have the capacity to innovate and create new habits or products. But that capacity is not the most powerful force except in young people and organizations. With maturity comes all sorts of mechanisms that lean toward stability and short-term safety. So even when companies recognize new threats, they are often unable to change enough or fast enough to overcome these challenges.
Today, in a more complex and rapidly evolving 21st century, when we put a person designed for a world long gone into an organization that was not designed for this century, we regularly see too slow a pace of change in the face of uncertainty. We see too painful a process as individuals and organizations try to deal with inevitable transformation challenges. We get too little too slowly in terms of needed results, even though that deficit is not always obvious.
This struggle is today’s reality and potentially tomorrow’s catastrophe. But it does not have to be that way. Much more is possible.
We know this is true because we have seen examples of success where the gap between external and internal change is minimized or eliminated. When this correction is made, enterprises can leap into new and better futures with widely shared benefits.
This is an edited extract from Change: How Organizations Achieve Hard-to-Imagine Results in Uncertain and Volatile Times by John P Kotter, pictured below, Vanessa Akhtar, Gaurav Gupta (published by Wiley, 2021). John P Kotter is the Konosuke Matsushita Professor of Leadership, Emeritus, at Harvard Business School and a New York Times bestselling author. He is co-founder of the management consulting firm Kotter International and the author of 21 books. Vanessa Akhtar and Gaurav Gupta work at Kotter International
The need to adapt is nothing new. What is new is how often we need to change, the pace at which we need to move, and the complexity and volatility of the context in which we are operating