Big companies need to avoid the success trap if they aspire to become evergreen corporations. Executives can steer their companies away from the trap by executing the right approaches to strategy for each part of the business, cultivating the right capabilities, organizing appropriately, and leading in the right manner.
1. Adopt the right approach to strategy and execution in each part of the business. Your strategy needs a strategy. In other words, leaders need to extend their repertoire beyond analysis, prediction, and planning. This classical approach to strategy may work when the environment is highly predictable, but less predictable, more malleable, or even harsh conditions call for other approaches. (See Exhibit 4.) Developing these new approaches is easier said than done. In order to execute effective strategies for such business environments, companies need to build new adaptive and shaping capabilities.
2. Cultivate an adaptive capability. Unpredictable environments require rapid adjustment to changing market conditions. Young companies understand this intuitively, moving through “vary, select, and amplify” cycles until they find a successful model to scale. To some extent, big companies need to unlearn their predisposition toward planning, prediction, and precision and relearn how to pursue disciplined experimentation. Tata Consultancy Services, an IT service provider, is an example of a large company that executes such an adaptive approach to strategy by encouraging experimentation.
3. Cultivate a shaping capability. Scale may not guarantee sustained success, but it can help a company shape its environment by deploying influence in a wider ecosystem. Apple, for example, forged its initial groundbreaking deals with the five major record labels in 2002 thanks to its large user base and the music industry’s trust in Apple’s technology competence. Leaders of large companies need to recognize their potential influence and use it to shape business ecosystems.
4. Cultivate ambidexterity. Choosing the right approaches to strategy and execution is not enough. Big companies need to continually adjust the balance of strategic approaches across their businesses in order to simultaneously run and reinvent the company. Metrics and incentives for continual exploration can help. 3M, for example, pioneered the New Product Vitality Index (NPVI), a metric that tracks the share of sales from products that didn’t exist five years ago. But companies need to go beyond introducing one new metric. Corporate centers should consider de-averaging performance contracts across business units and employing differentiated steering models. Pfizer provides a case in point. The pharma company takes different strategic approaches and cultivates different cultures in its global innovative pharma and global established pharma units.
Such variety can be hard to contain under the same roof. Hence, companies need to adapt the structure of the organization to safeguard exploration and maintain ambidexterity. An example is Google’s recent reorganization into Alphabet, which separated the more mature search business from exploratory units such as Google X. A more radical approach is to split the company, as eBay did with the recent spin-off of its PayPal business.
In more dynamic environments, businesses should consider self-organization. Alibaba, the Chinese e-commerce giant, employs self-steering teams to continually match its business to market conditions through co-creation sessions with customers. Through this process, the company has morphed itself from an export marketplace into an evolving portfolio of e-commerce-related businesses—and has solidified its position as China’s most valuable tech company.
5. Animate the resulting collage of strategy approaches. A company’s journey to become an ambidextrous organization starts and ends with its leaders. To animate the collage of strategy approaches and overcome the organization’s natural tendency to rely on familiar, comfortable, or formerly successful recipes, leaders must reconceive their role. In particular, they need to cultivate a state of artful disequilibrium throughout the organization. To amplify their efforts, they must build a leadership team that is committed to the health of the overall portfolio, not to the championing and protection of individual businesses. Above all, leaders need their teams to embrace the contradictory requirements of exploration and exploitation. As Peter Hancock, the CEO of AIG, told us, “I always hear, ‘You’re giving me mixed messages.’ I say, ‘You’re a leader—you’re paid to deliver mixed messages!’”
The quest to become an evergreen corporation is ever elusive. We do not claim to have found a definitive answer. Still, companies that take these five imperatives to heart are more likely to stay on top, avoiding the success trap and positioning themselves to shape their future.
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