Ride the Waves of Change

About ten years ago I started to notice a pattern in economic trends. One day, while discussing my perception with my accountant, he suggested to search online for an economist named Kondratiev. And indeed, Kondratiev confirmed what I had witnessed: economies in capitalism follow a recurring pattern. Since then, I can’t look at an event without placing it into context of a business cycle while this also helped me to foresee the impact and outcomes of future events.

BUSINESS CYCLES

Nikolai Dmitriyevich Kondratiev was a Soviet economist (1892-1938). He was known for proposing the theory that Western capitalism can be characterized by consecutive periods of growth (boom), followed by a period of depression. These economic long-cycles (or business cycles) appeared to recur every 50-55 years and are now known as Kondratiev’s long-waves, or K-waves.

To provide proof that capitalist economies were subject to spontaneous and recurrent depressions as well as recoveries, Kondratiev performed an extensive analysis of the price of goods in the German, British, and French economies. Among the prices studied were raw materials and output products, interest rates, foreign trade, wages, and bank deposits.

Economist Carlota Perez attributed these long-waves to technological revolutions. In effect, she applied the theory of creative destruction by economist Joseph Schumpeter ─ also known as disruptive innovation by Harvard Professor Clayton Christensen – to Kondratieff’s long-cycles.

If you take a look at the figure to the right, representing Kondratieff’s business cycle and its four stages (expansion, crisis, recession, and recovery), you may recognize the layout of the ROUNDMAP.

Let’s have a look at two books, both covering a similar subject: What makes some companies perform better than others? And let’s place them in context of Kondratieff’s long wave.

In search of excellence (1983)

One of the first management books I read was the bestsellerIn Search of Excellence” by Tom Peters and Robert Waterman (1983). The authors identified 8 basic principles to stay on top of the heap ─ based on an index of 43 companies that were deemed ‘excellent’ ─ which meant that on average they outperformed the Dow Jones Industrial Average and the broader S&P 500 index by as much as 25%.

During the time the book was published, America was still suffering from a recession combining high unemployment coupled with inflation. Major industrial companies like Chrysler had to be bailed out, the oil crisis concentrated wealth among Arabian plutocrats and the threat from a seemingly dynamic Japan seemed insurmountable (just-in-time production, kanban and manufacturing resource planning).

To put the eight principles (lef) in a more contemporary context, we’ve added a second list (right):

Eight Principles of Excellence (1983):

  1. Bias to action
  2. Stay close to the customer
  3. Promote autonomy and entrepreneurship
  4. Productivity through people
  5. Executives need to be hands-on and values driven
  6. Focus on the business the company knows best
  7. Keep a simple form and few layers of management
  8. Foster tight adherence to values and high tolerance for employees accepting the values

Eight Principles of Excellence (today):

  1. SMART goals or Goal-Setting Theory
  2. Customer-focused (erroneously called customer-centric)
  3. Self-steering teams
  4. Autonomy, Mastery and Purpose Framework
  5. Servant Leadership or Action Centered Leadership
  6. Three Horizons of Growth
  7. Team of teams
  8. Corporate culture

These findings provided American executives that were desperately trying to break free from years of depression, in an economy that was already on the rebound, with some useful guidelines.

EXPONENTIAL ORGANIZATIONS (2014)

In 2014 the book Exponential Organizations appeared, with the subtitle: ‘Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it)’. According to the authors, Salim Ismail, Michael Malone and Yuri van Geest: “In business, performance is key. In performance, how you organize can be the key to growth.”

The core notion is simple: rather than increasing human capital or physical assets, the most successful 21st-century companies leverage information and technology to achieve rapid expansion in pursuit of a
“Massive Transformational Purpose” (MTP). In doing so, they’re able to scale their business strategies, culture, organizational frameworks and purpose at the same rate as the technology, i.e. one that follows an exponential curve.

“An Exponential Organization is one whose impact or output is disproportionately large — at least 10 times larger — compared to its peers because of new organizational techniques that leverage accelerating technologies. In other words, it grows faster, bigger and cheaper than its competition because it has a Massive Transformative Purpose and scales as quickly as tech does.”

“The Massive Transformative Purpose is bigger than a mission statement; it’s why you do what you do, why you get up in the morning and why your organization exists. It’s a higher, aspirational purpose, and it’s about thinking big. Radical transformation is its goal. Examples of some great MTPs include Boston Children’s Hospital (“Until Every Child is Well”); Best Friends Animal Rescue (“Save them All”); TED (“Ideas Worth Spreading”); and Google (“Organize the World’s Information”). These are big, ambitious, grand challenges and the directional north star for their respective organizations.”

Again, we need to place this book in context: the book appeared while most companies were on the rebound, following the financial crisis of 2007-2009 ─ a crisis that may have been unnecessary). However, there doesn’t appear to be a big-bang innovation yet, as suggested by Carlota Perez. We, therefore, still foresee a long period (5-10 years) of slow growth, or even stagnation. Even so, a MTP is all about making a bold statement and it may very well be a good recipe to emerge from the crisis.

DARE-OR-DIE

Regardless of the recommendations found in both best-sellers, it will always be about creating the right value, at the right time, at the right price, delivered to the right group, using the right channels, and to capture enough value in the process to make a profit ─ right-sizing the organization if needed.

Whether your firm is capable of executing its mission with ‘excellence’ or is able to scale ‘exponentially’  remains secondary. For if we have learned anything from what drove multinationals like SONY (walkman-successor debacle), Kodak (celluloid-film blunder), or Blockbuster (video-rental disruption) to bite the dust, it must be that no business model, no competitive advantage, or differentiation offers enough assurance to survive in an era in which many of the current technologies, developed in the previous century, are being replaced ─ and eventually displaced ─ with alarming speed.

To cope with these complex circumstances, companies need to defend their relative position while at the same time start new business ventures with speed and agility. This is not the time to improve the past but a time to develop a bold vision of the future. This will surely lead to some complete misses but this is part of the chaotic time we live in: it is a matter of dare-or-die.

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