How the TOP 100 respond to changes in the rules of the business game
Innovative technologies and radically different business models are arguably the biggest entrepreneurial challenges of the digital age. What can you do as an established player in order to ensure that you will not fall victim to sudden changes in the rules of the business game—and perhaps even go on the offensive and cause disruption with a view to taking your business to the next level? A workshop bringing together executives from Germany's most innovative SMEs has provided intriguing insights.
In July 2017, I facilitated an expert workshop on the topic of disruption at the Deutsche Mittelstands-Summit. It brought together 92 executives from the TOP 100. These companies are Germany's most innovative SMEs. The group includes well-known names and global market leaders as well as “hidden champions” and newly founded businesses. What the TOP 100 have in common is the fact that they are exceptionally successful when it comes to dealing with disruption. So the workshop's overarching goal was to learn more about their recipes for success. In small groups, the executives compared notes and formulated hypotheses that they subsequently presented to the other participants. Moreover, the significance of, and the SMEs’ performance in, certain areas of activity were quantified. The resulting insights are revealing.
The survey results clearly show what executives consider to be the biggest challenge in the context of disruption: managing internal resistance. Novel forms of value creation inevitably call established competencies into question. What is known as “creative destruction” jeopardizes careers. Disruption places new and novel demands on businesses and people, making it an objective threat. Moreover, it is a psychological burden due to the fact that it involves many unknowns. The resulting feeling of insecurity can quickly lead to a rejectionist attitude and active sabotaging of corporate change. Managing this resistance is not only the greatest challenge facing executives in dealing with disruption but also the task where the TOP 100 and “normal” businesses differ the most. The successful innovation leaders have developed strategies for handling the resistance and occasionally even turning it into enthusiasm—and this is exactly where the biggest weakness of their average counterparts lies. Apparently, being able to manage resistance is a key factor in the disruption equation. It seems reasonable to argue that this ability is what sets the TOP 100 apart.
Addressing the need for flexibility and adaptability is seen as almost as big a challenge. A natural impediment encountered in this context is the fact that processes and structures are inherently inert. They are optimized towards certain goals—and when these goals change, it takes energy and time to adapt them accordingly. Moreover, every organization has what may be called an inherent tendency to bureaucracy, which puts the brakes on adaptation processes. As far as flexibility is concerned, there are also considerable differences between innovation leaders and average businesses. In summary, it can be said that an organization's ability to dynamically adapt to new opportunities and challenges is another significant factor when it comes to successfully dealing with disruption.
Compared to the two dimensions discussed so far, being aware of the challenge that is disruption and gathering information on the specific opportunities and risks it entails plays a less important role in achieving success. Obtaining information is thought to be easier, and the gap between the TOP 100 and average businesses is much smaller. When it comes to dealing with disruption, taking concrete action, i.e. exploiting entrepreneurial opportunities, is apparently far more important than having knowledge. This finding is consistent with numerous case studies on disruption. Many of the later victims of disruption were perfectly aware of the opportunities and risks it entailed. Kodak, for instance, even held significant patents in the field of digital photography. But these organizations were not flexible enough, and the internal resistance they had to overcome was too strong—and so they were eventually disrupted. In the face of looming disruption, it is by no means uncommon for businesses to be like a deer caught in the headlights.
How can organizations overcome resistance to change? How can they make processes more flexible? The many individual steps proposed in the course of the workshop have one thing in common: They place special emphasis on intrapreneurship. What really matters is to create a corporate culture that is conducive to openness, fosters a positive mindset and entrusts the individual employee with responsibility. Those who want to follow the example of the TOP 100 should make an across-the-board effort to motivate all their employees to think and act entrepreneurially. What is vital in this context is incentives, transparency, trust and leadership that brings the aforementioned qualities to life. Creating and nurturing such a culture requires foresightedness, determination and resources. But, as the TOP 100 show, the commitment will pay dividends in the long run.
Are you interested in getting more input about disruption and other trends in the areas of entrepreneurship and innovation? The Professional MBA Entrepreneurship & Innovation will give you the opportunity to dig deeper into these topics.