March 3, 2021

Facing disruption head on: How aggressive should we be?

It’s astonishing but true, a recent press report in the Australian Financial Review (AFR) noted that global strategy consulting icon, McKinsey is “struggling to adapt to evolving expectations”. The Strategic Management Institute (SMI) has reported over the past few years its observation that it is one thing to fail to respond to change through adaptation, it’s another thing entirely though to fail to take advantage of change through the adoption of disruptive invention. Apple are past masters at this, their seemingly on again off again investment in the car of the future is a case in point. It is a corporation well used to dabbling in what the SMI refers to as a prosponsive approach to strategy. Prosponsiveness is realised by proactive invention over that of reactive adaption. Apple’s mobility venture is a good example of another concept of ours, the notion of “Green Shoot Strategy.” The specifics of emergent businesses that are evolved from a Green Shoot Strategy are identified through a process of dynamic and system based, prosponsive strategic thinking, critical thinking and deep research. Its practice doesn’t need a new department to be established. It does however need a new consciousness of strategic thought that is open, collaborative, disruptive and compelling. Apple demonstrates such characteristics through its vast amounts of time and resources invested in the development of what could well be the best looking, most automated and connected passenger car/mobility system yet. While McKinsey’s must now spend time looking backwards, Apple is on the brink of transforming its market presence in the global mobility market, one worth about $10 trillion compared with the $715 billion smartphone market (Mordor Intelligence).

Of concern however is not so much the threat of demise of McKinsey or the success of Apple. More important is our observation that many corporations are in the same state of inertia demonstrated in the bottom left quadrant of our ‘sponse matrix’ (pictured). Those parked in this space are finding it increasingly difficult to extricate themselves from stagnation at best or decline at worst.

As illustrated in the matrix above, there are three pathways out of stagnation and no doubt McKinsey’s will use their recent awakening to rapidly recover and move quickly to the transformational quadrant of “Excelling”. Apple is already in that space. What however will incumbent automotive companies do in response to Apples advances. Apple is reported to have already approached Hyundai/Kia, Mercedes, BMW and Nissan with a view to forming an alliance of some description; each have not responded preferring instead perhaps to ‘stick to the knitting’ and forge ahead with further adaptations to faster, better, cheaper strategies as they always have. If it arrives, Apple will not the only newcomer to the mobility sector. Tesla has rocketed to highest value automotive company in the world through the application of disruptive, prosponsive thinking, even if it is as simple as swapping petrol tanks for batteries and treating car management more like a computer than a vehicle.

How disruptive should those corporations caught in the strategic drift of inertia be? Australian energy company AGL Energy (AGL) is an example of a company that needs to find out. AGL according to the AFR is ‘facing an existential crisis’ a view not helped by CEO Brett Redman’s announcement in his recent 2021 Half Year briefing that AGL’s underlying NPAT was down 27%. As a sign of adaptation Redman emphasised “the company was not blind to the impact technology was having on every aspect of its primary business - power generation”. They do, he suggested though, intend to respond with “$150 million savings in FY22 and a targeted $100 million reduction in capital expenditure by FY23.” As a responsible act of growth oriented adaptation Redman pointed out that AGL is also investing in renewables, carbon-neutrality, large scale solar batteries and even mobile phones. “When you think about where customers are heading and what they’re demanding in a product set today and what the role of government policy in our markets is today and it’s starting to become very different to 10 years ago,” Redman observed. “Rather than rush it (a proposed solution) however, we wanted to signal today that we’re not sitting on our hands with our eyes shut and our ears closed to conditions around us. But at the same time, we want to be thoughtful and come back with a complex answer to a complex situation at the end of March.”

In other words, Redman is seeking to implement rapid survival methods of adaptation to protect the core business while looking to reset, rethink and reframe ideas for new business – does that go so far as a transformation? In an era where CNN is reporting “solar panels in space are collecting energy that could one day be beamed to anywhere on Earth” one would hope that AGL’s new strategy looks a lot more like a transformation to what ‘could be’ through disruptive, prosponsive thinking than more of the same; even with lower costs and the introduction of mobile phones and electric cars? To take it to the next level, the SMI would recommend AGL adopt some form of Green Shoot prosponsiveness exploration that would build on their huge customer base and resource set. Such thinking could take them into an integrated, Dynamic Market System, one that represents an incontestable competitive advantage. Defined by the SMI in its entirety as an Integrated Value System we would expect the dynamics of the Core Competence Platform and Dynamic Market System would provide AGL with a leading position in any or all of emerging smart energy systems, smart health systems or smart city systems that will become a reality in years to come.

Of course, the suggestion of how any corporation will evolve will vary from entity to entity. Success however will rely on an acceptance of large doses of deliberate disruption and a capacity to face the reality of difficult strategic problems - head on. At the same time, disruptors should contemplate carving out a transformation journey that will last a number of years. This journey should then be expected to evolve into a program of regeneration; in the form of program of continual strategic and organisational renewal.