Leadership and Stable Markets

by Krishna on March 20, 2007

This is the third in a series of posts regarding how companies and their leaders and managers should change their organizational strategies to suit different market conditions. The previous posts are here and here.

Many management books, especially the older ones, are written for companies in stable markets. Their key assumption is that companies and managers have sufficient time on their hands to implement activities and processes that will contribute to the success of the organizations. Nothing wrong in such assumptions, since many markets are, indeed, less dynamic with relatively low growth rates. Competition exists, but is not business-threatening.

Stable markets are usually the end result of rising markets. When a new market emerges, companies rush in to tap the potential. There is brutal competition. Some firms succeed while others go bankrupt. The level of innovation decreases as market potential is reached. The remaining businesses stake out their market segments and establish their brands. Barriers of entry (capital costs, brand names, etc.) prevent new companies from breaking into the market.

A stable market will remain so until there is a drastic innovation that changes the rules of the game. The Internet did this for many companies. It lowered marketing and distribution costs that presented obstacles to many entrant businesses. Because of the snowball effect in technological advances, every industry could be potentially turned inside out because of new discoveries and inventions. Aside from that, political, social and economic changes may also pose great threats to the stability of a market.

With that in mind, it must be understood that today, the right method to operate in a stable market is to prepare for sudden disruption and innovation. The wrong approach would be to assume that things are going to stay great for ever and create a company with processes, employees and partners that makes it difficult to react to changes.

The most important step in this direction is to create the right culture. This means things like:

  • Nobody and nothing in the company is sacred and can be criticized openly within the company. When people resort to resignations to make a point, it is already too late.
  • There is an inclination to getting things done instead of controlling them. The more control there is, the less fluid the business is.
  • There is an awareness of what is happening in the outside world. People focus on not only understanding their current work better, but also thinking of what could come down the road.
  • The competition is treated with respect. When you wake every morning knowing that the competition can put you out of business, it is likely you will do something about it.

A point to remember: Let the entire company think and plan — not just the chief executives.

Unlike the rising market situation, human resources are where the company needs to place its bets. Why? In a stable market situation, there are many different uncertain possibilities for the company and it needs every single employee to contribute with every resource at their disposal. In a rising market situation, when time is at a premium, the company has less flexibility to try different approaches — and hence sometimes a few “stars” may make a greater difference.

The management team must be composed of experienced people who are willing to experiment. I am not taking about rash gambles by people who don’t know what they are doing. Instead this is about controlled ventures of exploring various ideas and seeing what sticks. Try and discard OR try and continue. And quickly. This needs leaders who have knowledge based on their past successes and failures, but who also treat such experiences as guidelines, not doctrines.

A final comment: The Innovator's Dilemma concept challenges (and rightly in my opinion) the idea of existing businesses being able to use disruptive innovation successfully. But there are solutions to the dilemma, prominently in terms of establishing separate divisions that can invest correctly in bringing the technology to fruition. Also, many businesses tend to ignore sustaining innovations that competition latches on.

The biggest danger is to dismiss the competition (however small they may be) and be under the delusion that consumers cannot go anywhere else.

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