The perfect storm

 

Painting of Emeritus Professor Dexter DunphyProfessor Dexter Dunphy, a world authority on organisational change and sustainability, looks at how business can weather the financial, environmental and economic crisis sweeping the world.

When weather scientists use the term ‘a perfect storm’, they don’t mean a storm that is perfect from our point of view. To the contrary, a perfect storm is powerful and potentially very destructive, happening when two or three normal storms come together, coalesce and feed on each other. Hurricane Katrina that devastated New Orleans was such a storm.

Today we face a perfect storm of financial, economic and environmental forces transforming the global economy, the way we live and the way we work. There are two crises in particular: first, the financial meltdown and secondly, the ecological meltdown associated with global warming.

Across the world, governments have abandoned notions of unfettered free enterprise and intervened strongly in markets. Governments are in rescue mode: propping up banks, stimulating economies, investing in infrastructure. The financial crisis and these interventions are redefining industries, stimulating some, allowing others to decline.

Consequently, every business must ask what these changes mean for future viability. CEOs and executives cannot assume that their enterprise has an assured place in a changed future.

For the first time in human history, the impact on the environment of how we live and work threatens the survival of global civilisation, of humankind itself and of other species. We in Australia have been made aware of this recently with massive firestorms in Victoria, unprecedented floods in the north, and reports of the Murray Darling River system collapsing. Climate change is already impacting Australia.

Over several years, the UN’s Intergovernmental Panel on Climate Change (IPCC) has published reports predicting possible scenarios for climate change. Actual measures taken by scientists show climate change happening faster than anticipated and tracking at or above the IPCC’s ‘worst case’ scenarios. For example, the Arctic Sea could be free of ice by 2013 – in four years’ time.

Clearly we cannot continue ‘business as usual’ but must rethink cherished beliefs and change our lifestyles. But how can we deal with the immediacy of the financial crisis while making the longer term shift to a sustainable economy that will prevent a runaway ecological disaster?

These are enormous potential problems but they are also opportunities and, specifically for commercial organisations, business opportunities. Large scale, unpredictable change demands that organisations develop a culture of innovation and adaptability, that they make greater use of existing assets and that they maintain or increase corporate performance.

So how can our organisations make this change and become ‘future-fit’?

In IBM Global’s 2008 CEO Study ‘The Enterprise of the Future’, more than 1,000 CEOs were interviewed and they characterised the successful enterprise of the future as: hungry for change, innovative beyond customer imagination, and disruptive by nature.

The CEOs saw future-fit organisations as actively initiating change rather than simply reacting to external and market forces. The future corporation will be like a heat-seeking missile: fast, adaptive and able to constantly re-align its trajectory to meet a moving target.

But as change accelerates, many companies struggle to keep up. The IBM study reports that eight out of 10 CEOs expect substantial or very substantial change over the next three years, yet believe that their capacity to manage change is well below the level required for business success. They see the need for cultural transformation, but is this possible?

A colleague and I carried out a research study with Human Synergistics, an international consulting firm. They have developed a method for measuring important characteristics of corporate culture: members of an organisation’s are asked to characterise the actual culture they experience now and the culture they would prefer. There are three main behaviour types: aggressive, passive-defensive and constructive.

We selected the 40 organisations in Australia and New Zealand that were tested at least twice – once and then again two years later – during this study. In between tests, each organisation instituted a change program to move their organisation’s culture more toward the preferred culture. Focussing on five of these organisations, we conducted extensive interviews and examined all measures of organisational performance. We identified four key factors in bringing about successful cultural transformation: leading, engaging, redesigning and reflexive.

We found that these organisations did transform their cultures and we know how they achieved this transformation. But how did this affect their performance? Every performance indicator improved over the two-year period, regardless of whether the organisation was initially a strong or poor performer.

Over the course of three years, one organisation increased its new business success rate by 30 per cent, while their total market share rose from 29 per cent to 40 per cent.

The good news is that some organisations are change masters. They consistently bring change projects in on time, on target, on budget. They understand how to make change. And, by the way, this matters because the costs of not knowing how to change are very high indeed.

We are currently facing global change of unprecedented proportions. We need to create organisations that seek change and are able to make ongoing transformational culture change. Unfortunately, most organisations cannot manage change quickly and effectively – this failure to adapt is costly, especially in a downturn when full use of assets is vital to success.

The few organisations that do successfully manage culture change create more satisfying work environments and improve their performance. It is vital that we learn from best practice in this field to meet the challenges of transition to a new age.