Reset your assumptions
Report | June 2016 | Kanvic Grey Matter
In a changed world India’s business leaders need to reevaluate their most fundamental assumptions. Four proven tactics can help them achieve a reset.
The first task for India Inc.’s leaders as they set out on the new ROAD to growth is to push the reset button on the most important assumptions they hold about the future. These include their assumptions about the macro environment, the growth outlook, their industry’s boundaries, and the nature of the competitive threats they face.
Any strategy a company makes will be based on all of these assumptions, and as we have seen, the profound changes of recent years have rendered many of the prevailing assumptions redundant.
Beginning at the macro-level, the assumption that the economic environment will revert to a norm of stability needs to be expunged. Instead, leaders should expect a volatile and uncertain environment to persist and prepare their businesses to absorb hard shocks to both supply and demand more often.
Further, although India remains a bright spot in the world economy, growth cannot be taken for granted. Companies need to prepare for multiple growth scenarios that both exceed and fall well short of their current expectations. As the current recessions in Brazil and Russia along with China’s slowdown have shown, being a large developing economy is no guarantee of consistently high growth. Indeed the BRIC (Brazil, Russia, India, China) concept has fallen out of favour with investors who are now re-focussing on the more attractive TICK (Taiwan, India, China and Korea) economies.
Moving to the industry level, as boundaries between sectors become increasingly blurred, India Inc. needs to reset its thinking about how to define its field of play. If we take the automobile industry as an example, the emergence of self-driving technologies makes it conceivable that the future of the industry could be as likely dominated by a Google or an Apple, as it might a Volkswagen or a Ford. Therefore, keeping abreast of new innovations that could address the same needs as your company’s current product or service, will be essential to knowing when to reframe the market boundaries.
Lastly, established firms need to reset their assumptions about the challenge posed by new or marginal players. Thanks to rapid developments in technology and the increased availability of risk capital, new entrants can combine the inherent speed advantage of a start-up with the kind of financial and technological resources that were previously only available to larger players. As a result, they are able to achieve scale in much shorter timeframes than established players did in the past.
For example, three year-old hospitality start-up Oyo Rooms has rapidly risen to become the largest branded network of hotels in India. They have been able to quickly surpass the incumbent hotel groups thanks to their app-based booking and management system, their focus on providing a marketplace for standardised rooms rather than investing in real estate, and their access to substantial venture capital funding.
To help businesses through the process of resetting their assumptions in each of these areas, we have identified four tactics that leaders in every organisation can follow.
The first tactic for resetting assumptions is for leaders to engage in open strategy conversations with their team. Long-standing assumptions often become entrenched at senior levels in a company, gradually acquiring the status of accepted rules within the organisation’s discourse, which in turn creates dangerous blind spots. Open conversations challenge these assumptions by avoiding the ‘template driven approach’ to strategy meetings that may have become established over the years. A new more open structure disrupts established patterns and modes of thinking and also forces participants to play different roles.
Leaders can complement the new meeting structure with new voices. These could be people who have recently joined from other businesses or who are working at the frontline but have not had the chance to participate in strategic discussions earlier. By allowing these voices adequate ‘airtime’, assumptions can get challenged from new perspectives within and without the organisation, which may turn out to be more in touch with the current market realities.
Secondly, it is important that leaders mind their own biases when resetting assumptions. As humans we have a tendency to use heuristics (or mental shortcuts) when dealing with complex issues. These have their uses but can also be prone to biases. One such bias is the availability bias, whereby we give preference to information which is easily available especially when it is recent, vivid, or something personally observed. For example, managers who led their companies through the high-growth years before the crisis may have expected the economy to return to its earlier health sooner and thus developed their growth plans accordingly.
Thirdly, it is easier for leaders to adjust previously held beliefs or thoughts to new goals or changing circumstances if they improve their mental flexibility. Mental flexibility enables leaders to adapt their strategies to challenges emerging from the volatile macro environment or new competitive threats.
Mental flexibility is particularly relevant when we consider the debt trap many Indian companies find themselves in. In our experience the obstacles to coming out of debt are as much psychological as they are financial. Promoters often remain convinced of their ability to generate greater income somewhere down the line to meet their debt obligations, regardless of past performance or profound changes in the business environment. Greater mental flexibility would help such leaders develop more options, evaluate them more objectively and then act decisively.
Crucially, mental flexibility is not simply a naturally endowed gift, it is a skill that decision-makers can improve through techniques like double loop learning, real-time strategy games and meditation.
The fourth and final tactic is for business executives to reset their assumptions about their role as leaders. Here, much can be learnt from what we at Kanvic term CEO 3.0 - the new generation of executive that is spearheading change in this new era. CEO 3.0 emerged at the turn of the 21st Century and broke with earlier generations of leaders in their approach to strategy, technology, organisation and their relationship with both their employees and the outside world.
In particular, there are a number of important resets CEO 3.0 has made. First, they have appreciated that the market for their business is now global rather than national or even multi-national. Second, they have recognised that company strategy can no longer be developed through formal planning systems, but must be based on continuous feedback loops. Further, they have understood that technology should be at the core of every business.
From an organisational perspective CEO 3.0 has realised that a networked organisation is required to make the most of their knowledge workers. At the same time, they appreciate that today both internal and external stakeholders demand greater transparency from their leaders and want to see their human side as well as their heroism.
By resetting their assumptions through open strategy conversations, challenging their own biases, becoming more mentally flexible, and re-imagining their role as CEO 3.0, leaders can establish a firmer footing on which to take the critical decisions that will be required on the new ROAD to growth.
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