Seiz­ing the up­side of tur­bu­lence

Finweek English Edition - - Advertorial -

‘RE­TURN TO BA­SICS’, and ‘stick­ing to our knit­ting’ rank among the most com­mon­place ‘strate­gies’ adopted in an eco­nomic cri­sis fol­low­ing the he­do­nis­tic growth of a pro­longed boom mar­ket. What man­agers are re­ally say­ing is they in­tend to wait it out for the re­cov­ery.

Busi­ness strate­gist and author, Pro­fes­sor Don­ald Sull, speak­ing to MBA stu­dents at the Uni­ver­sity of Pre­to­ria’s Gor­don In­sti­tute of Busi­ness Sci­ence, be­lieves that would be a mis­take. Mar­ket tur­bu­lence is some­thing that is here to stay and com­pany man­agers had bet­ter get used to deal­ing with it in a more prag­matic fashion than sim­ply wait­ing it out.

These fi­nan­cial crises and mar­ket col­lapses are hap­pen­ing more of­ten and the cy­cle will con­tinue to ac­cel­er­ate. His lat­est book ‘ The Up­side Of Tur­bu­lence’ demon­strates that there have been four se­ri­ous global fi­nan­cial crises in the past 30 years, com­pared to four in the pre­vi­ous 120 years, but that the ac­cel­er­at­ing volatil­ity co­in­cided with an un­prece­dented in­crease in global per cap­i­tal GDP.

So tur­bu­lence, volatil­ity, in­ter­est­ing times, call it what you will, ap­pears to be good for cre­at­ing wealth. Rather than wish­ing away mar­ket tur­bu­lence, said Sull, man­age­ment should em­brace it by pre­par­ing the tools to weather the im­me­di­ate storm and emerge stronger than ever.

“Global tur­bu­lence and volatil­ity has been demon­stra­bly in­creas­ing over the past 30 years,” said Sull. High­light­ing this grow­ing volatil­ity is the fact that dur­ing these pe­ri­ods, ma­jor US house­hold-name firms have be­come sta­tis­ti­cally twice as likely to fold and three times as likely to be de­throned from po­si­tions of in­dus­try lead­er­ship; the like­li­hood of a global fi­nan­cial cri­sis has in­creased four­fold, as has the global dis­sem­i­na­tion of tech­no­log­i­cal break­throughs.

Sull con­cludes from this that the fac­tors that lead to tur­bu­lence have also been the fac­tors that have driven this un­prece­dented pe­riod of eco­nomic op­por­tu­nity.

His re­search into which firms thrived and which firms suc­cumbed in poor eco­nomic con­di­tions un­cov­ered two broad themes:

“I found there are two broad meth­ods of suc­cess­fully deal­ing with tur­bu­lent mar­kets, but that the most suc­cess­ful com­pa­nies ev­i­dence both char­ac­ter­is­tics. They are: agility and ab­sorp­tion.

“Agility is the abil­ity to con­sis­tently spot and seize op­por­tu­nity faster than com­peti­tors. How­ever, for many peo­ple, deal­ing with tur­bu­lence starts and stops with agility – and that would be a mis­take.

“Ab­sorp­tion is the abil­ity to weather changes in the mar­ket place, which then gives you the space to take ad­van­tage of op­por­tu­nity when it comes along: and fac­tors that in­flu­ence ab­sorp­tion are size, di­ver­si­fied earn­ings, part­ner­ships and oth­ers. This is ev­ery bit as im­por­tant as agility – be­cause you have to still be there as a busi­ness to take ad­van­tage of new op­por­tu­nity,” said Sull.

Re­search has found that agility has three com­po­nents.

“Op­er­a­tional agility can be com­pany-level agility or at busi­ness unit level. Most firms are on a per­pet­ual roller-coaster ride of grow­ing the busi­ness in good times with­out any con­sid­er­a­tion for ex­pense con­trol, and only when a re­ces­sion ar­rives do they get re­li­gious about costs.

“Port­fo­lio agility is the abil­ity within the group to re­al­lo­cate re­sources to wher­ever they are most needed. McKin­sey re­search has found that only the most suc­cess­ful com­pa­nies are able to achieve this. My own re­search among lead­ing CEOs found that they strug­gled most with this form of agility.

“For in­stance, the ten­dency is to put the best man­agers in those di­vi­sions that sim­ply print money, and the most in­ex­pe­ri­enced man­agers where the busi­ness finds the most com­pe­ti­tion – ex­actly the op­po­site of the way it should ac­tu­ally be,” said Sull.

“Strate­gic agility: com­pa­nies can waste a lot of time look­ing too far into the fu­ture in es­tab­lish­ing a long-term vi­sion. In re­al­ity, no­body can pre­dict that far ahead what is go­ing to hap­pen in a mar­ket. So com­pa­nies that do well are those that have mid-term port­fo­lio agility and short-term op­er­a­tional agility,” he said.

“My re­search has found that a 3-5 year

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