The Efficiency Trap

man_sawing_branch_off_treeThis post first appeared in the Irish Executives Network blog.

Doesn’t “moving the goalposts” sound unfair? When leveled at a person, the accusation conjures up images of an underhanded and devious individual — the kind of person you want inside your tent spitting out!

Moving the goalposts may be the mark of a shifty personality but it is something businesses constantly try to do to their competition. In those cases, it is viewed in a more favorable light. It also gets a nicer name: Strategy.

But what happens if a business loses sight of the goalposts or assumes they should be where they used to be? That also falls in to the strategic category. Just this time it’s called a “blunder.”

Yet these strategic blunders are surprisingly common and have proved devastating to hundreds of thousands of employees.

Kodak, the inventor of digital photography, has gone the way of the dodo. IBM, which lays claim to inventing the PC, left the industry after a bruising 30 years when it sold its PC business to Lenovo. Even in lower-tech sectors, incumbents can easily get upended. The Swiss watch industry was hammered by the arrival of cheaper quartz watches.

The phenomenon is well known. It’s called “disruption.” Wikipedia defines it as: “An innovation that creates a new market by applying a different set of values, which ultimately (and unexpectedly) overtakes an existing market.”

In our lifetimes, the internet has been and continues to be the biggest source of disruptive innovation as newspapers, travel agents and many others have found out to their cost.

But if a phenomenon is well known and well documented, why does it continue to happen? The most likely answer is The Efficiency Trap.

In his book, Thoughts From A Grumpy Innovator, Costas Papaikonomou warns of the dangers of operational efficiency. “The expertise required for operational excellence and the attitude required to successfully improvise are mutually exclusive,” he writes.

Meanwhile, Ankush Chopra looked at the dynamic inside Kodak in his book, The Dark Side of Innovation.

To beat competitors, a successful company has to meet customer demand. Its “culture, information flow, incentive structure, and even the cognitive and perceptual structures of managers all converge towards the best way of filling customer needs,” he wrote.

In a high-performing, Fortune 500 operation, that convergence leads to intense focus. “Organizations that function in this way are like F1 race cars going 200mph. At those speeds, focus and tunnel vision are necessary for victory,” Chopra wrote.

So Kodak concentrated on film and chemicals. Digital was low margin and remained a novelty until it was too late. The goalposts had moved.

The Grumpy Innovator calls for balance by invoking an “ancient planning truth.” Plan with 80% “rigor and cunning, then leave 20% flexible for the unpredictable.” Chopra, meanwhile, lays out a more comprehensive framework in his book that can guide strategists through uncertain times.

Image courtesy the Hiking Artist on Flickr.