Business strategy is about moving an organisation from its present state to a future state that is qualitatively and quantitatively different. While Michael Porter described five external forces that shape the competitive context of strategy,[1] two other strategists separately identified five internal forces that seem to prevent managers and directors from responding or responding appropriately to the external context. This is important, since 95% of cases of organisation decline are due to internal factors. Furthermore, 70% of strategies under-deliver even though managers consider them to be good.
Rumelt’s Five Forces of Inertia
Richard Rumelt identified five internal forces of inertia that impede organisational change of state.[2]
- Distorted Perception of the changing business environment has its roots in one or more of myopia, hubris, denial and group think.
- Dulled Motivation to change is an inappropriately dampened emotional response to the situation, even if it’s correctly perceived. Some causes are direct costs of change, cannibalisation costs and comfort with cross subsidisation.
- Failed Creative Response is an inability to find a way out of the problem, even if it is correctly perceived and the management is sharply motivated. Some of the underlying causes are rapid change and associated complexity; the mindset of this too shall pass or of inevitability; strategically destitute.
- Political Deadlocks tie up time and energy in wrangling about change, usually because of vested interests or ties to the past, to projects or to relationships.
- Action Disconnect is the inability to execute and bring about the intended and agreed upon change; the underlying problem being one or more of inaction, embedded processes, dysfunctional culture and inadequate capabilities or resources.
Sull’s Five Sources of Active Inertia
Inertia is not only resistance to starting to move, it is also resistance to being shifted from a particular course of action. This is why many strategies are a continuation of the past, perhaps with some non-fundamental adjustments. Sull coined the term ‘active inertia’: companies take action in response to the changing context, but it’s inappropriate; they cling to established ways of thinking and working. ‘Instead of digging themselves out of a hole, they just deepen it.’ [3] Sull identified five common sources of active inertia.
- Strategic frames: how managers view the business, become blinders;
- Processes: the way things are done, become routines that are ingrained and unquestioned;
- Resources: prior investments in tangibles and intangibles, become millstones.
- Relationships become shackles that prevent companies from forging new, more appropriate relationships (with suppliers, for example)
- Values: beliefs become dogmas that no longer resonate or invigorate
Reconciling Rumelt and Sull
In essence, both Rumelt and Sull described lock-in: entrapment in ways of thinking about the business, in ways of doing things and/or in relationships that are not really working. Sull focused on the kinds of lock-in, while Rumelt identified some of the reasons for ineffective execution. When confronted with reality of their organisation’s inertia, many managers may go into defensive routines such attributing ignorance or misperceptions to the person or people conveying the reality; blaming others; or intellectualising in order to suppress painful feelings. All of these defensive routine routines result in behaviours destined to maintain the status quo.
Overcoming Active Inertia
Successful strategy requires a company to overcome inertia that prevents new ways of thinking, doing things differently or doing new things. The external landscape readily is more readily viewed from the outside, a crucial role for mentors, consultants, customers and suppliers.
The starting point in the painful process is to examine Sull’s sources of active inertia. The next step is to ask questions or have someone make observations in respect of Rumelt’s five forces. Then ask: are we struggling to find a creative solution? Are we motivated to make the shifts it seems we must? Are we taking positions and debating points of view or defending the status quo, instead of entering into dialogue with the intent of understanding different perspective and finding novel solutions? Finally, are we prepared to allocate the right resources and people and to execute with vigour and precision?
Significant change brings temporary uncertainty, instability and risk. If the first attempts to find solutions to challenges are not working, the temptation is to return to where one started instead of finding other possible solutions. All strategic moves are experiments; they can’t all work and this is means instability and uncertainty; but the risk is probably less than staying too long on the path that took the company to past success and that will, eventually and certainly, take the organisation to future failure.
Strategy is not for the faint-hearted!
Roger Stewart
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Notes
[1] Porter, M. How Competitive Forces Shape Strategy. Harvard Business Review 1979; March – April. Reprint 79208
[2] Rumelt R. Précis of Inertia and Transformation
http://www.anderson.ucla.edu/faculty/dick.rumelt/Docs/Papers/berkeley_precis.pdf
[3] Sull D. Why good companies go bad. Harvard Business review 1999; July-August. Reprint 99410 and a slightly different version at http://www.donsull.com/downloads/ingrained_success.pdf