In good times we see the glass is half full and tend to take risks under the assumption that things will remain. We have a positive mindset.
In bad times, we worry that we will lose our home, our job, our company, our money, or other things we value. We tend to get very conservative with our decisions, and that conservatism can make the bad times self-fulfilling. The glass is now half empty.
However, even in a downturn, businesses can survive and prosper. This differentiation has to do, in part, with the psychology of business, its employees and its customers.
Those who choose to find and accept the reality of the situation and then act quickly have a leg up on those who do not. CEOs and business owners set that tempo. Particularly in bad times, action, even when imperfect, can be the difference between survival and extinction.
Inertia driving your company in a wrong direction is hard to overcome. Many companies don’t change even though they know change is needed. The reality is an existing organization and structure probably isn’t capable of change because inertia will keep pulling it back into the vortex.
A strategy to fight inertia is creating space for innovation. The 3M Company understood that innovation didn’t happen easily inside their existing manufacturing operation. Ideas got killed because employees saw anyone new as a threat to their job.
3M created an alternate path outside of the existing day-to-day to set innovative ideas up for success. They gave people with interesting ideas room to prototype, create a business plan, test market and evolve off-campus. If an idea was proven to scale, they transitioned it to a business unit to support it. Post-it Notes is one of its biggest success stories.
Two years ago, I did a study of why there is little innovation in homebuilding. I examined executive leadership positions among the major players and not one had a head of R&D or strategic planning. I then pulled a random sampling of other companies such as Ford, Apple, Adobe and Masco. Each one had a senior manager in charge of R&D and a senior manager in charge of strategic planning.
If you’re a company that has someone in charge of R&D, what do you think probably gets done?
I define strategic planning as thinking about what the world will be like five, 10, or even 50 years from now and defining how the company fits into the future. R&D is how we
can do important things differently to create better value than we have right now.
According to McKinsey data, since 1945, almost every industry has done a 15x improvement in productivity due to innovation and digitization of major elements of their business.
However, one industry has had ZERO improvement in productivity since 1945—construction.
Construction as an industry does little strategic planning and its labor structure relies primarily on sub-contractors who can be difficult to manage and coordinate.
I worked with a homebuilder in Denver who was frustrated that their financial and operational performance was not improving. At a high level, there was no one other than the CEO thinking about or driving change.
Change was “tagged on to” existing responsibilities. We created a position of VP of Process Control and Improvement. By focusing on key strategies and changes in operations such as simplifying options, starting homes when all customer selections were complete, not permitting changes once a home had started, not closing homes unless there were no punchlist items and implementing a centralized, daily-updated scheduling system, things began to get better.
After two years of implementation, financial performance has improved: return on assets nearly doubled. Building cycle time dropped by 33% and they now believe that another 33% drop can be achieved. Customer satisfaction is at an all time high.
Last year they were named the national “Builder of the Year.”
The owner’s son, a Vistage member, is tagged to be the future CEO. To prepare him for his new leadership role while changing the inertia of the business, he became the VP of Process Control and Improvement.
Three years later, the organization, structure and focus of the company have changed. He has more than earned his spurs and the respect of the company for these improvements.
There are always the long-term questions of what business do we want to be in? What’s the environment going to be like in the coming years? Might we have to change and how?
CEOs and business owners need to be thinking about strategic planning and R&D. If you’re not organized to do R&D and strategic planning then it probably won’t happen and therefore, you’re putting your company at risk.
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GEORGE CASEY leverages 40+ years of experiences as a residential building and development CEO, consultant, board member and Vistage Chair to guide local business leaders through transformation. He can be reached at George.Casey@VistageChair.com, (207) 669-5491 or vistage.com.
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