How do you roll with the changes?

When Fiat Chrysler chief executive Sergio Marchionne took over the American automotive giant at virtual bankruptcy, one of his first actions was to shut down the executive headquarters and move his desk down to middle-management level where he could find out what was really going on.

This, say specialists in business transformation, was a textbook move. First, it put the executives in the loop. Second, it improved the quality of decision-making. As a bonus, it was good for morale. And, most importantly, it helped management stay in touch with rapidly changing customer habits and tastes.

This is why StarHub, Singapore’s second-largest telco, spends much of its time, money and technology in learning how to keep its 2.5 million subscribers happy. As vice-president of M&A and corporate strategic planning Ryan Tan explains: “Singapore is a saturated market with more than 160% mobile phone penetration, so we not only look at defending our mobile market share but also the ARPU per user. Thus, while market share is always a concern, we also look to grow our share of their wallet and continue to enhance the stickiness of our services, thus reducing our churn rate. To do so, we are always exploring innovative services and off erings as part of our value proposition.”

LEARN FROM YOUR STAFF
Business transformation starts with your people – your internal stakeholders – as another company in the republic, the state-owned lottery Singapore Pools, fully understands. The only licensed lottery operator in Singapore, it is in the middle of an internal exercise called “business transformation”, which is designed to adapt the business for the medium-term future. Among a wide range of issues that its risk manager Jeffrey Yeo has identified is an issue that comes down fundamentally to how effectively management engages with its frontline and back-end staff .

As he explains, it’s vital that staff  understand what’s expected of them, that they are provided with the skills necessary to get the job done, and that they fully comprehend the group’s strategic direction. If none, or only some, of these things happen, management’s objectives are put at risk.

Fiat Chrysler’s remarkable turnaround under Sergio Marchionne has shown that one of the most important volatility-fighting tools for managers is to ensure they put themselves in the loop. This is why CEOs must get out and about, advises professor Douglas Dow of Melbourne Business School. “In a time of change, the most important thing management can do is to develop the art of listening,” he says.

In short, get closer to the customer and to those employees who have the market intelligence that the C-suite needs to stay ahead of the game.

And here, by the way, CEOs shouldn’t hide behind customer surveys, because they just don’t tell management what they need to know. “They are very rigid,” the professor adds. “They only measure what they are intended to measure. All they will ever reveal is a slight level of dissatisfaction.” 

FOLLOW THE START-UPS
Another important volatility-fighting tool, especially for long-established companies vulnerable to new and nimbler competition, is to find out what they’re doing that you’re not. At a time of ‘business fragmentation’, big companies are there to be aimed at. In fact, the historic advantage of economies of scale has been supplanted by a new doctrine of “dis-economies of scale” that can tip the balance away from legacy organisations in favour of the leaner and meaner opposition, as the global taxi industry has discovered from the Uber phenomenon.

And if your competition is coming in the form of start-ups, one of the most eff ective responses is to adopt the lean methodologies they’re using. This is why some of Australia’s biggest companies such as Australia Post, Telstra and National Australia Bank have installed incubators, often staffed with Ph.Ds, who work on innovations that could produce transformational results.

In this, GE is one of the leaders, explains associate professor Kwanghui Lim who teaches strategy and innovation at Melbourne Business School. In late 2013, GE invested $30m in Quirky, a start-up that crowd sources ideas and puts them through a pipeline to convert a mere brainwave into a high-selling product. One of the results of this collaboration was Aros, a smart air conditioner that flew off  the shelves.

As GE has discovered, the acquisition of much smaller, highly innovative companies can have a disproportionately beneficial eff ect on the parent company. The Quirky partnership allowed GE to extend its research and development capabilities by tapping into a much broader ecosystem of product design talent.

To put it another way, the tail wagged the dog.

GET TO THE LAB
It’s important though, says Kwanghui Lim, that bigger organisations adapt the start-up’s methodology in their own particular interests.

“Established firms are investing in a diff erent set of solutions,” he explains, giving the example of an insurance firm that might install blockchain technology in order to streamline transactions for long-standing customers, while a start-up would want to use the tool to undermine its much bigger competition. “Each company’s view of its customers is very diff erent,” he explains. “An existing firm doesn’t want to lose customers – new technology should be complementary to the business – while a start-up has nothing to lose.”

And this is exactly what StarHub is hoping for following a S$200m ($151.7m) series of acquisitions in 2017 that are intended to carry the telco through current and future volatilities. 

“Organic growth is not enough for the group,” explains Tan. “We recognise that M&A is a useful tool to strengthen our business model by acquiring innovative companies that are aligned with our strategic direction. Of course, acquisitions will also aff ord us exposure to new technologies and products, as well as innovative people, that we may otherwise find hard to grow purely organically.”

In other words, big companies should view start-ups as laboratories and embrace the opportunities they offfer rather than bemoan the threat they present.