You probably remember the story about the tomato that got run over by a car. If you are a CIO, chances are you’re feeling like that tomato these days — run over by digital technology, while everyone around you is encouraging you to catch up? Well you’re not alone.
The likely reason you find yourself in this spot is that your organization is not fit to keep up with the pace of changes in digital technology and consumer demands and are at risk of being disrupted. Public sector is no exception.
So, what did you do wrong? Well, if you run a fairly successful business, you probably did everything right.
Organizations have never been as effective and competent as they are now. Following the logic of Clayton Christensen there comes a time when every start-up business needs to become a profitable business. And it does so usually by standardizing competence (training for specific skills, recruiting internally), making work processes more efficient (lean), systemizing communication, develop culture (norms and feedback) and working on continuous improvement. The goal is always to maximize profit.
In the beginning profit margins will rise at a high rate and eventually flatten out. At some point the cost of making efficiency improvements and product improvements becomes greater than the return of investment. The curve flattens and eventually turns when consumers’ willingness to pay more for smaller improvements in product or service reaches its limits and customers find other options to satisfy their needs.
This may look like this over time:
If we add the curve at how fast technology technology is developing globally and rapidly changing how products and services are delivered to customers through the use of technology, to satisfy customers’ needs, the picture may look something like this:
If we by technology here understand it not only as a product, but as something that changes the business model, the way products and services are delivered and even changes the core of the business itself (like digitalization is doing at the moment), we can see that the gap between the organizations capacity to adopt new technology and the pace at which technology is developed is rapidly increasing at the same time as the organization is becoming more efficient and profitable.
This is what Christensen refers to as the innovator’s dilemma. Rita McGrath refers to Hemningway’s character Mike Campbell in The Sun Also Rises and how he responds to a question about how he went bankrupt: “Gradually, then suddenly”, he says. The reason this happens is according to Christensen and McGrath that as organizations become more profitable, they tend to overlook the increasing gap. So, instead of investing their profits in new ideas and innovations, they continue investing their returns in continuous improvement and efficiency development, only increasing their profits marginally.
So, by waiting too long you risk killing your business “gradually, then suddenly”. If the gap becomes too wide chances are it’s too late to invest because you have been disrupted and are losing profits. On the other hand, trying to continuously align the organizational capacity absorbation rate with the pace of technological development, the business will never become profitable.
Researchers and consultants have offered several ways to solve this dilemma. Some suggest splitting up the business into efficient work groups and innovative work groups, while others suggest autonomous work groups who interchange between exploring and exploiting, while the managers keep an overview of the wholistic vision and goals, — while others suggest having separate businesses where the efficient one is funding the innovating one. In the end I will suggest that there is a single similarity to all the organizations who are successful at changing and transforming their businesses over time to keep profits rising. I will call it the ketchup way. Because at some point the efficient business will have to catch up to technology and renew and transform, and then in turn making the new acquisitions become profitable and efficient. So, no matter which model they use the total capacity of the business will over time look like this:
There are both structural, social and cultural factors involved in the ability to do this. And it requires that organizations both invest in continuous improvement and transformations — in a balanced way, making it possible to catch up, without turning into ketchup.
Eric Trist: The evolution of socio-technical systems, 1981
Clayton Christensen: The innovator’s solution, 2003
Rita McGrath: Seeing around corners, 2019
Wanda Orlikowski: The Duality of Technology: Rethinking the Concept of Technology in Organizations, 1992