When business survival is at staKe,
it pays to have a discontinuity plan
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Kishore
Sengupta
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Standing still is not an option for any
business. The world is always changing,
and companies can either keep up or go
under. In most circumstances, keeping
pace need only involve incremental
change - the company protects its
business model while aiming to boost
sales of existing products and services.
Anything more drastic is too risky.
But theCovid-19 era is not most
circumstances. Such leisurely change is
no longer an option for many
companies. The crisis has torpedoed
whole sectors, their customer bases
taken away overnight.
So for many business and industries,
recovery from the coronavirus crisis will
instead require "discontinuous
transformation" - a change notjust in
the rate but also the direction of travel,
and not through mere incremental
moves. Such radical reassessment of
capabilities, operations and even the
business model itself could become a
routine necessity.
The Danish energy company Orsted is
agood illustration ofa company that
moved sharply in a new direction ­
reflected in its decision to change its
name in 2017 from Danish Oil and
Natural Gas. Beginning in 2012, it
moved aggressively away from fossil
fuels into offshore wind farms.
It did not merely diversify into
existing wind power systems and price
structures, but pursued an ambitious
programme to make wind power more
competitive. The company chose to
embark on a new way ofdoingthings,
rather than settling for doing things the
old way in a new business.
By contrast, General Electric sought
at the beginning ofthe last decade to
transform its industrial equipment
business through digital technology, and
created a new GE Digital unit. But
pressure to deliver on short-term goals
(a linear rather than discontinuous
approach) distracted it from longer­
term innovation goals. GE Digital's
implicit in discontinuous
yardsticks fail to recognise the nature of
Wind in its sails: an Orsted turbine
wobbles were seen as a factor in the chief
executive's early departure in 2017.
Finance plays a key role in this type of
rethinking andreorientation.
Traditional forecasting methods and
return on investment (ROI)
benchmarks may need re-evaluation.
The types oflinear progress that finance
managers have historically soughtwill
become obsolete at many companies
because ofthe economic disruption
caused by coronavirus.
Research that I and my colleagues
have conducted at a big telecoms
company facing technological
disruption has yielded four important
insights into discontinuous
transformation. They will be relevant to
businesses ofall sizes as they navigate
cash-strapped months and years ahead.
First, transformation can occur
without large capital expenditures ­
indeed, new capital will not help if the
approach is wrong to begin with. The
trajectory ofchange is difficult to
discern at the start, and becomes clear
only as the journey unfolds.
By committing large sums up front,
before the steps required are apparent,
management creates a risk ofsignificant
waste; if backtracking is needed, there
will be heavy capital loss as well as delay
to factor in. Paradoxically, slower
spending speeds up change: to borrow
the US Navy Seals' saying: "slow is
smooth, and smooth is fast:'
Discontinuous change is
more like a gap-year
backpacking adventure
than a coach excursion
Second, managers need to rethink
forecasting by setting new ROI rates and
timings that reflect the flexibility
transformation. Conventional ROI
progress at such moments, and it can be
a mistake to discontinue projects
because they don't seem to be making
"enough" headway early on.
Third, executives should not
underestimate what they can do with
savings in times of discontinuous
transformation. Big cost reductions can
flow from dismantling an existing
business in favour ofa new model.
Liquidity will surely be a big issue for
financial managers as they navigate a
recovery from the economic impact of
coronavirus, so such savings could be a
lifeline for many companies.
Finally, and on the other side ofthe
ledger, liquidity can also be protected by
not prematurely dismantling existing
revenue streams that can help fund the
transformation. The key is to tap these
sources while not allowing them to
impede progress by providing a false
sense ofsecurity.
Beyond changes to fmancial
benchmarks, discontinuous change also
requires a mindset adjustment. It is
"emergent", more like a gap-year
backpacking adventure than a strictly
timetabled coach excursion. For
financial managers, this can require
accepting that the goal and path are not
completely clear from the start - an
unsettling prospect for professionals
trained to cherish clarity.
. This is not the only cultural shift that
leaders need to assimilate. Traditional
hierarchies and routines loosen during
discontinuous transformation, with
employees becoming empowered to
think and act in new ways, and new
types ofcollaboration across functions
and teams emerging. The adaptations
involved in working from home, as
many have had to in recent months, will
help catalyse such developments.
While hierarchy serves a valid
corporate purpose, that ofensuring
accountability, it can also stifle
creativity if it is too rigid. As companies
emerge into the new economic
landscape that coronavirus has given
rise to, the capacity for creativity will be
more valuable than ever. In an era of
discontinuity, "business as usual" is a
high-risk proposition.
Kishore Sengupta is reader in operations
management at CambridgeJudge
Business School