Here’s a sobering fact: More than 70 percent of all businesses fail within the first 10 years[i]
Those are tough odds to beat, and even if your organization is one that has endured well past the 10-year mark—or even 100-year mark—threats from competitors, new technologies, and other market changes put any organization at risk of obsolescence unless it is able to adapt and respond in a timely and efficient manner.
Yet your goal is more than just survival. It’s to thrive, now and in the future. So what’s the secret to organizational success?
The short answer is this: Organizations need to balance the ability to streamline the day-to-day operations—the current performance—while simultaneously exploring new opportunities and ideas that will keep it relevant in the long-term, the future potential. In other words, are the leaders of your organization so focused on the daily responsibilities that the organization is in danger of becoming stale? Or on the flip side, could they be so focused on exploring future potential that current performance suffers, endangering the organization’s ability to support all this future potential exploration? The discipline to balance these two efforts, which are occasionally at odds, is known as “vitality.”
In our business, we see a lot of organizations too heavily focused on one side or the other. Usually it’s current performance, although there are some companies that are so busy working toward discovering the next big thing that they fail because there are no current products or services to keep them running while the future potential is developed. The key, of course, is achieving the right balance between current performance and future potential.
You need a well-running organization that successfully delivers its products or services while at the same time devoting resources such as money and time to exploring new opportunities so that when (and it’s a when, not an if) competitors cut into your profit margin or disruptive new technologies emerge, your organization is resilient enough to withstand it and agile enough to adapt. This is not a 50/50 split of resources, however. Striking the right balance between current performance and future potential will depend on your organization’s unique needs. Start-ups, for example, may be completely invested in future potential; this works as long as they have the capital to sustain them while they work toward transforming that potential into current performance. When start-ups fail, it’s often because leaders could not complete that transformation before the venture capital ran out.
Future potential explorations are, by necessity, difficult. An organization, rather than continuing their work as usual, producing whatever goods or services it excels at producing, is venturing into unchartered territories. Much of the future potential explorations may not work; that’s not a sign of failure so long as the organization is quick to recognize that failure, learn from it, and continue on in a different direction. To succeed, organizations need perseverance, because future potential efforts will usually involve at least some failures. Organizations that are able to “fail fast,” realizing when an idea is not working out, correcting course, and moving ahead with new knowledge gained are best poised for success. When future potential explorations are done well, oftentimes, something will pay off, and at that point an organization needs to turn it into current performance, and the process continues.
For an organization to truly be vital, these principles must be applied to all aspects of the organization, and not just its products or services. The Vitality Model highlights the six most challenging areas for an organization: leadership, employees, processes, offerings, service, customers. Here are the specific needs of each area:
- Leadership. Sound leadership is about both driving current execution while creating and communicating a vision that defines the future. Vital organizations balance a leadership culture of “making the numbers” with the ability to nurture new leadership and new directions.
- Employees. Effective organizations are able to create a talented and engaged workforce where employees can thrive. Vital organizations develop and nurture organizational competencies, which is the knowledge and skills of the workforce working in tandem with the organization to adapt to meet changing challenges. This instills confidence in employees, both in terms of the organization as a whole as well as in their own personal well-being.
- Processes. The work of an organization is defined by its processes. Having efficient and innovative processes is critical. There is an inherent tension between maximizing efficiency while cultivating the flexibility that embraces innovation, quality control, and standards versus customization and adaptability.
- Offerings. Committing to a brand, a product catalog with attractive offerings, or a set of defining services helps an organization be successful by creating value for today’s customers. But the more fixed an organization is on specific offerings, the harder it is to respond to new marketplace opportunities or threats.
- Service. An exceptional service orientation is often the key differentiator between two organizations with similar products, capabilities, and footprints. Customer loyalty is achieved by a consistent experience. Similar to production processes, however, the more consistent and locked down an organization’s service engine is, the harder it is to adapt to new customer needs or emergent marketplace forces.
- Customers. Current loyal customers are the engine of any organization’s performance. Growth, however, is dependent on cultivating new customers and new marketplace segments without unduly sacrificing existing ones. Vital organizations develop the ambidexterity to manage both.
Both current performance efforts and future potential explorations must run through each of these six areas, as you see in the model. Oftentimes, the toughest struggle an organization faces is managing the tension between current performance and future potential; it’s that tension that makes the balance between the two so difficult to achieve. For example:
- Processes maximized for current performance are at odds with developing innovative offerings. The most optimized production lines are less flexible to adapt to new products.
- Service paradigms that are currently effective for delivering products to current customer segments may not be optimal for chasing new customer segments. What worked well for U.S.-based customers may not work for those in China. Service systems set up to support face-to-face customer interactions would need an overhaul to support online transactions.
- Upgrading organizational competencies with new kinds of employee talent can sacrifice process and production efficiencies and may make current employees uncertain about their own futures. For example, the acquisition of a new company can demand new processes to realize this new potential.
There will always be an ebb and flow, as organizations adjust to marketplace realities. Vital organizations can manage this because leaders are committed to and united in supporting both current performance and future potential efforts.
None of this is easy, or else the world would have many more success stories, from Apple to Zappos, and fewer failed start-ups or failed ventures. It takes both an awareness of these two separate yet intertwined areas of the organization as well as the ability of leaders to manage both areas in a way that supports both sides despite competing for resources.
Those overseeing the daily operations must be willing to fund the future potential efforts, while those who are occupied with future potential must appreciate that support, and work with those in charge of current performance in order to eventually cycle their work into that current performance status. With a tightly aligned leadership team able to communicate its strategy throughout the organization, an organization can position itself to thrive in both the present and the long-term future.
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1 O’Reilly, Charles A. III, and Tushman, Michael L. Organizational Ambidexterity in Action: How Managers Explore and Exploit, California Management Review, 53, no. 4 (Summer 2011): 5–21.