The importance of change rate for strategy
This post will lay out why change rate is so important for strategy, so let’s start out by defining what we mean by that. We define change rate as the amount of change you can carry out in a given time period – usually a window of opportunity or risk. The change can be done in different cycle times. So, two organisations might achieve the same amount of change in a certain elapsed time, one by implementing lots of small changes with a very short cycle time, and the other organisation might do it by implementing just one big change – a relatively slow cycle time. The amount of change might be the same, but the way of achieving it may be completely different.
Your organisation has to be able to evolve in step with the rate of change in your environment. Change rates don’t necessarily have to be fast, they just have to be appropriate for the situation. Normally, they need to be at least as fast as the changes in the environment and, if you are in a competitive situation, then faster than your competitors too. This makes managing the rate of change incredibly important for organisations and businesses and yet it’s not often looked at. It means that you need to monitor the change rate of other actors in your environment.
Monitoring the life cycle of markets and niches within them is well understood, even if not always well done. Observing the refresh rate of products or services from your competitors, significant changes in their processes and enabling technologies, and how fast your competitors can reorganise are all important. These observations provide insight to you and point up what change rate you will need to be able to react effectively and what change rate you will need to shape effectively, both of which rely on your change ‘muscle.’
But muscles have a key characteristic: use them or lose them, as an unused muscle atrophies very rapidly. An organisation’s ability to manage change also decays over time. Organisations and herds that have been in stable environments for a long time haven’t needed to change much and so lose their change ‘muscle.’ Yet even in stable situations, an organisation can keep its change muscle in good shape by experimenting with non-mission-critical innovation. Innovation both challenges and builds the capability in change rate for your organisation. The innovation can be focused internally on the configuration of your organisation and its ecosystem, it can be focused on your product and service offerings (or bundles of offerings) or it can be focused on ways in which you engage with your customers.
We see strategies which have been developed without taking change rate or change muscle into account. One organisation had had one spectacularly successful disruptive innovation which had fuelled its growth – but it was 10 years ago, and they were able to manage incremental change reasonably well, but their change rate at handling more radical or disruptive change had dropped substantially. Another organisation had a powerful strategy for a paradigm shift in its delivery to its customers, but couldn’t execute because of a critical lack of management and operational capability to adapt the organisation. (They did pull this off in the end, and spectacularly well, too, but much slower than they had hoped). Being slow at adaptation curtails the strategic options available to you, and even on those options you can adopt, being slow at adaptation makes your strategy execution slow. Let’s go back to the definition of change rate: the amount of change you can carry out in a given time period – usually a window of opportunity or risk. If it’s a strategic risk and your change rate is low, then that risk has got a whole lot closer to you before you are in shape for it, or maybe even has had its impact on you. If it’s a strategic opportunity, others may be in there first if you can’t mobilise in time. So change rate matters, it matters operationally and it matters strategically.
Von Foerster’s rule applies here: “Act always so as to increase the number of choices.” Everything else being equal, the organisation with the most flexibility in an ecosystem will have the most influence on the ecosystem. Being able to use multiple change rates in multiple dimensions of your organisation will give you the most choice on what strategies to use and when to use them.