Fear is everywhere in today’s economy – the past few months are a good example of that. And it can be sparked by almost anything: the possibility of recession, the volatility of emerging markets, or what can seem like a capriciously big shift in the capital markets.
The fear caused by this uncertainty makes it much harder for managers to run the world’s companies. Change can cause plans made in January to be rewritten by April (or sometimes faster), and exacerbate operational problems no end.
As we look back on CEB’s research and our work with some of the world’s best functional executives this year, one sentiment sums it up: “It seems more difficult to get stuff done; we just feel really slow.” More organizational agility is needed
Business Agility is Necessary
Executives across all of a company’s corporate functions find themselves in a painful – and unsustainable – situation. On one side, internal and external customers want them to move more quickly and respond more readily.
On the other, executives’ ability to get things done quickly is slowed by the complexity of large “matrixed” organizations (where employees report to multiple managers from different teams), by leaders made risk averse by all the uncertainty, and by far more information on every aspect of a company’s markets and operations than has ever existed before.
And all this makes it far more common for managers to seek consensus before making a big decision. Senior managers are made to move slowly at precisely the time they need to be quicker, agile, and more effective.
At first glance, this doesn’t seem to be a new problem. Corporate executives have always been impatient with their teams’ pace and progress. But this perennial problem has a new, urgent flavor. Companies – particularly large ones – face a set of dynamics that make it more difficult to implement any plan.
Large companies are bigger than ever. In 1990, in nominal dollar terms, the 500th company in the US Fortune 500 had $543 million in revenue. In 2014, the 500th company had $5 billion in revenue. In nominal dollar terms, the threshold for being “big” has gone up by nearly 10 times and nearly five times after adjusting for inflation.
Collaboration has exploded within these big companies. Two-thirds of knowledge workers report a significant increase in the amount of collaboration required to do their job, and estimate that they must interact with 10 or more different people each day to do their job.
Huge advances in connectivity and technology have more than tripled the amount of information the average worker sees daily. And mobile technology has put the computing power of NASA’s Apollo moon mission into each of our pockets.
Slowness Affects the Whole Organization
Big companies still haven’t mastered how to convert knowledge workers’ collective intellect into better results. In fact, at this stage, it seems that this increase in collaboration is slowing things down and making results worse.
CEB research shows that more information actually reduces the ability to make decisions and act. The past year has provided evidence that the new work environment is all too often the slow work environment. The need for collaboration and consensus frequently slows things down and reduces people’s ambition.
Consensus buying: As major purchasing decisions become increasingly collaborative, the time taken to make a decision slows, and – more worryingly – the desire to pursue an innovative solution shrinks measurably. On average, business buyers find it takes twice as long to make a purchase than expected.
More specifically, when more than five buyers influence a purchase decision, the likelihood of that purchase’s completion becomes only 31%, compared to a better-than-even chance when presenting to five or fewer buyers. This creates an issue for sellers, but it is an equally big problem for the buyers, who often settle for too-general choices that don’t make the improvements they need.
Committee hiring: As more and more potential colleagues are consulted about a recruiting decision, the time taken to hire people slows to a crawl. The time to fill an open position grows exponentially whenever an additional interviewer is consulted about a candidate.
If an interview process expands from including three people to five, the length of time-to-fill doubles. On average, recruiting teams take 62% longer (or five more weeks) to fill seats than they did just five years ago.
Exploding demand for technology: Corporate IT is at the epicenter of this problem. Even as agile development and standardized cloud platforms have slashed the time needed for development, timelines for providing new technology and IT-related capabilities have actually grown because of increased demands from business partners.
As a result, 63% of business leaders think their company responds too slowly to technology-enabled opportunities.
The potential economies of scale and scope from increased information flow, size, and collaboration are being gobbled up by the cost of consensus and collective action. Unsolved, this creates painful opportunity costs and undermines a company’s competitiveness for talent and customers.
The most advanced corporate leaders we talk with, however, increasingly focus on building corporate “clock speed” (the speed at which a computer’s processor can execute instructions) by creating the conditions where size, collaboration, and an abundance of information help companies get things done more quickly.
You Can Be Fast and Right
The goal is not to turn back time, but instead to adapt corporate processes, decisions, and — most importantly — leadership behaviors to this new reality. All this slowness has significant implications for executives of any function, and conventional wisdom says that business leaders must trade off speed for effectiveness.
But that’s a false choice. It’s possible to be fast and right, and a number of managers around the world are making decisions that are just that.
Eight posts published over the next few months will describe a number of trends that contribute to this organizational slowness and provide guidance on how some of the best firms help their teams be fast and right.