How to build a business – Agility and Innovation

Recently someone drew my attention to the report NL2030, published by BCG. The authors believe that in the Netherlands, to enable further growth of our prosperity and wellbeing we need to adopt a radically new business model. That raises some interesting questions, such as “Does something like  Dutch business model even exist?”, “what would it be based on?”, and: “why does it need to change?”.

The premise of the argument of the authors seems to be that country specific advantages that we used to have in the past, such as geographical location, infrastructure, and the associated foreign language skills and commercial spirit, no longer give us a any benefits. Thus, we are dependent on business benefits.

The World is flat

Ok. What do companies have to deal with? They are faced with an accelerating speed of change, mostly through technological innovations, with customers who have more and more specific wishes, and with a world that becomes flatter. I assume the authors are referring to Friedman’s idea of a global marketplace and almost realtime access to data, information and ideas from virtually anywhere

At first sight it seems to me that those are circumstances in which good companies could flourish.

The final step in the reasoning of BCG: If changes take place faster and faster we need innovation talent and social adaptability. People that love change and a society that facilitates it. And unfortunately – says BCG – those are not qualities that The Netherlands excels in.

The World Economic Forum, by the way, does not agree. In their “Global Competitiveness Report 2012-2013” they rank The Netherlands in the top ten, and they say: ”

The Netherlands continues to progress in the rankings, moving up to 5th place this year. The improvement reflects a continued strengthening of its innovative capacity as well as the heightened efficiency and stability of its financial markets. Overall, Dutch businesses are highly sophisticated (4th) and innovative (9th), and the country is rapidly and aggressively harnessing new technologies for productivity improvements (9th). Its excellent educational system (ranked 5th for health and primary education and 6th for its higher education and training) and efficient markets—especially its goods market (6th)—are highly supportive of business activity. And although the country has registered fiscal deficits in recent years (5.0 percent of GDP in 2011), its macroeconomic environment is more stable than that of a number of other advanced economies. Last but not least, the quality of its infrastructure is among the best in the world, reflecting excellent facilities for maritime, air, and railroad transport, ranked 1st, 4th, and 9th, respectively.”

WEF Framework

For this ranking the WEF not only considers the traditional country-specific conditions such as infrastructure and education, but also markets as well as “Business Sophistication and Innovation”.

True or not, BCG makes a number of recommendations that are valuable, such as: Find opportunities in international niches, instead of catering with a broad portfolio of products or services, exclusively for the domestic market. And another one that makes sense: Based on expertise, focus on process orchestration (from design to production to sales and distribution) and not on performing all the activities yourself.

Finally they sketch the agenda for the Dutch government, and frankly I got a little confused here. Of course, good education is important, and of course we must educate scientists to conduct fundamental research. And naturally talent should be encouraged, and for some students we need to accommodate more generic international courses such as those offered by University Colleges. But how is that different from what our education system offers already and why not leave those choices up to young people? They will choose what they want, and what the market needs.

The labor market will become more flexible much faster than the government can take measures to stimulate this. Professionals trade historic rights for autonomy, relevance and networks of peers. Unions are becoming increasingly irrelevant.

The government should just step back. Buy-in from society, changing laws and regulating the labor market? No idea how that would help anyone. De-regulation would help, but if making laws is core business, what can we expect from a government.

Companies can orchestrate processes, but the government cannot orchestrate businesses. Entrepreneurs will.

The most useful recommendation is perhaps: to use more English as business language. The size of our own market is the limiting factor, but now the world becomes easily accessible; many markets are global, technologies enable shorter go-to-market times, and there is no reason why we should address these opportunities as a country, or why companies should be chauvinistic. And we don’t. In our company we have been communicating in English from day one. We have employed people from the US, South Africa, Australia and other countries.  Starting a business in The Netherlands is not difficult, and many of the best-educated and most innovative people are independent, or are willing to accept positions in those companies where their talents are appreciated and developed.

Business Sophistication and Innovation are the key enablers for success in a rapidly changing world: Agility as a strategy. Most large companies have been mainly striving for efficiencies, and cannot adapt or adopt change.

So, that brings us back to Thomas Friedman (The World is Flat) and John Kotter’s article in the Harvard Business Review (“Accelerate“).

This last article has received quite a bit of attention in the industry. Kotter explains why change is unnatural to large hierarchical organizations, and why a better approach, which he calls a dual operating system, is needed to be both agile and efficient.

He proposes the creation of a volunteer (self steering) tribe drawn from people from all corners of the organization, at all levels. These people will form a network that works in parallel with the existing hierarchical structures.

The two entities form a Dual Operating System, each contributing to the vitality and viability of the organization in a different and complementary way. The network’s task is to propose and co-creation the strategies of the future, while the hierarchy continues to operate as efficiently as possible. Exploration and exploitation as two sides to the same coin. Highly aligned, but loosely coupled.

The network strategy will involve no additional costs or overheads, as staff are invited to volunteer their time, knowledge and ideas to contribute to the future of the organization in a capacity that differs from the date-to-day work.

Good companies in the Netherlands and in other countries understand that besides Exploitation Exploration is crucial. That changes are opportunities and not always threats. For years we have been calling this the power of the Network, of Intrapreneurship and of Effectuation – and we have never needed the Government (or BCG) to help us with it.

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