Letter to the CEO | Richard D’Aveni

LETTER TO THE CEO Richard D’Aveni "In this metaphor, each fish is an autonomous being that congregates in schools to improve their chances of finding food and fending off predators." "In just about every kind of business, digitization is having a strong effect, and it’s going to intensify as computers get increasingly powerful." Dear CEO You’re probably hearing a lot about convergence these days: Digital-Physical -- from driverless cars to the internet-of-things to 3D printing, merging products with internet services. Industrial -- companies getting hit by rivals out of nowhere as borders between products or geographies go away. And Functional -- thanks to instant communication and 3D printing of prototypes, product development teams are working so closely with manufacturing and marketing that they might as well merge. Still, convergence tends to be like the weather: everybody talks about it but nobody knows what to do about it. Our conventional strategies assume stable industries and economics. We’re stuck in old mindsets while business is being transformed. We’ve imagined our companies as portfolios of businesses working within defined boundaries. It’s time for new metaphors, and my favorite is a school of fish swimming in an ocean without borders that separate the waters. In this metaphor, each fish is an autonomous being that congregates in schools to improve their chances of finding food and fending off predators. The fish constantly watches their fellows to know what to do, based on a few simple rules such as follow the majority or move toward the successful (fatter) fish. The scouting fish on the edges are looking for threats and opportunities, and they’ll often veer off in response. At times the school needs to scatter apart, but the school soon reforms when the danger passes. A migrating school gradually shifts direction as the scouts discover new leads and attract others to follow in their boundary-less world Think of any sizeable company as a school, with each fish representing a line of business (LOB). Because of convergence, each LOB is free to swim in many directions. But if they cooperate and loosely influence each other, they generate collective motion that enables most of them to survive and prosper. Their flexibility and autonomy generates a kind of swarm intelligence that better responds to collapsing boundaries between physical-digital goods, industries, and even functions. Here’s what the school of fish metaphor means in business terms: Coping with a Borderless Competitive Space: Rather than LOBs operating in a collection of distinct markets, a school of LOBs explores the open space for better profit pools. This contrasts with traditional business methods of exploring new markets, where an individual LOB is charged with the task. The entire school collectively self-organizes to explore the ocean, but nevertheless balances the risks and opportunities of changing path. A few fish wander away from the school, moving only a short distance. Nearby fish follow if they discover something good. This ripples throughout the school, causing the overall school to change direction toward richer ecosystems. Free-flowing organizations: Each LOB is free to move around the school to be closer to the other LOBs that can help the most, as well as to the outside opportunities. But just as fish on the periphery of the school are easy for sharks to pick off, LOBs will want to stay in synch with the school as a whole. LOBs stay together and avoid collisions not because of strict directions from headquarters, but because of a strict set of cultural norms or simple rules that govern each fish’s movements. The better the rules, the better your organization will be able to diverge from what all the other schools are doing and pursue more profitable opportunities. Migration Strategies: The school’s biggest challenge is deciding where to move. It can’t stay in one position for long, because it will exhaust the feeding ground or attract predators, but it’s hard to sense where to go. Organizations likewise need to hire more visionaries with good instincts on where opportunities or threats are likely to emerge. They need more Leonardo da Vinci’s and fewer analysts. . Da Vinci could create the Mona Lisa one day and a robot the next; you will need that kind of free thinking to survive in open, continually shifting markets. Combine that with daring scouts who can tackle promising areas quickly. Blue Oceans can’t be found by analytics; they have to be discovered. Rethink leadership. The time you were spending on controlling operations can now be used to better explore possibilities. Send out more scouts to check out potential opportunities or threats. Cast a wide field of investigation, in three-dimensions, instead of the usual strategic analysis. Visionaries will be at a premium in a convergent world. How far you take this advice will depend on how far along you see convergence happening in your industry. But don’t assume you’ll have much time to move once you see the shifts. In just about every kind of business, digitization is having a strong effect, and it’s going to intensify as computers get increasingly powerful. Convergence is turning every business into a school of fish, wandering in a vast sea of possibilities with predators at every turn. Sincerely, Richard D’Aveni This article first appeared in Dear CEO (Bloomsbury, 2017).

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Letter to the CEO | Richard D’Aveni

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