Strategy Why Playing It Safe Is the Riskiest Strategic Choice - Sun and Planets Spirituality AYINRIN

 Strategy

Why Playing It Safe Is the Riskiest Strategic Choice - Sun and Planets Spirituality AYINRIN

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Summary.   

In the current era of digital disruption, the pace of change has dramatically accelerated, leaving traditional risk management wisdom lacking. Across a variety of industries, technology-enabled disruptors have changed the rules. Many brands that moved cautiously have dramatically increased their risk of irrelevance or set themselves on a path to extinction. The author thus argues that playing it safe is in fact the riskiest choice. He illustrates this with the example of traditional brick-and-mortar retail companies that chose a “timid transformation” — as well as those that effectively pivoted and avoided that fate. Moving faster doesn’t mean being reckless or endless moonshots, but cultivating a culture of experimentation and finding ways to “shrink the change” so that companies can better deliver value to customers.

­Traditionally, good corporate risk management has meant lots of study, careful analysis, and the flawless execution of well-honed implementation plans. A heavy focus on business optimization and continuous improvement was eminently sensible. Until it wasn’t.

In the current era of constant, seemingly unrelenting digital disruption, the pace of change has dramatically accelerated, often becoming far more exponential than linear. Across a spectrum of sectors, wholly new competition (think Airbnb, Netflix, Shein, Temu, OpenAI) has leveraged ever more powerful computers, machine learning, new ways to connect buyers and suppliers, and other emergent technology  that is reshaping the landscape, thereby creating and capturing entirely new sources of value. Many brands that moved far more cautiously, or that are currently slow-walking their transformation efforts, have dramatically increased their risk of irrelevance — or even set themselves on a path to extinction.

Rishad Tobaccowala, the former chief digital officer of Publicis Group and author of Restoring the Soul of Business, has posited that across the past three decades we have cycled through three “Connected Ages” that changed how we connect and do business — from e-commerce to smart devices to 5G, VR, the cloud, and AI. And we have scarcely begun to experience the transformative impacts of generative AI.

We now live in a world of abundant choice, access, and information where buying friction (obstacles that slow down, complicate, or make a customer’s path to purchase more expensive) continues to erode or evaporate. Companies that used to be able to get by with merely serviceable products no longer have that luxury — as evidenced by the upending of the traditional taxi business by the likes of Uber, Lyft, and Grab. Good enough is simply not good enough. And thinking that a strategy of offering a slightly better version of what we’ve always done — what I once heard referred to as “infinite incrementalism”— in the face of these profound shifts only exposes us to a greater likelihood of failure.

Faced with constant and accelerating change, doing what we’ve always done but just a little bit better may feel safe, but it is often the riskiest path we could possibly choose.

The Innovator’s (New) Dilemma

The notion that incumbent organizations underestimate the risk from disruptive technologies and insurgent competition is hardly new. Clayton Christensen first pointed this out in his 1997 classic The Innovator’s Dilemma. With the pace of change quickening and intensifying, today’s innovator’s dilemma is far more vexing, and the failure to address it often far more dire.

Despite evidence that most transformations fail — McKinsey pegs the rate at 70% — it’s not as if most executives aren’t keenly aware of their ongoing struggles. A 2021 McKinsey study found that more than 80% of executives say innovation is among their organization’s top three priorities, yet less than 10% say they are satisfied with their company’s performance.

In its 2024 Disruption Index study, AlixPartners found that:

• 65% of the CEOs surveyed indicated that their companies faced a high level of disruption
• 56% foresee significant disruption in the next year alone
• 61% say their organizations are not adapting fast enough to stay ahead of disruption
• 78% believe it is increasingly challenging to know which disruptive forces to prioritize

At the heart of this new innovator’s dilemma is often a whole lot of awareness, but not nearly enough bold forward action.

The Curse of the Timid Retail Transformation

The gap between what the market demands and what we deliver when we choose a slow and steady pace of innovation will grow ever wider if we fail to keep pace with the speed of disruption. And once a sizable gap emerges, it often becomes impossible to catch up to those competitors that aimed higher, moved faster, and acted more boldly.

Nowhere is this more obvious than in retail, where I have spent most of my four decades long career as a senior executive, consultant, and strategic advisor. As just one example of many, once-dominant department stores have hemorrhaged market share to so-called off-the-mall competition like off-price retailers (TJMaxx, HomeGoods, Ross Stores, et al), beauty specialty brands (Ulta, Sephora), Amazon, and others, and the threat of ultra-fast fashion continues to mount.

While these shifts have been in play for more than 20 years, Macy’s, JCPenney, Nordstrom, and other chains have largely engaged recently in what could at best be labeled “a timid transformation,” largely defending the status quo of their mostly mall-based real estate, often breathlessly extolling various and sundry new initiatives, while also closing hundreds of stores and cycling through many rounds of cost reductions.

Not only have these conservative choices failed to stem their relative market share declines, but the value migration to insurgent competitors has been remarkable. Despite only selling beauty products — which represent only about 20% of most department stores’ revenues — as of this writing, Ulta’s market capitalization is now greater than the top five North America department stores combined, per my calculation. TJX (owner of TJMaxx, Marshall’s, HomeGoods, and other off-price concepts) has seen its stock price double in the past five years, whereas the leading department stores’ have collectively declined significantly. Both Ulta and TJX were willing to redefine the legacy department store value proposition by focusing their offerings on a more narrow set of target customers and products, while simultaneously shunning the traditional view that these products need to be sold in big box stores located in regional malls.

The Opposite is Risky

I often ask clients: “If the world has changed so much, why have you changed so little?” Their answers are often complicated, but much of it has to do with a reluctance to confront our fears and fully appreciate the growing risks from our unwillingness to take bold action. As a species we’re not all that great at making sense of our fear. Evolutionary biology has hard-wired us to be persistently on guard in what you probably know as the fight, flight, or freeze response — super helpful when we’re being attacked by a bear, but not as much in letting go of the things that no longer serve us or that might actually slowly kill us.

If we return to the retail industry, it’s easy to see that at the heart of Bed, Bath & Beyond’s, Blockbuster’s, and Borders’ demises was their failure to see that defending the status quo was ultimately the riskiest strategy of all. These are just once-dominant retailers whose names begin with “B.” The list of retailers that failed to transform for a new era and are now in peril is long and, sadly, growing.

If we’re going to close the gap between the mostly incremental trajectory so many of us find ourselves on and avoid falling into the trap of the timid transformation, we must fundamentally rethink our relationship to risk. We must come to see, to quantify more fully, and to acknowledge the potentially enormous cost of our inaction. We must understand the roots of the fear that keeps us stuck. We must embrace the beauty of imperfection and accept, as Seth Godin reminds us, “that if failure is not an option, then neither is success.”

We also must put in place practices that can help us accelerate progress in an increasingly volatile and uncertain world. Among these is cultivating a culture of experimentation and finding ways to “shrink the change” — that is, breaking complex and seemingly overwhelming initiatives into a series of more manageable pieces. This allows us to recalibrate our efforts at each milestone and decide whether to stop, re-assess, pivot, or step on the gas.

When we accept that safe is often the riskiest strategy of all, we see that in the face of accelerating disruption often the only choice that has any chance of success is to aim far higher in the value we deliver to customers, to move much faster, and to act boldly.

This doesn’t mean being reckless or engaging in an endless series of moonshots. Nor does it always align with the popular Silicon Valley mantra of “move fast and break things.” As Graham Green famously said, “destruction is a form of creation.” And often we do need to blow up the old to enable something novel and powerful to emerge. But it can be just as valuable to move fast and fix things, so long as the value we deliver to our customers is sufficiently remarkable. Your mileage may vary, but I’d hurry if I were you.

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