Managing Continuous Change: Preparing for an Uncertain Future

Some of the most successful companies at managing change may be a part of your daily life. Chances are, if you own a cell phone, it’s a Nokia. Did you know that the Finnish high-tech giant was once a paper manufacturer, rubber producer, and cable company, before becoming a wireless powerhouse? Likewise, if you rely on Post-It® notes, you are supporting another organization famous for ongoing change. Known as 3M, this company has managed to reinvent itself using a parade of technologies to create products ranging from sandpaper and reflective guardrails to Thinsulate™. Finally, when using the Internet, do you Yahoo!? This organization too has morphed through the years from what began as a content aggregator to what is now a broad network of media, communication, and commerce services.

While the evolution of companies like Nokia, 3M, and Yahoo! may be dramatic, their firm-wide pressures for continuous change are far from unique. Why? Because many businesses today operate in high-velocity environments characterized by blurred industry boundaries, rapid shifts in technology, and fast-moving competition. 

The future is uncertain, making strategies for change based on the past largely ineffective. So what is effective strategy in these dynamic settings? The secret lies in taking advantage of market confusion and capturing fleeting market opportunities. Modular structures, simple rules, and strategic probes are three tactics managers can use to make this strategy happen. 

Modular Structures 

Modularity is the degree to which resources can be separated and recombined to allow greater flexibility and performance levels in end configurations. Managers create modularity in their organizations by breaking down businesses into smaller segments. Dell Computer is one organization that has moved in this direction. Its commercial relationships are split into corporate and small business. Government agencies chop their accounts into federal, state, and local units. Nonprofits are segmented into categories such as education and medical. 

When organizations become more modular, the process of change speeds up as resources become easier to realign, move, and shift. Increased modularity also improves ongoing change. Managers can draw from a larger selection base to create the right resource hybrid for the right opportunity. 

Hewlett-Packard (HP), for example, has used modularity to continuously change and remain competitive through several decades. In the past, the company transferred an ink-jet business from one division to another to exploit the second division’s innovation skills. It has temporarily linked its established scanner business with new businesses in Internet applications and wireless appliances. The company’s wired and wireless appliances, infrastructure, and e-services can be connected to perform a task and then disconnected when the task is complete and they no longer need each other. Because of its modular system, HP is able to have its computing architectures configure with everything from technology resources, like processor cycles, storage, memory, and devices, to application-level business and consumer services, like messaging, travel, and financial services. 

Besides product offerings, managers can also use modularity to successfully reconfigure intangible resources, such as charters. Defined as areas of corporate responsibility, charters can be used in modular forms to allow top management team members to “patch” elements from one division into others. The patching process among charters stimulates continuous change by opening new market opportunities. For example, in one global high-tech firm, managers recognized that if one division’s imaging technology combined with another division’s networking technology, a new business opportunity could emerge. Because the first division possessed the competencies effective in capturing this emergent opportunity, management gave it the new charter to patch together the two technologies. 

Other global organizations are finding that it makes sense to view geographic regions with a modular perspective. Instead of having an “Asian” strategy or “European” strategy, many globalizing firms are breaking down product and service strategies to the country level to meet the specific needs of local people. A partner of a leading venture capital firm insightfully noted: “Europe is not a homogenous market. Companies need to break it down into its forty-two individual markets with individual complexities, tax rules, and regulations. European companies see the United States in the same way—one large market—and fail when trying to enter.” In general, breaking down customer segments for globalizing firms helps rivet managers’ attention on specific market opportunities that the company can exploit in meaningful ways.

Overall, deconstructing business into smaller modular units conveys several benefits for organizations driven to continuously change. First, when resources within businesses are modular, any one element can be removed without affecting the rest of the configuration. This allows managers to isolate and attend to acute areas of organizational pain without disrupting an entire value chain. Second, when resources are broken down into smaller, modular units, managers have a larger number of options available for implementing strategies. Finally, although tightly integrated structures may be more efficient, modular structures become more effective in changing conditions. Modularity provides managers working in high-velocity environments the increased flexibility needed to successfully adapt to rapidly evolving customer needs and industry demands. 

Simple Rules

Applying simple rules is a second tactic used by managers to facilitate continuous change. Many organizational leaders continue to rely on complicated rules to guide change efforts. Generally, these rules evolve from deeply embedded tacit knowledge into elaborate steps for completing specific activities. While these detailed rules may help managers prepare for and adapt to the linear change occurring in more stable environments, they are ineffective in the unpredictable and nonlinear world of change found in high-velocity environments. Effective rules in high-velocity environments are simple. 

Simple rules keep managers focused on critical issues without over generalizing from prior knowledge that may prove ineffective for novel changes. Simple rules provide boundary conditions as to when, where, and how to change. They also provide enough room for creative interpretation so that managers can continue to innovate and adapt over time. 

With simple rules employees can act locally and autonomously, without central coordination. Yet, by following simple rules, the interaction of each person’s local behavior can generate larger, more complex patterns on the global level. Although it may seem counterintuitive, simple rules drive complicated behavior in high-velocity environments. 

For example, consider the patterns that emerge from the interactions of computer-generated birds called “boids.” As boids fly together in a simulated air space with frequently approaching obstacles, individual behavior is guided by three simple rules: (1) maintain a minimum distance from other boids; (2) match the speed of nearby boids; and (3) move into the center of the mass of boids. 

Interestingly, no matter where or when an individual boid begins flying, it ends up in a flock whose actions are just like that of a real flock—flying easily around moving objects. When boids encounter an obstacle, the flock breaks up and rejoins after passing it. If a boid hits an obstacle, it recovers and works to quickly catch up to the rest of the flock. The ongoing adaptive behavior of the flock of boids results from the simple rules governing the individual behavior of each boid. Interestingly, this behavior happens without any formal flock leader or even any directive to form a flock. 

Beyond use in simulations, simple rules have also found powerful application in several corporations engaged in continuous change. Consider Yahoo!’s use of simple, priority-setting rules to provide direction to its rapid growth. Yahoo! has three rules governing the formation of partnerships: (1) put the product first; (2) do a deal only if it enhances the customer experience; and (3) make no deal that limits the company’s ability to evolve. By providing direction to its employees regarding partnerships while at the same time not prescribing which strategic alliances should be formed, the company’s partnering rules have allowed it to quickly adapt to the Internet industry’s varied and frequent changes. 

Intel also uses a number of simple rules to guide change. From its inception, the company has relied on a “maximize-margin-per-wafer-start” rule to help prioritize the allocation of corporate resources. When the competitive intensity in the microchip industry drove margins down, Intel began producing more microprocessors where margins were higher. While Intel’s priority rule resulted in foreseen increases in short-term profitability, it also resulted in unforeseen systemic changes. By shifting production slowly away from microchips and into microprocessors, Intel was able to stay ahead of its competition and capture an emergent market opportunity. 

As a whole, the use of simple rules conveys several performance advantages for managers who are continually adjusting to changing markets. First, simple rules allow room for adaptation. In other words, simple rules are designed to provide just enough coherence and boundary conditions that employees can focus amid the confusion and disorder that comes from a constant stream of new information¹. Second, simple rules focus on real-time information. Rather than rely on past knowledge that may be outdated and obsolete for current situations, managers use simple rules to quickly create the new knowledge needed for successful decision making in the here and now. Third, simple rules create casual ambiguity in the minds of would-be competitors. 

Although simple rules appear as transparent, easy-to-imitate action steps, copycats overlook the extensive underlying organizational culture, resources, and activities that make the use of simple rules possible and profitable.

Strategic Probes 

Finally, the use of strategic probes is a third tactic managers use to effectively change over time. Probes help managers prepare for the future instead of simply reacting to it. Probes have two key features: (1) Probes are low-cost options that can be beneficial in new markets. (2) Probes can be quickly converted and incorporated into an organization’s portfolio of offerings. Examples of different probes include technological or scientific visionaries, product line experimentations, geographic markets, and strategic alliances. 

At one technology-based organization, managers created a partnership with a leading accounting firm that helped predict changes to European tax laws. The laws affected the way the technology company sold its software in various European nations, and the ability to properly forecast changes gave the company a competitive advantage in its industry. One manager involved in the process stated, “The European taxes were changed at the beginning of last year, and there was a different approach in all sixteen European countries that we had to handle. So we asked our partner what the changes would mean before the law had even passed. Our reaction time was very short.” 
In a leading wireless chip company, a similar use of probes emerged. To take advantage of emergent wireless opportunities in Japan, the organization hired a leading Japanese technologist who was familiar with Japanese regulations and had his finger on the pulse of changes within his country. When the technologist heard through his connections that Japanese radio authorities were thinking about opening a new radio band he began forcefully lobbying with local regulators, telling them why they should proceed. More importantly, he relayed the key information about the new Japanese radio band back to the chip designers in the United States before the new band even opened. Consequently, when the band did open, the company had a chip ready. Effective use of probes—here in the form of a leading technologist—helped the company quickly capture the dominant share of the Japanese wireless chip market, while the other thirty U.S. startups working in its space had no idea the new band was even opening, let alone had a chip ready. 
Other organizations use geographic regions themselves as probes. For example, one top provider of security products and software for Internet communications and commerce used Australia as a probe into the Asian market. As one member of the senior management team explained, “Australia isn’t a very large market, but it was so easy to do since it is so much like the United States. Australia is a good test bed because it is near Asia—you can do more things in Asia from Australia. It’s low risk and easy to drive profitability.”

In high-velocity environments, probes are important because change occurs rapidly and unpredictably, and the future arrives quickly. This makes it hard for managers to accurately predict what the new competitive landscape will be and when it will arrive. Probes give managers in these dynamic settings more options and the advantage of being prepared for the future with effective solutions. 

Probes also provide an escape route. If a prepared solution does not work, managers have a repertoire of other possible responses at their disposal to quickly adjust and stay competitive. In addition, because probes are low cost, management can use a variety of them to experiment and explore new areas without the fear of crippling mistakes or financial overcommitment. 

In short, probes improve organizational learning about potential futures. While the future will remain inherently unpredictable, probes make it easier for managers to prepare for and adapt to the changes that will assuredly arrive in high-velocity environments. 

Conclusion

Many organizations engaged in continuous change see sustainable competitive advantage as a relic of the past. Rather than sustainability, the key term for competitive advantage in high-velocity environments is unpredictability. For companies like Nokia and 3M struggling to constantly remain innovative, advantages may last a decade, a month, or only a day. So, while many leaders continue to seek sustained advantage, the reality is they are forced to do business as if such advantage don’t exist. 

Change will always be used to help firms be different, but in today’s market, change itself has become different. While the types and scale of change have become more uncertain, the speed of change has dramatically increased. As a result, successful corporate strategy in high velocity-environments relies on modular structures, simple rules, and strategic probes to create a constantly changing series of small, temporary, competitive advantages. In other words, successful strategy is about managing continuous change.

Endnote 

1. Brown, S. L., and K. M. Eisenhardt (1997). “The Art of Continuous Change: Linking Complexity Theory and Time-Paced Evolution in Relentlessly Shifting Organizations.” Administrative Science Quarterly, 42: 1-34.

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Article written by Christopher B. Bingham
Artwork by M. C. Escher

About the Author 
Christopher B. Bingham is a PhD candidate in strategy and organization at Stanford University. 

Bingham completed a BS in accountancy in 1995, an MBA in 2000, and a master’s in international studies in 2000, all from BYU. He has worked for several small entrepreneurial companies as well as for large, established organizations including Price Waterhouse, McKinsey & Company, and Deloitte Consulting. He can be contacted at cbingham@stanford.edu. 

The author would like to thank Kathy Eisenhardt for her creative thinking on many of the topics expressed in this article.