22 Aug 2018
Why MNCs are trapped by their past successes
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Companies do not become global without a solid track record of success. However, the accelerating speed of change brought about by technology is quickly making many proven business models obsolete. In this fourth chapter of our Leadership Disrupted report, we look at why past success is becoming a hindrance.
Amongst the 70 APAC leaders of multinationals we interviewed for this report, there was a lot to be said on this topic. In this chapter, we focus on the challenges. Our findings are at times controversial. To complete the whole story, in Chapter 5, we delve into the way companies have responded with new business models. Chapter 6 will share their approach to creating innovative new models.
For most large and successful companies, the internal challenge is greater than the external one. For most, it’s their biggest issue, and they are working hard to make headway at pace.
Clearly, confronting legacy business models and motivating people to embrace a new way forward is a tough challenge.
Some interviewees were quite blunt. “Our challenge is internal. We need to get our act together.”
Understanding the issue does not solve the problem: “We have changed our thinking to meet a changing market. We understand conceptually what this means, but we have not worked out how to articulate this to mobilise the organisation. There is no way we can succeed with our current set of competencies. I took over a business that was doing well. Getting agreement to accept change is tough. The incumbent is its own worst enemy in a transformation.”
Change is often resisted: “People like silos because it is easier. This does not work anymore. Globally, we are not a lean, agile company today.” And this is often the reason. “Our people were used to being the market leader. As a market leader, it’s easy to become arrogant. I am working to change that mindset. It’s hard.”
Who is at the root of the problem?
It’s obviously up to the leadership to innovate, but leadership in global companies is shared by many people. It’s not about any one individual.
“Leaders are good at doing what they know faster and better, but not many are good at doing the new.”
“I am not thinking with the mindset of being digital.”
“There are baby boomer executives who think they can ride to their retirement before technology disrupts them."
This problem goes beyond the executives. One leader was scathing about her Board.
“We are 15 years behind a first-class MNC in systems and there is a huge reluctance to change. Global leadership sees the problems, but don’t know how to fix it. There is a fear of making the wrong decisions by our Board. They don’t have the relevant experience to make the tough decisions. We have two wheels missing from our race car: how can we win?”
Another accomplished leader explained that he has the mandate, but no authority: “Working on the change has revealed the truth of who we are. A company can have a change-focused leader and then not allow them to make changes.”
Thinking short term
Many companies are so short-term in their profit needs that their executives are actually dis-incentivized to focus on change.
“We are our own worst enemy. Why disrupt our success?”
Often, the existing structure can be the handbrake: “We were siloed and not able to respond fast enough.” “Asian [competitors] have not got the legacy to write off – it’s is a blank piece of paper.”
It’s hard to let go of success
Some leaders are working to change the way their people think about risk and failure. “We are 137 years old. We need to bring about a mindset change, but I will be honest and say that we don’t have all the answers. We have always avoided failure and this is part of a culture we need to change.”
For others, their leaders are blind to the need. “We have senior leaders who have been successful in the past and sometimes don’t understand the need to change.”
Also, it’s also well-worth repeating that APAC is not the same as Europe. “I sit at the intersection of a market that is keen to embrace change and being in a conservative Western company.”
Although most companies are talking about how their business models are being disrupted, not everyone is experiencing the same things at the same time: “We are talking about disruption, but we are still not sure what we are talking about.”
“The scariest thing is that our industry has never been through any form of disruption until now. It’s always been a slow evolution. We are not disrupted yet, but it is inevitable. 90% of our business will be impacted by AI.”
“E-commerce has disrupted the supply chain and compressed demand from six months to two days. The challenge is how to deal with this.”
Scale is a challenge
Companies achieve scale through successful growth, but in today’s fast-changing environment, that success makes it harder to respond, for various reasons.
“Being the biggest player is good, but when the market changes, we are the most exposed.”
“As a leader, the party is over. We used to grow at 35% year on year.”
“We can see a way for a competitor to change the model and this would destroy our business. We are trying different things to see what will work so we can stay ahead. All the time though, this reduces margins, but we need to be the first mover. At the same time, no customer wants less service.”
But for some, scale retains the advantage: “A capital-intensive industry like ours is difficult to disrupt from the outside.”
Whilst the approaches to facing disruption are varied, it’s often having a transformative effect. “We ran a workshop with people from other areas of the business to help us look at our future. Only 10% of them came from our space. What blew our minds came from those outside of our space. We had no idea – our heads were in our own box.”
At the same time, these two leaders explained their need to see their technology completely differently: “We are fearful of being disrupted, so we have invested heavily in technology so that we are the disruptor. We see these as P&L projects rather than IT projects.”
“Our aspiration is to become a tech company.”
For tech companies and other disruptive leaders, change is no stranger and they know how to hit a moving target.
“We have no legacy, we started our business like this. There is nothing to let go of.”
But there is no room for complacency. “There is a lot of automation coming. We believe we need to cannibalize our own business, not protect the status quo. This is the first time a lot of new technologies are coming together.”
Asia is ahead. And HQ is following.
A recurring theme, which we will expand on later, is how business model innovation in global companies is increasingly being driven by APAC.
“We need to be brave. It’s difficult as a 100-year-old company. The biggest challenge was for the Board to accept that we are in a new world. We were ahead of HQ in our thinking.”
Bold global initiatives
Several of the leaders explained how their CEO’s are firmly in the driving seat on change.
“Our CEO created two teams from our top execs. He essentially split us into two groups. One group is focused on the current horizon and delivering the current core business. The other is focused on the new horizons and how to challenge, innovate and disrupt.”
After twelve years of mega-growth, this executive explained how their CEO is completely rebuilding their structure, despite continuing success: “We are working to reduce complexity within the company, which built up as we went through fast growth and is now over-bearing. We built a structure five years ago that was right, but today it is not.”
Most large global companies are in one of three states. Talking about how they will be disrupted. Currently in the midst of a transformation. Or riding the success wave of a first-mover advantage.
Whatever their state, the issues highlighted in our conversations with leaders of MNCs in APAC offer a rare opportunity for leaders with the right qualities to see the opportunity within all the turmoil. Our final interviewee put it well: “Because our industry is so old-fashioned, there are lots of upsides. That’s why I joined.”
Leadership Disrupted book
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In the next chapter of ‘Leadership Disrupted’, we explore how the 70 APAC leaders of multinationals we interviewed are re-engineering their business models to respond to rapid technological disruption.
To read further chapters of the ‘Leadership, Disrupted' Report, click below:
- Chapter 1: Introduction: 70 APAC leaders of multi-nationals respond to disruption
- Chapter 2: How the digital customer is dictating business change
- Chapter 3: What happens when the competition can do everything you can, only faster?
- Chapter 5: How MNCs are changing their business models to overcome previously-successful business models
- Chapter 6: How MNCs are redefining innovation across APAC
- Chapter 7: Looking East for innovation
- Chapter 8: Understanding the expectations of millennial talent
- Chapter 9: The proven ways to attract and hire top talent
- Chapter 10: Learning how to engage talent for the long-term
- Chapter 11: Why leaders are learning to be humble
- Chapter 12: Why changing corporate culture is the key to mastering disruption
- Chapter 13: The way good leaders communicate is changing
- Chapter 14: Is mindset fast becoming more important than skill-set?
- Chapter 15: Understanding how to seize the mindset opportunity