Negotiating change

Computerworld - "You can't make intelligent investments within your organization unless you understand how your whole industry is changing," writes Anita McGahan in October's Harvard Business Review. McGahan, author of How Industries Evolve: Principles for Achieving and Sustaining Superior Performance (Harvard Business School Press, 2004), bases her theories on more than a decade of research on four trajectories of industry change. She told Kathleen Melymuka how CIOs can align IT investments with those changes.

How do I recognize that my industry is undergoing radical change? Radical change occurs when everything you do is eventually going to become irrelevant because of some new technology or way of doing business. Take overnight letter delivery. When I ask students, they all agree that it will be gone in 100 years. What they differ on is how soon. Another example is land-line telephone. We probably could agree that in 100 years, telephone communication will not occur over copper wire. The question is how long that infrastructure will stay around.

You say progressive change is the most common type. What does that look like? Progressive change is occurring in many transportation and retail industries. The challenge during progressive change is understanding that the way to make money is to improve incrementally through careful analysis and reacting to feedback. Unless your strategy is deeply flawed, the Hail Mary attempt to achieve breakthroughs will not work.

You say creative change is more nuanced. Tell me about that. Creative change occurs when the underlying resources or architecture or assets in a business are becoming obsolete: legacy systems, old database architectures that don't allow you to connect with customers as you'd like to. Many organizations, such as pharmaceutical and film production companies, are also challenged with threats to their resources. Blockbuster drugs go off patents, and revenue is fundamentally challenged as a result. Or you need a new hit film regularly. You need to constantly renew.

So some industries by their nature are constantly in creative change? Yes. The idea is that the assets that lie underneath the revenue structure of the business are constantly being challenged.

Anita McGahan

That brings us to intermediating change. What's that all about? Under intermediating change, your customer relationships are threatened but your assets retain value. It's harder to deal with than radical change because you've got to figure out a new way to make money out of assets. If you're running a telephone service provider, you know that the challenge is managing down the land-line infrastructure. But if you're running an organization going through intermediating change—like an auto dealership—you've got a fundamental strategic problem: How do you redeploy assets into new ways of doing business for which you can get paid while ramping down your commitment to an old way of doing business? It's very challenging, because often you're making more money under the old way, and that may continue for many years. That creates civil wars within organizations.