Does your organisation have a hairy back?
First, let me emphasise that there is nothing wrong with being hairy. As a middle-aged man of Indian heritage, that would be like calling the kettle black. Second, I need to say up front that I am standing on the shoulders of giants here. My friend and former colleague Chris Bradley along with Martin Hirt and Sven Smith from McKinsey & Company authored a fantastic book called Strategy Beyond the Hockey Stick where they show the following illustrative chart that plots forecast EBITDA from a company’s yearly plans against actual performance. The picture below is referred to as the Hairy Back chart and it depicts what so many of us experience… we plan, we fail, but somehow we think that next year will be different. A fair critique might be that the chart below doesn’t really look like a hairy back, but perhaps we can park that for now. If you haven’t read their ground breaking book, you should.
Interestingly, the above picture rarely applies to a start-up or early-stage growth company. If you were to significantly miss growth targets 5 years running, it is unlikely you would receive the funding to still be in existence. Forecasting growth and falling terribly short seems to only be accepted in large incumbent organisations. Why is this? In the book, my former colleagues explore why it is so easy to come up with these plans. I am really interested in why the above picture is tolerated.
My hypothesis is that a lot of senior executives in their heart of hearts don’t really believe in rapid growth in the first place. Many have been in large organisations for most of their careers, where doubling the number of customers 3 years running, or growing top line revenue by a factor of 5 sits outside of their experience.
I also believe that there are strong cultural factors at play here. I don’t profess to be an expert in the nuances of corporate culture across different countries, but having worked globally, I have noticed a pronounced difference between my home country Australia and other large geographic regions. In Australia, it seems that the way to progress through the ranks and grow your career is to not screw up. I compare that with many other countries where entrepreneurial organisations have grown to the point where they are a significant presence on market exchanges. In these countries, not stuffing up undoubtedly plays a role in career success, but there also seems to be an emphasis on hitting one out of the park. To continue the baseball analogy, stepping up to the plate comes with an expectation of a swing and a miss, and hitting a home run from one in a few attempts is rewarded. Senior Australian executives might bristle at the comparison which points to the inherent conservatism in this country, and yet, whenever I discuss this with anyone who works in or knows this market well, they all smile and nod.
If our objective is to not screw up, then we are ok as long as actual performance doesn’t decline too much. Incremental improvements which allow us to tread water and maintain our position get celebrated and the consequences of missed growth plans may not be so dire. I would imagine that more senior executives are moved on for a decline in performance than due to not hitting lofty growth targets.
Through a lens of genuine curiosity, I wonder if this is about to change… whether we might be sitting at the precipice of a new growth era for incumbents, where transformative growth and the enabling culture needed to support it becomes as much of a focus for our large institutions as is growth from within the core. With so much volatility and uncertainty in our markets, and with the rapid evolution of technology lowering barriers and creating previously unimaginable opportunities, large organisations now more than ever have the chance to leapfrog competitors and reshape industries. As the formula 1 driver Ayrton Senna once said, “You cannot overtake 15 cars in sunny weather, but you can when it is raining”. Driving at a constant speed when other cars are passing you still means you are going backwards in a race. In this VUCA environment, perhaps incremental improvements and treading water will be seen as the new going backwards? Imagine if the Hairy Back chart was rotated on a circular axis 45 degrees to the right…where steady state now looks like a decline and the optimistic growth plans that no one quite believes are in fact what is required to maintain status quo performance. You could argue that this is not really a growth picture, but the skills, capabilities and mindsets would still need to evolve from incremental to step change. We would still be in the realm of massive shifts, where questioning the foundations of the markets we operate in, the customers we serve, and the operating model we rely on suddenly become critical.
I believe that the Hairy Back chart is tolerated because step change growth is a nice to have while protecting against decline is a non-negotiable. The thinking goes that you can’t grow without a healthy core. However, despite trying to safeguard core revenue streams, many business models have become inherently distressed. It is true that incumbent organisations often have poor track records at building new businesses that sit outside their core, yet perhaps this is because they rarely get the attention – be it capital, talent or executive mindshare – that the core business receives.
This is not a cry to ignore the core health of one’s business. Rather, I am genuinely curious whether we can maintain an environment where the Hairy Back Chart depicts so many of our large institutions. The new variables in the equation may well be the pace and scale of technology and the magnitude of global challenges e.g., environmental, geo-political, the increased polarisation of wealth… I wonder if that tipping point is now upon us? I wonder if the Hairy Back chart has in reality started to rotate to the right and step change growth is increasingly the only way to stay relevant? If it has, then our incumbent organisations will need to master a completely new set of capabilities. The talent profiles and mindsets required will be very different to today. And, failing to hit one out of the park may become the new screwing it up.
I don’t profess to be able to see around corners. I’d love to know what you think …