Organisations founded by a group of people with a shared background and interest often assume that this strength will drive their business forward. As part of our short series New Kinds of Conversations, we share an example of how a management team’s discussion of alternative futures led to the realisation that their business required strengths that they had not previously considered. This caused them to change their recruitment and reward structures.
The company was spun out of a larger organisation with a remit to lease heavy vehicles to a wider market. The members of the senior management team had many years in the industry, and most were engineers. Their recruitment and reward structures were aligned with engineering competence – alert to potential disruptions of their market from new technologies, and how new technologies could save on maintenance costs and increase second-hand value.
The company was successful for many years. However, when the finance director was asked to write a business plan to attract a new round of funding, he wondered about the external business environment and how this might affect their business. He knew that the business environment was volatile, so he asked his team to develop scenarios for the economy.
The scenarios described four different worlds:
Open Market: This scenario is based on capitalist supply and demand principles with minimum state intervention. Countries trade for mutual benefit and co-existence. There are no co-operative alliances, for instance around tackling the causes of climate change. GDP growth is high although the environment for investment in heavy vehicles is neutral as the economy is now based upon the development of high value added products and services. The demand for heavy vehicles has reduced as the new ‘design’ economy and the continued advancement of technology has enabled more people to telework, and goods can be manufactured using 3D printing nearer the place of use.
Sustainable Environment: Whereas the accent on nations in the Open Market scenario was based on co-existence, in this scenario it is based on global co-operation, in particular around the environment and sustainability. The importance of leasing heavy vehicles has increased significantly as a way of reducing private usage. But, in order to ‘conduct this orchestra’, government exercises more control. This is a mixed blessing for heavy vehicles. On one hand there should be good growth opportunities but on the other hand the government may choose to intervene if it believes by so doing it can reduce emissions.
Long Haul Recovery: people are starting to brace themselves for cutbacks and an increase in unemployment. Capital investment projects are cut, but eventually as the economy starts to pick up, infrastructure is renewed. Competition from strong Asian economies leads to increased prices for raw materials and resources. Eventually heavy vehicles become relatively attractive once more for investment and the leasing business should be back to ‘business as usual’.
Global Irrelevance: This scenario describes an implosion of the economy, exacerbated by having to pay higher prices on world markets for resources such as energy. The resultant unemployment reduces tax revenues and pushes up benefit costs. In terms of heavy vehicles, investment is cut, as is infrastructure investment, resulting in the economic benefits being significantly undermined. Continued service operation is very much the order of the day and this becomes more difficult as spares become obsolete. There is little to attract private investors into the marketplace.
The senior managers explored the implications of these scenarios for their portfolio using a wind-tunnelling workshop. This allowed the team to assess whether the scenarios were favourable or unfavourable for their business. Counter-intuitively for the team, the Open Market scenario was unfavourable for the leasing business, as was Global Irrelevance. The favourable scenarios were Long Haul Recovery and Sustainable Environment.
When the team unpacked the reasons for this, they had an important insight. The external business environment determined the success of their business more than engineering factors. And, given the uncertainty of the external business environment, this meant that they were in the risk business rather than the transport business. The reason that their customers leased rather than bought was to reduce their risk: it was not to get access to the latest technology. Much of the effort they put into evaluation of new technology was not useful. Risk management was actually their key offer to customers.
With this insight in mind, the senior management team agreed to refocus their recruitment priorities from engineers to financial analysts. Since most of them were engineers, this was a major challenge. They also shared their insights and conclusions with the whole company, and they changed their rewards and management system to reflect the new emphasis.
With their business plan reflecting this insight, the company was successful in its next financing round. Considering different possible futures gave them the insight to see that they were not in the business they thought they were (leasing), rather that they were in the risk management business. The new conversation allowed them to better understand their market and to hire and retain the people they needed to address this market.