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LBS Sull: New Industry Leaders Will Prosper During "Turbulence"

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Don Sull of the London Business School is a popular and familiar voice on the "Back to B-School" Blog.  He was recently cited by Fortune as one of the "ten new gurus you should know." Right now, you'll be get to know more about him and his new book,  The Upside of Turbulence: Seizing Opportunities in an Uncertain World. BNET: How did you come up with the concept of your new book, a project you've devoted several years to? Sull: Well, ten years, but who's counting?  The origin is: I grew up in Ohio, and as I mention in the forward of the book, when I was a kid, the major industries here like steel, autos and tires were the pistons driving the American economic engine.  By the time I graduated from college, these industries in Ohio were a joke and Detroit was in its perpetual freefall.  The auto industry was getting wiped out and the steel industry had cut something like two-thirds of its employees.  I just could not believe that these companies that everyone was so proud to work for could tank so completely and so quickly, basically over 15 years. So that period informed this book and basically all of my research.  Why can't companies adapt?  The twist in this book is the finding that companies that are really good in stable markets struggle in turbulent markets.  The other thing that really piqued my interested with this book is that there were companies that did not just survive turbulence but actually thrived because of turbulence.  For every General Motors there was a Toyota, for every US Steel, there was a Mittal Steel. The steel industry was in particular interesting to me because I had grown up in Ohio.  Here was this guy Lakshmi Mittal who started up a steel mill in India in the 70s and basically built his company by seeking out the most turbulent markets...Kazakhstan, Mexico, Indonesia and places like that.  So, this book is not necessarily about how you survive in turbulent markets, it's about the fact there are huge opportunities in turbulent times. BNET: So, what exactly is turbulence? Sull: Turbulence is a measure of the frequency of unpredictable changes that affect your company's ability to create and sustain value.  A lot of people associate turbulence with the current "economic crisis."  They say it's bad now, but we'll recover and things will get back to normal.  But that's simply not true.  There have been a series of studies that have converged on one finding: volatility and turbulence in global markets have increased somewhere between two- and fourfold since the late 1970s.  Most of those studies measure it up until the late 90s, which obviously predates the current crisis [so the figures could be conservative].  The point is that turbulence is much broader than the current financial crisis.  It's driven by macroeconomic shifts, currency market changes, technological changes, geopolitical events, 9/11, the entry of China and the former Soviet Bloc into the global economic system... Turbulence is here to stay.  It was here long before the current crisis and is something we will have to deal with for a long time after the current economic situation is resolved. BNET: What are some of the companies that have been done in by a failure to properly adapt during times of turbulence? Sull: That's a pretty long list.  I would say Anheuser-Busch; they weren't able to keep pace with changes in the market the same way Inbev was.  Motorola, Norwegian Cruise Line, Detroit's automakers as a group (though Ford is doing OK), Benetton...there's just such a long list of companies. There are so many ways companies can fail; you can have crooks at the top...you can have idiots at the top.  But one of the interesting things that emerged from this research is that while those things account for some of the cases where companies fail, much more frequently companies see changes coming. Their managers respond very aggressively...they are not idiots and they are not crooks.  But they get locked into the set of commitments [please see my interview with Don Sull about "managing by commitments"] and a certain strategy that have made them successful in the past.  They lock into a certain view of the world and a certain way of measuring success.  They lock into a set of relationships.  They lock into a certain set of processes that become routinized.  These commitments tend to harden over time, so when the environment shifts, it's difficult to respond effectively. I talk in the book about a concept called "active inertia" which is an acceleration of the activities that worked in the past, even in the face of disruptive changes.  It's a common pattern.  In some ways I think it's a much scarier story than the old "success breeds arrogance and complacency.  Arrogance and complacency breeds bone-headed moves.  And bone-headed moves lead to failure." Next week we'll learn how some top companies have learned to prosper and seek out new opportunities in times of turbulence.

posted by Jeremy Dann
October 14, 2009 @ 1:11 am

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