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“ The problems are clear and can be articulated by top management,
but the solutions reside in different parts of the organization, and middle
and frontline management must be invited to propose them.
”
Christoph Loch and Fabian Sting, professors at INSEAD, Technology and Operations Management.
In the face of such uncertainty, no one can simply decide what
strategy to take. This would entail a hit-or-miss approach, or
require such long term analysis that one would risk falling behind.
A “command and control” of a fixed direction simply will not work.
Companies should therefore undertake strategic experiments.
Large players will not be able to avoid parallel trials, for example,
having a fuel cell and a hybrid and a high efficiency diesel; launching
cars for the global market and experimental locally designed cars
in Asian markets. This is illustrated by the experiments that Honda
is showcasing in order to appeal to new users of cars.
Pursuing such parallel technologies, models and market
approaches will be expensive and should be done with deliberation
– trials should not necessarily target short-term “success” but rather
be used to learn about the market. In addition, companies will have
to experiment in an iterative fashion; for example, by launching a
hybrid and seeing how it does, or launching a low cost car in India
and learning about its weaknesses and strengths. Again, this is an
expensive business, but when the market is moving so fast with
many new consumers – indeed many of them have never owned
a car before – you can’t rely on old market research. You have to
“probe and learn”.
This context requires a different leadership style from classic
top-down management because the top team alone cannot steer
this amount of experimentation, and it cannot know enough about
opportunities for innovation and market requirements. Hence
the situation requires using the entire organization as a problemsolving
resource.
The problems are clear and can be articulated by top
management, but the solutions reside in different parts of the
organization, and middle and frontline management must be
invited to propose them. Top management can put a portfolio
together that fits with resource constraints, has the breadth to
ensure appropriate exploration, and brings together initiatives that
are complementary rather than conflicting.
All this requires that the troops are briefed on the strategic
challenges and the logic of the strategy initiatives chosen. For
example, R&D may propose prototyping certain promising
technologies; local sales companies, the development of models
with certain key features; and manufacturing, the use of local sites,
platforms and suppliers. Again, in a time of strategic turmoil, the
value of such a portfolio of initiatives lies not in maximizing the
traditional (short-term) financial return, but learning about which
technologies will win, where the growth will come from, and what
the needs in the various markets will be.
When we studied manufacturing organizations across several
industries in Germany to see how strategy was executed in
companies that maintained global manufacturing competitiveness
in a high-wage country, we found that 50% of strategic initiatives
were generated bottom-up by middle and frontline management,
rather than top-down. This could even go as far as questioning
board-level goals based on exceptional bottom-up ideas and
concerns. Admittedly, this was the exception rather than the rule,
but the possibility exists.
For example, in one organization the goal of the Business Unit
was changed from a cost focus to a focus on reducing customer
reaction time, based on input from middle management. The logic
of the change rested on customer value and the fact that the
response time reduction achieved by process improvements led
to lower costs in the long run. Conversely, we found that overly
tight “alignment” along a fixed strategy hampered the innovation
and changeability of the organizations.
So the leadership lesson in times of turmoil is this: A fixed
strategy imposed from the top, no matter how brilliant, simply will
not work because (a) it will probably be wrong when the markets
as well as technologies are as uncertain as they are now, and (b)
potential solutions to problems are distributed across the entire
organization. Managers must become orchestrators rather than
bosses, although this does not mean they can be weak – out of
diverse ideas they have to select and craft a direction.
Western car companies have both the technology and the
manufacturing capabilities needed; yet the challenge ahead
lies in generating a sufficient number of creative options from
within the organization, experimenting to learn, and making the
right selections to channel creativity. The composition of the
auto industry in ten years will be decided by the quality of top
management today. AI
Christoph Loch and Fabian Sting are professors at INSEAD, Technology and Operations Management. INSEAD
is one of the world’s leading and largest graduate business schools, with three campuses in Europe (France), in
Asia (Singapore) and in the Middle East (Abu Dhabi), a research centre in Israel and an office in New York.
Automotive Industries 71