Velocity not Speed

Introduction

With a background in engineering, corporate finance and advisory, I've worked in, run or advised many public and private companies for over 25 years. Many, if not most, companies appear to have a laudable mission statement defining their purpose, with carefully crafted strategies to prevail over competitors, and boast of their can-do cultures, yet fail to deliver acceptable results consistently.

Why?

In my observation, these companies’ failure comes down to their inability to align strategy and culture to achieve their purpose, which is either badly communicated, leaving employees confused and unempowered; or is non-existent.

This book is about defining organisational purpose, deciding rules of behaviour, and, most importantly, acting to achieve the desired results. If you are looking for a cookbook that guarantees money and success, do not buy or read this book. However, do read it if you are prepared to invest time and effort in looking to create velocity, momentum, and energy within your organisation, which becomes self-propagating and drives organisational success.

My work revisits and updates time-tested principles of solid business management – a potent business purpose, effective strategic thinking, a proactive culture – to show that any organisation can implement the meaningful, enduring, and pervasive change that is crucial to its survival. These concepts have been around for decades.

My goal is to explain their rationale and benefits, and the actions needed to implement them in your organisation. My hope is that readers will be able to use these concepts to create cycles of positive change within their organisations by creating an environment in which people can make decisions, and a positive dynamic culture can flourish.

This book focuses on business organisations. However, it is relevant for any organisation, including charities, non-governmental organisations, and high-performance sports entities, and settings where a group of people set out to achieve a desired outcome.

I want to thank everyone who contributed to the book through content suggestions, reading, and re-reading manuscripts. To Mike Lewis, who expertly turned my pile of notes, research, and early manuscript into a more coherent book; to Sarah Johnson for final editing and sense-making, and to Jason Roberton at Bullzeye in Hamilton for applying his huge creativity to the figures and sketches.

Thank you to my friends, colleagues, and unsuspecting strangers who have been confronted with my purpose-led strategy over the years. And a final huge thank you to my wonderful loving family for giving me purpose (and my dogs who served as models for the Dog bowl picture!).

Chapter 1. The Inevitability of Change

Ask any CEO, executive, or leader if they want a profitable organisation with engaged employees, satisfied shareholders, and happy customers who recommend the company to friends. The answer is unanimously ‘Yes’.

Few would disagree that achieving those outcomes is the ‘purpose’ of every business. Which raises the question: Why do so many companies fail to achieve these straightforward goals?

A casual survey of past and current business leaders suggests that few organisations can achieve and sustain high levels of success over any significant period.

More than 1800 companies have appeared on America's Fortune 500 list[i] since its first publication in 1955. Only nine (0.6 per cent)[ii] – Boeing, Campbell Soup Company, Colgate-Palmolive, Deere & Company, General Motors, IBM, Kellogg Company, Procter and Gamble Company, and Whirlpool Corporation – continued to be listed every year between 1955 and 2018.

Clearly, past results are not an indicator of future success. Which raises the next question of: Why not?

The Impact of Change

Heraclitus, I believe, says that all things pass and nothing stays, and comparing existing things to the flow of a river, he says you could not step twice into the same river. – Plato in Timaeus

Humans naturally resist change and seek stability, i.e., homeostasis. We react whenever our physical or mental equilibrium is challenged. When our physical body gets hot, we sweat (or ‘perspire’ for the more sensitive among us), cooling the body by evaporating water on the skin. When a virus such as Covid-19 invades our bodies, our immune system goes to war with the invaders until the disease is vanquished or we fall ill. Change upsets our mental and emotional equilibrium, forcing us to expend energy to return to a balanced state or adjust to the new ‘normal’.

Similarly, when our beliefs are threatened, we ignore, deny, or rationalise to protect them. In extreme cases, we create an alternative reality.

Human organisations reflect this innate need for stability. We seek routine in our lives and organisations because it promises security. Even those who suggest change suffer, according to Niccolò Machiavelli, a 15th Century Italian diplomat, writing in probably his most famous work; The Prince[iii]:

It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them.

Business organisations arise to meet specific market needs. The expectation that the environment tomorrow will be the same as today encourages investment (human and physical) and promotes planning for the future.

Unfortunately, organisational managers will frequently fail to consider the consequences of their actions on the market environment. In filling needs, they are change agents. Their success encourages others to copy their strategies, thus adding momentum to the movement and satiating demand. When one need is satisfied, another takes its place, and the process repeats in a cycle we call ‘progress’. If the organisation does not adapt, it dies.

The journey from an organisation's beginning to its demise, i.e., its life cycle, has been studied by business and social scientists for years, and is a process that many call inevitable.

Entropy (Disorder) – the Second Law of Thermodynamics is the Natural State

The Second Law defines the ultimate purpose of life, mind, and human striving: to deploy energy and information to fight back the tide of entropy and carve out refuges of beneficial order. – Steven Pinker[iv]

Entropy – a natural and increasing state of decline and disorder – is the last stage of the life process of natural and economic systems. All closed systems tend to maximise entropy. According to Emerging Thermodynamics[v], entropy in the natural world has four main features.

Entropy is a thermodynamic property that measures the degree of randomisation or disorder at the microscopic level. The natural state of all things is for entropy to be produced by all processes.

A macroscopic feature that is associated with entropy production is a loss of ability to do useful work. Energy is degraded to a less useful form, and it is sometimes said that there is a decrease in the availability of energy.

Entropy is an extensive thermodynamic property. In other words, the entropy of a complex system is the sum of the entropies of its parts.

The notion that entropy can be produced, but never destroyed, is the second law of thermodynamics.

Entropy happens in every system, but can be controlled within a defined system by the application of energy. In the natural world, friction – the resistance of forces against motion – ultimately ends motion, e.g., the impossibility of a closed perpetual motion system.

In business, friction is the internal resistance to achieving the organisational purpose. As the stone rolling downhill eventually stops when the ground levels or rises, so businesses will eventually devolve into confusion and chaos – strategy failure, limited adaptability, distorted communications – without the intervention of positive forces. Company management (and, ultimately, all employees) must constantly exert positive energy to minimise entropy; otherwise, disorder increases.

The impact of entropy depends on multiple factors.[vi]

Other things being equal, when the scale of a system is larger, the scale of disorder is larger.

As systems grow more complex and complicated, their chaos is more intense and widespread.

The more useful information there is in the system (certainty of system), the less confusion results.

The speed that external information is absorbed in a system (stability of system) is directly relative to the system’s ability to accept that information. If the speed or extent of change exceeds the organisation’s ability to adapt, entropy increases.

Most system changes are irreversible, requiring more energy to return to the original state than was exerted to establish the original system.

Importance of Proper Management Response

Not long after passing my driving test on the roads of the north of England where I grew up, I pulled into the driveway of my home. Thinking of what might be for dinner, I hopped out of the car, forgetting to set the emergency brake on the sloping drive. To my horror, the car began slowly moving forward towards the garage door. In blind panic, I grabbed the door handle of that bright red piece of British automotive greatness, a Vauxhall Nova, whose construction rivalled the Sherman tank. Wrapping both hands around the handle, I stiffened my legs and anchored my feet in the ground. Despite an intense and painful battle between me and the hunk of British engineering, I was but a fly on the side of a charging rhino. Thankfully, chrome bumpers can be polished to near perfection, so no one was any the wiser – except for my memory to set the brake before I exited my seat.

Whether you think of a rolling stone or a rolling Vauxhall, momentum is the force of an object’s movement, the product of its mass multiplied by its velocity.

Velocity differs from speed – even though they are measured similarly (distance divided by time taken to cover the distance) – due to its directional component. Velocity is a vector; the aim being to get all in your organisation aligned.

Figure 1: Velocity versus Speed

As we will cover in Chapter 2, the intent of an organisation’s purpose is to give direction. Friction and entropy retard, and will eventually halt momentum towards, that purpose. Executives must sustain momentum through their actions and decisions to achieve the organisation’s purpose.

Achieving velocity and momentum may appear simple; maintaining it is hard.

The rate that an organisation will decline is constrained by its management’s ability to quickly recognise changes in the market, correctly identify the causes and effects, and appropriately adapt to the new environment. A failure to respond appropriately will seriously restrict the continued development of the enterprise. When change is not addressed, all businesses increase in chaos and eventually lose the ability to respond.

Entropy appears in all aspects of business, from production of a product to the delivery of a service. Production processes become inefficient and break down without constant maintenance; marketing programmes grow stale and lose impact; and salespeople require constant encouragement and training.

Businesses require constant vigilance and correction if they are to maintain momentum in the right direction, just as an automobile driver constantly makes small adjustments to the steering and accelerator pedal pressure.

Causes of Decline

Why do businesses decline? There are usually several factors, each present in various degrees.

Law of large numbers. As a company gets bigger, the amount of new business needed to make a material difference in earnings also rises, increasing the pressure on sales to find new markets, new categories, and new geographies. In other words, the larger a company becomes, the more  inputs are needed to sustain or maintain its momentum.

Market maturity. Over time, markets follow predictable patterns[vii] as buyers become familiar with brands and competition increases. Prices stabilise, reducing a company’s ability to increase revenues through price increases. Ultimately, markets reach a saturation point, due to limited demographic growth (fewer customers) or commoditisation of products (lower prices).

Psychological self-protection. As a company gets larger, there is more pressure to preserve the base business,[viii] and less willingness to divert earnings to innovative, but risky new offerings. Studies[ix] estimate that most innovation efforts fail. As a result, management and boards opt to play safe[x] and focus on existing products and services, potentially opening the door to disruptive competitors. A famous example is Kodak Eastman, a company that in the 1970s invented the first rudimentary digital camera[xi] and held numerous patents relating to it. However, Kodak was pushed back from commercially developing the camera, as its marketing department feared this would eat into film sales.

In most cases, the changes leading to an organisation’s decline are slow and barely perceptible, as