Life in a state of war, Thomas Hobbes observed, is “nasty, brutish, and short”. Much the same could be said of business. Over the course of the last century, life for most businesses has certainly become shorter.

As this illustration of McKinsey research shows the trend towards shorter company lifespans has become entrenched and looks set to continue. Screen Shot 2014-02-26 at 08.21.56

Businesses that once seemed in rude health and well positioned to manage changes in their markets are either dead and buried. Or they struggle on zombie-like.

Blockbuster, Blackberry, Kodak and Nokia all have their own story to tell. Blockbuster and Kodak had to contend with the internet and digitisation driving a coach and horses through their business. Blackberry and Nokia misread and then were slow to act on more basic market segment and consumer preference shifts – touch screens and a rich App ecosystem.

These business had to deal with issues specific to their industry. They also had to contend with their own specific organisational and cultural circumstances (Simon Waldman is particularly insightful on Blockbuster and Kodak’s struggles in his book Creative Disruption).

But at heart these business struggled to deal with market complexity. They failed to cope with the reality that their industries would not only be radically changed by an occasional big shift – what Andy Grove, founder of Intel, called ‘strategic inflection points’ – but continuous waves of change.

From complicated to complex markets
The idea of markets as complex is not new, but an EPIC 2013 paper by three former colleagues at Intel (Tony Salvador, Ken Anderson and Brandon Barnett) does a great job of describing how market complexity comes about and what it means. (Full paper; shorter blog post)

In their analysis, there has been a shift from markets being complicated and stable to markets that are complex and characterised by velocity.

In the past:

  • Market change was slow, steady and predictable
  • Important variables (pricing, adoption rates) in a market were known and understood
  • Business model shifts were evolutionary with little volatility
  • Product development process were easily defined and (relatively) simple to execute

But now markets look different:

  • Rapidly changing technology advances,
  • Very short product cycles
  • Market players are more interconnected
  • Networks of relationships between businesses, between business and consumers, and consumers-to-consumer are denser
  • Feedback loops are quicker
  • Markets are moving faster and more unpredictably than before

Complex markets put most if not all things that we take for granted up for grabs. Here’s a good summary from the paper authors of things that have been rapidly and wholly transformed in complex markets.

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Big fish, small fish

One important insight from this analysis is the comparative disadvantage that bigger businesses can face in complex markets. The tightly defined relationships and value chains that characterised their dominance (e.g., Intel and Microsoft’s ‘Wintel’ era) become a disadvantage when the market rapidly shifts. In the case of computing this has seen the shift from desktop to new form factors, with cloud creating waves of disruptive innovation.

Business needs to find new ways of understanding, interacting with and responding to complex markets

So how does business set about understanding and then orienting to the market? Let’s take these two issues in turn.

1. Understanding complex markets

Many of the research tools and techniques that have become the mainstay of business emerged from, and were designed for, complicated and stable markets. Segmentations, focus groups and surveys still have a role but it’s important to recognise their limited ability to capture market flux and complexity.

In  a world where research was, (and sometime still is) about minimising risk and increasing certainty these were great tools. In a complex world research needs to have a different set of ambitions. We need to move beyond just observing, measuring and documenting markets to understanding and imagining what might be the future possible paths in the market. Many of the techniques used, even more seemingly progressive approaches such as ethnography, tend to involve a ‘dip in and dip out’ approach. The Intel authors’ contention is that this doesn’t generate the insight into change and flux that is required. How can you see the trajectory of change if you’re not constantly and closely tracking it. 

This longer term view is perhaps a luxury of corporate R&D labs so what’s the right response for those outside those contexts? The authors suggest sustained enquiry on a single topic or a focus on specific phenomena in a cultural context.

At Stripe Partners our own response to understanding market shifts is to focus on understanding people’s practices across time. We’ll talk more about our practice-based approach in a subsequent post and elsewhere on the website. We believe that applied across time and across markets ‘practice tracking’ can help identify change and opportunity. 

2. Helping bigger businesses orient to complex markets

It can be easier for smaller businesses to exploit shifts in complex markets. The era of start ups is a feature of the ready availability of tools for producing and distributing products and services. (The internet is central to this environmental change but not the only factor). The playing field is not only now level, it can sometimes be tilted towards the smaller players.

For larger companies structural factors such as strategic relationships and value chains are compounded by issues of organisational  size, culture and complexity. Its CEO famously invoked the burning platform metaphor to warn of impending doom but Nokia lacked the cultural and organisational agility to respond in time.

We set up Stripe Partners to help businesses orient themselves differently to complex markets. We believe that a strong point of view on what’s happening in a market is vital but arming a business with that is not enough. We believe that getting something into a market is the best way of understanding the market and how that market will orient to that thing. Our experience in NPD, R&D and innovation functions (within and outside client organisations) shows us that their processes often work at the pace suited to stable and slowly changing markets; not complex and fast moving ones.

Our approach is designed to help our clients define and build out ideas quickly – call them probes, prototypes or products – so they can learn from that process of building. But more importantly we believe getting something into a market is the best way of learning about it. We want to help our clients shift their planning and product cycles to make them fit for conditions of complexity and velocity.

A quick summary:

Understanding complex markets

Complex markets require research to re-tool. It needs to shift from thinking about how to describe what slow-changing and stable system look likes to exploring why and where change is coming from . Any tools or lens that allows for the tracking of change over time will help. A lens that allows you to understand inter-connections and how the system itself is changing is even more helpful.

Working within complex markets

Complex markets demand a different orientation from business. Long duration product development cycles assume the market will be the same at launch as it was when the process began. A more nimble or agile approach reduces the issue of product/market lag.  This approach involves a different way of learning about product/market fit – a shift from theorising or testing to learning by doing.