Societal and economic progress is not evenly paced. For long periods of time, the configuration of economic relations doesn’t change much and progress comprises incremental innovation and piecemeal change. But every few generations, the economy fundamentally reconfigures due to a deep social, geopolitical, or technological disruption. The great technology revolutions are good examples of this, where the pattern of production and consumption were successively changed beyond recognition by the advent of first steam power, then electricity, electronics and most recently the internet. But such events are not exclusively technological. Other system-wide dislocations occurred as result of political or societal changes such as the Enlightenment or the Renaissance.
At such times, there is pervasive and deep change which creates disadvantage for many enterprises and advantage for some. Take for example the internet revolution which started with the “mother of all demonstrations” in 1968 and triggered the proliferation of new technology companies, the rethinking of business models across sectors, a wave of brutal competitive disruption and a complete reshaping of the league table of businesses. The big banks and oil companies were replaced with a decade by technology platform businesses. The turnover of winners and losers becomes much harsher at such times.
We are now at such an inflection point driven by climate change. This is a different type of change, not driven primarily by a new technology or a social change, although these will certainly be evident too, but rather by impending ecological limits. The impacts and responses from companies and investors are already beginning to be felt across industries and geographies, within value chains and on store shelves. The massive consequences of insufficient action and their imminence create a huge driving force for change. Products and entire companies risk obsolescence driven by displacement from end products no longer necessary.
If we imagine any version of an economy which had halted or reversed climate change, it would be profoundly different in almost every respect. From energy, through housing, the design of cities, transportation, distribution, materials and infrastructure to taxation and accounting. We are already seeing smart money and entrepreneurs pouring into climate technologies. In virtually every sector there is a race to discover new business models that deliver climate-wise products and services, that profit from less energy, fewer virgin inputs, higher circularity and informed by a new sense of what is ethical or desirable. We already see fortunes being made by pioneers like Tesla, dislocating incumbents and creating massive new market value at a surprising pace.
For companies to avoid becoming a victim of creative destruction and to survive and flourish, they need to adopt a mentality and ways of innovating and operating very different from the ones which dominate in more stable times. They need to behave more like pioneer species in a disturbed forest ecosystem, quickly filling gaps, growing rapidly to avoid being shaded out by other plants and adopting a so-called r-type reproductive strategy, creating many seeds and dispersing them widely, even though few will succeed in becoming established.
For companies to survive and thrive through these ecosystem disturbances and resets, there are 6 practices which improve the odds.
1. Adopting an opportunity mindset.
Every constraint for an incumbent player becomes an opportunity to a pioneer. COVID provides an instructive example of this, albeit on a smaller scale of change. COVID reshaped not just the level but also the pattern of demand in even the hardest hit sectors. In each sector there were clear winners and losers, and winners were consistently focused on opportunities for differential growth by exploiting these new opportunities rather than only on mitigating short term health, logistical and financial constraints.
2. Relaxing boundaries.
Traditionally the units of analysis for business are the company and the industry. Bruce Henderson, BCG’s founder, proposed the rule of 3 and 4, observing that in each industry 3 volume players make money and their market shares usually approximated to the ratios of 4:2:1. The trick, he observed was in determining the natural boundaries of competition. Pervasive disruptions reshape boundaries, disadvantaging those companies which have a fixed idea about the structure and scope of their industry. The last pervasive disruption of the internet did much to blur the boundaries between industries and even companies, with the rise of horizontal digital ecosystems. We expect the great climate upheaval to have the same effect.
3. Embracing urgency.
Forecasted adoption rates from renewables to electric vehicles significantly underestimated the actual rates at which these technologies have penetrated the market and the compounding and cascading changes that followed. Using the same incremental processes of innovation and scaling that worked well in more stable times is unlikely to keep pace with the rapid pace of competitive change. To win requires comfort with rapid cycles of innovation, release, scaling and learning.
4. Relaxing assumptions about what is possible
In stable times, companies are mainly focused on the factual and the evidenced. When disturbance requires that new to the world ideas are conceived and realized, data and prevailing wisdom about what is possible or most effective can impede this. Conventional wisdom dictated it takes 5–10 years to develop and launch a vaccine, but the urgency of COVID pushed Pfizer realize this within a year, as described in Albert Bourla’s book, “Moonshot”. As Nelson Mandela said, “it always seem impossible until it is done”.
5. Rebalancing performance with future option value
In stable times companies relentlessly optimize their current business models. But in times of upheaval future option value becomes proportionally more important and incremental optimization is less likely to deliver long-term performance. Rather, a higher rate of experimentation and comfort in acting before everything is fully worked out become necessary. That requires comfort with rapid cycles of innovation, trial, and scaling — often reaching beyond the capacities inside the walls of today’s businesses.
6. Focusing on reimagining the business for new circumstances
A mental model of how a business or an industry works is a choice, not a fact. But this is hard to see, if a company’s thoughts and actions are highly converged and grounded in an optimized, historically successful model. In addition, when new ideas are surfaced it can be hard to distinguish the novel but implausible from the merely unfamiliar. The success of pioneers is often grounded in a culture and practices which facilitate imagination.
Imagination “games” can help this process of reimagination. By creating opportunities to playfully recombine and explore ideas, the prison of conventional wisdom can be prized open. Play is necessary since the process needs to be curiosity driven, counter-factually based and free from fear of being wrong. Here we exemplify two of the 16 games we describe in The Imagination Machine for this purpose.
In the maverick game, participants attempt to see the world through the eyes of companies which are making a very different bet on the future from their own. First, the company’s own bet on the future — the essence of their business model — is codified. Then based on this a list of mavericks is created, from within and beyond the industry and the essence of their bets codified. Then follows an exercise in elaborating the consequences of each maverick bet being the right one. Finally, participants stand back and articulate the implied opportunity from their expanded perspective.
In the friction game, participants generate ideas by focusing on the most logical places for disruptors to focus, even if no such disruptors are yet visible. These are the points of economic friction — places where misunderstanding, mismatching of needs, transaction costs, rework and the like are significant. For the next upheaval, this can be narrowed to frictions resulting from climate-change either intrinsic to the customer’s own business model or constraints which your business model imposes on them. Then follows an exercise of roughly ranking these points of friction and for the biggest ones, ideating on how these could be preemptively reimagined if the company’s future depended upon doing so.
Conversely, a poor strategy for developing advantage during upheaval is to be stuck in an incremental and status quo mindset, particularly easy now during the race to announce climate targets and demonstrate compliance to ESG metrics. Compliance will rapidly become a matter of hygiene not advantage. Advantage will involve creating what does not currently exist, not optimizing or constraining what does. It will not come from focusing energy on compliance with emissions reductions goals, but instead by reconceiving the business to surpass them. A deductive mindset can create a similar snare by reasoning towards well founded solutions based upon what we know, rather than testing new ideas and questioning the very fundamentals underpinning today’s business model.
Companies which follow these principles can individually survive and outcompete their rivals in times of upheaval. Unleashing the forces of creative disruption has a more subtle collective benefit too however, relative to the alternative of relying only on top down, monolithic mechanisms like economy wide regulations, norms, and best practices. Competing for the future involves innovation. One of the characteristics of the climate challenge is that we don’t have all the answers we need. Generating new answers is an essential part of the solution. Furthermore, a variety of solutions compete for relevance, and competitive pressures speed this process up. The granularity of solutions using such a decentralized approach will also better fit the varied needs of a complex economy. Competition is also dynamic, with new solutions continually emerging from an ever-changing situation, as opposed to regulatory solutions which are inevitably more static in nature. Fundamentally however, by focusing on benefits rather than on compliance and constraints we create the motive force for the system to perform and have a higher likelihood that the end state is not simply a more constrained or expensive version of the status quo but is actually better.
In summary, we are entering a period of deep and broad upheaval created by climate change, where the biggest winners and contributors will be determined by their ability to compete on imagination, rather than their ability to comply with constraints.
When we published The Imagination Machine, we created the Napkin Gallery an online gallery showcasing how the imagination in business did more to change the world than any poet or visionary. We will be opening a new wing in the gallery to showcase emerging examples of climate related imagination and invite exhibits. We welcome suggestions for exhibits for the gallery to firstname.lastname@example.org.