Carol Ptak would like to thank her husband, Jim, for the understanding and the continued support to keep going through the tough times. Words are so insufficient to acknowledge her parents, Dorothy and Bud, who taught her from the youngest age that she was limited only by her imagination even at a time when the glass ceiling was more like concrete. Their love and encouragement has been the wind under her wings. Carol would especially like to thank Chad Smith for an incredible experience and continued partnership—far beyond any that could ever have been imagined. Chad has opened all our eyes to the deeper truth of a new world of planning. The process of writing three books together has been an incredible journey and truly has been an honor and the highlight of a very long career.
“It is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself”.
The above quote is often falsely attributed to Charles Darwin. While undoubtedly inspired by Darwin’s work, it was Leon Megginson, Professor Emeritus at Louisiana State University, who is the source of this quote. Megginson wrote several books on small business management, published over 100 articles, and won numerous awards for teaching and research.1 Regardless of the source of the quote, the message for business leadership should be powerful: adapt or die.
The dodo bird is an extinct flightless bird that was native to the island of Mauritius, first recorded by Dutch sailors in 1598. When the Dutch colonized the island, they brought with them dogs and pigs. This resulted in an immediate and profound change to the dodo’s native environment, one to which it could simply not adapt. The last credible sighting of a dodo was in 1662. In less than 100 years the dodo was gone. It disappeared so quickly many thought it was a mythical creature until researchers in the middle of the nineteenth century thoroughly studied remains of the bird.2
What can be learned from the dodo? The dodo had no say on the changes to the environment; they were imposed upon it. In today’s world of volatility, uncertainty, complexity, and ambiguity (VUCA) there is a high degree of probability that organizations will have environmental changes imposed that will profoundly or dramatically affect their ability to compete and/or survive. This means that organizations must find a way to quickly sense and adapt to changes in the environment. What stands in the way?
Today’s conventional management practices have tremendous amounts of inertia driven by software, consulting, accounting, and academic experts. Many of these practices trace their origins back to the 1930s and 1950s. Yet the world looks nothing today like it did at that time. Companies must adapt and innovate or their very existence is threatened. Consider this astonishing research from the Harvard Business Review in an article titled, “The Biology of Corporate Survival:”
“We investigated the longevity of more than 30,000 public firms in the United States over a 50-year span. The results are stark: businesses are disappearing faster than ever before. Public companies have a one in three chance of being delisted in the next five years, whether because of bankruptcy, liquidation, M&A, or other causes. That’s six times the delisting rate of companies 40 years ago. Although we may perceive corporations as enduring institutions, they now die, on average, at a younger age than their employees. And the rise in mortality applies regardless of size, age, or sector. Neither scale nor experience guards against an early demise.
We believe that companies are dying younger because they are failing to adapt to the growing complexity of their environment. Many misread the environment, select the wrong approach to strategy, or fail to support a viable approach with the right behaviors and capabilities.”3
But what to change to? How to change and drive adaptation? Is there a safe and effective path to transform a company from a basic planning and operational model developed in the 1950s and measured by financial accounting principles developed in the 1970s and ’80s to an agile and adaptive enterprise capable of staying ahead of today’s hypercompetitive markets and highly complex supply chains? This has been the focus of the authors and their organization, The Demand Driven Institute, since 2011—to articulate a comprehensive methodology that enables a company to sense changes from the market, adapt planning, production and distribution, and drive innovation in real time, resulting in sustainable and dramatic improvements to ROI.
First, the fundamentals. There are three basic necessities that management must always be carefully considering and managing in order to avoid organizational collapse and to sustain and drive better performance:
Figure 1-1 depicts these three critical considerations in a strategic target chart.4 The figure has concentric circles with a green middle, followed by a yellow ring, then a red ring, and finally a dark red ring. The area is equally divided into three sections: working capital, contribution margin, and customer base. The outer circles are the biggest cause of concern. As the measure moves farther away from the center, the threat to the organization grows as performance pushes closer to and through the “edge of collapse.” The very outer ring is system collapse or failure. Any one of these three crucial necessities pushed too far outward will cause an organization to fail.
FIGURE 1-1 The strategic target chart
The black dots in Figure 1-1 represent the organization’s position for each critical consideration. Conceptually, these dots will never touch. If they are consistently green, the organization and its expectations grow; the circle (and its rings) simply expands outward. Additionally, there are lines connecting the black dots depicting the tension and connections between the three areas. For example, if the customer base erodes, contribution margin and working capital will be adversely affected. If contribution margin erodes, working capital will be adversely affected.
When any one of these considerations moves into the edge of collapse ring, signal strength will intensify, and the organization will call, “All hands on deck!” to deal with that specific threat. However, there is a strong connection and tension among the three. Organizations must be careful not to overcompensate in any one area in a manner or for a duration that might drive another over the edge instead. For example, to recover acceptable customer base, the decision could be made to dramatically reduce price then affecting the contribution margin.
