Confronting the Perfect Storm of Chronic Turbulence

By Martin Reeves

Since the mid-1980s, a perfect storm of forces—globalization, trade liberalization, and rapidly changing technologies—has created a new normal of chronic turbulence in the business world. This has undermined the once secure market positions of many large corporations and threatened their long-standing business models.

To meet such challenges, corporate executives have had to master the art of “adaptive advantage.”

Government officials face many of the same challenges: rapid change, new technologies, global threats.

This point was driven home recently by the departing secretary of the U.S. Department of Homeland Security, Janet Napolitano, in her farewell remarks in Washington.

Though Secretary Napolitano covered a lot of ground, she made a point of using the words “flexible,” “agile,” and “adaptable” over and over again. I think she was trying to tell us something.

That same something is what we’ve been telling corporations in recent years: they need to be flexible, agile, and adaptable to meet today’s global challenges.

In a larger sense, these same qualities not only strengthen companies, they also help determine which countries prosper, and which ones fall behind.

As the Index of Economic Freedom has shown consistently for nearly two decades, the strongest and most resilient economies over time are those where companies and institutions have the freedom to adapt quickly to changing circumstances.

Looking back over her four-and-a-half-year tenure, Secretary Napolitano was clear about the requirements for success: “...if there is one take-away, one object lesson and core operating is this: in a world of evolving threats, the key to our success is the ability to be flexible and agile, and adapt to changing circumstances on the ground—whether that is across the globe, or here at home.”

This involves “being forward-looking in our preparations, early and active in our engagement, nimble in our response,” she stressed. “It means taking every necessary step to prepare for a range of potential outcomes, and understanding that if things don’t go according to plan, or the unexpected occurs, we are ready and able to shift resources and adjust operations, learn from our mistakes, and put ourselves in a position to succeed in the future.”

These words should be emblazoned on the walls of every boardroom and executive office in the country.

As some of my colleagues noted in a recent report, “The U.S. as One of the Developed World’s Lowest-Cost Manufacturers,” one of the main reasons more and more foreign manufacturers have been increasing their footprint in the United States is because U.S. law provides significantly more flexibility in the workplace. Specifically, the report noted, “it is far easier and less costly in the U.S. than in most other advanced economies to adjust the size of the workforce in response to business conditions.” This helps drive higher productivity and lower costs.

In some European countries, various regulations governing advance notice and required severance pay can push the cost of closing an obsolete or unneeded factory into the tens of millions of dollars. German law, for example, mandates that workers may remain on the job, at full pay, for anywhere from a few months to more than a year, depending on their seniority. Union contracts and other government requirements can further complicate matters and add to the costs.

As a result, more and more European companies have been choosing the United States when deciding where to make long-term investments in manufacturing capacity.

The flexibility, agility and adaptability that Secretary Napolitano identified as the keys to success require leaders with an ability to anticipate and respond to challenges and changes, examine multiple alternatives, experiment on the run, scale their successes quickly, and bounce back when things don’t go exactly as planned.

This can be difficult for the leaders of large established organizations, with their fixed routines and unchanging structures.

But they have no choice. For governments and companies alike, flexibility, agility and adaptability can be a matter of life or death.

This commentary was originally published by McClatchy-Tribune News Service.