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Take a tip from Tesla and drive fast into the future

Published 21 December 2021 in Asian hub • 7 min read

COVID-19 is forcing corporations into radical transformation. The Future Readiness Indicator shows who is winning, and how to prepare and respond to tomorrow’s disruptions.

 

As the pandemic rolls on, it has been increasingly difficult to make predictions. Travel plans have been roiled because of rising infection rates. Critical inputs for manufacturing have been in short supply. It may seem like a fool’s errand to predict what’s going to happen across industries. But there are ways to prepare for the unexpected. Tomorrow’s winners will be the organizations that master new capabilities ahead of time and those best positioned to capitalize on new growth opportunities.

At IMD’s Center For Future Readiness, we rank publicly listed companies based on their preparedness for what is to come. We do so by taking a set of rule-based, objective measurements to arrive at a composite score, which we then compare against the industry average. We call this the Future Readiness Indicator.

The indicator offers a set of important lessons that executives can apply in their efforts to chart a course through increasingly choppy waters. Take the automotive sector as an example. Every auto executive knows cars are becoming supercomputers on wheels with infotainment, navigation and driver assistance systems. But the semiconductors that power these systems are now in short supply due to a greater demand for consumer electronics during lockdown. Automakers miscalculated demand, and there are problems in the supply chain, so carmakers are halting their production lines.

Semiconductors are substances with properties somewhere between a conductor, and an insulator (substance that does not conduct electricity).

But not all of them. Toyota stockpiled chips, so it avoided the worst of the disruption. It did this through a system called “Rescue” that stores supply chain information for around 6,800 parts. Toyota communicates with thousands of suppliers, so it can see where the shortages and challenges are, and stockpiles accordingly. This is how Toyota reclaimed the title of the world’s largest automaker from Volkswagen.

But the real industry star is Tesla. What distinguishes this electric vehicle company is that its cars receive over-the-air updates that add new features and functionality. With that, Tesla was able to source different chips with greater supply, and rewrite the software code. It then integrated the chips with its cars to maintain production.

As rivals faced billions of dollars in lost earnings from the chip shortage, Tesla delivered a record 241,300 vehicles in the third quarter of 2020, with the company’s net profit soaring 389% from the previous year, topping $1.6 billion, its highest ever. “We were able to substitute alternative chips, and then write the firmware in a matter of weeks,” said Tesla founder and CEO Elon Musk said. “It’s not just a matter of swapping out a chip; you also have to rewrite the software.”

Tesla achieved such standout success not because it was able to forecast, but because it had invested in new capabilities in electronics and software. When the semiconductor crisis hit, Tesla’s readiness became a source of resilience that fueled future growth.

Western platforms are also starting to make bets on live commerce. Amazon launched Amazon Live in 2019
- Author Name

Many executives are now being forced to consider radical changes to their operating and business models. The pandemic is speeding up seismic shifts that might have taken decades to play out but are now happening in a matter of months. Many companies are finding that consumer behavior has radically changed, with a move to digital platforms, or that their products and services have lost relevance.

Consider finance. The digital future of banking is becoming increasingly clear, with the rise of electronic payments, use of automation and blockchain technology. To prepare for such a future, financial service companies must aggressively invest in technology and automation.

But when companies do not have the capabilities, talent or technology they need, they must partner with a company that has these assets. This enables incumbents to scale innovations with speed, but it also requires executives to let go of controls and be curious enough to learn from competitors.

In the financial industry, companies such as Mastercard and Visa top the Future Readiness ranking. These players realized early that they couldn’t outrun fintech challengers. Tech giants are also creeping into their core market. So instead of fighting them, Mastercard and Visa joined forces with them, becoming “frenemies”.

For example, they invested in easy-to-adopt application programming interfaces (APIs), software that allows applications to talk to each other. This allowed the payment companies to make their infrastructure compatible with Apple Pay and Google Wallet. The payment companies thus became irresistible to fintech upstarts such as Coinbase, a cryptocurrency exchange, which launched its cryptocurrency Visa debit card in the US.

Coinbase is an American cryptocurrency exchange platform without official physical headquarters.

So while one day the plastic credit card may disappear, Mastercard and Visa will continue to move money around the world. This is the sort of business that’s future-proofed.

An even bigger part of being future-ready is the ability to draw on different business disciplines and practices from other sectors to create new knowledge about how a product is made, or a service is delivered.

Companies are demanding executives who possess the ability to build varied teams that rigorously challenge assumptions. A diversity of perspectives is proven to boost innovation — an attribute that will prove critical for companies to successfully rebuild when the COVID-19 crisis is finally over.

But the most successful leaders broaden their horizon and move into any market in which they see opportunities for growth. They leap from their historic areas of expertise to new knowledge. Carmakers are moving away from their mechanical engineering heritage to increase their software capabilities as they phase out the internal combustion engine and build electric motors and electronics components.

Leaping is a source of resilience. Companies change or they die. Witness how Big Oil is exploring a future beyond petroleum and doubling down on renewable energy as the sector comes under mounting pressure to respond more aggressively to climate change.

But it takes much more than that to leap. Our research shows that the most future-ready companies align themselves with a single viewpoint about the future. This allows them to make a targeted allocation of resources and scale up projects early, instead of making a millimeter of progress in a million directions. Only then will they see a financial return from their investments in innovation.

Consider the challenges faced by a consumer brand. Traditional know-how has been built around manufacturing a standard product at the lowest possible cost. Brands then seek to push products through retailers at great volume while advertising at scale. What’s changed today is the importance of blending online and offline activities. Today’s brands must create personalized offerings and foster a direct-to-consumer relationship.

“Lululemon, a sportswear brand, bought a startup that sells a $1,500 tech-enabled mirror with camera and speakers so people can tune in at home to live yoga and fitness classes.”

Of course, a sleek website and a clean mobile app are only the starting points. Behind the scenes, there are make-or-break technologies to master. Consumers may want to personalize their sneakers online and have them shipped in weeks. To make this happen, and to do it profitably at scale, Nike has digitalized its entire supply chain. It has automated all tracking and coordination with external partners. It also leverages advanced data analytics to gather insights around the clock, so it can make markdown and promotion decisions instantly and move inventory across a country when needed. Doing this helps locate and ship specific products to the individual stores that need them most.

Lululemon is a prime example of a future-ready brand in sportswear. The company’s digital channel is built upon innovation beyond apparel design. It holds patents in wellbeing metrics, a biometric sensor belt, and a three-dimensional texture for the surface of a yoga mat. Then there’s the acquisition of Mirror in 2020. Lululemon bought the startup that sells a $1,500 tech-enabled mirror with camera and speakers so people can tune in at home to live yoga and fitness classes. All the direct-to-consumer relationship helps the company to better discern consumer taste and detect new behaviors.

Our research notices that the most-future ready companies adopt organizational structures that are flexible and straightforward, rather than rigid and complex, to boost agility. This requires complete transparency, so that everyone has access to the data they need, and employees can submit ideas and chose to implement them at work.

We may not be able to see accurately what’s coming around the corner, but we can prepare for the unknown and strengthen resilience through adopting flexible structures, aligning teams, broadening horizons, challenging assumptions, and making frequent and targeted investments in technology, and being curious enough to learn from rivals.

The annals of history are filled with examples of companies that failed to innovative. Often, they did not see the danger posed by upstart challengers, or were unwilling to accept that their supremacy was under threat. For many companies, this is the moment to leap. If there’s one positive to come out of the pandemic, it’s that the crisis has helped to cast aside institutional inertia.  

 

View the Future Readiness Indicator on the IMD website. You can view additional interactive graphics and the ranking for technology companies. 

Authors

Howard Yu - IMD Professor

Howard Yu

LEGO® Professor of Management and Innovation at IMD

Howard Yu is the LEGO® Professor of Management and Innovation as well as the director of IMD’s signature program, Advanced Management Program (AMP). He is the author of the award-winning book LEAP: How to Thrive in a World Where Everything Can Be Copied.

Howard Yu is the Strategic Resilience in a Disrupted World program director.

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