In our current age of turbulence and rapid global change the growth challenge for developed economies, including Canada, may be due in large part to a business leadership crisis. For several decades Canadian businesses were protected from the ravages of intense competition previously by the low dollar and now resource revenues. The influence of global competition are increasing as Canada is set to sign several new trade deals. As non-renewable resource revenues wane what will sustain Canada’s prosperity in the long run?
Two Leadership Tendencies
In leadership and strategy studies the propensity of leaders to tend towards either “juice squeezers” or “innovators” poses some interesting perspectives on SME growth in Canada and possibly other economies. The tendency was observed by Gary Hamel in his book Leading the Revolution published in 2000 at the height of the dot.com bubble and is worth a relook today.
Hamel identified two leadership tendencies:
Value Squeezers – extract as much profits from the current business model.
Revolutionaries – created new value propositions and businesses.
In comparing the two leadership tendencies Hamel noted that value squeezers will eat away at profits of their existing business model until they finally die whereas revolutionaries look for ways to change their existing business model. Hamel’s central theses is that business leaders should evaluate new business models, challenge and if necessary destroy their old business models to avoid profitably going out of business.
Essentially Hamel was saying that value squeezers focused predominantly on value capture to the extreme while revolutionaries focused predominantly on value creation. In a previous post on delivery / innovation looking at Michael Raynor and Mumtaz Ahmed recent article in Harvard Business Review describing Three Rules For Making a Company Truly Great it is perhaps more important to be able to balance both tendencies in the long run or avoid always defaulting to the extreme of juice squeezing.
Leadership Tendency Holding Back Growth
When interpreting Deloitte’s observations that Canadian SME growth tends to slow after the first five years of rapid growth combined with the modest number of Canadian global leaders and the mystery of vanishing medium firms in Canada one might conclude that Canada may have too many juice squeezers and not enough innovators. Indeed the propensity for business leaders to not adopt innovation as a strategy was thoroughly explored by the Council of Canadian Academies in their 2009 report Innovation and Business Strategy: Why Canada Falls Short.
The juice squeezer likely view their leadership tendency is just fine for a market that has changed little over the last several decades and for now is not directly threatened by globalization or major change. Perhaps their market is protected or they have found a nice niche that supports their lifestyle. Risk averse, preference for lifestyle support, and comfortable that their business model is good enough for their existing geographical market and customers are juice squeezer behaviours. If they take any strategic step to grow it is to use their profits in excess of their own or their company’s needs to grow through acquisition. The acquisition will likely be of a similarly positioned firm in the same market. By acquiring an existing firm risk is low but no real new value has been created in the process. In all likelihood value has been destroyed from the transaction cost and cultural mismatch during integration. A juice squeezer would certainly not see the need to invest in R&D, collaborate with research organizations, diversify their markets, or export.
In the mind of the juice squeezer they likely rationalize that their leadership style got them this far so why change. The problem is that the juice squeezer leadership behaviours may be harming the economy in the long run since the world has fundamentally changed. With all the drive for change to squeeze more profits out the existing businesses in the name of efficiencies have business leaders forgot to look in the mirror and ask themselves if they need to change?
Engaged, purpose driven employees have a good sense whether they see their leaders are juice squeezers or innovators. The question is are boards challenging business leadership or are business leaders themselves self reflecting whether their own leadership tendency is appropriate for today’s turbulent markets?
Role of Demographics
Canada’s and the developed world changing demographics may be our opportunity for leadership change. The current business leadership tendency towards juice squeezing should be seen as “old school’ or applicable for the pre-financial crisis world but not for the post-structural break reality of a global economy where first world nations economic superiority no longer stands. As baby boomers retire with their lifestyle wealth the next generation of Canadian SME business leaders should look towards innovation leadership, purpose driven value creation, and adopting innovation as a strategy.
Leading For Growth Through Innovative
How can a new generation of Canadian business leaders adopt a new set of behaviours to drive growth going forward? How can a new generation of Canadian business leaders create new sources of value rather than shuffling around existing aging value sources? Hamel’s book provides a good working framework.
Hamel proposed some rules for enabling a more innovative organization:
- Set unreasonable expectations
- Maintain an elastic business definition (or business model)
- Create a cause, not a business
- Listen to revolutionary voices
- Create an open market for ideas
- Create an open market for capital
- Create an open market for talent
- Encourage low-risk experiments
- Grow by cellular division
- Share the wealth
Many of these behaviours have matured in the decade since the book was first published. Elastic business definitions executed through business model canvas and business model pivots. Creating a cause is central to social innovation. Open innovation has become main stream through crown sourcing. Low risk experiments through creaction, little bets, and the learn-build-measure cycle.
In reflecting on this post if you hope to be in a leadership role in the coming years what kind of leader do you want to be? Canada’s future prosperity depends on it.