It would be easy to lose orientation among the flood of perturbing economic news that have kept the world community on edge since the beginning of 2016 – starting with the Chinese stock market rout in January and most recently culminating in the UK’s decision to leave the European Union – or dismiss them as acts of randomness that defy any kind of strategic preparation.
But according to Donald Sull, a Senior Lecturer at the MIT Sloan School of Management, the inherent unpredictability of modern-day politics doesn’t necessarily have to lead businesses into a strategic trap. In an often-quoted Harvard Business Review article from 2009, he drew a connection between the planning dilemma modern executives face and Muhammad Ali’s 1974 bout against George Foreman – providing a blueprint for adversity leadership that could now be more relevant than ever before.
“Ali was alert to fleeting opportunities and nimble at seizing them. Foreman lacked Ali’s agility, but because of his sheer bulk, physical strength and toughness, he could absorb all the punishment his opponent could dish out, all the while waiting for a chance to unleash his own powerful blows when his adversary tired,” he wrote.
Back then, the world had just been through a period of what accounting firm PwC labelled “10 years of high-speed change” – characterised by “unsettling twists and turns” like the implosion of Enron, the popping of the dot-com bubble, 9-11, war in the Middle East, a sharp jump in commodity pricing and growing concern about global warming.
Sull saw that most businesses would either react in an Ali-like fashion and employ agility to spot and exploit changes in the marketplace, or rely on absorption to withstand market shifts, like Foreman did. Some, however, combined both approaches and displayed “agile absorption” – the ability to consistently identify and seize opportunities while retaining the structural characteristics to weather change. “In unstable times, cultivating and using both capabilities in combination can help companies not only survive, but emerge as true market leaders,” he concluded.
Seven years on, with the world economy once again caught up in turmoil, US-German component specialist, SAF-Holland, is now bringing Sull’s theory to life in a commercial vehicle context. As part of a corporate realignment exercise, the company is trying to blend the operational flexibility of a start-up with the inherent steadfastness of a long-established global brand in the hope to become even more perceptive to change while seeking growth an increasingly unpredictable world economy.
In an industry where a host of highly agile, yet vulnerable businesses compete with a handful of industry heavy-weights that rely on size, diversification and a war chest of cash to handle market volatility; CEO Detlef Borghardt is convinced that a healthy mix of Ali-like agility and Foreman-esque resilience will provide Europe’s largest publicly listed commercial vehicle supplier with a distinct competitive advantage.
“SAF-Holland has always had a talent to combine the strength of a global organisation with the responsiveness and personal feel of a start-up,” he says. “In light of recent developments on the world stage, however, we have now taken additional steps to make sure that quality is more formally reflected in the very structure of the business.”
He explains the company was previously divided into three product-focused business units – Trailer Systems, Powered Vehicle Systems and Aftermarket – but will now be governed regionally to make it more flexible. The re-organised business will be focusing on EMEA/ India as one region, as well as the Americas as a second and APAC/China as a third focus area. In line with the move, the company, which currently derives some 90 per cent of sales from business in Europe and North America, plans to expand sales in China and emerging markets from 10 to a total of 30 per cent by 2020, and 50 per cent by 2030.
“A modern manufacturing business has to be nimble to react to the megatrends that are transforming our society,” he says. “The strong, global growth of the middle class, for example, will result in higher purchasing power and demand for more goods, which will ultimately need to be transported with trucks and trailers – especially in the Asia-Pacific region, the Middle East and Africa. Our new group structure places us in an even more powerful position to allow us to take better advantage of added growth areas in new markets and realise synergies between the former business units.”
With the conflict in Syria and the Russian occupancy of Crimea still unresolved, the Chinese economy slowing and the US entrenched in a fierce leadership battle, Borghardt says nimbleness – both on an organisational and product level – will help SAF-Holland absorb market fluctuations more easily in the future. To back it all up, though, the company is also tightening its management structure to provide it with the kind of core strength needed to not go down with the first blow.
“We have certainly learned our lesson from the GFC and know that you can only be flexible if you have a strong foundation to fall back onto. Focusing too much on either side will leave you vulnerable,” he explains, reverting back to Sull’s famous analogy. “Being able to float like a butterfly and sting like a bee is great, but if you have the right punch behind it, you will end up being even more effective.”
That ‘punch’ is supposed to come from the newly created role of COO, who will be responsible for sourcing and engineering on a global level. “By adding such a person to the mix, we can combine a stronger regional focus with our global purchasing power,” Borghardt says.
“We’re incredibly ambitious and want the business to have all the resources it needs to go where no one has ever been before. It will not only make us less vulnerable to regional changes, but also more competitive in regard to pricing and development time.”
The result, Borghardt says, will be an organisation that has the capacity to find and seize opportunities to improve operations and processes on the go – think cost reductions, quality improvements or the refinement of distribution processes – but also has the sturdiness to ride out tough times. After all, golden opportunities are not evenly spaced over time, thus absorptive capabilities can keep a company in the game until the next big chance emerges, according to Borghardt.
“Whereas agility allows a company to stake out an early position, absorption permits the firm to secure an early lead and reinforce its position,” Sull established in 2009, not knowing just how fittingly his observation would describe the development of SAF-Holland in 2016. Detlef Borghardt, in turn, might be surprised to learn just how strongly his growth strategy is connected to one of the most prominent sporting spectacles in history.
Back in 1974, Muhammad Ali not only prevailed because he maintained his trademark agility, but also because he had enhanced his absorption in the lead up to the fight. Convinced that the decline of a company’s culture of agility is not inevitable as it grows and matures, Borghardt and his team are now trying to achieve the same balance in the corporate arena: By understanding the sources of agility and absorption and their combined power as a one-two punch, they aim to increase SAF-Holland’s ability to go the distance in an uncertain world.