In business, inertia is a company’s unwillingness or inability to adapt to changing circumstances.
Even with change programs in place and running, it can take a long time to change direction, and for large companies, it could take many years to change the way the company functions. If you recognize this inertia early, you can add leverage to your strategy.
Why? Organizational inertia is the reason. A well-adapted corporation can remain healthy and efficient as long as the outside world remains unchanged.
But another force– entropy — is also at work. Entropy measures an organization’s degree of disorder and increases in isolated systems or organizations.
According to Richard Rumelt, Professor and author, companies with inertia and entropy tend to become less focused. Consequently, it is necessary for leaders to constantly maintain their company’s purpose and methods, even if there are no changes in competition. Inertia and entropy can have several important implications for strategy:
- Successful strategies often owe a great deal of their success to the inertia and inefficiency of rivals. For example, Netflix pushed past and now bankrupt blockbuster because the latter could not or would not abandon its focus on retail stores.
- A company’s most significant challenge may not be external threats or opportunities but the effects of inertia and entropy. In such a situation, organizational renewal becomes a priority.
- Transforming a complex organization is an intensely strategic challenge. Leaders must diagnose the cause of effects of entropy and inertia, create a sensible guiding policy for effecting change, and design a set of coherent actions designed to alter routines, culture, and structure of power and influence.
Inertia
Organizational inertia generally falls into three categories: the inertia of routine, cultural inertia, and inertia by proxy. Each has different implications for those who wish to reduce inertia or those who seek to gain by attacking a less responsive rival.
The inertia of routine
The heartbeat of a business is the rhythm and pulse of its standard procedures for buying, processing, and marketing goods. The company may not be consciously aware of these actions but is guided by them nonetheless. As the company grows in size and age, these routines become embedded in layer upon layer of impacted knowledge and experience. It’s the way things are done here.
These familiar routines both filter and shape everyday actions and filter and shape managers’ perceptions of issues. These standard routines and methods also act to preserve the old ways of processing information.
Sudden outside shocks can reveal inertia created by standard routines: a big jump in the price of oil, or a technology invention or, telecommunications deregulation, and so on. The shock changes the basis of competition, creating a significant gap between the old routines and the needs of the new regime.
With a sudden change like deregulation and leadership is convinced change is necessary, routines can change quickly. One way is to hire people with the essential skills, hire consultants, or re-design your routines. You may also have to re-organize business units.
The inertia of culture
The problem may not be the competence of individuals but of culture. The use of the word culture means the elements of social behavior which tend to be stable and strongly resist change. It’s unrealistic to believe you can change a company’s culture quickly or easily.
The first step in breaking cultural inertia is a simplification. Think about complex routines, processes, waste, and inefficiency. Strip out any unnecessary administration or operations or outsource some services. A more straightforward structure will expose inefficiency.
After you have made initial changes, it may be necessary to break down operating units to analyze each unit in-depth and use creative thinking to improve the situation further. You may even need a new structure or business model. You will want to look at both performance and culture. Also, remember that changing units can also change work norms and related values.
Inertia by proxy
The lack of response is not always an indication of sticky routines or a frozen culture. A business may decide not to respond to change or attack because responding might undermine values and profit streams. The streams of profit persist because of customer inertia, a form of inertia by proxy.
For example, in 1980, the prime interest rate was 20%, and banks were free to create money market accounts. With this new freedom, smaller banks jumped at the opportunity to develop these high-interest deposit accounts. However, larger banks with long-established customers id not,
Smaller and newer banks seeking retail growth were happy to offer this new type of high-interest deposit account. But many other banks with long-established customers did not. If their customers had been perfectly agile, quickly searching for and switching to the highest interest accounts, they would’ve had to offer higher interest accounts or disappear. But their customers were not this agile.
However, when an organization decides that adapting to change is more important than hanging onto profit streams, everything can change suddenly.
Entropy
It is not hard to see entropy at work. For example, with the passage of time, great works of art blur and crumble; unless a skilled artisan can restore the artwork. In a business where the firm is not keeping its product line up to date, it can begin to crumble also. The product often becomes less focused and reduces prices, customer response times may have become longer, and eventually, profits decline.
An excellent example of entropy is General Motors. They blurred the designs of their cars, brands, and divisions. They were essentially offering the exact vehicle under several model brand names. In 2001 they closed the Oldsmobile line of cars because Oldsmobile lost any distinction in either style or price.
Remember, product-market fit is not a permeate status. In this Covid environment, think about how digital products are being created and changing how we live and work. Are you keeping up with technology and changing preferences?
What policies are you going to put in place to guard against inertia and entropy?
