Identity Crisis: Reflective Thinking in Fast Times

Is a firm’s strategic direction defined merely by its core competency or something deeper?

Essay by Abhirup Chakrabarti

 

While debating whether they were a media or technology company, Yahoo experimented with scores of visions before being acquired by Verizon. But it’s not just companies trying to reverse their declining fortunes that can be paralyzed by an identity crisis. Well-off firms often make disastrous choices. At its peak, Research In Motion struggled to choose between the images of “reliable” and “cool” (it chose cool). Rio Tinto terminated a period of stock price growth with disruptive global reorganization, including its acquisition of Alcan. The demise of global chemical giant ICI is blamed on its attempt to do better by “pivoting” from commodity products to specialty products.

One way to determine a company’s direction is based on the concept of core competency — what is it that we are best capable of doing? Yet, for managers, defining core competencies is not a straightforward exercise. Should a company’s core be defined as “what” it does? Or should it replicate what a competitor is doing? Can the core change when circumstances change? Should it be based on aspirations such as innovation, growth, or responsibility? It is no surprise that core competence is one of the most frequently challenged management ideas.

A more effective line of enquiry, however, is to go deeper and consider the actual “identity” of a company.

Don’t Rush to Label

A business enterprise starts with a founding vision and develops its identity over time. Identity is not assigned but emerges and evolves as leaders work towards fulfilling the founding vision and developing experiences they can describe for others to understand and accept. Through these interactions, employees, investors, competing and supportive organizations, policy makers, and community members naturally converge upon a common understanding of the enterprise’s commitments. To be understood so generally, an enterprise’s identity should portray what is core, enduring, and distinguishing. Corporate identity reflects what is vital to the enterprise, such as the principles to which its leaders commit, irrespective of external factors.

Business leaders may feel that the process of tracking the evolution of identity is abstract, lengthy, or distracting, or that it has little value when stakeholders lack a meaningful perspective of the enterprise’s vision. But if leaders do not engage with the dynamics of identity, they risk disagreement, conflict, and disruption within the organization. When mid-level managers have conflicting ideas about a company’s identity, they can engage in wasteful competition for resources or intractable interpersonal conflicts. Such conflicts can arise from simple misinterpretations of employee roles within the organization, even in the absence of interpersonal rivalry. Enterprises that develop identity conflicts lose revenue or, worse, make damaging choices.

Build Rather Than Acquire an Identity

If it is challenging to create identity, it is even tougher to change it. It’s surprising that leaders talk about changing organizations a lot more than they talk about building organizations. Change requires uprooting an existing identity, discovering and synthesizing new views, and negotiating conflicts before a new identity can emerge. Uprooting a long-held identity requires enough dissent among employees that they will agree to trigger active processes of negotiation, enquiry, and resolution of conflicts. Concurrently, they will need to fulfill their regular operational duties, not knowing what their roles may be in the new organization.

A merger or acquisition is sometimes thought of as one way to re-cast a firm’s identity, such as when multinationals acquire “socially responsible” enterprises. But it is important to acknowledge that acquisitions often fail. Acquisitions may contribute when they are part of an identity-building exercise but may disrupt if they are implemented as a way for the enterprise to change. GlaxoSmithKline’s acquisition of Sirtris Pharmaceuticals is a positive example. Sirtris was a small biotech firm that famously aimed to reverse the process of aging. It was acquired, in part, to help GSK transform its discovery research into small, entrepreneurial, and multidisciplinary units that compete for funding. The acquisition failed but several Sirtris executives went on to play important roles within GSK.

Crisis Isn’t Always an Identity Opportunity

A crisis — such as an economic downturn — may appear to be an opportunity for change. A leader can use a crisis to express, more assertively and convincingly, the need to revisit what the company does and how it is organized. Leaders may be able to seize upon the urgency to manage expectations and concerns within the organization.

But in reality, events rarely play out this way. Consider a loss-making company that needs to lay off employees to survive. Once the layoffs are announced, employees that retain their jobs should expect a more secure future. Managers, however, often find themselves dealing with low motivation among remaining employees. Failed layoffs often are explained by the tendency of managers to implement top-down decisions when under stress; they find it difficult to include employees at all levels in the process and to engage in rituals and ceremonies to communicate their ideas about the future. These are the kind of challenges that business leaders need to consider while exploring a change in identity in the context of a crisis.

Economic recessions also throw up seemingly valuable opportunities for growth-driven change. There are cases of companies succeeding by growing in an economic recession: Pfizer’s acquisition of Wyeth in 2009 is an example. Companies, however, generally invite failure when they attempt to grow in a recession. Such companies incur immediate costs but may not see quick benefits if market recovery is slow.

Identity is difficult to acquire, even more so if it is attempted quickly. When exciting opportunities for rapid change exist, they come with great risks attached.

 

Abhirup Chakrabarti is associate professor and Distinguished Faculty Fellow of Strategy at Smith School of Business.

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