The purpose, vision, and direction of a successful business can decay over time. Preventing “business entropy” increases agility and keeps margins high.
Merriam-Webster’s broad definition of entropy is “a process of degradation or running down or a trend to disorder.” With apologies to Merriam-Webster, business entropy is “degradation or running down or a trend to disorder precipitated by changes that lead to unclear vision and declining effectiveness.”
After maintaining a clear purpose and positioning for a long time, many companies succumb to business entropy. A common driving force is revenue pressure. Needing to meet financial goals lures management into pursuing an opportunity that’s not in the center of its wheelhouse. “It’s OK – we will make up the difference with custom services.”
After “winning” that transaction, delivery demands excessive effort to fill the gap between the customer’s requirements and the company’s existing capabilities. If similar decisions continue to be made, lower margins and erosion of shared clarity about the company’s direction result.
A business evolves as it grows, and its strategic positioning must track that evolution. New competitors arise. External economic forces impact strategy. Customer requirements drive development of new products and services. Acquisitions occur. New partnerships are struck.
As cumulative changes alter how a company is perceived over time, its management team’s shared vision becomes diffuse. When positioning is ignored for too long, the uniform shared vision erodes. “Degradation” of the company’s internal and external messaging about itself, its products, and its services follows a “trend to disorder” that impacts decision-making agility and speed of execution. Without an intervention, confusing messaging grows and marketing budgets explode.
Thankfully, remedying business entropy doesn’t require knowledge of cosmology. It just takes a CEO who makes it a habit to review strategic positioning periodically to keep it aligned with reality, especially during and after significant game-changing events. Keeping management and key players working from an up-to-date shared vision of your company’s market, competitors, and strategy will lead to outstanding execution and higher margins.
Regaining a lost sense of clarity may require outside help to facilitate the process, or for do-it-yourselfers, I've shared how it’s done in a previous post.
Bob Barker is the founder of Partnering Source. He acts as a strategic advisor to innovative companies in multiple industries. He has written extensively for numerous business publications, including Westlaw Journal, Directorship (National Association of Corporate Directors), TexasCEO Magazine (The American CEO), Advisen's Front Page News, and Information Management, and he has been quoted in The Wall Street Journal and Forbes.