To remain competitive, organizations will increasingly have to innovate. As the speed of innovation increases, disrupting whole sectors, competitive intelligence, market intelligence even a bit of futurism will become essential skills.
Leaders will have to stay informed not only of macro trends in their industry but also in technology in general. And they will have to do more than merely report their findings to appropriate people higher in the organization. AI can easily do that. Instead, they will also have to develop a sense for how those trends could impact their organization, so they can assess how to get the most out of them, as organizations transform their structures to respond faster to customer expectations.
These skills will not stop merely with leaders, either. Leaders will also need to seek out and nurture skills in critical thinking and creativity in their teams.
Finding and encouraging these skills is necessary if leaders are to make their organizations agile enough to respond quickly to trends and disruptions. Historic approaches of spending many years developing new offerings will not work in an environment so filled with disruptions. Even the largest organizations will have to adopt a “lean startup” mindset and agile methodology to increase the pace of their innovation.
Getting beyond the buzzwords
“Lean startup” and “agile” are far more than meaningless buzzwords. Practicing them requires that organizations listen to what the customer values and realign products, services and processes to deliver that value, while discarding anything that does not add to it. The benefits of this type of transformation are substantial. A 2017 McKinsey survey[i] reveals:
Eighty-one percent of respondents in agile units report a moderate or significant increase in overall performance since their transformations began. And on average, respondents in agile units are 1.5 times more likely than others to report financial outperformance relative to peers, and 1.7 times more likely to report outperforming their peers on nonfinancial measures.
The state of transformation
As spectacular as these results have been, though, they have not led organizations to adopt these methodologies to any great degree. The survey showed only 4 percent of respondents claiming that their organization has completed an organization-wide agile transformation, and only another 37 percent claiming that they are in the process of completing one.
More organizations are aspiring to transformation than are completing one. Three-quarters of respondents list organizational agility as a top-three priority on their organization’s agenda. Many who have not yet begun a transformation, however, apparently view it in a very limited way, affecting only those parts of the organization that have direct contact with customers while the rest of the organization continues doing business the way it always has.
Why many attempts to increase innovation fail
Such organizations have sabotaged their own efforts to adopt these methodologies and abandoned the effort, saying that agile “doesn’t work for them.” All that most of them did, however, was to paste the outward appearance of agile methodology onto their organization rather than letting the concepts transform it.
In many cases, all they did was buy a project management tool that claims to be designed for agile project management. Their product development department would use it but would still run all decisions through multiple layers of hierarchy before implementing them. As a result, the explosion of innovation that top executives wanted never materialized and they abandoned the methodology.
Obstacles to transformation
The obstacles to adopting agile methodologies lie deeply engrained in leaders’ views about how the world works. They are rooted in the idea that those at the top of the hierarchy possess superior knowledge of how to plot out the organization’s future – that their unique skills at reading long-term trends enable them to see the best direction for the organization to go. But long-term trends are consistently being disrupted by unanticipated changes brought on by emerging technologies. That renders the prevailing worldview suspect.
Guidance from ivory towers is no longer viable. Key indicators are not so much in long-term projection reports that can be read from on high. Those indicators are moving too fast for such reports to capture. They are now best viewed at the front lines, where the organization interacts with customers.
This disruptive environment has spurred the development of agile methodologies. These methodologies call for small, cross-functional teams that can assess and develop solutions to emerging customer needs and expectations quickly, without running decisions through multiple layers of hierarchy. This gives organizations the ability to capture fast-moving shifts in the marketplace instead of lagging behind.
Such a methodology makes traditional leaders uncomfortable, though. They fear it will lead to chaos – that workers will jump from one new idea to the next without bringing anything to completion – that stability will be lost in a rush to try “the next new thing.” Yet organizations that have successfully developed an agile approach prove that fear unfounded.
That same McKinsey report shows that agile companies far outperform organizations that use any other management style. Far from a focus on pleasing the customer leading to chaos, transformed organizations have leaders who have a clearer, more tangible focus and more stable management practices than leaders that steer their organization’s course by trying to project long-term trends. In fact, agile companies far outperformed all other companies in all nine practices McKinsey used to measure stability as well as the nine they used to measure dynamism.
A different approach to seeking innovation
Agile methodology is not a management tool that fits traditional business goals. Traditional business goals focus on pleasing shareholders and top management by passing healthy profits on to them. Agile methodology goals focus on pleasing customers through innovations that meet their immediate needs. In this approach, profits are a natural byproduct of pleased customers buying more and influencing their friends to do the same, rather than being the ultimate goal. Author Steve Denning[ii] says:
Agile is neither top-down nor bottom-up: it is outside-in. The focus is on delivering value to customers. The customer is the boss, not the manager.
The role of the manager in traditional management is the opposite. The managerial function is to identify what needs to be done, to tell the employee what to do, and then to ensure the employee completes the work according to instructions. The role of the employee is to follow the directions as given, trusting the judgment and wisdom of the manager to ensure that the right work is being done in the right way. The primary goal is to make money for the firm.
In that management approach, decisions are made at upper levels, by people who are steeped in a culture of assessing long-term trends for stable, long-term profits that will maximize shareholder satisfaction. The process has the outward appearance of offering sober, carefully considered analysis of strategy that has achieved consensus among many highly skilled experts in predicting where trends will lead.
A top-down approach is essential for a shareholder-centric approach, because it is not terribly motivating for the lower-level of employees who interact with customers to focus on making money for people whom don’t even see. Orders about what to do to increase money for the shareholders must be enforced from above if they any chance of being followed.
This methodology worked in the past, when innovation moved much slower. With today’s rapid technology changes, that methodology is a recipe for remaining consistently behind the curve. And it has devolved into a system that largely protects all but the top executives from being singled out for blame if a strategy proves to be wrong.
In contrast, the “outside-in” approach that Denning describes is driven by the steady stream of insights coming from customer interactions that can be enhanced by AI data analysis. This allows organizations to move faster in the face of rapidly changing trends. In addition, it is far more motivating for front-line employees. When employees interact with and see the delight of customers, it provides motivation that is absent when they are nothing more than cogs working for the benefit of people they never see.
Rethinking organizational restructuring
Transforming to an agile, outside-in decision process should not be considered a one-time change. Netherlands banking giant ING’s former Chief Operating Officer Bart Schlatmann, described, in a McKinsey interview,[iii] the way ING saw its transformation:
We have been on a transformation journey for around ten years now, but there can be no let up. Transformation is not just moving an organization from A to B, because once you hit B, you need to move to C, and when you arrive at C, you probably have to start thinking about D.
ING initiated their transformation in response to changing customer expectations. Their decision to transform was not a matter of financial necessity, though; profits were strong.
What drove it were shifts in customer expectations driven by digital leaders in other industries. ING wanted to shift the way they delivered their products and services to the way customers wanted them delivered. This required an agile methodology, which Schlatmann describes as being “about flexibility and the ability of an organization to rapidly adapt and steer itself in a new direction.”
Rethinking leadership worldviews
The issues that constrain transformation are highly emotional. They cannot be overcome by reason or logic. Even demonstrating the financially superior performance of companies driven by a customer-first mentality will do little to change ingrained culture.
At best, it will lead to attempts at cosmetic changes, such as buying a designed-to-be-agile project management tool or confining agile methodologies strictly within the product development team without allowing the team to move forward on initiatives without the lengthy process of running them up to the top of the hierarchy. Such cosmetic changes do nothing to address the true impediments to transformation. Emotional ties must be met with emotional approaches. Denning points out:
[T]here is a need to reach managers at a deeper emotional level through experiences and leadership storytelling that enable them to embrace a different set of attachments, attitudes, values and understanding about how the world works. The manager must in effect fall in love with the customer. …
Instead of a goal of making money for the organization, the goal of the organization is to delight the customer.
Not only does organizational transformation make it necessary to transform the way that leadership views the way that the world works, but it also needs to transform the interlocking set of organizational roles, processes, values and communication practices that have developed over the years as checks to keep the organization’s culture stable.
Rethinking project processes
Traditional systems segment work on a project, with little to no contact between the various departments working on it except through a project manager or other individual somewhere higher up the hierarchy. Workers see only their part of the project and have little idea of the big picture or how their efforts impact the final deliverable or the end customer.
As one department completes their segment, it is handed off to another that similarly has as little of an idea of the big picture as the previous department did. Agile methodology, on the other hand, breaks down the silos and brings people from multiple disciplines together to collaborate in an end-to-end approach. Schlatmann describes what this looks like:
The key has been adhering to the “end-to-end principle” and working in multidisciplinary teams, or squads, that comprise a mix of marketing specialists, product and commercial specialists, user-experience designers, data analysts, and IT engineers – all focused on solving the client’s needs and united by a common definition of success.
Again, this puts solving customer needs in the primary position and counts on success at that goal to satisfy the secondary goal of maximizing shareholder profits. This is the opposite of the traditional model of putting shareholder results first and counting on that to produce the side benefit of satisfied customers.
This use of smaller, multidisciplinary teams also reduces the scale of individual projects and enables an ongoing flow of innovation, rolling out incremental improvements instead of massive launches that occur only annually or semiannually.
This not only enables organizations to respond more quickly to changes in the market, but also allows quicker changes of direction when needed. It’s more effective to correct a mistake in a series of small steps than by shoehorning many changes into the next major launch and waiting five months before they take effect.
Rethinking project funding
One question this use of smaller-scale projects championed by multiple teams raises is that of funding. One of the historic reasons for current hierarchal structures is the need for financial responsibility. Launching new products or services is extremely expensive. Executives must be confident that their strategies will bring an adequate long-term return to justify the expense of a lengthy development process. How can this be assured with an outside-in decision-making process?
For this, innovative organizations take a cue from the startup world. Each team functions as an in-house startup. They set measurable goals by which their success in solving a specific business problem can be assessed at predetermined intervals. Rather than lengthy executive decision processes leading to massive initiatives that take years to accomplish, projects become smaller and more segmented. Organizational designer and Neo Innovation co-founder Jeff Gothelf[iv] describes the advantages of this model:
This builds a cadenced resilience into the way the organization makes decisions, allowing it to make short commitments and then further those commitments or not, based on real-time market-based realities as opposed to lofty predictions of a future state that may never come.
This fundamentally changes the role of top executives. Instead of serving as the body through whom all decisions of import must pass before new initiatives are launched, top executives become the body that monitors all innovation occurring throughout the organization and ensures that all initiatives do indeed support the goal of delighting customers. Gothelf explains:
At the end of the day, the day-to-day tactical decisions the teams make should not be the concern of managers. Instead, managers should focus on the teams’ progress towards the strategic business objectives. To allay managerial anxiety and ensure broader strategic cohesion, the onus falls on the teams to communicate back to the organization as much as possible. They must proactively report on their tactics, learnings, progress, and next steps. However, without the safety to report the whole process, warts and all, most teams will opt for safety and predictability – effectively undermining their agility.
Thus, the teams must have freedom to make mistakes and learn from them. If their work is shut down at the first bump in the road, they will never accomplish anything for the company.
Rethinking work descriptions
As organizations adopt cross-functional networks of teams, they will also need to reevaluate many job descriptions. With higher-skilled workers scarce, organizations can unbundle lower-skill tasks from higher-skilled workers and rebundle those lower-skill tasks into the job descriptions of middle-skill workers. For example, this type of unbundling and rebundling is already occurring in healthcare, where more routine tasks, such as vaccinations and uncomplicated diagnoses, are increasingly shifting from doctors to nurses.
Even this will not be enough to fill all an organization’s needs. Leaders will need to supply workers who have skills not available in the organization for temporary team needs. That means that leaders must become adept at locating talented contract or freelance workers. The concept of “just-in-time” will apply not only to inventory or supplies, but also to talent.
Traditional top-down methodologies are designed to avoid mistakes. The lengthy process of developing long-term strategies involves many key executives in looking at options from every possible angle to ensure that nothing could possibly go wrong with the direction that decision-makers set.
The speed of changes in today’s marketplace make such a lengthy process impractical. Moving decision-making closer to customer feedback makes not only for faster decisions, but also insulates the organization from the risk of making fatal mistakes. Any mistakes that are made can be quickly analyzed and the lessons learned from them can be worked into a quick and effective course correction. This approach uses mistakes to fuel continuous improvement.
Rethinking leadership roles
Transformation will require changes in the way that leaders see their roles Denning describes the needed shift:
Instead of those doing the work reporting as individuals to bosses, the work is done in self-organizing team: the role of management is not to check whether those doing the work have done what they were meant to do, but rather to enable those doing the work to contribute all that they can and remove any impediment that might be getting in the way.
Schlatmann takes that idea one step farther:
It’s about minimizing handovers and bureaucracy, and empowering people. The aim is to build stronger, more rounded professionals out of all our people.
This goal of building stronger, more rounded professionals out of all an organization’s people is a striking change from traditional roles. ING Chief Information Officer Peter Jacobs[v] realized this meant that leaders needed to focus on knowledge and skills in their own discipline rather than on coordinating others in performing work in it:
Somehow over the years, success in IT had become a question of being a good manager and orchestrating others to write code. When we visited a Google IO conference in California, we were utterly amazed by what we saw and heard: young people talking animatedly about technology and excitedly discussing the possibilities of Android, Google Maps, and the like. They were proud of their engineering skills and achievements. We asked ourselves, “Why don’t we have this kind of engineering culture at ING? Why is it that large enterprises in Holland and Western Europe typically just coordinate IT rather than being truly inspired by it?” We consciously encouraged people to go back to writing code – I did it myself – and have made it clear that engineering skills and IT craftsmanship are what drive a successful career at ING.
Ultimately, rethinking leadership roles shifts leaders to serving as role models and helping workers grow in their skills both in their discipline and as well-rounded professionals.
Some leaders may also need to recognize their own need to learn more about the technological changes through which they are leading their organizations. A full 19% of respondents in a 2018 McKinsey survey[vi] expressed concern that their top executives lacked sufficient understanding of the technologies they were trying to lead their organizations into using.
This may require some novel approaches. For example, younger, digital-savvy employees can be enlisted to advise or even serve as mentors in technologies that are unfamiliar to top executives. Whether this approach or another is used, the fact is that leaders must have a working understanding of what they are leading their organizations through in order to avoid being more of an anchor to transformation than a leader.
Rethinking needed employee skill sets
Leaders also must rethink the skills they need in their teams. This is especially true with critical thinking and creativity. Under traditional, top-down structures, critical thinking skills were thought to be needed only in the higher levels of the hierarchy, with the need for critical thinking diminishing rapidly the farther down the hierarchy a person was.
Those in middle management were judged on how successfully they could orchestrate their workers to carry out the goals and strategies conceived at the top. Those in the organization’s various silos were judged on their ability to use their respective expertise to bring their parts of the final offering envisioned by the executives to fruition.
Some of those silos contained workers in so-called creative job categories. Their practice of creativity, however, was tightly constrained to a sort of “creativity-on-demand” model. They were called upon to use their skills to create appealing ways to “package” whatever collateral materials were needed to communicate the messages or emotions executives wanted to convey to potential customers.
Critical thinking and creativity were not seen as high priorities for those below the level at which the big decisions were made. They routinely appeared in job descriptions, but that was largely nothing more than lip service. Questioning of systems or processes that leadership had already established was unwelcome. Yet such an exploration of the status quo and its possible alternative is at the heart of critical thinking and creativity.
A dangerous disconnect
A study done by noted curiosity researcher Todd B. Kashdan in connection with Merck KGaA[vii] reported that 65% of respondents felt that curiosity was an important element in developing new ideas, yet almost the same percentage reported that they felt constrained from asking questions on the job. That same study also showed that 84% of respondents claimed that their companies valued creativity, but 60% described barriers by which their company essentially stifled it. This is a recipe for disaster in today’s fast-moving business environment.
With an outside-in approach to decision-making, critical decisions must be made far more broadly throughout the organization. Teams close to the customer interaction level must assess and act on fast-shifting customer needs. That means that more people with critical thinking skills and creativity will be crucial at levels of organizations where they have traditionally not been encouraged. Curiosity – and its cousins, critical thinking and creativity – must permeate every level of transformed organizations.
These qualities are inherently human and will be needed throughout organizations designed for agility and innovation. AI can only imitate them but cannot currently produce them.
Philosophy professor Michael Austin defines critical thinking[viii] as: “[I]dentifying and analyzing arguments and truth claims, discovering and overcoming prejudices and biases, developing your own reasons and arguments in favor of what you believe, considering objections to your beliefs, and making rational choices about what to do based on your beliefs.” In other words, it involves far more than simply coming up with a possible solution to a problem.
It’s easy to come up with a possible solution. As a matter of fact, it’s easy to resort to the type of knee-jerk reaction that can solve one problem while inadvertently creating several new ones. For example, someone in a department misuses a privilege given to make it easier for workers to balance their work and family. The department head is publicly embarrassed when this misuse comes to light and responds by angrily revoking the privilege for everyone. Department morale suffers. Workers’ stress levels increase. Productivity falls – all because of a knee-jerk decision.
Critical thinking is the exact opposite. It involves looking a situation from all possible angles, assessing likely outcomes of available options, recognizing the role that one’s own biases and emotions may play in swaying one’s thinking toward one option or another and dispassionately analyzing them all to arrive at a well-thought-out conclusion. These are the skills that traditionally have been confined to the top layers of leadership. For innovation and agility to flourish in today’s faster-moving environment, though, such skills will be needed by more employees in more positions to ensure that organizations are positioned to thrive.
Creativity, too, will be needed in greater abundance – not just in artistic pursuits, but in the ability to think outside the box and envision new solutions as conditions rapidly change around organizations. Psychotherapist Diana Pitaru[ix] explains:
Creativity demands an open mind, one that is not satisfied with recycled experiences, theories, and assumptions. The advances and innovations throughout our history are born from challenging what we thought we knew at any given time and questioning the familiar. Why and how are questions that stem from an unwillingness to stagnate and a desire to go deeper, to find out more, and come up with creative alternatives.
When a request for creative activity is constrained to work within a defined set of assumptions, the result will be limited. For example, a work request that says, “We want something that fits this set of criteria that our executives have decided is what they want,” limits the scope of the worker’s ability to explore. It is a demand for creativity imposed from outside the creator’s natural curiosity.
On the other hand, if what is to be created comes from a clear, shared vision rather than from a set of tightly confined criteria, the person’s creativity is freed to explore a wider range of possibilities. When diverse teams of professionals are aligned in a shared vision of delighting customers, creativity is naturally channeled toward that shared goal.
Fostering critical thinking and curiosity
Critical thinking and creativity are essential traits to encourage in organizations, but many organizations have unknowingly discouraged people from practicing and growing in these traits through top-down structures that required those traits only at the top. There are ways to bring out and enhance these traits in those who have them. For critical thinking:
- Don’t jump too quickly into solutions. Fear of not coming up with an immediate solution can often lead us to embrace a rash, incomplete one. Take time to think through problems so you come to a well-thought-out conclusion. Also, avoid the temptation to push workers for quick decisions. Let them know you value their thoroughness.
- Communicate a clear vision. Develop a shared vision that directs workers toward delighting customers. Make that vision– and not directives from above – what drives workers forward.
- Strive to be diverse. This involves not only the traditional concepts of diversity, but an openness to a wide range of differences. Exposing yourself to different viewpoints and life experiences helps you see things from different perspectives that you might never have considered and triggers ideas you might not otherwise create.
- Encourage openness in discussion. Consider all viewpoints. Avoid groupthink.
- Don’t let emotions get in the way. Recognize the role of emotions in thinking processes and strive to separate them from the problem. Help workers to do the same.
- Engage in Zoom in/Zoom out[x] Look at things from different perspectives. Rather than getting stuck either on just the details or just the big picture, strive to view situations from as many different vantage points as you can.
As for creativity, a good way to encourage that is by encouraging people’s curiosity to explore and discover:
- Model curiosity. If you want to encourage curiosity in your team, you must first model it. Keep an open mind. Be willing to question the status quo. Be always in search of a better way.
- Clearly communicate the vision. Keep the vision of delighting customers constantly in front of workers and connect that vision to everything your people do.
- Give employees autonomy in seeking outcomes. Rather than giving them an unalterable roadmap that they must blindly follow to the desired outcomes, give them room to find better ways than you imagined.
- Include curiosity as one of the criteria in feedback and promotions. Make it clear that experimentation done for long-term benefit is good if the insights it produces can yield future benefits, even if doesn’t produce immediate ones.
- Make curiosity a team endeavor. Encourage team members to share perspectives on problems rather than limiting themselves to only their own.
- Assess the role that curiosity played in completed projects. After a project is finished, debrief employees, asking them to describe their thought processes and choices along each step. Encourage them to assess where what they learned could enrich future projects.
Terms like agile methodology are much more than just buzzwords. They represent a serious step to enhance an organization’s capacity for innovation. And they are not just a paste-on addition to an organization. Schlatmann points out:
Any organization can become agile, but agility is not a purpose in itself; it’s the means to a broader purpose. The first question you have to ask yourself is, “Why agile? What’s the broader purpose?” Make sure there is a clear and compelling reason that everyone recognizes, because you have to go all in – backed up by the entire leadership team – to make such a transformation a success. The second question is, “What are you willing to give up?” It requires sacrifices and a willingness to give up fundamental parts of your current way of working – starting with the leaders. We gave up traditional hierarchy, formal meetings, overengineering, detailed planning, and excessive “input steering” in exchange for empowered teams, informal networks, and “output steering.” You need to look beyond your own industry and allow yourself to make mistakes and learn. The prize will be an organization ready to face any challenge.
Truly, the most significant long-term trend that executives need to prepare for is the increased need for organizations to respond quickly and effectively to rapid changes in the marketplace. This requires significant changes in the way things have always been done, but the improvement in results have been dramatic.
[i] How to Create and Agile Organization, McKinsey & Company, 2017, Available: https://www.mckinsey.com/business-functions/organization/our-insights/how-to-create-an-agile-organization
[ii] Steve Denning, How to Make the Whole Organization Agile, Forbes, 2015, Available: https://www.forbes.com/sites/stevedenning/2015/07/22/how-to-make-the-whole-organization-agile/#1a1f266d5841
[iii] ING’s agile transformation, McKinsey&Company, 2017, Available: https://www.mckinsey.com/industries/financial-services/our-insights/ings-agile-transformation
[iv] Jeff Gothelf, Bring Agile to the Whole Organization, Harvard Business Review, 2014, Available: https://hbr.org/2014/11/bring-agile-to-the-whole-organization
[v] ING’s agile transformation, ibid.
[vi] Jacques Bughin, Eric Hazan, Susan Lund, Peter Dahlström, Anna Wiesinger, and Amresh Subramaniam, Skill shift: Automation and the future of the workforce, McKinsey, 2018, Available: https://www.mckinsey.com/featured-insights/future-of-organizations-and-work/skill-shift-automation-and-the-future-of-the-workforce
[vii] Todd B. Kashden, Companies Value Curiosity But Stifle It Anyway, Harvard Business Review, 2015, Available: https://hbr.org/2015/10/companies-value-curiosity-but-stifle-it-anyway
[viii] Michael W. Austin, Standards of Critical Thinking, Psychology Today, 2012, Available: https://www.psychologytoday.com/us/blog/ethics-everyone/201206/standards-critical-thinking
[ix] Diana Piraru, Keys to Creativity: Curiosity, PsychCentral, Available: https://blogs.psychcentral.com/unleash-creativity/2015/01/curiosity/
[x] Rosabeth Moss Kanter, Managing Yourself: Zoom In, Zoom Out, Harvard Business Review, 2011, Available: https://hbr.org/2011/03/managing-yourself-zoom-in-zoom-out
Marin Ivezic is a Partner at PwC (PricewaterhouseCoopers). He has worked with clients who adopted AI to eliminate thousands of jobs, increasing profits by cutting costs. And he has worked with clients who adopted AI to augment their workforce’s skills and increase profits while creating additional jobs. In both groups, some of the companies flourished, and other failed. These experiences led him to closely study the current debate on AI’s effect on business’ future.
Luka Ivezic is an independent consultant and author exploring geopolitical and socioeconomic implications of emerging technologies such as 5G, Artificial Intelligence (AI) and Internet of Things (IoT). To better observe policy discussions and societal attitudes towards early adoptions of emerging technologies, Luka spent last five years living between US, UK, Denmark, Singapore, Japan and Canada. This has given him a unique perspective on how emerging technologies shape different societies, and how different cultures determine technological development.