A recent survey of executives and directors globally found that the top two risks discussed are disruptive change to the business model and the organization’s resistance to change. This incongruence captures what may be one of a board’s most fundamental fears.
No established incumbent wants to fall into the category of companies that were yesterday’s success stories but today are in decline, suffering “death from a thousand cuts.” Yet it happens all too frequently. One well-known CEO says it begins with “stasis”—a state of inactivity that leads to “irrelevance” and is followed by an “excruciating, painful decline” until, ultimately, there is an abrupt demise of the enterprise.
This kind of decline is unmerciful. Its low velocity is one of the primary reasons it is so difficult to spot. Left unabated, it leads a once-proud company to the point where very little can be done to save it as it continues down its committed path. In the digital age, cloud computing, robotic process automation, machine learning, and other technologies are disrupting every industry by presenting opportunities to reimagine business models. With physical locations, people, and infrastructure barriers virtually gone, it’s possible for “born digital” start-ups to disrupt an established company with a hyper-scalable business model that can accommodate rapid growth without significant upfront capital.
Time and speed in business have changed. Business has evolved beyond the tactical to emphasize a more strategic and holistic view of challenging conventional thinking and disrupting traditional ways of working as well as long-established value chains. Managing to the speed of business may seem like a strange notion to some, but why shouldn’t every organization evaluate its processes given the speed of change in the marketplace and within the industry? Considering the stakes, it’s worth a serious look.
Following are 10 thoughts on managing to the speed of business and its implications to board oversight.
Set the tone for speed at the top. Directors should support the CEO in setting the tone for speed through both actions and words, emphasizing the importance of staying close to the customer, keeping an eye on relevant market trends, organizing for speed, and embracing change.
Focus on high-velocity and high-quality decision-making. Many large companies make high-quality decisions but make them too slowly. There is a time and a place for formality, but for many activities, an unstructured approach is sufficient.
Inculcate a culture of speed. Members of the executive team should have a stake in initiatives to improve and sustain speed. A company must be at least as fast as—and endeavor to be faster than—agile followers of the latest trends in its industry.
Focus on the customer experience. The speed-conscious organization is customer-centric. Accordingly, it places strong emphasis on gaining access to market insights efficiently and in a timely manner, likely through big data solutions and advanced data analytics.
Establish an organizational structure that directly supports lean business behaviors. Open, flexible, and agile structures with flat hierarchies drive efficiencies, speed up innovation cycles, and facilitate collaboration, communication, and faster decision-making and execution. Focused, dedicated teams armed with purpose and clear objectives should be empowered by executive sponsors to tackle well-defined tasks and assisted by appropriate alliance partners. Sponsors keep the effort on the fast track with a fail-fast mentality.
Select the talent who will lead to success. Trite as it might be to say, the best and most diverse talent wins in the digital era. Talent strategy must set the foundation for speed.
Understand external trends. Speed places a premium on recognizing global megatrends and their impact timely. Boards should ensure that management is focused on becoming more future-oriented, mindful of external developments, and resilient in the face of change in the digital age.
Speed must deliver desirable outcomes. Speeding up processes and decisions is not the endgame. Outcomes that are on-strategy validate a faster process.
Learn at the speed of business. A committed learning organization fosters a positive culture that embraces open-mindedness, critical thinking, fresh ideas, and contrarian points of view—all of which are vital to speed. Ongoing knowledge-sharing, networking, collaboration, team learning, and admission of errors and learning from them facilitate speed. Feedback loops regarding interactions with customers, suppliers, regulators, and other outside parties that maximize broad employee participation helps to root out unconscious bias.
Speed requires effective change enablement. When processes and functions are reimagined, and products and services require improvement, the organization should have an established process to organize the necessary stakeholder commitment and drive the needed change.
What do Atari, Blockbuster, Borders, Palm, and Polaroid have in common? Each failed to keep pace with the market and suffered a long decline before entering bankruptcy or being acquired or liquidated. Each case illustrates how difficult it is to turn away from a business model or a segment of the market that has served the entity’s stakeholders well over the years.
Confidence in facing the future is what every director and leader wants. Speed is dictated by the market—meaning that external and internal factors influence it. The tailwind effect of embracing change and managing to speed breeds desirable confidence in the digital economy.
If there is one word that is capturing the new normal pace of the age we are in, it is acceleration. We are accelerating into the digital era, thanks to the explosion of data, accessibility of cheaper computing power, and broad adoption of technologies like machine learning and the growing web of connected devices composing the internet of things. An increasing number of companies are taking advantage of these trends to develop more innovative and compelling experiences for their customers, drive better and faster decisions, streamline their operations, and proactively reduce operational risks within their eco-system.
But while digital transformation promises accelerated innovation and economic advantages, the shift often creates unprecedented challenges for many companies steeped in legacy culture, process, technology, and ways of working. Not surprisingly, business model disruption and technology disruption are ranked as the top trends impacting their company over the next 12 months by the most recent 2017–2018 NACD Public Company Governance Survey. While board members are grappling to understand the implications of these changes for their organization, they must also turn their attention to the digital literacy and preparation of the company’s workforce to prepare it to face new challenges.
One critical challenge that can’t be ignored is the company’s role in preparing its workforce for intelligent automation. The World Economic Forum’s Future of Jobs Report predicts that 7 million jobs could be lost over the next five years through redundancy, automation, or disintermediation, with the most significant losses in white-collar office and administrative roles. Others argue the job losses could be less over the long term and there is much debate among economists, historians, and think tanks on the level of job destruction and creation that will come from automation. But two things are certain: one, in the near-term, we expect much workforce force disruption; and two, as artificial intelligence algorithms increase in sophistication and computational power, the pace of intelligent automation is likely to accelerate and push the workforce to focus on higher value activities. To meet that challenge, the workforce of the future will need to acquire a new set of skills rapidly in order to interact with the future of intelligent systems.
Unfortunately, many companies aren’t entirely equipped to assess and prepare their workforce for this disruption, especially in corporate functions like finance, treasury, risk management, and human resources. Research suggests these critical functions are still struggling to understand the full scope and impact of new technologies. For example, the 2018 AFP Risk Survey, supported by Marsh & McLennan Companies’ Global Risk Center, polled over 600 senior-level treasury and finance executives. The majority of respondents to the annual survey cited artificial intelligence, robotic process automation, and data engineering as technologies that could expose their companies to some risks, including disruption to business operations and regulatory risks. Only 14 percent of the same group surveyed say they are “significantly prepared” to manage these changes effectively and more than half (54%) say they are only “moderately prepared.” Similarly, the 2017 Excellence in Risk Management report, by Marsh and the Risk & Insurance Management Society (RIMS), found an awareness gap among many risk managers on the use of disruptive technologies by their organizations. The survey also found that more than half of organizations have not conducted risk assessments for disruptive technologies.
It is clear that the need to invest in re-tooling the workforce couldn’t have come at a more critical time. At the heart of this investment should be access for the workforce to a digital literacy program. Digital literacy is notably separate from computer literacy. Rather, it should be a focused program that educates employees in emerging fields such as big data, machine learning, process automation, blockchain, and the internet of things. The program would provide practical applications that are contextual to the employee’s role.
Thanks to advancements in online technology, there is now an array of learning opportunities available to employees and to board members alike. For example, Massive Open Online Courses offered through companies like edX and Coursera offer an array of courses, as well immersive, state-of-the-art educational content developed by top technology companies. Many of these platforms cater to the needs of individual enterprises and can customize digital literacy pathways for employees based on their industry and current skillsets. A small but growing number of companies are exploring these platforms as an avenue to accelerate learning within their organization.
A subset of technology companies is also opening up access to core technology courses beyond their employee population as a way to shore up interest in the technology used at the company and to close the skills gap. Microsoft recently announced the Professional Program for Artificial Intelligence for aspiring engineers and analysts with to a basic introduction of AI to mastery of the skills needed to build deep learning models for AI solutions that exhibit human-like behavior and intelligence.
Last but not least, there are more traditional ways to close the digital literacy gap. AT&T Corp., for example, sponsors a low-cost online master’s degree in computer science from the Georgia Institute of Technology’s school of computing and offers a variety of courses to retrain its employees who work in jobs that will become obsolete, such as landline installation and repair.
The concept of digital literacy is still at an early stage, but it is a critical foundational step that companies need to take to prepare their workforce for their future. Technology is disrupting everything in its path—including the demand for, and demands on, the workforce—and it’s not slowing down. The question boards need to ask is whether their organization is prepared to oversee the transformation of their company’s workforce proactively or passively react to the inevitable technological progress that will disrupt down the road.
Leslie Chacko is a director in Marsh & McLennan Companies Global Risk Center and leads research on emerging technologies. He has over 14 years of experience in advising clients in the financial services and high tech industries at the intersection of strategy, technology and risk.
A culture of innovation sustains reinvention and breathes life into the organization itself. As high-speed, ever-connected networks and maturing digital technologies enhance ties between organizations and their stakeholders, opportunities to innovate processes, products, and services emerge that were unthinkable a few years ago. With such unmistakable mega-trends in the business environment, the board of directors has a role in ensuring that the organization it serves is not missing out on opportunities to innovate and, as a result, running the risk of getting swept aside by the forces of disruptive change. In this context, the often-referenced adage of “disrupt or be disrupted” gives way to the harsher specter of “innovate or die.”
For organizations that make innovation a priority, the process has traditionally involved designating responsible individuals, setting performance expectations linked to entity objectives, allowing designated innovators to operate in a risk-free environment, monitoring their progress using appropriate metrics, and then holding them accountable for results. However, for most organizations, innovation has been opportunistic and ad hoc.
For innovation to reach its full potential in the digital age, a culture that emphasizes innovation must also encourage diversity, collaboration, empowerment, continuous learning, ingenuity, change enablement, and team performance. Accordingly, it is important to the board’s oversight of the innovative culture to understand how the organization should position itself, even if it has little appetite for competing as a front-runner.
Given that every organization is different, the board should ask management to consider whether the organization is a digital follower, expert, or leader:
Digital follower. The organization has developed a digital strategy and has a proven track record delivering on digital initiatives, which are typically focused on discrete aspects of the customer journey.
Digital expert. The organization has a proven track record of adopting emerging technologies, has achieved high levels of process automation, and quantitatively manages digital aspects of its strategy enterprisewide.
Digital leader. The organization has a proven track record of disrupting traditional business models; digital aspects of strategic plans are continually improved based on lessons learned and predictive indicators.
The approach to innovation is very different for these distinct classes of organizations. Leaders disrupt. Experts aspire to be leaders. Many companies are content to be agile followers, meaning that they frequently reassess and adapt their digital strategy as the market changes. Most businesses are not where they want to be. Many that desire to be followers are in fact beginners. They have multiple digital initiatives underway with objectives that are well-understood, but they lack fully developed digital plans. And many companies that want to be leaders are in fact followers.
Even though they may not know it, some entities are actually skeptics (or observers) because they do not fully buy into the digital revolution and its impact on the business. Usually, these organizations lack formalized digital plans, and their management of digital initiatives is ad hoc. Also, their leadership team may view digital business as mere hype and their business as immune to change.
Neither the skeptic nor the beginner is likely to foster the culture necessary for sustained innovation in the digital age because, at best, they are digital on the edges but not at the core. Therefore, moving beyond these two levels of digital maturity—whether a skeptic or beginner—is desirable.
The challenge for management and the board is to decide the level of digital maturity they desire for the organization. In this context, the digital follower can be a relatively high-performing business. Effective followers play the waiting game, monitor the competitive landscape, and react quickly when necessary to defend market share by enhancing the customer experience. Followers, to succeed, must be agile enough to respond quickly as an early mover, even if they aren’t first movers.
Regarding the assessment of digital maturity, Protiviti’s original research has identified more than 30 empirically supported competencies arrayed across six core disciplines at which digital leaders excel. These competencies consist of capabilities and structural characteristics that can be used to benchmark the organization to identify its strengths and weaknesses.
For example, one of the core disciplines of Protiviti’s digital maturity assessment framework is “organization, structure, and processes.” Within that discipline is the innovation and research competency, which is useful in distinguishing between digital leaders and followers. The point is that competencies can be used to assess an entity’s resilience and likely innovation performance in creating new markets and eventually disrupting existing markets and displacing established incumbents, products, services, and alliances.
These are the real stakes of the innovation game in the digital world. Everything else is small ball.
Companies committed to innovation are confident in facing the future because they know they are playing the right game: viewing innovation as a continuous process rather than a dramatic event. Understanding whether the company desires to be a leader, a follower, or something in between is important, as management’s digital appetite provides directors with the context they need to focus their oversight of the innovation process. If the enterprise is a skeptic or beginner, directors may need to strongly encourage management to assess the organization’s digital readiness and review the results of that assessment with the board. When changes to the corporate culture are needed, the required investments should be made to forge an environment that empowers and rewards employees to test new ideas and take the appropriate risks to make those ideas a reality, without the fear of repercussions or reprisals if they don’t succeed.