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Chapter 4: Evolving governance, leadership and workforce

Companies need to transform into innovation powerhouses to succeed in this fast-changing world.
It requires new ways of thinking about oversight, decision-making, operating models and managing risk.

It also requires a new breed of agile and dynamic leaders who can envision industry evolution in this technology-driven world and develop corporate strategies dynamically instead of following a traditional “three-horizons” approach (fundamentally used to formulate strategies during uncertain times).[i]

The required change in corporate culture will not happen by itself. Leaders need to consciously change the way the organisation hires, rewards, recognises and develops people. They need to create an environment that cultivates unconventional thinking and encourages people to come up with new ideas, convert them into action, and support their success.

Nimble, “cat-footed’ organisations are more likely to survive, while “elephantine” companies will eventually die out as they are less adaptable to rapidly evolving conditions in the new economy. Traditional hierarchical organisational structures will give way to flatter models, which also enable a more fluid work environment. A flexible model of project governance will become increasingly common.

Research conducted by prominent organisations - including the John Grill Centre for Project Leadership at the University of Sydney, Harvard University, Oxford University, and many others - have identified the following elements of a transforming organisation.

1. Effective governance

Governance capabilities need to extend beyond traditional oversight functions under a legal company charter and stay ahead of many factors not generally considered, such as technology trends, customer preferences and current social factors. While there are established rules and regulations for corporate governance, the execution of these duties still relies on individual personalities. Effective governance team members are aware of what they know, what they don’t know, and what questions to ask.

2. Effective leaders

The fundamental, foundational traits for all leaders to be self-reflective, self-aware, courageous, entrepreneurial, agile and decisive are not new. But a leader’s ability to develop a strategy for value creation in this fast-changing world is a new dimension. There is a need to handle long-term outcomes while being prepared to act immediately and decisively. Such leaders need to practice inclusivity and collaboration both internally and externally.

3. Effective workforce

In a transforming organisation, both production-floor and knowledge workers need to continuously enhance their personal effectiveness and learning ability. Advanced collaboration tools enable a distributed global team of individuals to work effectively together. Sophisticated AI applications will enhance individuals’ decision-making capabilities. Latest generations of workers (Generation Y, Generation Z) have grown in the technological age. They behave very differently as customers, and their expectations from the workspace are also very different from previous generations.

The board of directors’ perspective

Corporate governance is extremely important for all companies. However, to transform and become innovative, directors need to shift their thinking and mindset to that of an innovation board. The section below provides tactics to apply a different mindset.  

Boards of directors are aware of industry disruption threats and understand the need for innovation. At the same time, they are so meticulously focused on maintaining and growing company stock value that they can find themselves in a catch-22 situation.

Financial analysts calculate the company’s stock price based on its free cash-flow projections for the coming years, often estimated on the most recent quarterly results. Knowing this, boards feel that by redirecting company profits into nurturing new businesses, they could compromise company profitability and negatively impact shareholder value. On the other hand, without such investments, in a few short years the company may simply vanish.

Boards of directors can break this vicious cycle by:

  • automating the legacy business to increase profitability and free up funds for investments into new businesses
  • proving to investors and financial analysts the company’s ability to innovate with successful business outcomes
  • breaking the company into a portfolio of independent businesses to increase agility and speed up decision-making
  • working to modernise industry regulations at a country level to assure global competitiveness.

When companies consider automating their businesses, they often do not realise the extremely high return on investment (ROI) from automation using modern AI and robotics technologies. Payback timeframes can be as short as one year, and savings over the life span of an AI or robotics solution can be ten times the initial investment. This creates a real opportunity to generate savings and invest into the company’s future.

The challenge here is that newest automation solutions don’t come from a proven software vendor with a known brand name and multiple case studies. Such automation needs to be built in partnership with relatively young startups and not wait until these startups mature into big, well-known vendors. By the time these startups mature as businesses, new solutions are available on the market and your competition will be far ahead of you.

New businesses traditionally don’t generate high revenue or big profits within the first couple of years. Yet, what is underestimated is that, in today’s highly connected and inter-networked world, new products can gain adoption much more quickly than in the past, and the growth rate of new businesses can be quite high. When investors see such growth potential, they apply a much higher multiple on today’s profits from these new businesses, leading to a substantial valuation of the smaller brother.

If things are done right, new businesses over time will be valued more than the original enterprise itself. Investors and analysts are also catching up with this new business approach. They already have an example in Amazon, the company that reinvests all its profit into new ventures.

A favourite aphorism from Amazon founder Jeff Bezos is “Your margin is my opportunity.”[ii] When a company proves to investors its ability to innovate, pure quarterly profit measures are replaced with other metrics to calculate the company’s valuation. Ultimately, investors know that these reinvested profits will be worth much more in few years than as cash in the bank today.

In today’s economy, a portfolio of right-sized independent companies, proven internal and external innovation capabilities, and meticulous automation towards robotics enterprise have become the new formula for success.

The times of mega-holdings, in which large market share assured better competitive positioning, are over. In the previous industrial era, large-scale manufacturing capabilities were used to achieve economies of scale. In the current digital era, physical products are differentiated by the amount of smartness they incorporate. As an example, Elon Musk calls Tesla cars a “sophisticated computer on wheels”.[iii] The agility in product design is now much more important than the sheer company size.

Splitting mega-holdings into a portfolio of right-sized independent companies may become part of the new formula for success. Activist investors are increasingly targeting large holdings to achieve valuation gains from a company split. The GE case made headlines recently.[iv] This reminds us of the leveraged buyout days, when boards didn’t give proper attention to managing the company’s stock value. Private equity firms would take over a publicly-traded company, make it private, cut costs, and re-float on the stock market. Over time, boards became increasingly efficient at optimising the company’s shareholder value, and leveraged buyouts faded out as an investor tactic. These days, the boards may consider such company splits proactively, before the activist investors do, like it was done at HP.[v]

As companies operate under different countries’ laws and regulations, the success of industries may rely on government support in the form of tax breaks (eg for solar panels and electric cars) and updated regulations (as for self-driving cars). Government regulations in banking, healthcare, transportation, energy and other industries are designed to protect citizens from privacy breaches, harmful products or unsafe services. But thinking of protection is not sufficient today, there should be much more focus on developing industry standards and inter-operability that will give innovation another boost. The World Bank’s Doing Business report compares how business-friendly are the regulatory environments across 190 countries.[vi]

For this reason, company boards and industry associations increasingly need to engage in lobbying efforts to update regulations.  This is quite contrary to a traditional mindset in which regulation is seen as a way to protect industry from disruptors. In today’s global market, new solutions are simply adopted in other countries, sometimes even co-sponsored by forward-looking governments; local vendors gain expertise and then expand globally. By the time regulations are updated or simply circumvented by new players, old-style businesses have already lost the opportunity to catch up and lose market share to new entrants from more forward-looking countries.

Redefine executive leadership

The role of the traditional CEO needs to continuously evolve, blending the tested focus on growth and finances, with technologies, transformation and innovation. Additionally, the role also needs to increase focus on social and ethical aspects of growing their businesses.

Chief executive officers (CEO) are hired by a board of directors for a specific mission. For example, Mark Hurd’s mission at HP was to cut costs; Meg Whitman’s was to split the company into two. The CEO’s mission today will increasingly be to transform the company into an innovation powerhouse. Running such a transformation project requires special skills, expertise and mindset.

Traditional organisations have a chief operating officer (COO) responsible for production and operations, and a chief strategy officer (CSO) responsible for a five-year plan. The CEO used to operate as a generalist equally spreading time across all c-suite functions of the company. Now, in the time of fully automated production, the CEO largely needs to personally drive innovation while delegating the rest of the functions to the COO or a CTO. This is how Apple was organised under Steve Jobs, when he as CEO would focus on understanding new technologies and conceptualising new products.

Strategic thinking has always been a requirement for CEOs, but today’s strategies need to be mostly technology-driven. Many new digital technologies are already available today and, in a few years, new physical and biological technologies will be ready for mainstream adoption. The CEO needs to understand the transformational impact of these technologies and actively drive their adoption.

Leaders will have to manage not just a team but a collection of capabilities, some of which reside internally and others externally, both locally and internationally. As an indicator of a leader’s influence within the organisation, the size of a team is less important than the set of capabilities overseen.

Leading an inter-networked team with redefined internal boundaries, external relationships, and human capabilities has multiple new dimensions of complexity. Companies now engage their suppliers and partners to create specific next-generation products on an extremely flexible basis (often only via a virtual connection). A temporary team consisting of internal and external resources may be assembled for one product or service, and then return to other projects when they are no longer needed.

Early adopters will be the preferred mindset in leaders of the future. “Early adopters” refers to people who capitalise on a first-mover advantage and typically gain much higher market share. “Fast followers” are those not wanting to take the risk upfront, it will allow the company to survive rather than prosper on the market.

Leaders of the future must consider the social implications of technology adoption in their industry. Consumers are well-connected over social media channels, and social good is appreciated and recognised quickly. Because of this, corporations should reconsider their mission statements, traditionally written as pure marketing slogans. Many modern startups are already linking their mission statement to social impact. Google’s “Don’t be Evil” is one of the best-known examples.

To stay ahead of competition, leaders will need to address the following questions:

  • Is our business strategy future-proof?
  • What is the level of our innovation capabilities?
  • What learning metrics should we use?
  • What are our pivot points?
  • Are we fostering a culture of innovation?
  • Are we customer-centric?
  • Can I allow my staff to make mistakes along the way?

New and revised executive leadership roles

In addition to the role of the CEO, the roles of traditional C-suite executives are constantly evolving.

  • The chief marketing officer (CMO) has very different ways of making an impact today. In the past decade marketing has gone through a fundamental transformation from classic push marketing (TV and magazine advertisements) to digital marketing (email, social media, websites), in which the customer is foremost in selecting products based on their value and references from other people.
  • The chief operating officer (COO) will need to re-examine the global supply chain and rework the company’s outsourcing strategy. Outsourcing to low labour-cost countries will be replaced with small-batch manufacturing at highly automated local facilities. Automation of production using AI and robots will be top priority.
  • The chief financial officer (CFO) has traditionally been responsible for accounting, investments and P&L reporting. Delivering quarterly results statement few days after the quarter’s end was considered an accomplishment. Today, accounting is being automated using AI systems, block-chain helps redefine and automate the contact-to-payment process, while digital payments make financial transactions easy.
  • The chief information officer (CIO) also has a different charter now. Installing ERP products and outsourcing IT maintenance are priorities of the past. Today, the focus shifts to full enablement of the workforce with a flexible, secure, mobile, global and collaborative work environment. Legacy systems need to be moved aside to free up space for a proper new micro-services architecture, allowing integration with SaaS products and new innovative digital solutions from startups.
  • Along the evolving roles for traditional executive, new C-suite roles are emerging.
  • Chief digital officer (CDO) - drives digital transformation of the company and is responsible for a new set of digital products or digital product enhancements
  • Chief data officer (CDO) - responsible for the use of data for valuable insights and automation of analytical functions within the enterprise
  • Chief innovation officer (CIO) -  focused on driving innovation initiatives and establishing innovation processes across the company.
  • Chief Project Officer (CPO) – a role becoming increasingly utilised for project-focussed organisations or those designing new ways of working. The role can play in various situations, working very closely across the roles described above. This role can be further split across two categories – designing & delivering projects as part of operational excellence; or designing and delivering projects to foster innovation, create new products, new work streams, and other innovative ideas.

The workforce adjusts to changing requirements

The section discusses the issues of a new generation of workers, the issue of automation; and combined together, the way the new workforce prefers to work, or become entrepreneurs.

A study from Oxford University suggests that almost half of all jobs today will be eliminated by 2025.[vii] With advanced robotics, production-floor jobs are increasingly automate. Repeatable assembly-line tasks are easily transferred to self-learning robots today. AI started to make a profound impact on knowledge worker occupations. Routine jobs like customer support will disappear in much the same way as the typist profession vanished. Over time, AI will even find its way into leadership roles[viii]

Increased levels of automation may lead to unemployment and increased inequality. Social and ethical implications need to be addressed. A shorter work week can give more people employment while offering a better work-life balance.[ix] A higher earned income tax may be another solution.[x]

Not everything is that bad though. Manual-labour jobs are difficult to fill in the U.S. anyway and automation can fill the gap. There are unmet needs in many sectors such as healthcare and education, where more jobs could be created to achieve better outcomes. Human’s role may shift towards training AI and robots, instead of doing the actual job itself. Human workers can also move to more intelligent tasks, augmented by AI to boost their intellectual capabilities. Workers should be able to unleash their creativity to convert the latest technologies into a new generation of very affordable products.

The definition of a “worker” is itself rapidly changing with a growing “gig-economy,” in which organisations contract independent providers instead of hiring employees. The number of independent contractors is continuing to grow and is expected to reach 50 percent of the overall workforce in the U.S. soon.[xi]

Contracting also means mechanisation of labour at a task level where workers operate as independent labour units with specific skills and expertise. Workers located in different time zones simply become capabilities plugged into a global team. At automation levels of 25 percent, we can talk about AI and robotics augmenting humans at work. But with automation levels at 75 percent and higher, it will be robots delegating certain tasks to humans.

For companies, paying by the hour is much more efficient; there is also a better alignment between the individual’s capability and remuneration. Employees with high-end expertise have a chance to earn more, while others may need to retrain continuously to match what is needed in the workplace.

Project management (PM) jobs are ground-level leadership roles, responsible for organising a team of people to achieve defined objectives and track progress at the individual task level. There is a new breed of PM AI systems that can perform day-to-day administration of projects. Such systems automate simple coordination tasks and, over time, develop an understanding of project performance indicators. Ultimately, a PM AI system will save project professionals time while improving outcomes for projects and the team.

New layers of metadata will be gathered by PM AI in this process. Such data will help managers better understand project status and team performance, it can represent progress visually and validate the effectiveness of methodologies used. This data can then feed into machine learning algorithms to provide meaningful advice. PM AI will gain additional insights, perform more complex tasks, make recommendations, and even make decisions, eventually surpassing the capabilities of humans today.

The future workforce expects flexibility in its work environment. A 2017 study by Ernst and Young (EY) found that 76 percent of respondents have difficulties managing personal, family, and work responsibilities.[xii] Along with pay and benefits, workplace flexibility is a key consideration for accepting a job offer and staying with an employer. With 66 percent of resignations happening due to lack of work flexibility, leaders must find better ways to accommodate this need.

The study also looked at the interplay between work, family, and health. It found that workers with the maximum amount of personal freedom (working in or out of the office) met their commitments, produced quality work, and were happier and healthier in their professional and personal lives. This trend is prevalent among Millennials and is predicted to continue with future workforce generations.

Generation Y (also known as millennials) are a major factor in the modern and future workforce. Demographers define this group as born between the early 1980s the mid-1990s.[xiii] The 2008-9 recession influenced the way these young people view work. Many millennials who struggled to find full-time jobs during the recession have turned to other sources of income, such as freelancing. Others are simply hesitant to take traditional jobs and are seeking out startups to unleash their creativity without corporate bureaucracy. Millennials tend to be less concerned with pensions plans than earlier generations.

Microsoft's 2017 State of Global Customer Service report highlighted big differences between communicational preferences of millennials and previous generational cohorts. For example, Millennials are more tuned for short bursts of communication and don’t need to talk to people directly. This research found that 64 percent of millennials believe social media is an effective channel for customer service, compared to 27 percent of baby boomers.[xiv] The report also indicated that 52 percent of millennials already actively use social media to resolve customer service issues.

As customers, millennials want two things 1) responsiveness and 2) self-service. Past generations would simply stop doing business with a company because of poor service, but younger consumers feel obligated to warn others via social media and review sites. A report by Nuance notes that 27 percent of millennials have written a negative review, while only 16 percent of baby boomers provided online criticism.[xv] Behaviours like this, seen in millennials as consumers, are translating directly into how they behave in the workforce.

Generation Z is the post-millennial group born roughly between 1995 and 2010. They are starting to graduate from high school and college; and are entering the workforce. Various researchers have found that this generation is entrepreneurial, hardworking and want to make a social impact.[xvi] Their desire for a hyper-customised career experience makes this generation three times more likely to work at a small or mid-size company than a large one, with less institutional restrictions and more entrepreneurial aspects.[xvii] Having grown up with multiple technology innovations, it’s natural for Gen Z-ers to engage professionally in a technology domain.


End notes

[i] McKinsey Quarterly, 2009. Enduring Ideas: The three horizons of growth. Viewed 22 November 2017. Available at: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/enduring-ideas-the-three-horizons-of-growth

[ii] Lashinsky, A., 2012. Amazon's Jeff Bezos: The Ultimate Disrupter. Viewed 22 November 2017. Available at: http://fortune.com/2012/11/16/amazons-jeff-bezos-the-ultimate-disrupter/

[iii] Hirsch, J., 2015. Elon Musk: Model S not a car but a 'sophisticated computer on wheels'. Viewed 26 November 2017. Available at: http://www.latimes.com/business/autos/la-fi-hy-musk-computer-on-wheels-20150319-story.html

[iv] Gryta,T., Benoit, D., Lublin, J.S., 2017GE Gives Activist Trian a Seat on the Board. Viewed 26 November 2017. Available at: https://www.wsj.com/articles/trian-takes-board-seat-at-general-electric-1507549221

[v] Vanian, J., 2015. How Hewlett-Packard plans to split in two. Viewed 28 November 2017. Available at: http://fortune.com/2015/07/01/hewlett-packard-filing-split/

[vi] The World Bank, 2018. Doing Business 2018, Reforming to Create Jobs. Viewed 30 November 2017. Available at: http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB2018-Full-Report.pdf

[vii] Straus, R.R., 2014. Will you be replaced by a robot? We reveal the 100 occupations judged most and least at risk of automation. Viewed 5 December 2017. Available at: http://www.thisismoney.co.uk/money/news/article-2642880/Table-700-jobs-reveals-professions-likely-replaced-robots.html

[viii] Chamorro-Premuzic, T., 2018. Why a robot could be the best boss you've ever had. Viewed 5 December 2017. Available at: https://www.theguardian.com/media-network/2016/sep/09/robot-boss-best-manager-artificial-intelligence

[ix] Morris, D.Z., 2016. Amazon Tests 30-Hour Work Week. Viewed 8 December 2017. Available at: http://fortune.com/2016/08/28/amazon-tests-30-hour-work-week/

[x] Smith, N. 2016. Expand the Best Program to Fight Poverty. Viewed 8 January 2018. Available at: https://www.bloomberg.com/view/articles/2016-08-29/expand-the-best-program-to-fight-poverty

[xi] Noguchi, Y., 2018. Freelanced: The Rise Of The Contract Workforce. Viewed 23 January 2018. Available at: https://www.npr.org/2018/01/22/578825135/rise-of-the-contract-workers-work-is-different-now

[xii] Ernst & Young Global Limited, 2015, Ernst and Young Study: work-life challenges across generations. Viewed 23 January 2018. Available at: http://www.ey.com/us/en/about-us/our-people-and-culture/ey-work-life-challenges-across-generations-global-study

[xiii] WebFinance Inc., 2018. Generation Y. Viewed 30 January 2018. Available at: http://www.businessdictionary.com/definition/Generation-Y.html

[xiv] Microsoft, 2017. Microsoft's 2017 State of Global Customer Service report. Viewed 30 January 2018. Available at: https://info.microsoft.com/dynamics365-global-state-cust-service-en-gb.html

[xv] Nuance Communications, 2015. Nuance: The Millennialization of Customer Service. Viewed 31 January 2018. Available at: https://www.nuance.com/content/dam/nuance/en_au/collateral/enterprise/white-paper/wp-millennialization-of-customer-service-en-us.pdf

[xvi] Elejalde-Ruize, A., 2017. Why employers are reaching out to the next generation of workers: Gen Z. Viewed 1 February 2018. Available at: http://www.chicagotribune.com/business/ct-generation-z-workforce-0402-biz-20170331-story.html

[xvii] Forbes Coaches Council, 2017. Generation Z: 12 Important Things Companies Need To Understand. Viewed 1 February 2018. Available at: https://www.forbes.com/sites/forbescoachescouncil/2017/03/03/generation-z-12-important-things-companies-need-to-understand/#2bc0cb041fe3