The management systems that bred success in earlier industrial ages are now perceived as material obstacles to the rapid evolution of a cognitive economy. While it’s not surprising that legacy organizational structures are outdated in an era of digital, the challenge to dismantle them and construct institutions fit for now and later is easier said than done.
Today, it’s crucial that business leaders recognize and act when barriers to realizing institutional innovation interfere with critical momentum. This means understanding the changing nature of customer and worker expectations by embracing radical change in an environment augmented by machines and algorithms. It also necessitates living and learning by cultivating the most valuable human capacities and engaging in broad stakeholder relationships.
In this edition of the TLR Newsletter, we discuss ten major obstacles to creating the “dynamic stability” that has become the new normal for successful enterprises in this Fourth Industrial Revolution (4IR).
The gathering pace of the 4IR dictates that companies must move away from risk aversion to embracing risk as an integral part of everyday business. In times of great uncertainty, avoidance of the downside is paramount for many leaders, which means that big strategic moves are rarely proposed, and even less frequently accepted. One tipping point that separates transformative leaders from those who cling to industrial-age command and control practices is the failure to continually scale up innovative practices, ideas, and learnings.
Take-Away:
Successful leaders in this digital age have a clear business vision, an abundance mindset, and a sound strategy in this new, dynamic marketplace. This is coupled with a sense of urgency to establish momentum, and the capacity to build leadership teams who can collaborate and drive substantive change. Future-sensing leaders make bold moves. They can imagine a future different than today and believe their role is to guide and inspire the organization to get there ahead of the competition, with the proverbial “wheels still on the bus”, while crediting and celebrating their teams along the way.
The impact of silos can be devastating – putting the readiness of people and the viability of the organization in jeopardy. These are usually deeply embedded and operate far beyond obvious stovepipe 'ways of working'. They build reliable but often unscalable tribal knowledge practices. They decrease social capital, favor insiders, create disorder, fuel bias, and complicate the decision-making process.
Take-Away:
Companies must design innovative and engaging experiences where participation, networking, real-time learning, the free flow of ideas across business units and divisions, and the incentives to seek out new people with different ideas. People should be able to bring their brand to work. Encouraging workers with diverse perspectives then becomes the basis of innovation and growth strategies. These cognitive enterprises seek to expand virtually everyone’s expertise through an abundant mindset, continually learning and adapting to outthink the needs of the market while augmenting human intelligence.
Thinly veiled transformation initiatives occur when an organization appears to commit wholeheartedly to the concept of change, yet when confronted with the disruptive reality, will revert to and even defend more ingrained ways of working. Cosmetic “changes on the fringe” may occur, but the traditional actions remain the same – a situation exacerbated by conflict avoidance, as well as by thin practices that do not inform transformational efforts. Regardless of the cause, this bureaucracy is often deeply rooted and immovable.
Take-Away:
Excessive compliance and defense of the status quo in a rapidly evolving era of institutional innovation negatively impact company culture, worker collaboration, and customer satisfaction. Contemporary compliance measures must be far more adaptable, technology-driven, and data-rich, while human protagonists who challenge organizational norms must be given a platform on which to explain their view of the world. Over-financialized and proceduralized companies must retreat from demanding absolute compliance to industrial-age frameworks and tap into the full cerebral capabilities of workers to realize sustained growth.
This occurs when workers aren’t understanding or being guided to understand how their contributions — individually and in teams — connect to new value creation in new digital operating models. As a result, workers are not aligned with the value the organization wishes to create. This leads to cognitive overload, change fatigue, and workers feeling they can’t keep up. The company doesn’t have a systematic way to harness external resources and de-risk the environment that allows people and ideas to flourish.
Take-Away:
Workers need to know the “why” and they need to understand how the new why affects their new work. Workers should participate in new work designs. Companies must model new behaviors to demonstrate what good looks like. The latitude and room to explore and learn are critical.
Inter-operable business ecosystems are foundational to digitalization and the new digital economy. Legacy information technology systems that linger too long in a cost-center financial model are the Achilles heel of business transformation. Organizations with legacy infrastructures need the same speed, agility, and economics that digital-native competitors exhibit to stay competitive.
Take-Away:
From the front office – where new digital tends to be built first – to the back office, where organizations tend to avoid replacing legacy systems due to cost and complexity, the entire value chain needs to deliver on customer and worker expectations without unnecessary roadblocks caused by an inability to power modern digital interactions. If legacy systems can’t become integral to that objective, they must be replaced.
Ingrained, non-aligned, and rigid work practices are a constant barrier to transformative efforts, particularly in established organizations. Even the most innovative technological solutions are doomed to fail if challenging long-held work practices are considered to be too time-consuming and difficult. This is a race digital age organizations cannot afford to lose. Adaptation of work practices involves rethinking how workers can use technology to collaborate and share critical knowledge.
Take-Away:
Every work practice and process must be reviewed from a technological perspective. This includes consideration of new data sources as well as KPIs that align work practices with transformation initiatives. In this way, businesses can embrace new core digital capabilities and avoid a disruptive clash between outdated work practices and the rapid pace of change.
Being excessively procedural often stems from an aversion to ambiguity and concern about following any sort of unprescribed plan of action. Rules and procedures work well when the route ahead is clearly marked. However, these can also become bottlenecks and roadblocks when the value proposition is more subjective.
Take-Away:
Future-sensing organizations that make their digital transformation initiatives purposeful also demonstrate the ability to deal with uncertainty, where momentum and experimentation are the alternatives to having a clear path forward.
Cognitive diversity may not be seen as essential in well-established companies, where the need to change may not be immediately apparent. The pre-existence of an established way of successfully doing business inhibits efforts to employ cognitive diversity as a transformational tool. Diversity of opinion clashes with the traditional “if it ain’t broke” mindset. Over-emphasizing one has the potential to undermine the other.
Take-Away:
Cross-functional teams are foundational to successful projects of innovation, but these have to be more than a representative mix of people from different organizational entities. Cognitive diversity means exploring a range of mental models that include manifold ways of thinking as well as divergent personalities that can help organizations understand “what is” and how to cope with dynamic and complex business environments.
Over a quarter of a century ago, Treacy and Wiersema argued in their book The Discipline of Market Leaders that organizations need to focus on operational excellence, innovation, or customer intimacy. Today, we are faced with a business domain where companies must excel in all three of these areas to succeed. Our contemporary failure to balance operational excellence with innovation excellence means that new technologies, new regulations, new business models, and new start-ups will inevitably disrupt and render the original vision obsolete within a short time.
Take-Away:
Organizations must embrace iterative learning processes, experimentation, and the building of new conceptual and physical models as part of digital transformation to achieve not just operational excellence, but also to leverage imaginative ideas on innovation.
A mistake many organizations make today is not tapping into the full humanity of the people who work for them. Leveraging workers' capacity for imaginative solutions to the problems encountered in any digital transformation effort is key to successful institutional innovation. We live in an era where the competitive advantage realized through even the most successful organizational transformation is short-lived.
Take-Away:
Harnessing the collective ingenuity of an organization represents a different approach to transformational growth – one that brings institutional innovation to life. Imagination and creativity must be cultivated as a new normal. This means infusing a mental model of the company’s purpose in the mind of every worker. Each human affiliated with the day-to-day operation of the business must see the purposeful value of their role in bringing this mental model into reality through the rules, protocols, and processes that fulfill the overarching business strategy.