All Signs Point to Change
Caution, changes ahead
It is a sermon the choir is tired of hearing. Prophets of change and priests of transformation are shouting it from their pulpits – major changes are in the offing. Get with the program, get fit for digitalization, or go home. Companies are falling all over themselves, adopting New Work practices and agile training methods, appointing Scrum masters, and redecorating offices in Sesame Street colors. Some managers embark on pilgrimages to Silicon Valley; others head to the nearest management seminar to study the art of digital leadership. Digital gurus promise a panacea that will keep the company on course for growth. And with good reason: Capitalism may be under fire, but the ideology of focusing on nothing but shareholder value still prevails. Employees are a plannable resource to be exploited in shareholders’ best interests – performance first; people second. Experience disagrees. Lessons past teach us that that approach to managing change has its priorities backwards. It is doomed to fail.
Change managers learned long ago that objectifying people as mere service providers, as minions who are there just to take orders, robs them of the intrinsic motivation they need to tackle complex changes, roll with strategy realignments and handle the pressures of day-to-day business. Yet despite years of evidence to the contrary, emblems of status and achievement such as generous incentive programs, bonus systems and fancy company cars still prevail. We see the consequences of this mindset in many German companies. Change initiatives stall with the corporate culture stuck in a rut. Employees who join just for the money leave for more of it. Those who stay are disinclined to change. With so many alternative employers desperately seeking staff, the best of the young no longer even bother to apply to old-school organizations. And once the restructuring is underway, a hiring freeze is sure to follow. The ability to innovate goes unmentioned in this chapter of the company’s story. And all this is the result of management that missed the boat. The good ship Adapt Now has already sailed.
We may be tired of hearing it, but the fact remains that, as a global society, we are facing the most profound change in human history. This is neither a scare tactic nor homemade hype – it is the one reality we ought to be facing up to now. In the wake of global change, the microcosm of change management is also in transition, as is the way companies are led. Change is no longer something to be outsourced to a single department. Everyone in a company needs to be a change-maker. Change has become a mantra, a philosophy of work and life.
Stumbling towards obsolescence in change management
Change itself is changing. Far more diverse and complex triggers and drivers have transformed its very nature. In the past, when a company was gearing up to merge, integrate, roll out new software, or restructure in face of economic pressure, its movers and shakers called the communications or change management department to action. Change was an effect, its cause being economic and fiscal dynamics that had little to do with social needs or global upheavals. It was a plannable linear process with a predictable beginning and end. Today’s change managers face a very different challenge. The dynamics, speed and complexity of it all are dizzying. Diverse forces of change exert their influence from all sides, occasionally overlapping. Often the change process veers off in another direction. Changes cascade and stack up like one matryoshka nesting doll within another. This is a constant marathon rather than a quick sprint. Companies have to have the stamina to run all day, change into fresh clothes on the fly, and glide into the finish line smiling. Digitalization disrupts entire industries. Copycats usurp successful business models. Flexible, simple alternatives penetrate traditional markets like so many termites attacking the roots of an old tree. Stiff competition, emerging seemingly out of nowhere, blindsides incumbents. With society demanding more from businesses than ever, it too is a catalyst for change.
Reconsidering business ethics and morals
Companies have to ponder how every change made on the inside figures on the outside. Foggy jargon such as ‘sustainability’ or ‘corporate social responsibility’ can no longer obscure real issues such as climate change, equality, human rights and the like. Today, change is no longer just about profits and business success; it is about having a real and positive impact on society and the planet. This may sound melodramatic, but it will be the measure of a company’s ability to survive. Managing change was once a matter of bringing employees on board; now stakeholder management has become far more complex. The company has to communicate in all directions, honestly and straightforwardly.
When communication was all about channels and formats, employee newsletters were a viable medium for change processes. Those days are over. Not everything was better in the past; it was just simpler and perhaps more conducive to companies’ innate self-interest. The massive changes underway now could enable – or perhaps even compel – companies to focus on the true core of their business, people. In the age of automation, AI and digitalization, we are making a startling rediscovery of the human element. Rapid change was once the exception; today it is the rule – the only true constant of cultural evolution.
The decaying half-life of an earned reputation
The age of opacity is over. We are embarking on the era of total transparency where all is revealed, with or without one’s consent. News spreads fast, with word getting out across the globe within 24 hours. The good reputation of a company or a top executive is under constant scrutiny, to be challenged anew at every opportunity. Fifteen years ago, the catalysts for crises and the change processes that followed were shareholders, political decisions, regulatory legislation, a flawed product or management mistakes. Today, it could also be the workforce or nongovernment organizations. They see all and challenge everything. People listen when they speak. These voices ring loud enough to bring business giants to heel. The German utility RWE, which had sought to raze an ancient forest near one of its mines, recently learned a lesson about the need to leave room for compromise with environmentalists. The court gave no credence to its arguments about the economic and strategic necessity of this move, nor to its assertion that there were no alternatives to clearing the Hambach Forest. It halted the deforestation, citing a lack of evidence for the necessity of it. The company blundered into an unprecedented PR disaster with its hardline stance. RWEs customers were not amused. When surveyed, more than 35 percent said they would switch to a renewables-only provider or consider doing so in view of the Hambach case. We learn that the phrase “no alternative” is as toxic as it was in 2011, when it took the inglorious top spot on the list of the year’s most reviled media buzzwords in Germany. Any company that bandies it about is playing with fire. And enterprises that ignore the social consequences of their actions not only jeopardize their image; they are putting their very future at risk.
Globalization nearing completion
Globalization was long seen as the 20th century’s engine of prosperity. This held true for much of the postwar era – it was the ticket to the good life, at least for part of the planet. Today it is a polarizing force. Many see it as an evil that destroys the fabric of societies and leaves the rich richer and the poor poorer. The challenges for companies extend beyond its confines and national frontiers, as does the crisis potential. A local or regional action may seem like a drop in a lone bucket, but it can make waves felt on distant shores. This interconnectedness of everything affects us all: We are seeing tectonic shifts in global trade policy, politics, business and society. Mass migration, the climate crisis, trade disputes, dwindling confidence in multilateral systems, wars, conflicts and other uncertainties – ours is a world rife with risk. These issues are likely to accompany all of us, society and business, for decades to come. Some of the blame for this rests with the short-sighted global economic and corporate policies of the past 50 years. Negligence and recklessness have driven the planet to the brink of catastrophe. Now we are all paying the price for our generous globalization policy and the progress it has brought, which for some does not feel like progress at all. The World Economic Forum’s Global Risk Report tells us much about all-out globalization and its toxic legacy, but perhaps not everything. The largest joint study in history wrapped up in May of this year, with 500 researchers from 50 countries concluding that the consequences of climate change are just a prelude to an even greater crisis – the collapse of ecosystems and the destruction of nature. The UN organization IPBES (Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services) has calculated the costs of this in an initial summary: Humans are using up the planet’s resources at a speed that exceeds its capacity for self-renewal. In the USA alone, people exploit nature to the tune of around US$ 24 trillion per year. Our global ecosystems are so severely strained that massive extinction of species and unprecedented migration are imminent unless we take immediate action. Publications like the New York Times among others reported.
Leaders’ willingness to take responsibility found wanting
It is in the interest of companies to shoulder this responsibility. Every action taken today will have a negative or a positive effect on tomorrow – and thus on the company’s fortunes. Part of the remedy is painful – businesses will have to place profits and values on an equal footing. The leaders of the future will have to transform ‘sustainability’ from a buzzword into mainstream reality. They need to shift the perspective. These days, we are still seeking to contain the negative impact of doing business when we should be striving to create positive impacts for society and the planet; impacts that make a real difference.
We must challenge the conventions of shareholder value. Do companies really have an obligation to turn a profit in the interests of their shareholders – at the expense of our children’s children and further generations to come? Can we not strike a balance between profit and impact? How do we redefine responsibility amid the convulsions of these tectonic shifts? And what do we really mean when we say we have to put people first, always? This what we need to be talking about as a society. Of course, all these unanswered questions make change in the digital era so complex. Rather than seeking solace in simple answers or indulge in the fallacy of black-or-white thinking, we must accept this complexity. The sad fact is that many of our managers are not prepared to do so. Part of the old generation of leaders is caught in the pincers of a real dilemma.
Generation “D” for dilemma
These leaders are to be found not only at the top echelons; many occupy the second and third levels of management. They are the old guard, 45-to-65-year-old white men with 20 or more years seniority. Sacrificing their private lives – family, friends, hobbies – at the altar of achievement, they worked their way to the top. The corporate ladder, career success, networking with movers and shakers – this was their daily bread. Time with children was whittled down to a few hours on weekends. After decades of toil, they are now enjoying the fruits of their labor with a corner office and an actual secretary. They own a management key to the express elevator that catapults them to the executive levels, leaving the rank and file to take the slow lift to the top. They fought their way up, living and leading by the credo that those who command make the decisions, those who do not do what they are told. The thinking gets done upstairs, the working downstairs. This style of leadership was born of rigid hierarchies and lone management decisions made by men who jealously guarded their hard-earned power. Now, in the final decade of their working lives, all this new technology is calling everything into question – knowledge, experience and success. Existential angst is creeping the halls of the executive floors as leaders cling to the hope that this nightmare too shall pass like other crises and youthful insurgencies of the past. The horror is real. Digitalization, New Work, purpose and meaning, millennials, digital leadership – the changes implied by such buzzwords are just too painful, radical and unfair for managers to countenance. This dilemma, and the paralyzing fear of losing control, make it hard for Generation D to find answers to the questions posed by change. They have to have a formative hand in shaping change, yet to do so, they must forsake the conventions and management principles that underpinned their success. Many studies show that the managements of German companies are not equipped for digital change. The lack of readiness extends beyond Dax and MDax companies to SMEs. A recent study conducted by two management researchers from the HTW (Hochschule für Technik und Wirtschaft Berlin) found that 64 of the 80 largest medium-sized companies lack digital management experience. The researchers advised these companies to hire younger executives and have their managing directors intern at digital companies. That is a bitter pill to swallow, but perhaps a medicine that needs to be taken for the business to survive.
Networks chew up and spit out hierarchies
Is it even possible to adopt a new mindset? Can one unlearn one of way thinking and learn another? Is there any way to get Generation D excited about this new form of ‘sustainability’? The answer is “it depends.” Any attempt to do this with the old learning model will fail. Conveying leadership skills using theoretical constructs and shoehorning these skills into a balanced scorecard no longer works. The management style of the future, the type of leadership that enables change, is rooted in a very different sensibility. The idea is ancient – know thyself – but perhaps unprecedented in this context. It is the examined life transplanted to the business world: Managers have to understand themselves first. Then they can cast aside their fears of losing control or stature, open their eyes to see others with empathy, and honestly engage with employees and peers. Research has shown that complex systems in companies work best when control is distributed evenly throughout the group. This also means that authority is distributed to the far corners of the group, transforming the company into a network. Tomorrow’s leaders will have to have the skills to negotiate the networks that are gradually replacing old hierarchies. Executives will have to adapt to become the hubs of these networks, to be communicators and, in the best of all cases, to be mindset managers.
Every company has employees at all hierarchical levels who cannot be easily ‘reprogrammed.’ Tomorrow’s managers do not shrink from complexity and constant change. They embrace it, making it part of their mindset. They have agile minds. They act intuitively, and not every action has to be born of personal experience. They are employees’ mentors, enablers and servants. They understand there is but one key to success – the ability to evolve and adapt. They would rather have a strategy than a roadmap, and prefer effectuation to PowerPoint slides. They are moderators rather than commanders. They listen, respond with empathy, and hire people who have even better skills and know more than they do. They accept their weaknesses, stand by their mistakes, and see failure as an opportunity to grow. The term ‘digital leadership’ is perhaps misleading – it means having the courage to put one’s innermost self out there. The prerequisite for ‘learning’ this style of leadership is true authenticity, a genuineness that leaves room for vulnerability. While Generation D was accustomed to zipping around in a Riva speedboat, it now has to climb on a surfboard, negotiating complex and unpredictable waves and currents to reach the shore. There will be slip-ups, with more time spent in the water than on the board. But those who manage to keep their ego in check and see opportunity in failure will eventually learn to surf those waves. For Generation D, the big question is if they still have the strength, discipline and moxie to ride it out.
Billions down the drain for ineffective management training
All this rapid change has been a boon to the training industry. Most of their educational efforts fall short of the mark with 90 percent of corporate courses being demonstrably ineffective. Companies are pumping billions into training to fast-track their transformation, boost individuals’ performance or achieve behavioral change in employees, but the desired outcome rarely materializes. According to The Great Training Robbery, a 2016 research paper published by the Harvard Business School, many companies were unable to transfer employee learning into the organization. There are two reasons for this. For one, companies failed to integrate training for individuals into a greater, cohesive change process. For the other, the training methods were simply not designed to purpose. They relied on standard learning materials, a chalk-and-talk classroom style, and irrelevant case studies. The latter were empirical inquiries into different industries that were hardly germane, but used anyway out of convenience – they just happened to be available. Without viable alternatives to the traditional corporate learning model, increasingly frustrated HR managers continue to pour money down the drain. Conventional training methods fail to address the problem and have scarcely been adapted to the changes over the past decades. Long on theory and short on practice, they are often too academic and out of touch with the real world of business.
The way forward – networked learning
It takes a new form of learning for people to develop the necessary leadership skills and truly understand, accept, and deal with the complexity of changes underway. This method has nothing to do with classic instructor-to-student interaction. The new management curriculum is experimental and personalized. It is built on experience-sharing and a dialog across local, regional and international networks. Directly case-related and holistic by nature, it is contextual, relevant and meaningful. I believe that companies’ viability in the years to come will depend on their success in mustering the traction and power of a global community to drive change. Tomorrow’s business currency will be tailored solutions and outcomes created from the stuff of real learning experiences shared with others. The days when managers developed lone solutions to the company’s big problems are over. Again, that approach is reckless.
Good leadership a prerequisite for innovative tech – the USA and China in the lead
The World Economic Forum (WEF) presented its most recent Global Competitiveness Report in October 2018. This paper painted a reassuring picture of Germany’s innovative powers. The Federal Republic took the top spot. It is the world leader, but this good news is no reason to rest. Things do not look quite so rosy for the exporting nation in the race for artificial intelligence (AI) and the best technology. With Germany looking on bemused as the trend passed it by, China is on its way to becoming an AI superpower by 2030. It is pulling out all stops to promote AI’s development. The government has pledged €48.5 billion from the state coffers to support university research projects, invest in innovative companies and key technologies, and establish university chairs for computer science and AI. Germany’s funding looks meagre by comparison. In November 2018, the German government announced it had earmarked €3 billion to develop AI up to 2025. The basic research that underpins Chinese AI stems from the USA, which still leads the pack. China is closing in fast, so the USA has every reason to look east with trepidation to the country that may soon overtake it.
More entrepreneurial spirit, fewer managers
Germans tend to dismiss AI as a phantom menace. We would do well to take China’s rise as a tech power seriously and rethink our perceptions of a country many still see as little more than our extended workbench. The truth is, our lead in science and technology is shrinking. There is much at stake. A glance at the executive levels of German companies reveals that the people who have been running companies in the postwar era are managers in the literal sense of the word. They do indeed manage the business, but they are not as enterprising as they should be. We need entrepreneurship to make a comeback. Many companies know their history, but forgot their roots. The stories behind German SMEs and many Dax30 companies start with entrepreneurs. Their success was built on entrepreneurship. How do we maintain this entrepreneurial spirit; how to we use it to firm up our grasp of the future? What are the makings of an entrepreneur in the era of AI, robotics and digitalization? The competitive stance of an entire country hinges on the answers to these questions.
An entreaty on behalf of AI and automation
Germany is the land of technophobes. The public discourse is all about what can go wrong with tech and automation rather than what is right about progress; it is about dystopian fears rather than utopian visions. This is a typically German reflex. First, we doubt and then indulge in scaremongering in the hopes of keeping the issue at arm’s length until the hype fizzles out. That tactic will not work this time. If we insist on pursuing it, we run the risk of being left behind in the global arena. This naysayer’s narrative will leave us unable to compete with countries such as China and the USA in AI innovation. As a society, we must look closer at the benefits of innovation. We need an upbeat narrative to dispel unfounded fears. Technologies will make our lives easier. Strenuous physical labor, monotonous chores and other taxing activities will be relegated to the dustbin of history. This will leave room for more fulfilling pursuits such as touching bases with friends and family, engaging in creative work and pursuing everything else that is important to us, but we have little time for now. Automation can free us of some of our burdens. Our country’s past prosperity goes to its credit. Without automation, Germans would never have taken the title of world heavyweight export champion. Time and again, we demonstrated that automation gives us the competitive edge that fueled our growth. There is so much greater potential to be tapped with automation than without it. New jobs will emerge, many of which we have yet to imagine. I experienced something similar in the 1990s when I stumbled upon the multimedia scene. This was a true frontier, unknown and unexplored. No one had been trained in this; there were no UX nor web designers. Everyone learned by doing. It was not until a decade later that formal training materialized. More advances and technologies soon followed. Inventions like the printing press or the automobile, the latter thought to be a danger to horse-drawn carriages, followed the same pattern. Whatever the era, the outcome was always the same – new jobs and professions in new fields. This pattern will hold even in the 21st century – if we greet the new and unknown with a positive, problem-solving mindset. This is the only way to dispel people’s anxiety about the future. The term ‘digital transformation’ is actually a misnomer, as it suggests that the transformation will someday be complete. This time, there will be no end to change.
This opinion piece was originally published in the German trade magazine Next Industry. The original article is available for download here. Stephan Balzer is the Co-Founder of Boma Global and heads Boma’s German business.
Germany’s first international Summit on Corporate Transformation and Exponential Thinking
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