A lot of organisations are faced with the task of fostering a culture of innovation in today’s competitive environment. An integral part of fostering that innovation involves upskilling the employees as well as moving onto a digital transformation journey.
Organisations have traditionally struggled in this quest despite having the right resources and well-intentioned managers. This article talks about the challenges the organisations face and some common fallacies, which although intuitively appear sound, are, in fact detrimental in the long run.
The Immortality Quest
No business survives over the long term without reinventing itself. In this age of competition driven by innovation and disruption, the average lifespan of organisations is shrinking. As per various research (McKinsey & Co., Credit Suisse, Yale), the average lifespan for S&P 500 companies has reduced from 90 years in the 1930s to roughly 18 years now. This has been brought about by the rate of change which companies must contend with. This reminds me of the famous Red Queen Race from Lewis Carrol’s Through the Looking Glass.
“Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else—if you run very fast for a long time, as we’ve been doing.”
“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
Companies that have been able to reinvent themselves have flourished in disruptive markets. Adobe, which shifted its core business strategy from software packages it licensed to a subscription based model. Netflix which shifted from a mail order DVD service to content streaming and Xerox which moved from office hardware to business process outsourcing are some examples.
Capabilities Define Disabilities
Capabilities in one area generally manifest as disabilities in other areas. This is especially true for executives who are taxed with making the right decisions to enhance the organisational ability when faced by disruption.
Typically, executives depend on sound market research, good planning and execution as per the plan to run day to day business. These are sound practices when applied to sustaining technologies, since the size and growth rates of the market are well known and trajectories of technological progress are well established. Because most innovations fall within the bucket of sustaining technologies, most executives have learned to manage innovation in a sustaining context.
However, when it comes to dealing with disruptive technologies, executives often feel under-equipped owing to the lack of market research and the inability to quantify the long-term impact of disruptive technologies. Disruptive technologies are relative to an organisation. A disruptive technology for one organisation can be a mainstream one for another.
Additionally, organisations where the investment process is driven by market size categorisation and ROI, tend to either get paralysed or make serious mistakes when faced with disruptive technologies.
Kodak, at its peak, captured 90% of the US film market. It was one of the world’s valuable brands. Kodak’s failure story is driven by its success, which made it resistant to change. The insular corporate culture believed that its strength lay in the marketing and the brand, and they underestimated the threat of digital.
Nokia was a pioneer in the smartphone market with its initial Symbian series phones. However, they moved too slowly. They didn’t make the leap of faith from feature phones to smartphones till 2011, and by then it was just too late. (A similar story with RIM’s blackberry.)
Over Investment in Disruptive Technologies and Products
Disruptive technologies typically enable new markets to emerge. There is a sufficient evidence to show that companies entering these emerging markets have significant first mover advantages.
The pace of technological progress can, and often does outstrip market needs. In an effort to provide better products than their competitors and earn higher margins and profits, organisations often overinvest in disruptive technologies. As organisations grow, it becomes progressively more difficult for them to enter the even newer markets which are destined to become the large ones of the future. Successful companies need to continue growth at a certain rate.
But while a $10 million company needs just $2 million to grow at 20%, a $1 billion company needs $200 million in new sales. Most new markets are not that large. Consequently, the larger a company becomes, the less emerging markets contribute to its growth.
Most disruptive technologies, when they first emerge, are considered silver bullets. However, it’s been proven time and again that there it takes time for a technology to mature. This maturity revolves both around the technology ecosystem and the use cases to which the technology fits.
Over enthusiastic executives based on cognitive bias often invest heavily in emerging technologies without being cognisant of customer demands, market forces and organisation culture.
Executives should evaluate systems against incremental costs (time/effort/man-power) of adding features. If the costs of adding features is not sublinear it can make it very difficult to productise the system.
As an example, a lot of applications being built in the early days of Artificial Intelligence and Machine Learning fell flat over a longer duration. This is because feature additions become exponential over time since the technology is either not mature enough, or the use case to which is being applied doesn’t warrant an AI/ML solution.
“Organisations which design systems are constrained to produce designs which are copies of the communication structures of these organisations.”
The point is that a company has a culture and that culture reflects the people they hire, and who stays and leaves the company. The company tends to avoid reinventing itself for this reason, as it would rather replicate itself rather than reinvent itself. It’s the reason why innovators have their dilemma: You cannot innovate in an organisation that will do its utmost to resist change.
Top Down Approach to Digital Transformation
Many organisations fail to realise that digital business is fundamentally different in many ways. Simply defining broad digital levers and pushing it in a top down fashion will not make them digital. While this may lead to leveraging digital technology to extend their products and offering, it does not lead to rewiring the organisations business, operational and customer models to actually being digital.
Organisations which have legacy cultural attributes like protracted response to change, siloed work style, hierarchical organisational structures, and a cautious regulation driven risk appetite first need to address a culture change which is digital in nature. A digital culture requires fluidity, democratisation of information and processes, geographical independence and agnosticism, flattened hierarchical structures and a bold risk appetite.
Culture change is one of the hardest things to accomplish. It takes a long time to effectuate such a change. However, to wait for the change to percolate through an organisation is fraught with risk. Instances where mainstream firms have successfully established a timely position in disruptive markets and digital transformation, is where they have invested in setting up an autonomous organisation, which caters only to digital transformation and disruptive technologies. Remember, “culture eats strategy for breakfast”.
People Upskilling Considered Commensurate with Organisation Upskilling
Managers when faced with an innovation problem, work to assign capable people to the job. However, having found these people, they assume that the organisation where these people work would also be capable of succeeding at the task.
Organisations have capabilities which exist independent of the people. One is in the processes – the methods of transforming inputs to outputs. The other is the organisation culture, which defines how people in the organisation make prioritisation decisions. People are flexible and can adapt to succeed at different things. An employee from a large process centric organisation can transform herself to work for a startup but processes and culture are not flexible.
Upskilling people is simple but providing opportunities to people to use skills is what ensures organisational upskilling. Defining upskilling as a process is not the hard part, the trick lies in the execution. One of the most common way is to define segments, typically around skill sets or roles.
Learning is inherently a personal process. Hence, one of the most effective ways of segmenting is by performance — top, middle and bottom. The top performers are at the top because they know best how to guide their own development. The goal in upskilling the top is to amplify what they already do with better opportunities and exposure outside their current scope.
Moving the middle is the hardest part of upskilling, since a majority of the resources fall in this bucket. The focus here should be on gap analysis, understanding where they are today vis-à-vis where they need to be. Post this gap analysis, one can define a continuous learning curriculum using different media formats, online, self-paced, videos, books, in-house trainings etc.
At the bottom end of the population, the onus should be around remediation, either moving them up to the middle or moving them out. At these levels, a SMART performance improvement plan is what works best.
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