AHMED KATHRADA 61
MAR/MAY 2014 | dialoguereview.com
Nelson Mandela’s former political adviser shares leadership lessons ROGER MARTIN 40
One of the worlds top business thinkers crunches scientific data ANALYSIS 64
How can employers hope to lead a multi-generational workforce?
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Can’t see the wood for the trees? Big data is growing, but how can the analysis of large amounts of data from different roots uncover cutting-edge insights? PAGE 28 FEMALE LEADERSHIP 70
EMERGING MARKETS 89
EXECUTING STRATEGY 76
CONSCIOUSNESS 84
The connection between the empowerment of women and GDP growth
Opportunities to raise capital and start business in growth markets
Strategy without execution is aimless. Execution without strategy is useless...
Although the unconscious is invisible in the workplace, it still has to be addressed
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F I N A L I ST, “ LO N D O N O F F I C E O F T H E Y E A R ,” B R I T I S H L E G A L AWA R D S 2 0 1 3 G R E E N B E RG T R A U R I G M A H E R L L P | AT TO R N E YS AT L AW | W W W.G T M L AW.C O M Greenberg Traurig’s London office is operated by Greenberg Traurig Maher LLP, an affiliate of Greenberg Traurig, P.A. and Greenberg Traurig, LLP. Greenberg Traurig Maher is a limited liability partnership registered in England and Wales under number OC 346053 and is a multinational practice of Solicitors and Registered Foreign Lawyers authorised and regulated by the Solicitors Regulation Authority (SRA). °These numbers are subject to fluctuation. Greenberg Traurig and Greenberg Traurig Maher are service marks and trade names of Greenberg Traurig, LLP and Greenberg Traurig, P.A. ©2013 Greenberg Traurig, LLP. Attorneys at Law. All rights reserved. 22378
CONTENTS/FOCUS
30
The digital nervous system
Big data brings with it promise and peril for leaders seeking to create, deliver and capture value in a world where change is accelerating and competition is intensifying. Kicking off Dialogue’s focus on big data, Tony O’Driscoll asks how leaders can find the right balance of exploiting what they know and exploring what they do not
36
40
Changing the face of leadership
Data is the key to competition
Vivek Wadhwa examines how analyzing large amounts of data can uncover cuttingedge insights and prevent future errors
Renowned business thinker Roger Martin talks to David Woods about how big data is set to change how we will lead and manage in the future
44
Knowledge is power?
Marketing guru Andy Law says we are still in the early days of the big data “game”, but some large companies believe that it is the next step to global domination
50
Big Data Needs a Diet
Google’s very own Neal Patel asks if in the future “data science” will form as important a business function as HR, marketing, IT or even accounting
Dialogue | Mar/May 2014
46
The big data revolution
Big data could be the biggest game-changer since the internet, according to Sarah Hetherington and Christian Madsbjerg – but how can leaders piece together the textured view it offers?
56
The big data debate
Six business executives from four continents talk about how big data is setting them apart from the competition and changing the way they lead
5
CONTENTS/FEATURES
61
64
Mandela’s legacy to leaders
The 21st century brings a fresh conundrum: how can employers lead four generations in the workplace in a consumer market dominated by generation Y? David Woods reports
In his first interview since the death of his friend and colleague, Ahmed Kathrada tells Sharmla Chetty what leaders can learn from the inspirational Nelson Mandela
70
Striking the gender balance
There is a clear correlation between empowering women and GDP growth. Lisa KaiserHickey explains why there are one billion reasons to achieve gender equality
76
Strategy and execution
There are five steps to achieving successful execution of strategy (good times), but the first step is the hardest (bad times). Liz Mellon and Simon Carter decipher a course of action
80
84
Leading eading by letting go
Although the unconscious is invisible within business, it still has to be dealt with, according to Shelley Reciniello. One way to tackle this is to build a culture of consciousness within the workplace
When leaders let go of power, they will end up getting more power back, according to Vlatka Hlupic. Find out how more profit can be achieved with less effort
89
Emerging markets
Cultural attitudes towards entrepreneurship and finding opportunities to raise capital are vital to launching a start-up business in growth markets, according to Laura Gonzales and Diego García
6
Leading four generations
94
Opportunities in rural India
Murthy Chaganti launches his series of viewpoints for Dialogue by asking how corporates can give themselves a chance to succeed in rural India – a vast and untapped global market
97
The conscious leader
Reaching the final chapter
The corporate brand may no longer be the company’s most valuable asset, according to Robert Mighall. “Story” is encroaching on brand’s territory and highlighting some of its limitations....
Dialogue | Mar/May 2014
CONTENTS/OPINION&REGULARS
10
12
Editor’s letter
What can The Wolf of Wall Street and American Hustle teach managers about strategy? Quite a lot, according to David Woods. If only he could remember where he heard “that” quote...
16
Mike Canning
Duke Corporate Education’s CEO thinks it is time for leaders to update their world view to make sense of the unfamiliar, acknowledge complexity and enable action
24
Vidal Sassoon and Oprah Winfrey share their leadership secrets and we ask what the financial forecast is...
19
Dave Ulrich
Frequently ranked the world’s most influential HR professional, our regular columnist asks why there is so much talk about firing the HR department
In this issue, our reviewers tackle the latest “leader lit” on performance, change management, engagement... and “killing the company”, while the social app Quora also falls under our beady eyes
Dialogue | Mar/May 2014
A vision for healthcare
In 2013, the NHS in the UK celebrated its 50th birthday, China consolidated its healthcare upgrade and US politicians walked out over health reforms – we ask why?
Mexico puts the M in MINT
MINT is the new BRIC, according to Jim O’Neill, the father of the term. And Mexico’s ambition to become the powerhouse of the US is well on track, as our statistics and predictions reveal
Reminiscing on the swinging ’60s, Telefónica’s social innovation director says that it’s time to “make love not war” – in fact, he goes one step further and champions peace, love... and labour
99
20
26
Alberto Andreau
Books and app reviews
SPARK!
104
Your Dialogue
In the previous issue of Dialogue, we posed the question “Is HR dead?” And you answered in your droves. Find out what HR directors, customer service managers, CEOs and finance directors think
106
Karina Robinson
In a world where executives are virtually banned from even uttering the word “problem”, what can we achieve from talking about our fears? Our columnist finds out how not to be afraid in business
7
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DR. ANTONIA RADOS Expert for Middle East and Journalist, Germany/France
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JEANETTE BÜRLING Founder, Magnet Media Group, USA
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MAR/MAY 2014
EDITORIAL David Woods EDITOR
Laura Hawkins ART DIRECTOR
Glenys Trevor PRODUCTION EDITOR
Raul Vazquez
CONTRIBUTORS
ROGER MARTIN
Roger is Premier’s chair in productivity & competitiveness, and academic director of the Martin Prosperity Institute at the Rotman School of Management. From 1998 to 2013, he served as Dean. He has published eight books. In 2013, he was placed 3rd on the Thinkers 50 list of the most influential global business thinkers in the world. In 2007, he was named a Business Week B-School All-Star; one of the 10 most influential business professors in the world.
DIGITAL EDITOR/MARKETING MANAGER
Gareth Hobbs DIGITAL DESIGNER
EDITORIAL BOARD Dr Liz Mellon CHAIRMAN
Karina Robinson FOUNDING PRINCIPAL OF ROBINSON-HAMBRO
Mike Canning
VIVEK WADHWA
Vivek is VP of research and innovation at Singularity University, fellow at Stanford University and director at the Center for Entrepreneurship and Research Commercialization at Duke University. He is author of Economist Book of the year 2012, The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent and in 2013, TIME Magazine named him one of the 40 most influential minds in tech.
CEO, DUKE CORPORATE EDUCATION
Karl Weber CHAIR, EDITORIAL BOARD, LID PUBLISHING (US)
AHMED KATHRADA
Marcelino Elosua
Ahmed Kathrada (affectionately known as “Kathy”) was imprisoned on Robben Island with Nelson Mandela in June 1964 and regarded Mandela as his brother. He later became political adviser to the South African president and has made it his lifelong commitment (from the age of 12) to preserve and present the history of South Africa, not to embed differences, but to address them in a bid to break barriers in the country.
CEO, LID EDITORIAL EMPRESARIAL
COMMERCIAL Rebecca Nolan COMMERCIAL MANAGER
Cristina Alvarez COMMERCIAL DIRECTOR (SPAIN)
Jeanne Bracken GENERAL MANAGER (SPAIN)
Edie Reinhardt GENERAL MANAGER (US)
Ada L Luna GENERAL MANAGER (MEXICO)
César Piernavieja DIRECTOR GENERAL (COLUMBIA)
Raul Lopez
TONY O’DRISCOLL
Tony is Duke CE’s MD for Asia, based in Singapore. During his 18year industry career, he held leadership roles with Nortel Networks and IBM. He was a founding member of IBM Global Service’s Strategy and Change consulting practice. His research examines how emerging technologies are disrupting industry structures and business models. Prior to joining Duke CE, Tony served at Duke University’s Fuqua School of Business.
FINANCE DIRECTOR
MANAGEMENT BOARD Martin Liu PUBLISHER
Christine Robers MARKETING DIRECTOR, DUKE CORPORATE EDUCATION
Mike Canning CEO, DUKE CORPORATE EDUCATION
VLADKA HLUPIC
Vlatka is professor of business and management at Westminster Business School and CEO of the Drucker Society. She has published 150 articles and books on leadership, knowledge management and business process. In addition, Vlatka has an interest in personal development, executive coaching and leadership development, and has trained in neuro-linguistic programming, executive coaching, psychological kinesiology and educational kinesiology.
Marcelino Elosua CEO, LID EDITORIAL EMPRESARIAL
Printed by Pensord www.pensord.co.uk Copyright 2014 by Duke Corporate Education and LID Publishing Ltd. All rights reserved. Material may not be reproduced without permission of the editor. While we take care to ensure that editorial is accurate, Dialogue accepts no liability for reader dissatisfaction rising from the content of this publication. The opinions expressed or advice given are the views of individual authors and do not necessarily represent the views of Dialogue, LID Publishing or Duke CE.
NEAL PATEL
Neal joined Google in 2008, where he authored research projects such as Project Oxygen, a study quantifying the impact of effective people management, featured in The New York Times. In 2012, he joined Google/Motorola Mobility’s advanced technology and projects team. Neal develops programs for high tech innovation combining science with business application. He is executive director of ATAP’s Human & Social Dynamics Research Laboratory.
Dialogue takes every effort to credit photographers but we cannot guarantee every published use of an image will have the contributor’s name. If you believe we have omitted a credit for your image, please email the editor. ISSN: 2053-4361
Dialogue | Mar/May 2014
9
ED DIIT TOR O ’S LETTER LET TTE TER R EDITOR’S
David Woods EDITOR
Aimless or useless? One of my (guilty?) pleasures is film. Most weekends, I can be found at the movies with an extra large bucket of popcorn and a supersize drink. And during the awards season, my love of film goes into overdrive. Whether I’m watching a gritty independent production or a more forgettable blockbuster, this is usually a time when I can put the stresses of the working week to the back of my mind and lose myself in the story. Usually. But last month, during an apparently vain attempt at some escapism, I heard a line in a film (and can’t for the life of me remember what it was – answers on a postcard please), which stated: “Without strategy, execution is aimless. Without execution, strategy is useless.” I couldn’t help but be reminded – at least initially – of Liz Mellon and Simon Carter’s feature for Dialogue on page 76, where they launch the article citing research suggesting as much as 90% of strategies fail to deliver their intended results, 95% of the workforce says they do not understand the company strategy and 70% fail at execution. But the comment about aimless execution and useless strategy, is an overarching theme of this issue of Dialogue. Take our focus on big data (page 28) for instance: our authors go so far as to suggest that in many cases, leaders trying to make sense of a deluge of data go into it with no strategy or hypothesis to prove – and are therefore doomed to fail to gain credible insights from data. Mike Canning, in his column (page 16), talks about the importance of setting a bold vision – but the perhaps greater importance of recognising the interplay between action and interpretation. After some journalistic research, I found out that the aforementioned comment is originally attributed to Morris Chang, CEO of Taiwan Semiconductor Manufacturing Company (TSMC), and I was pleased that Hollywood had picked up on such an intelligent remark…
+ DIGITAL EXCLUSIVE David highlights the main features in this issue of Dialogue
10
But taking this case of life imitating art a little further, the more I thought about it, the more I began to move to the opinion that Hollywood’s heroes seem to be getting the balance of strategy versus execution right. Regardless of your opinions on the ethics of characters such as The Wolf of Wall Street’s anti-hero Jordan Belfort ( played by Leonardo Di Caprio), or American Hustle’s Irving Rosenfeld (Christian Bale), it’s hard to disagree that both these protagonists have a strategy in place within the opening minutes of each film. Without wanting to give the plot twists away, the characters both execute a strategy throughout their respective storylines, with varying degrees of success – one evades prosecution and one ends up behind bars.
@davidpaulwoods
The common thread is that they set a strategy and, without the need for unending circles of meetings, conference calls, emails, memos and “sign-off”, stick to a plan of execution.
david.woods@lidpublishing.com
Would this be an Oscar-winning performance in the world of business?
Dialogue | Mar/May 2014
10 & 11 June (Webinar)
TA
71% of top exe executives believe gender diversity iin the boardroom is always ys a good thi thing Source: Executives Online
On 13 and 14 January, Duke CE and BG Group hosted a live discussion in Rio de Janeiro, Brazil, between a group of leaders from across the world. These leaders shared ideas on a wide range of topics including security, managing complex stakeholders and infrastructure, as Brazil prepares to host two major global events – the 2014 FIFA World Cup and the 2016 Olympics. For the speakers, this event provided an opportunity to connect with the government, business and the community. Topics discussed involved transforming Rio, designing modern cities and working with communities beyond outreach programmes. The session highlighted many positive elements and unique Brazilian assets often overlooked in the global press.
A business that makes nothing but money is a poor business – Henry Ford Davos: 4,000 business leaders climbed a mountain to discuss economics. Did you spot your free copy of Dialogue?
ALENT A fresh model fo for tackling talent en llaunched h db by management h has b been the Institute for Employment Studies. The authors, Victoria Campbell and Wendy Hirsh, consulted practitioners from 23 organizations before developing a four-step model showing how to set your own priorities and adopt an approach to fit your business. The study sought to identify how organizations from various sectors approach the talent management challenge, and particularly the factors driving their choices. It identified sets of “business moderators” that appear to influence practitioner’s choices. These moderators include the business drivers; the business risks; the capability of managers implementing the processes; and the measures used to determine the impact of talent management. The report offers a set of learning points, illustrated by practical examples of how talent management plays out in different settings and sectors. These include several aspects of how to align the approach to talent management with current and future business needs; balancing short-term with longer-term outcomes; consideration of organizational culture, and the readiness of managers to support talent identification and development.
The essential e question is busy are you?” not “How “ but “What are you busy at?” – Oprah Winfrey
29% of senior executives doubt the value of gender diversity at board level Source: Executives Online
Dialogue has entered into a partnership with leading Mexican business newspaper El Economista. From March 2014, all El Economista’s subscribers will receive Dialogue as part of their package. The deal will be sealed with a Dialogue launch in Mexico City on April 2 2014. El Economista is one of the most prestigious and influential publications about economics, finance Economista and business in Mexico. And in 2011, El Economista n American Am merican became a founding member of the Latin Network of Economic Newspapers.
Dialogue’s editorial board chair Liz Mellon spoke at The Forte Business Leadership Summit for Women. Delegates took part in a panel debate investigating if working women can “have it all”. Karina Robinson, a Dialogue columnist, said: “Having it all is the wrong term.” Alison Conway, group director of eCommerce at Belstaff, agreed. “The secret is to ‘manage it all’ by knowing what is important to you at a given point in time.”
21 % of executives think boardroom quotas should be introduced
Source: Executives Online
“A business has to be involving, it has to be fun and it has to exercise your creative instincts” – Richard Branson
Companies need to overhaul their finance functions or suffer competitive disadvantage as growth opportunities return, says PwC’s Finance Effectiveness Benchmark study. The annual review of 200 companies’ finance functions shows how less than half of financial professionals (45%) believe their company’s financial forecasts are reliable.
“The only place where success comes before work is in the dictionary” – Vidal Sassoon
Dialogue was pleased to be the partner for Africa Day, organized by thenetworkone, which investigated consumerism and marketing strategy across sub-Saharan Africa.
Middling finance functions are running at 60% higher cost-to-businesses than top performers, with the best performing companies often employing outsourcing and shared service centres to drive down costs. Median budget reporting times have shortened by 14% in 2013 thanks to improvements in technology and automation. The cost of finance functions remains highest within the financial services industry, running at about 1.48% of revenues for the median quartile compared to 0.86% for the top.
Dialogue has been working with global newspaper The Guardian Sustainable Business on a series of articles focusing on the circular economy. The series kicked off in Dialogue’s December edition and you can read the latest analysis into how China is adopting the circular economy at http://bit.ly/1fAPI42
OPINION
A fresh leadership sense-ability
W Michael Canning CEO, Duke Corporate Education
16
e have all read examples extolling the virtues of leaders who can set a bold vision and mobilize people around it. While these skills remain necessary, an important role is emerging for leaders – that of “sense-making”. In our world of rapid, unpredictable and disruptive change, leaders who can help their organizations engage and “make sense” of the complex and unfamiliar are at a premium. In a recent conversation, a CEO told me: “In this new reality, leaders need to look at the big picture, but if the picture has no frame, people struggle.” And a CEO of a healthcare company said: “Leaders need to look holistically at any given challenge and frame the issues for their internal world.” He added: “The frame can’t be one dimensional – you have to help people see the chess board, not just the next move.’ These sentiments point to the need for leaders to act as sense-makers. Philosopher Karl Weick introduced the term “sense-making” to describe how we structure the unknown in order to be able to act in it. MIT Sloan Management professor Deborah Ancona (2013), explains: “Sense making is most often needed when our understanding of the world becomes unintelligible in some way.” While our understanding of the changing global context is often less intelligible, so too is the context that gives rise to challenges, such as figuring out new markets, dealing with complex stakeholders or finding insight in the thick of data. Old mental maps of the world and previous solutions are not working. Couple this with the fact that uncertainty and disruptive change create conditions our brains can interpret as threats. As neuroscientist Srini Pillay (2011), points out: “Under fear and stress, the brain will default to the old way of doing things because we are wired for habits.” So there is a need for leaders to make sense of the unfamiliar to acknowledge complexity and enable action. Being an effective “sense-maker” incorporates several important leadership sense-abilities, as we call them at Duke CE. I want to highlight
one of them – learning and leading through successive approximation. We borrowed the term successive approximation from math/physics, not psychology. It means: “A result that is not necessarily exact, but is within the limits of accuracy required for a given purpose, a method for estimating the value of an unknown quantity by repeated comparison to a sequence of known quantities.” It is the ability to gather just enough information to make a decision and take an action that approximates the exact answer and moves you in the right direction, while preserving greater optionality for future moves. Leaders need to avoid the temptation to solve complexity by elongating the analysis and preparing to make “one big decision”. Successfully navigating the unfamiliar requires leaders to study, frame, act and adapt in shorter intervals. This is consonant with Weick’s view where he said in 2005: “Sense-making is the interplay of action and interpretation – people learn about situations by acting in them and then seeing what happens.” To illustrate, a CEO said if he was given the choice between more analysis and modelling, or placing people closer to locus of the change, he would do the latter. I was also struck by a comment of a CEO from India who said his strategic planning process “has taken a dramatic turn away from analysis toward defining and running a number of purposeful experiments”. The experiments are not random. The hypothesis and the experiments designed to test it are framed by the leaders. So, while we relieve the leader of the burden of having the exact right answer to complex, unfamiliar challenges, the demand to make sense of and frame the situation and design and guide the experiments becomes more important. So, I think it’s time we update our leadership view to include this element. Setting a bold vision is important to channel energy and hook people emotionally, but sense-making through approximation is critical to achieving any vision, particularly in times rife with uncertainty.
Dialogue | Mar/May 2014
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OPINION
Say nay to the naysayers
P Dave Ulrich Professor at the Ross School of Business, University of Michigan, and partner at the RBL Group
Dialogue | Mar/May 2014
eriodically, we read about why we hate HR, HR is dead; HR is useless; HR should not be saved; we should fire our HR department. In one recent quote, HR is typecast: “This job is typically taken by an overweight, middle-aged woman who loves gossip.” These critiques often focus on the administrative duties of HR work, the corporate (not employee) advocate or the demoralizing experiences of performance reviews. These stereotypes are rooted in outdated, narrow-minded and personal prejudices that need to be replaced with more realistic and forward-looking views of HR. First, these reviews judge the present by the past. When I was young, we had TVs with electromagnetic tubes replaced by solid-state electronics to then be updated by high-definition television (HDTV). To judge HDTV by the technology of electronic tubes would be naïve. Likewise, HR critiques often judge HR’s work today by what HR did in the past. HR began as an administrative function specifying terms and conditions of work, and routines for hiring, paying, and developing people. Today, these administrative tasks are delivered through technology via shared services often found in the cloud. Judging the present by the past discounts progress and displays an acute disconnect from today’s HR. Second, narrow-minded critiques focus on a subset of the HR world. Normal distributions exist in most parts of our lives: 20-60-20. In any change, 20% are already on board and early adopters; 20% are laggards who will never change; and 60% can learn and change. HR critiques generally pretend that the bottom 20% represent 100% of HR. Of course, there are lousy HR professionals, practices and departments. These HR departments give bad advice to their leaders, do not serve employees well and are not adept at collaborating with consultants or other partners. In every profession (law, medicine, psychology, etc), there are more and less effective professionals. Defining all of HR by these 20% is like defining a columnist by the subsequent comments about the column. Most of the commenters show a narrow mindedness, intolerance and parochial perspective by
only focusing on the bottom 20%. Finally, I believe many of the HR naysayers have had a horrible personal HR experience. They may have been passed over for a job or promotion, had a terrible performance review or not been paid what they felt they deserved. Their damning an entire profession by their personal encounter is like judging the US by a day in New York City. My psychologist wife encourages me to explore “why” – why is someone doing what he or she is doing? These naysayers may be based on resolving a negative personal experience or a need for visibility that comes from outrageous statements. In any case, most of these naysayers speak with a prejudice that comes from limited personal experiences. For HR reflections to move the field forward, we should replace the naysayers with thoughtful observers. Positive psychologists have found that focusing on what is right more than what is wrong creates sustained change. The Losardo ratio of 5:1 positive to negative comments leads to higher performing teams and relationships. Let me offer a few prescriptions for how to move forward in HR. z Start with the business. When HR discussions start with business requirements, HR becomes an enabler for delivering business results. z Define HR outcomes. Business success comes less from aspirational visions, missions and hopes, and more from the outcomes HR delivers around talent, leadership and culture. z Innovate HR work. Like the flat screen HDTV changes our experience with television, HR practices in staffing, training, compensation and even the hated performance management should be updated and re-invented. z Align HR work. Increasingly, HR work not only matches strategy inside a company, but aligns with external stakeholders and context. Creating a leadership or cultural brand inside that reflects external brand; ensure that leaders and cultures sustain the right change. z Be inquisitive and focus on what’s next. Insightful HR professionals should anticipate and create what can be.
19
HEALTH
A VISION FOR THE FUTURE? “W THE UK NHS
2013 – NHS CELEBRATES ITS 65TH ANNIVERSARY
1.3 million employees in the NHS Half of NHS managers believe that patient choice and satisfaction will deteriorate over the next 2-3 years and the opportunity to adress this is severely constrained by the quality of leadership. Only 27% have seen any improvement in the overall leadership The NHS better or worse equipped to deliver value-for-money and administration cost reductions?
About the same
Slightly worse
Much worse
Don’t know /Refused
Has quality of leadership been enhaced or diluted by changes?
Strongly Slightly Neiter Strongly Don’t know enhanced enhanced enhanced diluted /Refused nor diluted
Will patient satisfaction improve or deteriorate over the next 2-3 years?
Slightly improve
Greatly deteriorate
Stay the same
0%
20%
(Source Moorhouse)
20
40%
Slightly deteriorate
60%
80%
Don’t know
100%
e now have the moral leadership of the world.” Those words were famously declared by the UK’s then minister of health Aneurin “Nye” Bevan in 1948 as he launched the country’s National Health Service. Late last year, the NHS celebrated its 65th anniversary and, with 1.3 million employees, it has grown to become the sixth largest employer on the planet. But in April 2013, the organization was shaken to its foundations by the Health Act, which led to the biggest overhaul in its history. The reform gave doctors more responsibility for their own budgets and arguably encourages competition with the private sector. In the US, few could have missed the news in October of the government’s “shut down” after Republicans vehemently rejected Democrat president Barack Obama’s efforts to overhaul completely the way healthcare is provided. “Obamacare”, as it has been christened, is simple in practice. Its aim is to extend health insurance coverage to some of the estimated 15% of the population that do not have it. Those people receive no coverage from their employers and are not covered by US health programmes for the poor and the elderly (Medicare and Medicaid). To achieve this, the law will require all Americans to purchase health insurance, but will offer subsidies to make coverage more affordable and aims to reduce the cost of insurance by bringing younger, healthier people into the health insurance system. It also requires businesses with more than 50 full-time employees to offer health coverage, although this provision was delayed until 2015 to allow more time for compliance. Taking the global impact of this into consideration, if the NHS was itself a child born in the UK in 1948, it would be retiring this year with reform rolling forward in the US
Dialogue | Mar/May 2014
HEALTH
THE UK NHS
US OBAMACARE
93% of 153 board members and direct board reports from across the health sector in England say their organization has changed to some degree in the past six months
15%
“Obamacare” or the Affordable Care Act (ACA) aims to extend health insurance coverage to some of the estimated 15% (48 million) of the population that do not have it
17 million children
Just under a third of leaders do not see a clear vision for their organization in the next 3-5 years
with pre-existing medical conditions cannot be excluded from insurance eligibility or forced to pay inflated rates
57% 34%
feel their organization's new role and purpose in the NHS was well or extremely well defined
Respondents at board level are far more confident their staff understand the purpose and vision of their organization, compared to those below this level
50% of respondents felt their staff are coping with the amount and complexity of change at least to some extent (source: Moorhouse)
and China, the “moral leadership” trumpeted by Bevan has arguably slipped out of the UK’s hands.
of the US population oppose the Affordable Care Act
28% of US businesses with between 40 and 500 employees plan to drop healthcare coverage by 2015
Obamacare also requires businesses with more than 50 full-time employees to offer health coverage, although this provision was delayed until 2015 to allow more time for compliance
Johnson & Johnson, which has carried out research into the ROI of its healthcare strategy, calculates it makes a return of $3.50 for every $1.00 it invests in the wellbeing of its US employees
(sources: Washington Post/ABC News poll, Johnson & Johnson, Public Opinion Strategies)
Changing times ahead Matt Tee, chief operating officer of the NHS Confederation, tells Dialogue: “The NHS is facing the most challenging period in its history, but it nevertheless remains one of the most cherished institutions in the UK. In the NHS of the 21st century, we are dealing with the challenge of keeping quality high, while managing increasingly squeezed finances and trying to modernize the way in which we deliver care. “The health needs are very different now to 65 years ago when the NHS was created. We owe it to the public to change the way we deliver services to meet the needs of an ageing population, make the most of healthcare technology and allow the NHS to live within its means. As if that were not a big enough challenge, we must make this transformation while continuing to improve the quality of care we provide.” Chris Ham, chief executive of independent health care
Dialogue | Mar/May 2014
think-tank The King’s Fund, explains: “The health service has survived well over the past 65 years, but was designed for a very different era with very different demands. Demographic changes and a shifting burden of disease mean we must re-assess the prevailing hospital-centred model of care. “A new care model is needed, which is less oriented to treating people when they become ill and is more focused on prevention. This must be accompanied by a focus on care which is much more integrated – with boundaries between physical and mental health, primary and secondary care, and health and social care broken down.” But, as the global population ages, the need is for greater resilience to be displayed by health providers to ensure the needs of elderly people in retirement – and older employees – are being met.
21
HEALTH
Average medical expense per in-patient in public hospitals in China, 2007-11
Average medical expense per out-patient in public hospitals in China, 2007-11 CAGR%
CAGR% 100%
100%
90%
90% 245.0
263.0
283.3
309.6
8.6
340.6
70%
70%
60%
60%
50%
190.1
211.3
233.4
261.9
289.8
11.1
4.4
4.8
5.3
9.8
5.9
6.5
7.0
7.8
8.4
9.3
10.1
11.4
12.5
13.8
14.6
9.6
2007
2008
2009
2010
2011
50%
30%
30% 325.7
369.7
404.9
438.2
457.0
8.8
20% 10%
10%
0%
0%
2007
2008
Other costs
2009
2010
2011
Medical examination
Drug
Other costs
Health expenditure in China Government health expenditure, social health expenditure and out-of-pocket health expenditure as % of the total healthcare expenditure
4.0
40%
40%
20%
3.7
80%
100% 90%
90% 40%
80%
37%
35%
52%
60%
50% 35%
40%
35%
36%
50% 40%
30%
30%
26%
20%
20% 10%
80% 70%
59%
60%
30%
Drug
Age group percentages in China
100%
70%
Medical examination
15%
18%
2000
2005
25%
27%
29%
2008
2009
2010
10% 0%
0%
Out-of-pocket expenditure
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
80%
Social expenditure
Government expenditure
Percentage aged 0-14 (%)
Percentage aged 15-64 (%)
Percentage aged 65 or over (%)
Chinese reforms Some commentators have argued that reforms in China could create a superior healthcare system compared to that of the UK. Speaking to Dialogue, Ling Sun, a senior analyst for Asia Pacific at research company Datamonitor Healthcare, based in Shanghai, explains: “The comprehensive healthcare reform programme in China was initiated by the central government in 2009, and the first phase ended by the end of 2011, with initial investment of CNY 850bn.” According to Sun, there are four primary fields of reform. Firstly, the Chinese government is planning to increase healthcare financing, meaning that it will stomp up the coverage of China’s Basic Medical Insurance (BMI) scheme for urban employees and residents, as well as recent ruralcooperative medical insurance schemes for those living outside cities. Secondly, China is to increase what Sun
22
describes as the “quality drug supply”. An updated version of China’s National Reimbursement Drug List (NRDL) was issued in 2009, which provides the reimbursement framework for the urban employee BMI scheme and is also used for urban resident BMI schemes. A new version of Essential Drug List (EDL) was issued by China’s Ministry of Health in March 2012, containing 317 Western medicines and 203 traditional Chinese medicines. Describing the third field of reform, Sun adds: “The government is working hard to separate the ownership and management of public hospitals in China and to gradually eliminate the 15% drug margins within hospital pharmacies.” The fourth phase of reform will aim to improve the care delivery system itself and he government is trying to establish a primary care system at grass-root level community health service centres (CHCs) and a referral system between CHCs
Dialogue | Mar/May 2014
HEALTH
and urban public hospitals. But Sun explains: “The Chinese population is ageing very rapidly, due to the low birth rate and growing life expectancy. The number of people over the age of 65 has increased from 4% of the total population to 9%. “The population growth until 2030 and the increasing ageing will increase pressure on the government in terms of healthcare provision, especially for the elderly. An aging population and growing prevalence of ‘Western’ chronic diseases represent a significant revenue driver for the pharma industry in China.’ Kerry Brown, professor of Chinese politics and director of the China Studies Centre at the University of Sydney, adds that the Chinese, having “got rid of” so much healthcare at the start of the reform process in 1978, assuming the market would step in, uncovered steep social costs. Since 2004, the government has supplied 95% of its population with healthcare insurance. Brown says: “China has an uneven system though – excellent elite hospitals, then very basic in much of the rest of the country. And they don’t have a general practice system, so people tend to go to hospitals and then wait forever. Service provision and choice are very limited and doctors often do things nurses are better placed to deal with. The NHS is a model the Chinese government has looked at a lot, but its costs are vast – and that would always be an issue. The Chinese government has looked at a lot at models across the world, and still feels it has not found something that easily fits its national conditions.”
CHINA The Chinese population is ageing very rapidly, due to the low birth rate and growing life expectancy The number of people over 65 years old has increased from: of the total population
4% 9%
By 2050, the over 85-year-old age group will make up 10% of the population
with more than 30% of the population aged 60 years or older
The population growth until 2030 and the increasing ageing will increase pressure on the government in terms of healthcare provision, especially for the elderly
Global phenomenon Devising a health system to fit “national conditions” has become a global phenomenon. Although the US does not have a National Health Service, according to The World Bank (2012), it invests the same amount per head in public health (in the form of state-provided health insurance schemes, Medicare and Medicaid) as the UK Government pays into the NHS. But US employer-provided healthcare is “years ahead” of the situation in the UK, according to Rachel Riley, MD of healthcare insurance company WPA Protocol, who has carried out extensive research into the field. In fact, pharmaceuticals giant Johnson & Johnson, which has carried out research into the ROI of its healthcare strategy, calculates it makes a return of $3.5 for every $1 it invests in the wellbeing of its US employees. So given the pressure for healthcare to remain resilient in the future, there is a significant business case for employers to invest in employee wellbeing. Dee Edington, founder of the University of Michigan’s Health Management and Research Centre, thinks so. Speaking at a 2012 conference, he said in no uncertain terms the onus of health and wellbeing should lie with companies – and not the state. Health is an economic strategy. It is not a cost to the employer, but an investment – it needs to be strategic, systematic and systemic. Employers with a healthcare strategy are seen as attractive, trusted, compassionate, resilient and optimistic, with high levels of engagement. Healthcare resilience will be much more closely aligned to the investment of employers – whether they like it or not.
Dialogue | Mar/May 2014
THE AVERAGE MEDICAL EXPENSE IN PUBLIC HOSPITALS INCREASED BY MORE THAN
40%
For example, an out-patient spent on average: $19.70 per visit in 2007, increasing to $28.40 in 2011, representing a compound annual growth rate of 9.6%
Following the same trend, an in-patient on average spent: $760.80 during his/her stay in 2007, increasing to $1,087.40 in 2011, representing a compound annual growth rate of 9.3%
BETWEEN 2007 AND 2011 Since 2004, the government has supplied 95% of its population with healthcare insurance.
(sources: China Studies Centre at the University of Sydney, Datamonitor)
23
OPINION
Time for peace, love and labour
“I Alberto Andreu Corporate reputation, institutional relations and social innovation director, Telefónica, and professor of organizational behaviour at IE Business School
24
n my company, every so often we make changes to the management structure. Even so, apart from the appearance of a few new faces, not much seems to change. All the problems are still there. Ensuring that everybody is focused on the same goal is difficult, but what’s even harder is breaking down the resistance of the existing power centres. Many of my executive training students agree that this quotation sums up the hurdles they encounter when they try to get their businesses to change course. This is why I feel it might be a good idea to set down a few advisory pointers aimed at concentrating the company’s efforts on the same goal without changing the management structure and setting off a power struggle. A CEO is often unable to do what he wants to do, because he is forced to do only what the existing power structure allows him to do, existing as he often does in a delicate powerbalance situation. In other words, you have to work with what you have. In my December Dialogue column, I said that focusing an organisation on the same goal meant you had two tasks to do: you had to make the power structure clear and you had to ensure the organisation was aligned behind the business project. Here are four keys to aligning the organisation without creating a power struggle: 1. Extract the transformation and future projects from the formal structure. It is common for one-off projects to become deadlocked because people want to manage them as though they were business as usual. They tend to collapse when they are allocated to sections of high-level organisational importance; or to sections where people feel threatened (and will do everything to kill it off); or newlycreated sections (where people are willing but lack familiarity with the organisation). A good solution for future projects is to set up “project structures” in the margin of the management structure. These will be run by the CEO; they will be allocated limited resources, but will be high level; they will be free to move horizontally within
the business; and they will report regularly to the management committee. 2. Make use of management-applied technology in an intensive way. Investing in corporate applications is the best way to shatter power cells and prevent the growth of hubs outside the CEO’s control. Systems designed for budgeting, goal management, salary and effort assessment, logistics, sales, after-sales services – everything can be managed with technology, without causing power struggles. 3. Creating a decision-making model that guarantees consistency with the company vision and defends your reputation and brand as basic corporate assets. This move has enormous potential. It is difficult to vote against the launching of a project which includes training the team in a technical methodology that focuses on this goal. This project makes for all kinds of advantages from the alignment angle, because what it comes down to is the creation of your own management style without starting a power struggle. 4. Hire a group of young people and categorise them as a “corporate asset”. Some years ago, the CEO of a Spanish bank that was restructuring decided to take on a number of graduates and MBAs to revitalise the sales force. What was unusual was that these youngsters were classed as corporate assets because hierarchically they were part of the business unit to which they were allocated, and functionally they came under the HR department. Since they were seen as corporate assets, they had to rotate in the obligatory fashion through the various units until they reached their final destination. They were converted into a corporate asset and became the best in-house ambassadors for the transformation process. There will certainly be other ways of lining up the whole organization behind the same goal. But it is equally certain that some of them will indeed result in that power struggle. In my opinion, maybe the time has come to remember the mantra of the 1960s – “make love, not war”. That’s the way to go: peace, love – and labour!
Dialogue | Mar/May 2014
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COUNTRY FOCUS: MEXICO
MEXICO: ‘MINT’ AND THE MOJITO MEXICO (UNITED MEXICAN STATES)
POPULATION
116 million (UN, 2012)
CAPITAL Mexico City AREA 1.96 million sq km (758,449 sq miles)
MAJOR RELIGION Christianity LIFE EXPECTANCY
75
80
years (men)
years (women)
MAJOR LANGUAGE Spanish
MAIN EXPORTS Machinery and transport equipment Mineral fuels
Food
Lubricants
Live animals
INTERNET DOMAIN .mx MONETARY UNIT GNI PER CAPITA 1 peso = US $9,420 100 centavos (World Bank, 2011) INTERNATIONAL DIALLING CODE +52
26
I
n 2001, the world began talking about the Bric countries - Brazil, Russia, India and China - as potential powerhouses of the global economy. The term was coined by economist Jim O’Neill, but over the past few months, O’Neill himself has identified what he describes as the “Mint” countries – Mexico, Indonesia, Nigeria and Turkey – as emerging economic giants. Mexico was previously classed as one of the “Next 11” – one of the countries economists deem to be the new Brics – and the Mexican government has attempted radical reforms in a bid to establish Mexico as the workshop of North America. So, given O’Neill’s Mint classification, this Mexican dream is in sight. Mexico has the world’s 14th largest nominal GDP and the 10th largest GDP by purchasing power parity. It is the 10th largest oil producer in the world and the largest silver producer on Earth. Mexico’s Gross Domestic Product (GDP) in purchasing power parity was estimated at US $1,748.908 billion in 2012. In fact, global consultancy firm PwC estimated in January that, by 2050, Mexico could be the world’s seventh largest economy, although some more optimistic estimations put Mexico in the world’s top five by 2050. The World Bank reported in 2009 that the country’s Gross National Income in market exchange rate was the second highest in Latin America, after Brazil at US $1,830.392 billion, and Mexico is established as an upper middle-income country. Mexico displays the characteristics of a rich/poor divide, with the bottom 10% in the income hierarchy disposing of 1.36% of the country’s resources, whereas the upper 10% disposes of almost 36%. And there remains a sizeable rural/ urban earnings gulf. According to a 2008 UN report, the average income in a typical urbanized area of Mexico was $26,654, while the average income in rural areas just miles away was only $8,403 Mexico has the sixth largest electronics industry in the world after China, United States, Japan, South Korea and Taiwan. It is the second largest exporter of electronics to the US, where it exported $71.4 billion worth of electronics in 2011. In spite of this, the country’s economy is dependent on the money sent home by the millions of migrant workers in the US and was hit hard by the downturn in its neighbour’s economy in the wake of the credit crunch of 2008. According to BBC news reports, powerful cartels control the trafficking of drugs from South America to the US in a business worth an estimated $13bn (£9bn) a year.
Dialogue | Mar/May 2014
COUNTRY FOCUS: MEXICO
MEXICO GDP ANNUAL GROWTH RATE
MEXICO’S PRODUCTIVITY GROWTH HAS BEEN NEGATIVE
PERCENTAGE CHANGE IN GROSS DOMESTIC PRODUCT
Productivity (Multifactor)
GDP per capita
5.4 3.7
3.7
3.1 2.1
4.5 4.4
4.1 4.2
4.6 4.4 3.1 3.3
3.2
1.6
0.6
1.6 1.3
-1
-1.1 -4.6
-5.2 -7.9
2008
2010
Average % change 2000-2011
6.7
10 9 8 7 6 5 4 3 2 1 0 -1 -2
Mexico
2012
USA
Brazil
South Africa
Turkey
Chile
Russia
India
(source: www.tradieconomics.com, I Instituto Nacional de Estadística y Geografía)
10
1st
th
(source: OECD)
Mexico's Gross Domestic Product
MEXICO Is the
Largest silver producer in the world
Mexico's Gross Domestic Product (GDP) in purchasing power parity was estimated at US $1,748.908 billion in 2012
largest oil producer in the world
Country's resources
36% 1.36% Bottom 10% Upper income 10% hierarchy dispose
LARGEST NOMINAL GDP
14
China
th
LARGEST GDP BY PURCHASING POWER PARITY
10
th
By 2050, Mexico is expected to become the world's fifth largest economy. PwC estimated in January 2013 that by 2050 Mexico could be the world's seventh largest economy
The World Bank reported in 2009 that the country's Gross National Income in market exchange rates was the second highest in Latin America, after Brazil at US $1,830.392 billion, and Mexico is established as an upper middle-income country
(source: Goldman Sachs)
According to a 2008 UN report, the average income in $26,654 $8,403
Typical urbanized
Rural areas
(source: OECD)
MEXICO ELECTRONICS INDUSTRY WORLD’S LARGEST ELECTRONICS INDUSTRIES: China United States Japan South Korea Taiwan
Mexico
Dialogue | Mar/May 2014
Mexico is the second largest exporter of electronics to the US, where it exported $71.4 billion worth of electronics in 2011
The Mexican economy is heavily dependent on the money sent home by the millions of migrant workers in the US, and was hit hard by the downturn in its neighbour's economy in the wake of the credit crunch of 2008
Powerful cartels control the trafficking of drugs from South America to the US, a business is worth an estimated $13bn (£9bn) a year
27
FOCUS THE DIGITAL NERVOUS SYSTEM DATA IS THE KEY TO COMPETITION CHANGING THE FACE OF LEADERSHIP KNOWLEDGE IS POWER, BUT IT’S ALL ABOUT SMALL DATA THE THIN DATA REVOLUTION THE REAL BUSINESS OF DATA IS SCIENCE THE BIG DATA DEBATE
28
Dialogue | Mar/May 2014
FOCUS
BIG DATA: Analysis PARALYSIS? Are business leaders being swept away by the “snake oil” promise of big data? Big data has grown from being the buzz word for business to the lifeblood of economies, but are managers drowning in too much information and failing to use subjective judgement to stay afloat in the deluge?
Dialogue | Mar/May 2014
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FOCUS THE DIGITAL TEXT NERVOUS SYSTEM DATA IS THE KEY TO COMPETITION CHANGING THE FACE OF LEADERSHIP KNOWLEDGE IS POWER, BUT IT’S ALL ABOUT SMALL DATA
The digital nervous system
THE THIN DATA REVOLUTION THE REAL BUSINESS OF DATA IS SCIENCE THE BIG DATA DEBATE
Tony O’Driscoll investigates the promise and peril that big data presents for leaders seeking to create, deliver and capture value in a world where change is accelerating and competition is intensifying ILLUSTRATION: ANDY POTTS
HISTORY HAS TAUGHT leaders that market economies are typically characterized by extended periods of stability, occasionally punctuated by short, disruptive and unstable periods that stretch the global economic envelope into a fundamentally new topography. Technological innovations, such as the printing press and the steam engine, were catalysts in creating step changes in the societal, political and economic landscapes of their respective eras. Today, the world finds itself in the midst of a particularly prolonged – some argue permanent – period of instability as international adoption of disruptive innovations such as the web-browser, social media and the smart-phone have converged to create a global digital nervous system that is profoundly redefining how people connect, communicate, coordinate, collaborate and take collective action. Over the past 20 years, the internet and its social and mobile technological cousins have wrapped our planet in a digital blanket that is creating information and connecting people at a pace that was unfathomable just two decades ago.
30
Dialogue | Mar/May 2014
According to Don Peck, deputy editor of The Atlantic, more than 98% of the world’s information is now stored digitally and the volume of that data has quadrupled since 2007. The impacts resulting from this data-rich and far-reaching digital platform are well documented: from creating personalized digital marketplaces to facilitate consumption; to optimizing traffic patterns to ease congestion and reduce pollution; to creating social revolutions to eradicate oppression. The story of the past two decades is a story of how this evolving and increasingly pervasive digital nervous system has permeated what we do professionally and socially, to such an extent that we have become somewhat desensitized to the incredible potential that it holds to create value on a global scale.
Digital Darwinism History has also taught us that the periods of economic discontinuity emerging from the mass adoption of revolutionary technologies also usher in swift and significant changes in how DIGITAL EXCLUSIVE organizations create, deliver and capture Tony introduces the value. As the electronic exoskeleton big data focus continues to evolve and expand without bound, it is ushering in an era of “digital Darwinism” where markets shift in the blink-of-an-eye, disruptive technologies wipe out age-old industries at unprecedented rates, and previously successful products and services are rendered obsolete almost overnight. In the connected, complex and constantly changing business context, leaders are increasingly challenged to enable their organizations to become more responsive to unanticipated market shifts, more resilient to unpredicted disruptions and more adaptive to unforeseen fall-offs in market adoption. To create more responsive, resilient and adaptive enterprises requires leaders who are more agile and adept in deciding how to optimally allocate scarce resources and capabilities against the ever-expanding array of opportunities and threats that face their business. Under normal circumstances, this decisionmaking challenge would be considerable. Under the current circumstances, it sometimes appears to border on becoming impossible. In the 20 years since the web browser arrived on the scene, the world has weaved the web into an electronic exoskeleton that is moving through time at a rate of change humans are ill-equipped to detect, let alone respond to or anticipate. Today, leaders are facing a situation where the mean-time between
+
Dialogue | Mar/May 2014
“bet-the-farm” decisions is shrinking at an alarming rate and the amount of data surrounding each of those critical decisions is expanding at an even more alarming one. To survive and thrive in the era of digital Darwinism, leaders must not only make more informed and timely decisions, but they must ensure that the decisions they make better balance the age-old organizational tension of exploiting their core business to deliver the required returns in the short term and exploring new value frontiers that will become sources of sustainable long-term competitive advantage for the firm. This analysis will investigate the promise and peril that big data presents for leaders seeking to create, deliver and capture value in a world where technology is proliferating, information is exploding, time is compressing, change is accelerating and competition is intensifying.
The quest for instancy The digitally interconnected global market economy places a premium on innovation, fresh business models and new ways of organizing and virtualizing work. In this highly competitive and increasingly transparent business context, organizations that cannot change as fast as the environment within which they operate are destined to regress to a mean of mediocrity. This regression pattern has a biological equivalent: organisms that cannot develop the capacity to assimilate data regarding their surroundings to make decisions in the interest of their own survival simply recede into the ecosystem from whence they came. Put differently, organisms within volatile ecosystems must learn to adapt – or die. Modern-day enterprises could well benefit from perceiving themselves as value-creating organisms within a digitally-mediated economic ecosystem where data is their source of sustenance and analysis, learning and adaptation are the metabolic mechanisms that enable them to survive and thrive. In the business landscape, the only constant is change and the path to maintaining sustainable competitive advantage lies in developing the ability to intuit, innovate and adapt in perpetuity. Today, insights drive innovation and innovation drives profitable growth. These insights are generated from serendipitous knowledge accidents; that magic moment where expertise collides with opportunity and whole new industries are born. The predominant challenge facing business
31
leaders lies in cultivating the capacity for instancy within their enterprises. Instant enterprises focus on developing a perpetual state of readiness for the unexpected. Readiness is the state of being able to creatively adopt and adapt what you know and what you can do under a varying and unknown set of environmental circumstances. Within the instant enterprise, value is created by groups of individuals who can collectively sense impending shifts in their ecosystem and adapt to harmonize with these shifts in real-time. As these people connect, communicate, coordinate,collaborate and take collective action, work and learning become synonymous and the organization develops the capacity to ride the waves of creative destruction rather than run the risk of becoming crushed by them.
The reality of rigidity
In today’s dynamic and unfamiliar business context, leaders are increasingly called upon to field decisions that the current enterprise structure and culture cannot address. As the volume and importance of these decisions increase exponentially, leaders are recognizing that they are contributing to the lack of responsiveness, adaptability and resilience they seek to cultivate within their own organizations. In short, they have come to the stark realization that they are their own worst enemy in that they have become the bottleneck to productivity and growth. As a result, leaders are actively seeking out fresh ways to reconfigure their resources and capabilities to be more responsive, adaptive and resilient in dealing with the increased number of unanticipated decisions that need to be attended to within their organizations. Unfortunately, history is replete with organizations that have struggled mightily to transform their organizations from one structure to another in a quest for instancy. Most of these transformational attempts have been unsuccessful for the simple reason that businesses that are geared to exploit their core business differ in almost every respect from organizations that are geared to explore new value horizons. Transforming an exploit organization into an explore organization is at least as difficult as trying to turn chalk into cheese. To address this unpalatable reality, innovative leaders are reframing the transformation challenge from one of “from-to” to one of “both-and”. Rather than falling into the typical trap of trying to get the organizational leopard to change its spots, or trying to coax the enterprise elephant to dance, these leaders are recognizing that change is no longer something to be managed in and of itself. Rather, change itself is a constant that resides at the core of every business and the tensions and trade-offs it throws off are what need to be attended to in a more focused and timely manner. These leaders have realized that transformation is not about moving the organization from one structural and cultural state to another. Instead, they have come to understand Transformation 2.0 is about developing the capability to create a two-speed organization that can simultaneously handle the pedantic and predictable pace of exploitation and the fickle and frenzied pace of exploration. On one hand, organizations need to do everything in their power to extract the most value they can from the business they operate. On the other hand, they need to ensure that once the existing
Change itself is a constant that resides at the core of every business
The history of organization design suggests there is always a lag-time between the identification of an opportunity to create value, the construction of a mechanism through which that value can be delivered and the optimization of an organization structure to ensure that maximal value is captured by the firm. An apple falling on Sir Isaac Newton’s head leads to the creation of the laws of physics, which leads to the invention of the internal combustion engine, that is followed by the growth of the automobile industry, that culminates in Alfred Sloan’s creation of the modern-day bureaucracy and Henry Ford’s assembly line. As leaders pursue their quest for enterprise instancy, they encounter an age-old organizational reality: the existing structure and culture within the enterprise is optimized to exploit the old rather than explore the new. As organizations grow in response to positive market acceptance, they develop structures, practices and routines that are geared to improve the operational efficiency of their existing business model. These structures, routines and practices calcify into a set of core-rigidities that undermine the organization’s capacity for instancy. The arrival of digital Darwinism has not altered the perennial organization challenges of structural-lag and core-rigidities that leaders face as they seek to create instancy within their enterprises. Instead, it has accelerated and amplified these challenges to such a degree that the need to find innovative ways to address them has become unavoidable.
32
The reformation of transformation
Dialogue | Mar/May 2014
business meets its inevitable demise, there are new sources of value to draw upon to sustain the business over the long term. Two-speed organizations are required to deal with the environmental reality of simultaneity that every business faces today. The leadership challenge associated with running two-speed organizations is that they are inherently and perpetually at odds with h one another. Organizational operating systems that look to exploit focus on evidence and best pracactice and seek to apply deductive logic to optimize processes, structures and routines within the existing enterprise. Organizational cus operating systems that look to explore focus on intuition and trial and error and seek to apply ply inductive and abductive logic to improve the odds of finding fertile ground within which to o sow the seeds of future value for the enterprise.
Promise and peril of big data The promise of big data is that it will ed allow leaders to make more informed d decisions on how to create, deliver and capture more value in both the short and long term. The peril in this promise is that, often, the biggest sources of new w value creation are not derived from data-based based e and extrapolations of the past, but from collective intuitive insights derived from explorations into a set of possible futures. In examining the behaviour of organizations adopting new technologies, leadership expert Peter Drucker popularized the notion of the Routinization Trap: a recurring pattern where organizations apply radically new technologies to automate existing business models rather than exploring new business models that the technology itself might enable. The printing press was used for many decades to print bibles until someone had the bright idea that it could be used to print other books too. Similarly, the steam engine was first used to power cotton-gins in the UK before someone had the bright idea to use it to power a locomotive. In both these cases, the transformational power of the technology was not fully realized until decades after it was initially applied to automate the existing model at play. In analyzing the emergence of big
Dialogue | Mar/May 2014
data, a similar pattern transpires. The field of dataanalytics was born in the 1950s with the advent of computing technologies that used algorithms to analyze large quantities of information. As the information techn technology industry flourished e systems sys and enterprise focused on streamchain optimizing inventory on lining supply chains, factory floors and improving customer relaimp tionships were implemented, managers were provided with the data they needed to info make more informed decisions on how to more efficiently run the business. m By the mid-2000s, the era of big dat was officially declared. data T The emergence of the n digital nervous system had broadened the field of data analysis to w beyond the domain of extend well ente internal enterprise transaction systems. e ushered in analysis of This new era da sets on both the back massive data d and d the h front f d of the enterprise. Want to end end shave more pennies off the Supply Chain dollar? Simply pool the data sets from the multiple entities and torture the aggregated data set to reveal its cost-saving secrets. Want to find out how many teenagers there are in Singapore who like B Bon Jovi? Just ask Facebook. Want to know what th three items are most likely to indicate credit card f fraud? Just crunch the transaction data the right way and, presto, Champagne, razors and diapers are the top three items bought with stolen cards. Want to know what promotions to offer to a customer who walks in the door? Simple, just ask Four-Square. Question by question and answer by answer, the promise of big data as the technological salve for all organization efficiency woes began to take hold. Pretty soon, most enterprise leaders began to buy into the belief that the thorough analysis of any sufficiently large pool of data poop would almost certainly reveal an efficiency pony. As the amount of data that surrounds our private and professional lives has grown from a trickle to a torrent over the past few decades, the ability to discover correlations through computation and analytics clearly holds the potential to deliver value. Moreover, as the volume, velocity, variety and need for veracity of data
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increase within and across enterprises, the demand for increasingly high-powered computational crunching and increasingly sophisticated algorithmic alchemy appears to be growing by leaps and bounds. So, if demand for big data services is increasing based on sound evidence that it yields predictable and reliable efficiency results, what seems to be the problem? The problem is that – in its first incarnation at least – big data analytics is primarily focused on the exploit side of the enterprise equation. Data is being crunched and analyzed to improve the firms operations much more than it is being applied to define new offerings. It is being leveraged to optimize and maximize the current business model, not to define new ones that will sustain the business over time. In short, the application of big data has fallen prey to the routinization trap where it is primarily being applied to automate the past at the expense of creating the future.
Taking this pattern of attention its logical extension reveals an undesirable outcome: the law of diminishing returns will set in and ever larger data sets will have to be mined with ever more sophisticated algorithms to yield increasingly incremental operational gains at the expense of missing a fundamental shift in the business where the opportunity to create new value is squandered or the threat of undermining the existing business is missed. To successfully run a two-speed organization that requires one operating system to exploit the past and another one to explore the future, leaders must learn to not only effectively balance their attention between the present and the future, they also must recognize that the electronic exoskeleton that blankets our planet can play a critical dual role of crunching information to optimize productivity for one operating system and connecting people to create value for the other. On the crunching side of the equation, leaders must recognize that mining the past for efficiencies can only be effective in slowing the inevitable decline of the current business. On the creating side of the equation, leaders must recognize that the same set of technologies being used to crunch data – if perceived and applied differently – could be leveraged to intuit new value horizons for the organization by enabling people to connect, communicate, coordinate, collaborate and take collective action around their intuition of what the future may hold. In the era of digital Darwinism, leaders have come to realize that the true sweet spot for organizations that want to survive and thrive in an increasingly complex and connected environment lies in constantly striving to find the right balance between exploiting what we know and exploring what we don’t. The first step in achieving this illusive state of equilibrium lies in avoiding the trap of mining the past at the expense of making the future.
By the mid-2000s, the era of big data was officially declared
The balancing of attention At the end of the day, the most important asset that leaders can contribute to the continued success of their organizations is their focused attention. Each and every day, leaders around the world have to attend to urgent decisions regarding the optimization of their existing business and important decisions regarding an ever-expanding array of opportunities and threats that their organizations will face in the future. The promise of big data is that it can help leaders break the tension in the need for attention at both ends of the exploit/explore spectrum. The peril in this promise is the paradoxical insight that a wealth of information often creates a poverty of attention. In its current incarnation, the application of big data runs the risk of diverting leaders’ attention in unfair measure towards the exploitation of the current business. With the ever-increasing pressure to deliver short-term results and the high likelihood that increased analysis of growing piles of data will reveal tangible opportunities to improve operational efficiency, leaders may be unconsciously lured into spending too much of their time attending to improving their current business.
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O Tony O’Driscoll is Duke CE’s MD for Asia, based in Singapore
Dialogue | Mar/May 2014
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FOCUS THE DIGITAL NERVOUS SYSTEM DATA IS THE KEY TEXT TO COMPETITION CHANGING THE FACE OF LEADERSHIP KNOWLEDGE IS POWER, BUT IT’S ALL ABOUT SMALL DATA
Data is the key to competition
THE THIN DATA REVOLUTION THE REAL BUSINESS OF DATA IS SCIENCE THE BIG DATA DEBATE
Rapid advances in technology are set to solve massive problems and transform industries. Vivek Wadhwa examines how analyzing large amounts of data from different perspectives can uncover cutting-edge insights and prevent errors in the future ILLUSTRATION: ANDY POTTS
MOST PEOPLE ARE aware of the advances in computing. They have seen the processing power double every 18 months – as prices dropped and devices became smaller. The iPhone 5S of today has a processor that is more powerful than the Cray Supercomputers of yesteryear. What would require a large building and a water-cooling system now fits in a pocket. In the technology industry, this progression (computer chip performance is doubling every 18 months) is known as Moore’s Law. Such advances are not only happening in computing, but also in the fields of robotics, sensors, artificial intelligence, synthetic biology, 3D printing and medicine. Futurist Ray Kurzweil noted that as any technology becomes an information technology, it starts advancing exponentially. That is what is happening in these fields. They are generating vast amounts of data – which combined with what already exists open up possibilities for solving grand problems and transforming industries. Here are some examples of the technology advances. In 2000, scientists at Celera Corporation announced that they had raced ahead of the US government in decoding the DNA of a human being. They used latest sequencing technology plus the data available from the Human Genome Project to create a working draft of the genome. It
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Dialogue | Mar/May 2014
took decades and cost billions to reach this milestone. Today, full sequencing costs about $3000 and can be done in a day. The price of genome sequencing is dropping at double the rate of Moore’s Law. If this continues – as is likely – a full human genome sequence will cost less than $100 within five years and will happen in minutes. Micro-Electro-Mechanical Systems are enabling the development of inexpensive gyroscopes, accelerometers, and temperature, pressure, chemical and DNA sensors. With these, we can build iPhone cases that act like medical assistants and detect disease; smart pills that we swallow to monitor our internals; tattooed body sensors to monitor heart, brain and body activity; and soil and humidity detectors to control irrigation.
Artificial Intelligence
By the mid-2000s, the era of big data was officially declared
Artificial Intelligence (AI) has progressed to the point that a computer was able to defeat the most capable and knowledgeable humans on the TV show Jeopardy. In the show, a computer used AI technology to learn enough knowledge from the web to defeat human contestants. The technology that enabled this – IBM Watson – is now available to developers everywhere. AI systems are being trained to perform medical diagnosis, drive autonomous cars and operate call centres. They are finding their way into manufacturing and powering robots that do human chores. 3D printers can transform materials such as plastic, ceramics, glass and titanium into mechanical devices, medical implants, jewellery and even clothing. The cheapest 3D printers, which print rudimentary objects, currently sell for between $500 and $1,000. Soon we will have printers for this price that can print toys and household goods. By the end of this decade, we will see 3D printers doing the small-scale production of previously labour-intensive crafts and goods. In the next decade, we may be 3D-printing buildings and electronics. Regenerative medicine has been used to implant lab-grown skin, tracheas and bladders into humans. Soon, 3D printing technologies will grow human cells, layer by layer, to make replacement skin, body parts and eventually organs such as hearts, livers and kidneys. Also, Kinkos-like production shops are synthesizing DNA for researchers to create new organisms and synthetic life forms. Using synthetic biology, geneticists are putting individual gene sequences together, just as Lego blocks,
Dialogue | Mar/May 2014
to construct truct living cells. are They creating new organisms that have new functions. They are re developing algae that can be converted sors that into fuel, biosensors detect disease and plants that glow in the dark. DNA “printing” is priced d by the number of base pairs to be assembled (the chemical “bits” that make up a gene). ne). Today’s cost is about 28 US cents per base pair and nd prices are falling dramatically. Within a few years, it could cost a hundredth of this amount. Eventually, like laser printers, DNA printers will be inexpensive home devices. Using nanotechnology, engineers and scientists are developing many new types of materials such as carbon nanotubes, ceramic-matrix nanocomposites (and their metal-matrix and polymer-matrix equivalents) and new carbon fibres. These new materials enable designers to create products that are stronger, lighter, more energy efficient and more durable than anything that exists today. Again, all of these are informationbased technologies.
Collating information Over the centuries, we gathered data on things such as climate, demographics, and business and government transactions. Our farmers kept track of the weather so that they would know when to grow their crops; we had land records so that we could own property; and we developed phone books so that we could find people. About 15 years ago, we started creating web pages on the internet. Interested parties starting collecting data about what news we read, where we shopped, what sites we surfed, what music we listened to, what movies we watched and where we travelled. And they began to correlate this with information about our gender, age, education, location and socioeconomic status. Then, with the advent of LinkedIn, Myspace, Facebook, Twitter, and many other social-media tools, we began to volunteer private information about out work history, social and business contacts, and what we like – our food, entertainment, and even our sexual preferences and spiritual values. Today, there are more than 100 hours of video uploaded to YouTube every minute and far more video is being collected worldwide through the surveillance cameras
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ARTIFICIAL INTELLIGENCE Artificial intelligence is the theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making and translation between languages. It is the branch of computer science concerned with making computers behave like humans. The term was coined in 1956 by John McCarthy at the Massachusetts Institute of Technology. No computers are able exhibit full artificial intelligence (that is, are able to simulate human behaviour). But the greatest advances have occurred in the field of games playing. The best computer chess programmes are now capable of beating humans. In May, 1997, an IBM super-computer called Deep Blue defeated world chess champion Gary Kasparov in a chess match (see Roger Martin interview, page 40).
that you see everywhere. Mobile phone apps are keeping track of our every movement – everywhere we go; how fast we move; what time we wake. Now combine all of these data with the exponential technologies I detailed earlier, and you have the ability to create world-changing innovations (as well privacy and security nightmares). Consider what could happen if we correlated information about a person’s genome, lifestyle habits and location with their medical history and the medications they take. We would understand the true effectiveness of drugs and their side effects. This would change the way drugs are tested and prescribed. And then, when genome data becomes available for millions, perhaps billions of people, we could discover the correlations between disease and DNA to prescribe personalized medications – tailored to an individual’s DNA. We are talking about a revolution in health and medicine.
ocus on, which students to focus what to emphasize and how best to teach an indild vidual child. This could n change the education system itself. ne the data that And then combine is available on a person’s shopith their social ping habits with preferences, health and locaould have shoption. We could nts and personal ping assistants eating g new proddesigners creating g clothing that are ucts including manuf 3D printed orr custom manufactured for the individual. An IBM Watsonlike assistant could anticipate what a person wants to wear or to eat and have it ready for them. Data can assist human decision-making in almost every sector. Analyzing large amounts of data from different perspectives can unearth new insights and prevent errors. These data can be used to decide where a new store will be located, when to water a field or spray it for insecticides or when a police car should patrol a neighbourhood. It this exponential era, data is the key to competition and productivity.
Data can assist human decision-making in almost every sector
Tracking progression In schools, classes are usually so large that the teacher does not get to know the student – particularly the child’s other classes, habits and progression through the years. What if a digital tutor could keep track of a child’s progression, likes and dislikes, learning preferences, and strengths and weaknesses? Using data gathered by digital learning devices, test scores, attendance and habits, the teacher could be informed on
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O Vivek Wadhwa is vice-president of research and innovation at Singularity University; fellow, Stanford University; director of research at the Center for Entrepreneurship and Research Commercialization at Duke University; and distinguished visiting scholar, Emory University
Dialogue | Mar/May 2014
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FOCUS THE DIGITAL NERVOUS SYSTEM DATA IS THE KEY TO COMPETITION CHANGING THE FACE OF LEADERSHIP KNOWLEDGE IS POWER, BUT IT’S ALL ABOUT SMALL DATA
Changing the face of leadership
THE THIN DATA REVOLUTION THE REAL BUSINESS OF DATA IS SCIENCE
Roger Martin, one of the world’s top three business thinkers, shares his opinions with David Woods on how big data will change leadership and management in the future ILLUSTRATION: ANDY POTTS
THE BIG DATA DEBATE
“PEOPLE THINK BIG data will be the solution to all life’s problems, but this is not a utopian world.” Has Roger Martin (pictured) thrown a spanner into the complex and intricate works of big data? The Premier’s chair in productivity and competitiveness and academic director of the Martin Prosperity Institute at the Rotman School of Management in Toronto, was, only months ago, ranked the third most influential business thinker on the planet by Thinkers 50. He is a renowned and prolific writer on the subject of how managers make decisions in business – so it is ironic, you might think, that he is keen to critique a technique that purportedly helps managers make better decisions – and within seconds of starting his conversation with Dialogue on the topic. “I thought I could give you a useful alternative view,” he laughs. But that’s the nature of an influential business thinker, isn’t it? Challenging the accepted norms. He continues: “Big data is adding more sophisticated analytical processes to business decisionmaking and that’s a good thing. But it begs the question: what are leaders going to do with all this data? You need judgement. I’m concerned people think big data will give them answers to all their problems. All that analysis is helpful, but you need intelligent judgement to understand it.” Then Martin provides two compelling examples.
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Dialogue | Mar/May 2014
The first is of chess player Garry Kasparov and his match against the computer Big Blue. He explains: “People thought Big Blue was amazing because a computer could beat the world’s best chess player – Gary Kasparov. But that was only possible because chess is highly algorithmic. The computer could march through hundreds of millions of moves and calculate the algorithmic optimum for each move. So while it was an impressive show of computational power, life is infinitely more complicated and nuanced than chess. It is full of mysteries and heuristics, not algorithms.”
new world of universal knowledge, unless we have savvy executives - a bit like this grizzled veteran apliance specialist - who can use their experience and instinct to make a judgement call. Then drawing on the opinions of another great thinker – who did not have access to big data or even a computer – Martin adds: “Aristotle talked about science of course, but he also wrote about the role of rhetoric and dialogue in explaining the world. “Most people only follow his scientific thought though and believe, implicitly, that everything in life can be reduced to an algorithm. But heuristic, experienced-based techniques are needed.”
Mechanical problems He pauses: “When you call a help desk in Bangalore to fix a problem with your personal computer, a member of staff guides you through a fixed algorithmic process, telling you where to click or what buttons to press to fix the problem. But the same is not true of a mechanical device such as a refrigerator because mechanical problems tend to be more difficult to reduce into an algorithm. The problem diagnosis requires more judgement. That is why a grizzled veteran appliance specialist needs to come to your house and look at the refrigerator, which can’t be done from Bangalore.” And Martin is emphatic in his controversial opinion: “It’s scary that analysts are being employed to look at algorithms. Our world requires a lot more judgement than quantitative analysis.” Returning to his original point, that advocates of the big data phenomenon see it as a solution to life’s mysteries, it is true that – if you think hard enough – everything was a mystery once; Martin uses the example of gravity. “Historically, there were numerous and varied explanations of why things fall to the ground,’”he explains. “Animal spirits? God’s will? But in due course, the mystery of why things fall down gave way to the heuristic of gravity – Sir Isaac Newton’s notion that there is a universal force – gravity – that pushes everything toward the ground, which explains why rocks fall fast, feathers fall slower and birds don’t fall out of the sky. Still later, the heuristic of gravity was studied enough to generate a universal algorithm: if an object is dropped, it will accelerate at 9.8 m/s2. With that algorithm in place, computers could be programmed to land a commercial airplane with autopilot software.” So what is Martin telling us? That until and unless we can reduce everything big data offers us to an algorithm – a predictable and linear path to problem solving – we need judgement to add to the analysis. Analysis paralysis can still strike us in this brave
Big data analytics So what, in Martin’s opinion, is the role of big data analytics? “There always has to be a theory in place before big data comes into play,” he says. “Big data can analyze a theory – but cannot offer any analysis without a theory in the first place. The problem is that big data has caused us to become starry-eyed; putting theory into the hands of quantitative experts. These people are not asking the questions they should be asking. ‘If you were attending a party, you would have a theory about who you would talk to, what you would drink and so on, often before you even arrive – so those analyzing big data must have a theory that influences and shapes what goes into their analysis before they start crunching data. Code and computer programmes fail to do this.” It would be easy from the comments above to think that Martin is anti-big data. But this is not the case at all. Rather than a pessimist on the subject, our expert is an optimist – just with a great deal more knowledge on the topic than most. “Big data holds huge promise,” he asserts. But he is also under no illusions. ‘Anything that comes along with exciting promise also comes along with excessive hype, and that feels to be the case for big data.” In an article for an Indian newspaper, published last year, Martin wrote: “At its best, big data helps immeasurably with data collection, organization and analysis. At its worst, big data is used as a substitute for theory. Massive quanta of data are crunched in the hope they will reveal something. And they will.’ But his fear is that big data will produce as many or more disappointments as breakthroughs. Putting this into a business context – and given the millions of dollars invested by corporates into research and data analysis – his views may be disturbing to some. “Big data is divorced from business because even if programmers select some factors and not others to reach an answer in
Big data helps immeasurably with data collection, organization and analysis
Dialogue | Mar/May 2014
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plou ploughing big data, life cannot be totally atheoretical. There is no such thi thing as total objectivity,’ he says. “Objectivity is the great modern myth. “O very Everything we think that we understand is based on bias and prejudice. I’m hoping to be convinced otherwise, but I have not seen a half-satisfactory explanation so far.”
Reliability and validity In the late 1950s, Martin explains, scathing reviews were written stating that business education needed to become more scientific and a modernist trend emerged where research was adopted in business education. He says: “Being more scientific is a good thing, but I worry business has become faux scientific. You have to think about a dynamic interplay between theorizing and crunching data. The data-crunching will hone and refine the theory, and so on in a dynamic process. “I have had this view described as ‘silly’ and ‘antiintellectual’ by a fellow business school Dean. The overwhelming view is that a statistic is a statistic – quantifiable. But the poles in life attract us and in this debate there are two poles: reliability and validity, and the only way to get reliability is with a narrow set of variables and without bias.” There is a stark difference between what is valid and what is reliable, according to Martin, and while big data produces reliable results, they cannot be valid without judgement and bias. “An interesting example is the standard IQ test,” he says. “People love this because it’s unbelievably reliable. A person could take the test 10 times and achieve virtually the same score every time. “The sad truth is that this test defines intelligence as the ability to solve ‘little logical puzzles’ by answering A, B, C, D or E. These answers are then run through a computer. It doesn’t measure or reveal judgement or bias.” So how valid is an IQ test? Can it predict anything about how an eight-year-old will perform in the future? What is its predictive power? “Studies show that these tests are not able to predict anything useful about a person’s future greater than 30%,” says Martin. “So 70% of a person’s future has absolutely nothing to do with this test. This test is not necessarily valid, but it is reliable – and the world is in love with reliability. “The signal of reliability is numbers, but EQ – emotional intelligence – is just as important as IQ and this cannot be measured by a logic test. EQ is the ability to interact and empathize with other people.’ Martin believes there is what he describes as “a great strain” between validity and reliability. “Bureaucracy lends itself to reliability,” he says. “But if you think about venture capital and investing in a
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great idea, this lends itself to validity. “Entrepreneurship starts with validity. An entrepreneur has a great idea, but eventually the board will want reliability, which can destroy the original innovative spirit. If boards were to blow up, productivity would increase. Boards are the agents of reliability – they worship at the altar of reliability.” So the analogy here is that big data is reliable – you cannot ignore its attempt to measure our world – but without adding the power of judgement, its ability to predict the future might be as low as 30% predictive ability of the IQ test – maybe even lower.
Changing the face of leadership Dialogue’s conversation with Martin is coming to an end. For an hour, he has been charming, funny, insightful and fascinating in his views on the topic of big data, time has flown and only five minutes remain to ask the most important question – how will big data change the face of leadership and management going forward? Martin doesn’t hesitate: “The pendulum is swinging back towards qualitative analysis,” he says. “Big data will be the next crescendo before business leaders go back to investigating qualitative (rather than quantitative) findings.” And here’s why. “In 2009, I attended a dinner featuring a famous economist as the speaker on the topic of the prospects for economic recovery in the wake of the global financial crisis. I asked him the following question: In May of 2008, literally mere months before the biggest economic downturn in 70 years, all 30 of the economists in the ‘Blue Chip’ economic forecast predicted positive economic growth in the second half of 2008. It is amazing that not a single economist predicted a slowdown, let alone an explosive contraction. What have you learned about your models based on how incredibly wrong they were? “His response was that it as an interesting question that he hadn’t thought about. “So he confirmed that economists producing horribly invalid results through crunching data did not provide any motivation for him to rethink his quantitative models.” The problem was that the economists had little useful theory to set their data against. They were reliable, but not valid. And Martin believes every time big data-crunching comes before creating a thoughtful hypothesis, disappointment is likely. But if big data is used to test an idea or hypothesis that would previously have been difficult or impossible to test, it can contribute to a potential breakthrough. Bring judgement back into the process. Big data is only one half of the route to the answer – don’t let’s pretend it is the sole route.
Dialogue | Mar/May 2014
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FOCUS THE DIGITAL NERVOUS SYSTEM DATA IS THE KEY TO COMPETITION CHANGING THE FACE OF LEADERSHIP KNOWLEDGE IS POWER, BUT IT’S ALL TEXT ABOUT SMALL DATA THE THIN DATA REVOLUTION THE REAL BUSINESS OF DATA IS SCIENCE THE BIG DATA DEBACLE
Knowledge is power; but it’s about small data It is early days in the big data game, but Andy Law examines why some large companies see it as the next big step ILLUSTRATION: ANDY POTTS
YOU COULD BE forgiven for thinking that we are a explosion. Everybody is in the middle of a big data mmunication comtalking about it. Large communication panies are seeing it as the next big step. WPP’s srecent stake in Globant is an attempt to e esetween all the varivarritablish some integration between ts huge and ever erer ous data sources it has in its everompanies. growing global basket of companies. iChiliad is an example of an organi organization offering services that collect esand collate. The real quese in tion is where is the value ause such an enterprise? Because act, it t’s there will be value. In fact, it’s ta game. early days in the big data o integrate integ gra r te The software needed to hone numb m ers, mb analytic data (zip codes, phone numbers, er licens ses, etc) credit card charges, driver licenses, oci c al media, with unstructured data (so (social mage meta a data, dat ata, at a etc tc c) iss websites, CSR, email, image etc) tilill be eing still in its infancy. Issues of value are st still being e some int ntter e esting firstt debated. Gartner has made interesting e is sub ubst ub stance behind st d steps, showing that there substance art rttne n r believes that tha at the hype of big data. Gartner nd the hype cy cyc cle “big data is moving beyond cycle er of com mpani nie es es with an increasing number companies ts”. Hence, w hile launching big data projects”. while aunched a big 27% of enterprises had launched data project in 2012, with another 31% e next two intending to do so in the
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years, by 2013 30% had deployed big data projects, with another 34% expecting to do so in the next two years. That is a steady movement upwards jump p (64% in 2013 compared to 58% in 2012) and it reflects a growing confidence that th hat big g data can help to enhance the customer experience (54% cited this c stomer exp cu as driving motivation), improve as their the h ir drivin process efficiency (42%) and launch p pr oc ces e s efficien products business models (39%). new w pr produc uc cts t or b me, remain some big T m To e, there the questions around this qu science, which has a sc kind of General Universal Theory T Th eory of Everything ring to it. It’s It t’s the Holy Grail, isn’t it – linking data to know all things? lilink nk kin ng all da (After knowledge is power, as (A Afterr all, kno Sir Bacon reminded us way S ir Fr Francis Bac back in 1597). ba question is what do you The first qu intend with this interconnected in ntend to do wi data? If it is sold as a cure-all customer system, it will need constant management system updating as we give our data out to new services. J Just when we thought SnapChat Snap a Chat was tthe answer, WeChat winging its way across to from TenCent comes wing us from China.
Dialogue | Mar/May 2014
It is the nature of the internet that new things will come all the time. And we’ll donate our data willingly. So new data just keeps coming and the idea that this can effortlessly integrate into the existing data pool is a big ask.
It’s all about small data Interestingly, from the perspective of the humble consumer, data is all about small data. It’s about “me” data. We give up certain liberties and privacies because we think it will benefit us. The more we see the benefit, the more we give. And the opposite happens too. If apps or online services cannot hold our attention, we’ll drop them or let them wither. Which creates an interesting effect. The data being held keeps changing. It keeps validating and invalidating itself. This surely creates operational hassles – or, alternatively, suggests that the data being integrated will always be somewhat out of date. Or, worse, the data management systems will be hard to operate, particularly for brands that want fluidity of process in real time. Which makes me think that the real value of mega-integration might not be in the companies that do the integrating. It might be in the secondary products and services. There are many valued companies who exist symbiotically with much larger data farming organisations. WalkIt uses Google maps, Instagram (and many others) benefit from the facebook sign procedure. This is an example of Digital Symbiosis whereby smaller, often bespoke, consumer-focused offerings could provide value for customers. Service levels to customers could be greatly enhanced if they were given open source platforms to hone and perfect their purchasing decisions. More personalized group buying and more responsive CRM could create an even more savvy consumer, utilizing the donated data of peers to make surprisingly clever decisions. After all, this is what history is telling us has already happened. The big data capacities of Google, Facebook and Twitter create an enhanced experience. The data serves the user with ever more integrated options. There is, undoubtedly, a race for the big data goldmines, but surely one of the winners will be a consumer-centric platform. As I remind my clients regularly, there are only two forms of media now – on-screen and off-screen. Screen-based decision activation is the future and the role for big data on screens is very clear. Combining analytical data with unstructured data
adds value to people who have declared and stored preferences. Knowing how near or far you are from what you want to buy or do next is a natural step for a generation now peering into their screens for the answers to everything. Finally, it’s worth considering how businesses in general will benefit. Certainly to my mind there are obvious bear-traps. Using integrated data to create more lock-in or to push deals relentlessly will turn consumers off. Again. We know our data is out there. But we put it out there for our own purposes. The instant a brand claims too much insider knowledge, I believe consumers will question the motives. A recent article in Adage demonstrated that there is a simple distinction in the consumer mind when it comes to how companies use data. Facebook and Google are seen to “own” my data, while Amazon “uses” my data. Consumers perceive Amazon to provide such an invaluable benefit to their lives, it doesn’t feel as if they are giving up personal data in the traditional sense. It’s a balancing act that’s been played out for years. We want you to tell us what you have to offer, but we also want choice. Value comes top of the consumer “desire tree”; incessant selling resides at the bottom. A secondary market will grow soon after big players have invested in the software to garner, integrate and organise data. This will be an analytics market, which itself will need sophisticated software systems to begin to re-process and find meaning. My hunch is that this will validate previous consumer research models that have grown and adapted over time as more information has become available. But, importantly, it must provide feedback. While we know a great deal about consumer behaviour and attitudes, we still don’t know enough about what communication actually works. It’s a strange paradox that the more digital we are, the less we know about what works and what doesn’t. For example, consumers may or may not see internet advertising – we only know through click-through metrics. Even if they do click through, a survey in Business Wire in the US found that nearly every online American adult (98%) who looks for information online finds reasons to distrust the information they find, including citing “too many ads” and “selfpromotional information”. Targeting people more accurately in a way that pleases them more profitably is where the real value of big data lies. Now, who is providing that service?
If apps or online services cannot hold our attention, we’ll drop them or let them wither
Dialogue | Mar/May 2014
O Andy Law is chairman of Fearlessly Frank and author of Implosion What the Internet has really done to culture and communication
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FOCUS THE DIGITAL NERVOUS SYSTEM DATA IS THE KEY TO COMPETITION CHANGING THE FACE OF LEADERSHIP KNOWLEDGE IS POWER, BUT IT’S ALL ABOUT SMALL DATA THE THIN DATA REVOLUTION
The thin data revolution Big data could be the biggest game-changing opportunity since the internet. Sarah Hetherington and Christian Madsbjerg examine how leaders need to use data to piece together a richly textured view of the world ILLUSTRATION: ANDY POTTS
THE REAL BUSINESS OF DATA IS SCIENCE THE BIG DATA DEBATE
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Dialogue | Mar/May 2014
THE FUTURE OF big data is widely described as, well, big – $50 billion market big; $200 billion marketing opportunity big; 1.5 million data jobs big. The management consultancy McKinsey calls it “the biggest game-changing opportunity for marketing and sales since the internet went mainstream”. MIT’s Andrew McAfee (2012) refers to it as “the next big chapter of our business history”. But once the hype is stripped away, big data is something much more straightforward: streams of abstracted data disconnected from their context in the world. Considering this, relying entirely on big data can result in misguided business decisions based on abstract numbers. What big data lacks is one simple thing: a connection to our subjective experience or the way that we, as people, actually understand the world. Without this – the subjective frame of individual and cultural experience – the big data approach can only deliver “thin data”, or numbers stripped of any richer contextual meaning. If business leaders really want to understand the complexity of the world, they need to pair their use of big data with “thick data” or data that richly captures the human experience.
Swimming in a sea of big data
Big data is a powerful tool for understanding what a business’ customers are doing
In 2003, Craig Venter, the scientist famous for decoding the human genome, set out to sample the genetic diversity in the oceans. By filtering seawater and sequencing the genomes of the undifferentiated gunk in the Sargasso Sea – techniques of big data – Venter discovered more than 1,800 new species of bacteria in a couple of weeks, the largest batch of new species in history. He never actually looked at a single one of them. In this way, what he really discovered were 1,800 statistical blips, 1,800 correlations that delineated new species. His big data techniques tell us nothing more of the bacteria except that they exist. Big data is analysis without outcome and data without analysis – specifically, the kind of analysis required to produce results and innovation. Thus, simply capturing big data is not tantamount to finding business solutions or innovation. If Venter had simply discovered the existence of 1,800 species without analyzing them and thinking about how to put them to use, his discovery would have been interesting, but not impactful on the level of introducing change and producing new opportunities. Venter converted his 2003 expedition into a $600 million collaboration with ExxonMobil to develop next-generation biofuels. The big data approach can lead to such transformational business opportunities and it can also add tremendous value to CRM solutions, say, or to supply chain
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optimization. But what is big data actually telling us about our customers and operations? Just as Venter never actually gained any insight into the bacteria he discovered, what insights are we really gaining into the wants and needs of people when we rely on big data solutions? Venter was able to take his discovery and turn it into a collaboration with Exxon, taking a discovery of a great quantity of new “data” and turning it into a successful enterprise. He is a positive example of how to harness (a kind of) big data through analysis, which is precisely the orientation toward big data that we want suggest in the article. Applying the Venter analogy to your own business, what are you going to do with the discovery of 1,800 new sets of data – complications, opportunities or simply business black holes – that may or may not have meaning? How can big data techniques help you to solve the problems you face without raising all sorts of new ones? By looking at how scientists in the past tried to describe their world, we can gain a better understanding of what big data can and cannot do.
A better understanding
The optimism around big data seems well founded: it has been spectacularly successful for Google, Amazon, Netflix and others. It is an incredibly powerful tool for understanding what a business’ customers are doing – when wielded correctly by its users, it can revolutionize the decisions we make in government, healthcare, finance and elsewhere. But we cannot let the strengths of big data seduce us into thinking that it is the only tool available for understanding our customers, a common assumption among some of big data’s greatest evangelists. They base their arguments on a now-legendary 2008 Wired magazine article entitled The End of Theory by Chris Anderson. The core idea of this article proposes that if you can analyze a system in enough detail, you can help it evolve without knowing how it works. According to the article’s argument, the way we explained systems in the past – through models and hypotheses – is becoming increasingly irrelevant, crude approximations of the truth. In 2008, the internet, smartphones and CRM software were already delivering a superabundance of data. “The numbers speak for themselves,” Anderson writes as he quotes business leaders like Peter Norvig, director of research at Google. “All models are wrong, and increasingly you can succeed without them.” Ultimately, Anderson takes Norvig’s ideas and runs with them: This is a world where massive amounts of data and applied mathematics replace every other tool that might be brought to bear. Out with every theory
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of human behaviour, from linguistics to sociology. Forget taxonomy, ontolog, and psychology. Who knows why people do what they do? The point is they do it, and we can track and measure it with unprecedented fidelity. With enough data, the numbers speak for themselves. It sounds revolutionary and progressive to throw every theory of human behaviour on the dust heap, and replace them with tracking and measuring. But, as centuries of philosophers such as Bacon, James and Heidegger have shown, this is an old, flawed argument in an even older debate.
of experience – not to mention people – as inextricable worlds, in which we cannot separate mind from body, person from environment. The phenomenologists did not aim to dismantle the scientific method as a tool for understanding physics or science – rather they claimed that Bacon’s method simply falls short in terms of making sense of people. Our embedded experience in a world presents great challenges for “thin data” or abstracted data sets: for example, if data about human experience changes as our worlds change, how can we harness that data to paint a picture of who we are?
A long scientific discussion
An interdependent world
The desire to fully capture the complexity of the world is, by no means, a new phenomenon. Although big data is the latest manifestation of this desire, 17th century English lawyer and scientist Francis Bacon had this exact same passion for accuracy. In a growing frustration with the “abstract and useless generalities” of mathematics to reveal the world, he developed his Baconian method, or what we now call the “scientific method”. To describe the world through the capture of evidence, he wanted to build up knowledge in a series of gradual steps, based on observation through the senses: facts that speak for themselves. We cannot be certain of anything, but if we see a white swan, then another, then another, our observations will tell us that all swans are white. Some call this approach productively naïve because it looks at the data with no preconceptions, without context. Big data extends Bacon’s argument to the extreme. Not only does it say we should be naïve about the data, it goes on to argue that we should dispense with the need for interpretation altogether. More data means a more elaborated picture of the world for leaders, or so goes the argument. Over the following centuries, other philosophers dismantled Bacon’s position, offering advice contemporary leaders should take to heart. Nineteenth-century pragmatist William James, for one, critiqued the mere possibility of a naïve approach to data. James wrote: “No one ever had a simple sensation by itself. Consciousness… is of a teeming multiplicity of objects and relations.” A white swan looks red in a red light; to understand the colour of swans, we also have to understand the properties of light. Facts always live in a context, and hacking them into discrete data points renders them meaningless and incomplete. Later, Martin Heidegger and the phenomenological tradition built on James’ statement, arguing for a view
Our enthusiasm for big data threatens to obscure what James and Heidegger taught us long ago: that the world is not a sum of discrete facts, and is instead always characterized by its interconnectedness. James’ statement is a repudiation of a naïve view of data (the dominant view of big data) and it forms an argument for having a lens or frame through which to make sense of its “teeming multiplicity”. This phrase is prescient of the current day situation in which the world is a true global ecology: increasingly complex, interconnected and increasingly difficult to organize as an assembly of facts. Big data has arrived into a business environment in which understanding context is more important than ever. In Duke Corporate Education’s study of CEOs and their perspective on the contemporary business environment, CEOs acknowledged two things: the interdependent nature of the world, and the necessity for leaders to understand new and unfamiliar contexts – political, technological, cultural – to make sense of that interdependence. The philosophical argument between Bacon (and his close intellectual cousin, mind-body dualist Rene Descartes) and the likes of James and Heidegger serves as a parable for modern leaders, instructing us how to act on big data. It informs us how to harness big data in a productive way, rather than misguidedly falling prey to its seductive power.
Our era offers big data and qualitative methods for understanding human behaviour
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Navigating in a sea of big data So, what does it mean to lead in the era of big data? To begin with, it entails taking a more active role in the interpretation of the vast sea of data at your disposal. Rather than letting the objective data guide you, it is the role of the leader to make sense of and take a stance on the data – to decide how you want to interpret the facts you are given and develop a strategy accordingly. Using big data well means treating it as a source of information in need of someone to wield it intelligently and interpretively. This should happen in two main areas:
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Collection of big data: first, navigating big data well means taking the step of selecting a context in which to collect data. The mere task of “collecting data” is meaningless in the abstract. What data do we collect? What for? How? It is impossible to study the world without some sort of paradigm for thinking about what you want to study. If you are building a big data offering for your business, you need to start by thinking about what paradigm you are operating in – like the scientific and humanistic methods show us, you need to have a hypothesis or a field of inquiry, data itself is not enough. Does your business invest in Hulu or Amazon Video ads, using their viewing metrics to get the most valuable impressions? How do you know that the person watching the show is the same person that viewed the previous shows? Interpretation of big data: the second way to navigate big data well is to have a perspective on how data fits together as an expressive portrait. Leaders must find people who can help them use data to piece together a richly textured view of the world, in which resulting interpretations can add up to something greater than the data collected. Department store Target identified a teenage girl’s pregnancy through her purchases – then sent her some coupons for baby products, causing her father to storm into the store. The algorithms correctly diagnosed her objective needs (baby products for a mother-to-be), but knew nothing of her subjective reality (family life, perceptions and social context). It misread how she lives in her world, causing a dramatic scene. Big data’s ability to capture huge quantities of data might seem to be synonymous with painting a complex picture of the world, but without the ability to interpret that complexity, the data risks becoming more noise or offensive to consumers leading the organization astray.
Understanding humanities and science Big data offers a lot: it can measure that which is above the threshold of awareness; it measures quantities and iterations; it measures choices. But it cannot offer a better grasp on the interdependent world and how to navigate the resulting cultural landscape. Because of its weakness on delivering what global leaders need, big data requires the complement of an understanding of human behaviour, something the human sciences are able to grant us. The social sciences and the humanities offer a body of theory and methods for capturing all that lies below the level of awareness, specifically the study of human behaviour through ethnography. Many successful organizations, particularly from the world of technology, are already aware of what the social sciences can do for them. Xerox PARC, Intel and IBM have long hired enormous numbers of trained social scientists, particularly anthropologists,
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to study human behaviour and to let that behaviour inform their business strategy and product development. Facebook, despite the vast quantities of data on user behaviour at their disposal, has recently undertaken several large qualitative research projects – both ethnographic projects in foreign countries as well as forming a panel of users with which to run qualitative surveys. Quantitative analysis will never be a sufficient stand-in for truly observing and then reflecting upon the behaviour of users and consumers.
Science and humanities CP Snow lamented the gulf between the sciences and the humanities in his lecture “The Two Cultures” and Stephen Pinker (2013) reminds us that science and the humanities need not be enemies. Our era offers big data and qualitative methods for understanding human behaviour and, together, they offer potential for leaders to avail themselves of intensely rich portraits of the human condition. Some of the 1.5 million data workers entering the workforce should be trained to interpret the data, not just sort it. Learning from the historical dialogue among philosophers provides practical direction for contemporary leaders. That dialogue makes clear the necessity of a contextualized view of data and seeing big data as one useful tool among a palette of tools and methods. It shows that understanding the human condition through thick data is necessary to wring the most use out of the thin data that big data provides. It dismantles the aura surrounding big data right now: the sense that these abstracted data streams can deliver silver bullet insights without any interpretative lens from the human sciences. It is time to put data back where it belongs: the world. O Sarah Hetherington is a consultant and Christian Madsbjerg is a senior partner at ReD Associates FURTHER READING The Age of Big Data, New York Times, Steve Lohr (2012) Science is not your enemy: An impassioned plea to neglected novelists, embattled professors and tenureless historians, New Republic, Steven Pinker, (2013) The End of Theory: Data Deluge Makes the Scientific Method Obsolete, Wired, Chris Anderson (2008)
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FOCUS THE DIGITAL NERVOUS SYSTEM DATA IS THE KEY TO COMPETITION CHANGING THE FACE OF LEADERSHIP KNOWLEDGE IS POWER, BUT IT’S ALL ABOUT SMALL DATA
The real business of data science
THE THIN DATA REVOLUTION THE REAL BUSINESS OF DATA IS SCIENCE
Will data science become necessary in all businesses like marketing or accounting departments? Neal Patel investigates ILLUSTRATION: ANDY POTTS
THE BIG DATA DEBACLE
THERE WAS A time when you could go to cocktail parties and use the words “big data” with careless abandon. No one laughed uncomfortably. There were no unpleasant pauses. No one gave you those derisive looks we normally reserve for the guy who turns up at the show wearing the headlining band’s T-shirt. But today, it seems like those of us who work at the intersection of computer and social science are eager to distance ourselves from terms like “big data”, “analytics” and even “data science”. In fact, every time I hire a new lab member, we have an awkward conversation in which they delicately ask permission to switch their job title from “data scientist” to something else. What everyone appears to be thinking, but doesn’t want to say out loud, is that big data is massively overhyped and is increasingly embarrassing to legitimate scientists. First, in practice, most of what passes for “data science” is not all that scientific, and done without any empirical rigor. Second, “big data” is inherently limited in what it can do – there are forms of consumer knowledge that remain beyond its reach. Nevertheless, big data continues to be hyped because the intimidating scale and technology makes it easy to sell “truthy” tidbits to neophytes who don’t know any better. Indeed, the prevalence of “analytics” and the big data shovel routinely displaces other, less popular research methods
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more appropriately tuned to uncovering the insights businesses are actually looking for.
In practice, “big data” lacks rigour Practically speaking, most companies turn to big data to better understand and market products or services to their customers. Unfortunately, they are likely to encounter a range of pseudo-scientific gimmicks masquerading as research before they arrive at anything resembling the truth. The first excursion is typically with “analytics.” Corporate leaders notice how successfully some systems predict consumer preferences, and assume the same can be done with consumer insights. They want apps, which mine Twitter posts, they want to know what’s “trending” on Facebook, they believe a trending Tweet puts them “inside” the mind of their customers. But the problem with these sorts of analytics is that they don’t get inside the mind of consumers, they measure an outcome behaviour (in this case “Tweeting”) driven by what’s going on inside a given customer’s head. The problem with reporting observed outcomes is that they are rarely directional. It’s like trying to understand a cause and effect relationship without knowing the cause. This is precisely where we get things like alchemy and bloodletting. In the Middle Ages, barbers observed that people were more calm and relaxed when they lost blood. While relaxation is an outcome of exsanguination, it is because the body is weakened by blood loss and, for all intents and purposes, is preparing to die! Therefore, taking guidance from a Tweet without understanding why that person tweeted, is “soothsaying” in the truest sense: it invites assumptions which cannot be verified. Seldom do these methods successfully link informational or behavioral exchange (tweets, social contacts, etc) with revenue, profit, loss, growth or any corresponding strategic guidance. Meanwhile, “analytics” relies on a host of pseudo-metrics such as “item trend velocity”, and “Tweet volume”, which create a false sense of precision. Several months ago, I met with a prominent firm pitching a self-described “integrated strategy, technology, and marketing” solution. Out of a team of six, no one – not a single soul – could describe either the monetary or strategic value of a “trending” item on Twitter; or what action should be taken when content is sufficiently “Liked” on Facebook; or whether increased “trend velocity” is good or bad. As a matter of fact, the team claimed to have devised a six-million dollar “real-time rapid-response framework” driven by “social media analytics.” After a few tough questions, the “rapid-response
framework” appeared more like a person watching TV while Tweeting. Then Tweeting during the commercials. Then maybe monitoring Bottlenose and producing qualitative reports. Setting aside the obvious scientific problem of influencing the outcome variable (a term most commonly used in correlation and regression designs in which causeand-effect relationships cannot be demonstrated), this fails to provide a detailed understanding of how consumers think or make sense of the world. This is not consumer insight. This is snake oil. But many companies have a taste for snake oil. Indeed, because computational methods driven by “big data” work convincingly well when applied to search and ads, practically anything that can be called “data science” enjoys similar credibility – whether scientific or not. Unfortunately, because “data science” merely refers to the practice of extracting generalizable knowledge from data, it can mean anything. The choice between deeper analytic engagement with customers and the previous example is a choice between treating “data science” as “science” or discarding empirical rigor altogether. Credit companies, for example, employ “data scientists” to learn about their customers. Visa famously disavows being able to predict whether a person is involved in divorce based on their credit records. Is this science? On the one hand, the correlation, in and of itself, might be sufficient for Visa’s hypothetical purposes – after all, they should be primarily interested in their own customers. On the other hand, the results are not intended for application without limit. However, whenever a data scientist “discovers” a thought-provoking correlation – between, say marital status and credit records – the subsequent public discourse assumes it applies to everyone. This, in turn, distorts the scientific merit of the “discovery” by stretching its claims beyond the supporting evidence. Generalization to the public on the basis of one statistically valid association is like releasing a drug to the public on the basis of a single clinical trial or, for that matter, simply discovering that it works for the very first time. Indeed, if we treated what passes for “data science” as rigorously as “real science,” we might decide that simply finding an association is only the beginning, not the end, of a discovery. This goes beyond the mere distinction between correlation and causation, although it certainly applies. Rather, there is an underlying social process or cultural framework accounting for the correlation which requires further investigation, in the same way that the demonstrated effect of a drug requires a detailed explanation of its function within the human body.
Big data is overhyped and is embarrassing to legitimate scientists
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This explanation is not something readily understood or captured by the methods that “discovered” the association. Instead, cultural and phenomenological methods must decode the underlying framework of shared assumptions, taboos and structures of meaning that explain the existence of the observed correlation. Just because something correlates doesn’t mean we can decide which caused which or, indeed, if either caused the other at all.
Big data has limits One of the reasons why the abuse of science is so prevalent in big data is because it allows less scrupulous researchers to avoid having to acknowledge the limits of what big data can do. At the recent Consumer Electronics Show, Yahoo! CEO Marissa Mayer proclaimed: “The future of search is contextual knowledge”. By “contextual”, Mayer means using cues from an individual’s previous online activity to guess what they might mean when they mistype search terms, or the next album they’ll want to purchase. Big data originated in search, where it is a proven solution to problems like “contextual search”. Imagine how a search engine works. Billions of bits of data from every website must be “read” in some way and then organized so they can be referred to later. This task alone requires a database so massive and complex that it exceeds the computational ability of any individual computer, necessitating a “cloud” of computers acting in concert. Compare this to a conventional survey dataset. It may contain tens of thousands of observations, but a cloud-enabled survey could solicit a random sample every day, for months. Before long, the observation count quickly grows from thousands to millions. Big data delivers impossibly comprehensive datasets, in some cases, population-level data to rival the US Census. At a very basic level, contextual search determines what else consumers want, based on the content they already click on. Imagine that each click is merely one in a cascading set of pair-wise choices, choice (a) versus (b), choice (c) versus (b), b), (a) over (c), and so on. These choices eventually lly form a hierarchy. After thousands of iterations, tions, it becomes possible to calculate the probability bility of selecting choice (a) versus any other option n in the set. A massive computational infrastructure re powers this algorithm, arriving at a top set of preferences for every individual who visits a site. This is an exceptionally simple version of the algorithms internet companies use, but the advantages are straightforward. Whereas a randomly placed ad d is essentially a wager, an ad targeted at click-through ugh behaviour is a data-driven decision. Indeed, the e same system makes it possible to compare revenue from targeted ads with revenue from other advertising
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streams. Finally, costly marketing research can be reduced to simple A/B testing, a practice known as “optimization”. The system works well until we begin to consider “context” more rigorously. Even a perfectly accurate system – and I’ve seen contextual search platforms ranging from eerily accurate to comically non sequitur – fails to answer the most simple, fundamental question: why? “Contextual knowledge” is important because it provides a framework for understanding subjective mental order – the choices, biases, predilections and assumptions that organize our comprehension of reality. A hypothetically perfect contextual search solution generates, at best, the outcome of this mental order, an articulated preference for one choice over another. But there is tremendous business value in understanding the mental order driving those outcomes: understanding why people make the choices that they do. A company which understands how its consumers think and make sense of their world, speaks to them in a shared language. It is the difference between the short margins of selling option (a) over option (b), and a deep, intersubjective connection between a product and an individual—one in which consumers believe the brand is an authentic expression of themselves. In other words, despite “big” data, some things remain unmeasurable, especially because most big data is completely observational. It can neither confirm causation the way manmade experiments do, nor explain the mental framework which drives decision-making. This is the domain of qualitative and theoretical methods, which social scientists have been using to mine mental life since 1906. In The Philosophy of Money, founding sociologist Georg Simmel distinguishes between “objective” knowledge, which can be measured and quantified; and abstract, “subjective” knowledge concerned with “those questions… that we have so far been unable either to answer or dismiss” (Simmel, 1978). By “subjective”, Simmel refers to both inner mental experience and fundamental philosophical questions about the origins of things, neither of which readily lend themselves to a quantifiab solution. Yet both are integral to underable stan standing social phenomena. “Even the empirical in per its perfected state,” Simmel (1978) argues, “might no mo replace philosophy as an interpretation… than more w would the perfection of mechanical reproducti of phenomena make the visual arts duction superfluou superfluous.” exte Thus, extending the example of credit card records, d discovering a correlation to marital status sho should compel an investigation of underlying the values, choices and cultural rules
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embedded in those spending habits – the truest form of contextual knowledge, the reasons why. Yet these deeper scientific questions are routinely overlooked in the favour of the surface correlation. It is no wonder the label “data science” is passé among those who analyze big data for a living – for true computational social scientists, observing the frenzy around pithy “data science” correlations in public discourse is like an electrical engineer watching an electro-magnetic field detector in the hands of a “ghost” hunter.
Today data scientists are born “by accident”, when a social science PhD picks up programming skills, or a computer scientist develops an intellectual fascination with human behaviour. The next generation will train in “data science” degree programmes. Today data scientists define their own positions within organizations. Tomorrow, there will be official data science departments. The level of scientific rigour these programmes instil in future students, and what prospective employers expect of them, will depend on the prevailing professional standDIGITAL EXCLUSIVE ards of our day. Indeed, a number of Neal adds his thoughts Big data done the right way universities have started data science to the big data debate There are, of course, examples of data Masters programmes. science which reach the highest standUnfortunately, industrial competiards of scientific rigor. Sandy Pentland’s (MIT tion does not always select for the fittest Media Lab) recent investigation of what makes institutional structures. As Neil Fligstein’s team’s “click”, for instance, deployed 2,500 study of the savings and loan industry sociometric badges collecting vast amounts suggests, firms operating in “emerging” indusof sensor and proximity data among sales and tries can behave mimetically – that is, they simply support teams. Pentland and his team discovcopy what other firms do, because it seems to ered that they could accurately predict each work. And this is the greatest danger posed by the team’s success based on their communicafact that “big data” works too well: the promise tion pattern data, without even meeting the of immediate reward is more attractive than the team’s members. more difficult engagement with context, with why Were this the typical shiny object served up by – although the latter poses a greater long-term “data science”, the discussion would have ended strategic advantage. there. However, Pentland and team conducted a For the individuals who work with big data every deep investigation into the underlying framework for day, the challenge is ultimately ours. In the long run, social interaction which explained this result – idenwill data science become a necessary competency tifying three key communication dynamics which of all businesses (like marketing, IT or accounting)? A influence performance and experimentally demonskill everyone applies in their job? Or will it become strating improvement among teams that map their the province of outside consultants who operate communication dynamics to the ideal pattern. As a on demand? Ultimately, each of us must decide result, Pentland not only made a significant scientific whether to embrace computational methods as discovery, but generated clear business recommentrue scientists, to pursue an engagement with why, dations about what teams should do to succeed. or gorge ourselves with the golden goose of pseudo According to Pentland, stellar teams hold frequent “data science”. informal meetings, or “asides”, and ensure everyone speaks and listens in equal measure. In determining O Neal Patel is technical program lead, Advanced why, MIT researchers transformed a curious insight Technology and Projects (ATAP) at Google Inc into concrete guidance for businesses interested in higher team productivity.
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FURTHER READING
What’s next The question, preoccupying individuals in my profession is whether high or low scientific standards will prevail in the world of “big data” – or will “data science”, and “analytics”, become the next “focus group”, or something equally discredited? Indeed, as the set of practices referred to as “big data” and “data science” evolves into a professional institution, it will have to choose between the high standards of Sandy Pentland’s work and the pseudo-scientific slapstick of the next big “integrated technology, strategy and marketing” solution.
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How Visa Predicts Divorce, The Daily Beast, Nicholas Ciarelli, (2010) Yahoo Just Acquired A New Search Product That Could Hurt Google, Business Insider, Jim Edwards (2014) Eric Schmidt: The Future of Magazines Is on Tablets, Mashable, Lauren Indvik (Oct 23, 2013) The New Science of Building Great Teams, Harvard Business Review, Alex “Sandy” Pentland (April 2012) The Philosophy of Money, Georg Simmel, David Frisby ed. (1978) London: Routledge.
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The INSTITUTE FOR ECONOMIC EMPOWERMENT OF WOMEN’s PEACE THROUGH BUSINESS ® Program 2013 Graduating Class Pictured with dignitaries: H.E. Ambassador of the Republic of Rwanda to the U.S., Mathilde Mukantabana; Charlene Lake, AT&T Senior Vice President Public Affairs & Chief Sustainability Officer; Hon. Mrs. Sultana Hakimi, Spouse of the Afghan Ambassador to the U.S.; Dr. Terry Neese, Founder/CEO IEEW; Mary Millben, Broadway Actess & Singer/Global Ambassador for Education Africa; Dr. Kevin Fegan, President, Northwood University Texas Campus
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FOCUS
The big data debate David Woods summarizes the focus on big data and the digital nervous system and opens the debate among senior business leaders
THE DIGITAL NERVOUS SYSTEM DATA IS THE KEY
TEXT TO COMPETITION
CHANGING THE FACE OF LEADERSHIP KNOWLEDGE IS POWER, BUT IT’S ALL ABOUT SMALL DATA THE THIN DATA REVOLUTION THE REAL BUSINESS OF DATA IS SCIENCE THE BIG DATA DEBATE
DECIDING ON A cover image to encapsulate the multi multitudes of ideas in the challenge for team Diaterm “big data” was a cha because we wanted llogue, b t d an iconic picture that made reference to the almost organic growth of big data and the digital nervous system; something that was full of life but wild, demonstrating the millions of decisions that could be made from a myriad of data sources and streams. We opted for an overgrown tree, with branches spiralling off in all directions, being fed by a deluge of data surging up its trunk. I’ll let you make up your own mind about what it represents because artwork – like big data – should be judged with a certain amount of subjectivity. It seems to me that we have been caught up in a wave of big data and that business leaders are struggling to “see the wood for the trees” when it comes to crunching the stats and, more importantly, making business decisions based on them. Tony O’Driscoll explains that while big data carries great promise for businesses, because it can help leaders “exploit and explore information” in equal measure, in its current incarnation, the application of big data runs the risk of diverting leaders’ attention in unfair measure towards the exploitation of current business. Vivek Wadhwa writes that data can assist human decision-making in almost every sector. He believes analyzing large amounts of data from different perspectives can unearth new insights and
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+ DIGITAL EXCLUSIVE Liz highlights the link between big data and business strategy
prevent errors. It this exponential era, data is the key to competition and productivity, he says. And while Roger Martin agrees with this, he issues a warning that unless leaders can reduce everything big data offers them into an algorithm, they must be prepared to exercise judgement to add to the analysis. Analysis paralysis can still strike us in this brave new world of universal knowledge, unless there are savvy executives who can use their experience and instinct to make a judgement call. Sarah Hetherington and Christian Madsbjerg believe big data is a tool for understanding what a business’ customers are doing and can revolutionize decisionmaking. But they are emphatic in saying that it’s not the only tool for understanding customers. They urge leaders to apply big data in the belief that data streams will not deliver silver bullets without an interpretative lens. And Google’s Neal Patel says the time has come to decide whether to embrace computational methods as true scientists, to pursue an engagement with why, or gorge ourselves with the golden goose of pseudo “data science”. Dialogue asked some industry leaders in various sectors how big data is changing how they live and work. Their responses can be found on the following pages, but in the spirit of Dialogue, I’m keen to hear your views on the big data debate, so lets keep the conversation alive. Email me at david.woods@lidpublishing.com
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ASH GUPTA, president, risk and information management group, chief risk officer, American Express How do you H for foresee big data chan changing your industry industry? Big data isn’t a to tool of the future. It’s arrived and it is transforming financial services companies. Big data is an ecosystem comprised of data, analytics, technology and the customer. It allows us to leverage large data sets with powerful and efficient analytics and cutting edge technology, which help drive meaningful dialogue with customers. This is having a powerful effect on our business – helping us improve service and risk management as well as transform to a driver of commerce between Card members and merchants. Fundamentally, big data is changing societies. It makes many of the basic tools modern societies have come to rely on possible – such as Google search, Google maps, Amazon recommendations. Our industry has to evolve to meet the needs of these societies that are accustomed to having solutions at their fingertips. But regardless of how the ecosystem matures, American Express’ core values – serving our customers and maintaining our integrity – remain the same.
How is your competition using big data? Our competitors are banks as well as technology start-ups. Since so many technology start-ups are creating services with data, it’s difficult to point to one that is not using big data capabilities. Like American Express, our competitors are using big data to create customized offers for risk management and servicing purposes. While start-ups are competitors, we look for ways to collaborate with them to improve our knowledge, drive innovation, build capabilities and find ways to deliver value to consumers.
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What commercial advantage does big data bring to your business? Information has always been core to American Express. We operate an integrated payments network. It is a closed-loop, end-to-end process that lets us analyze billions of transactions by more than 100 million Card Members at millions of merchants around the globe. Being able to use that information in a more robust way with the help of the big data ecosystem strengthens our closed loop. It creates new opportunities to drive commerce and serve customers across geographies. It strengthens our risk management processes, helping ensure we remain a strong company in weak and strong economic cycles. Big data is one of our most important tools in being the company we want to be – that identifies solutions to customers’ needs even before they are aware of them. It allows us to deliver what customers want today and what they may want in the future.
What challenges are there in working with big data? Privacy and permissible purpose are paramount. We consider privacy and compliance with every big data use case. They must go hand-in-hand with big data innovation. An ongoing challenge is balancing our big data investment between immediate needs and research or pie-in-the-sky ideas that will drive the next generation of capabilities. We can’t be seduced by one or the other. One of my challenges is ensuring we are focused on driving outcomes that are helpful to customers, with shareholders being collateral beneficiaries.
How have your customers been delighted as a result of the insights you have gained from big data?
We have implemented big data use cases that are gaining traction with our customers. For example, our big data ecosystem powers our mobile “My Offers” platform, a feature on our mobile app where US Card Members can find and add offers from merchants. This platform leverages the company’s closed loop network, which connects Card Members and merchants while delivering value to both. We have been able to use the big data ecosystem to quickly analyze Card Member feedback emails and letters, and improve customer service. Big data modelling is improving our accuracy in pinpointing fraudulent transactions while not disrupting genuine Card Member spend, something Card Members really want.
How has or will big data change the way you lead? I have placed a emphasis on external collaboration. I recognize we cannot innovate all by ourselves. I spend a lot of my time thinking about how to work with partners and companies in the space. From a leadership perspective, it is important to communicate and collaborate to create company-wide excitement and promote learning. This includes having a two-way dialogue with our board, executive officers and thought-leaders in the industry about how big data is progressing at our company. We are learning together. Less-tenured people on the team may possess more knowledge and wisdom about big data than others, and we need to create a culture that helps engage them in discussion and brings their ideas forward. I am aware of the importance of innovation and reacting to what is coming next. When I ponder questions like how can we top what we have done? How can we improve? How can we drive innovation? What will customers want in 10 years? These questions create excitement in my mind.
Dialogue | Mar/May 2014
OSCAR MÁRQUEZ MEES, managing director/director general, O Giesecke & Devrient de México G What W co commercial adva advantage does big brin to you? data bring In our business, w we are involved with big data sol solutions both in the optimization of manufacturing processes (as users) since all of our products (devises) are made to order and 100% customized, but on the other side, we are also integrating its capabilities in our commercial portfolio, specifically in our mobile marketing solutions. So big data power is offering us a huge commercial advantage by improving our service level agreements (SLA) on the manufactured products we supply and a as importantly on
our mobile marketing solutions portfolio, adding big data features to it, therefore enabling our customers a full new-end customer experience and unexplored fields of revenue.
What challenges do you face when working with big data? On the manufacturing side, the main challenges have appeared in process mapping to very deep details, but also on obtaining good quality information in a timely manner. On the mobile marketing side, we have faced complexity in several areas, starting at the consultancy level, where we are obliged to understand our customers interfaces and
thus create a customized solution that can be integrated into their systems and painlessly but effectively creating immediate results.
How have customers been delighted as a result of the big data insights? Manufacturing and supply chain data is helping us create more efficient critical routes. Our customers are experiencing better SLAs on our made-to-order products. They are delighted in terms of the general effects of a better and faster supply chain. On our solution business, customers are amazed by the revenues potential our big data solutions will enable.
SCOTT BROWN, VP technology solutions and architectures, Asia Pacific, Japan and Greater China, Cisco How is big data H cha changing your indu industry? Historically, the t view of big data has been that it o offers “rear view i ” insights. i i h You Y build a big data mirror” warehouse, fill it with data, analyse that data and out come your insights. But the proliferation of connected devices is growing exponentially. In 2013, the number of connected mobile devices in the world outnumbered the Earth’s population and by 2020, there will be 20 billion devices connected to the internet. So, it’s no longer about analytics, it’s about data in motion. Big data changes the nature of how decisions can be made in real time. The sea change is the number of connected devices and we estimate there will eventually be 500 billion devices connected to the internet. That means only 1% of the devices that will be connected to the internet are connected. What’s going to be possible when the remaining
Dialogue | Mar/May 2014
99% are connected? I don’t think we are keeping pace with the multitude of opportunities big data in motion enables to make meaningful real-time decisions.
What advantage do you believe big data brings to your business? The IT industry does its best work when the companies all come together on behalf of our customers in a connected community based on standards. If we collect data in realtime as it’s produced and integrate it in a common way, this will be a huge advantage for our customers. If the IT leaders are working in a connected ecosystem, all boats will rise. This will benefit the IT industry and, more importantly, our customers.
What opportunities and challenges do you face ? There is an enormous amount of money invested in big data, but
what do you do with it? The challenge is improving management and improving security. It’s about connecting the dots and establishing a joined-up system. We need to join broken links so we can better help the customer and make better decisions. This won’t happen on its own; leaders in the market need to move in the same direction – not independently.
How will big data change the way you lead? We are using big data to make real-time decisions and we need to influence people to make decisions differently, rather than estimating the future. Decisions were based on gut feel because there was too long a lag time between data being collected and analyzed. Now we can make informed decisions in real-time – moving from emotive and anecdotal to data-driven decisions. The technological changes are not hard to solve – the hard part is the people part.
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MICHAEL HALLÉN, President and CEO, Qmatic AB How do you H fo foresee big data ch changing your indu industry? Big data is transforming the entire customer experience. There are touch points within the customer journey (including advertising, call centres, digital signage, mobile apps and social media) that generate big data on what consumers are doing to what they buy. This is useful to our clients in that they can make changes their customers will want, based on what big data tells them.
How is your competition using big data? It is only those who specialize in software like we do who are utilising big data to help respond to customer needs before they even enter a store. Software allows for more sophisticated ana analysis of consumer behaviour. behav
What commercial advantage does big data bring to your business?
the business and not just for the sake of having data.
In retail banking, where it’s difficult to differentiate on a product level, it’s crucial to stand out from the competition. Connecting all the data means you have access to key information. That includes knowing the type of service that is being demanded. In turn, that means you can be better prepared for servicing the demand. Done well, a bank can get ahead of the competition and build loyalty.
How have customers been delighted due to the insights you have gained?
What challenges do you face with big data? There are some data integrity issues that clients will be well aware of – as well as practical issues with storing, pruning, cleansing and analysing data. The data we create is around segmentation, service times, staff activity and so on. The key to all data is ensuring it gets used to improve
Knowing what service a customer asks for, how long it takes for them to get service and the length of the total transaction can be the holy grail of data. Having this data means you can ensure that you can manage the cost per transaction. And that means you can manage the available channels and the customer experience.
How has big data changed the way that you lead? There must be the right talent within our global leadership that has understanding of the possibilities of big data. We have been working with an HR consultancy, Penna, to help appoint a global team that can help with opportunities big data brings.
RONNIE LETEN, CEO, Atlas Copco R How is big data H ch changing your ind industry? In the long run, better insight in into the interaction equipment and human between equipm make improved service beings could ma levels and preventive maintenance a source of competitive advantage in equipment sales.
How is your competition using big data? We believe we have a competitive edge in using big data. The construction industry is behind the curve.
What advantage does big data bring? We are looking at how machines and people behave – the way people will interact with the
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machines they purchase. The opportunities big data offer us are in preventive maintenance based on facts, not probabilities. Like a car, a compressor relies on oil and by analyzing data on the machine temperature, we can calculate the time by which the oil will fail. Big data allows us to carry out risk analysis so that we can address a machine issue at the right time, with improved preventive maintenance reducing costs.
What challenges do you face with big data? Big data on its own is worthless. If we gathered data through running machines over the internet, it would tell us nothing. Human beings are emotional and running machinery has a big emotional angle. It is not the information from big data, but
the insights you garner when you understand how people will interact with the machines and the decisions they are likely to take. It’s about understanding human behaviour.
How have your customers been delighted? I have better insights into how to assess risk, so insurance premiums become more competitive, reducing maintenance costs for customers. My salesmen will be better equipped to talk about how machines will be used in practice and this insight will adds to their credibility. This could lead to more equipment sales...
How will big data change the way you lead? We have the software to carry out our own data analysis. It becomes part of the leadership role.
Dialogue | Mar/May 2014
TOM PHILLIPS, CEO, Dstillery T How do you H fo foresee big data ch changing your indu industry? While big data is meaningful as a concept, it is also a cliché. There is nothing new about a data getting bigger. The value comes from the synthesis of data through the minds of data scientists and the processing of data at speeds previously unimaginable. As the world inexorably goes digital, the amount of data available for analysis expands exponentially. In the old days, data meant basic demographic information like gender, education and income. Now, we have the explosion of consumergenerated data from social media and mobile phones. Where does this trail of activity lead us? To lots of very messy data, and more importantly, data that is now available to us for activation. This means even more granularity into our audience insights to allow networks to serve even better targeted ads at the right time, on the right device, to the right person.
How is your competition using big data? While everyone is using big data, not everyone is using it to find nonobvious insights. They are typically building audiences off modelled data. We, on the other hand, don’t use data that is clean, aggregated, visualized, altered or audited. When somebody cleans the data, it loses the vital details that help identify all the potential issues, and we can no longer “debug” the data. The result, typically, is that you end up missing something and limiting the full potential of the data. We have access to the original, event-driven, timestamped, gritty details because we use first-party data from marketers, publishers and app companies. What’s more important is having the right data. Five terabytes of the wrong data is nothing more than a
Dialogue | Mar/May 2014
headache for your systems administrator and finance department. The popular emphasis on size can distract one from the necessary critical process of questioning whether the data is appropriate for meeting a particular objective.
3. What commercial advantage do you believe big data brings to your business in practical terms? Focusing on demographics and behaviour is the old way of marketing. Consumers don’t fit neatly into pre-defined buckets. People have always been complex. The only thing that has changed is what we know about people, and technology’s ability to harness this knowledge. We are increasingly able to measure the complexity of audiences, consumers and media. We’ve reached a point where the only real way to manage the complexity is to look at a data scientist’s analysis. We’ve pioneered the use of massive quantities of atomic data to provide powerful marketing solutions by targeting and optimizing audiences in real-time with surgical precision.
What challenges do you face when working with big data? Data is indispensable in understanding if something caused something else to happen, but it is not responsible for the effect. Data can measure effects, but it doesn’t cause them. It’s a subtle, but important point. It’s our actions that cause interesting things, such as conversions, to happen.
How have your customers been delighted as a result of the insights you have gained? We distil billions of available impressions across all screens to identify the precise moments and media
for a brand’s message. We buy an impression only when the right prospect is scientifically proven to engage with the product. By capturing a rich multitude of location, device and mobile data to generate brand signals, Dstillery connects physical and digital worlds, capturing the full array of signals that drive relevance for brands. We then activate campaigns on nearly any platform, including display, video, mobile, native and soon TV. Marketers across industries including tech, telecom, retail, auto, CPG, travel, education, media and entertainment have benefited from partnering with us. For example, we helped a software analytics company increase conversion lifts by 195%. A SaaS client showed a 45% lift in engagement in a campaign we worked on together. We delivered an 88 per cent video completion rate for a major movie studio. In addition, a supermarket food brand client that we work with demonstrated a 0.42% click-through-rate, 36% above the industry average.
How has or will big data change the way you lead? We recently acquired EveryScreen Media, which allows us to incorporate location and device data into our decision engine to provide a whole new level of scale and efficacy for marketers. We’re continuing to explore other innovative sources to augment our rich consumer data, so we can bring even more relevance to marketers. Today, we live in a world where we can collect terabytes daily and still access some tiny slice of data from May 4, 2010, in about a minute. This possibility opens the door to much more elaborate analysis and, more importantly, allows every analysis to start from the raw data rather than starting with the curated aggregated summaries.
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INTERVIEW
When Nelson Mandela died, a light went out in the world. Sharmla Chetty talks to Ahmed Kathrada about what today’s leaders can carry forward as his legacy
+ DIGITAL EXCLUSIVE Read some of Kathy’s most famous speeches
PHOTOGRAPHS: COURTESY OF AHMED KATHRADA FOUNDATION
MANDELA’S LEGACY: LEADING BY EXAMPLE
A
hmed Kathrada, or Kathy as he is affectionately known, accompanied Nelson Mandela on The Long Walk. One of the seven comrades in arms imprisoned on Robben Island together with Mandela in June 1964, he regarded anti-apartheid activist Walter Sisulu as his father and Nelson Mandela as his brother. A self-effacing and humble man, we have to look below the surface in this interview to understand what he, and Mandela, can teach
Dialogue | Mar/May 2014
Un United U we stand, divided we fall is an adage that is highly relevant for leaders in today’s world us about leadership today. Humility seems an excellent starting point for any leader. “Your test of leadership comes in prison,” he says. “We were isolated from each other, with rarely a chance to interact or speak. The police would visit you every day, threatening, ‘give
us this information or hang’. Some of us (not me) were tortured, some to death. Death was always on your mind. The temptation to fall into the trap of preferential treatment was great. We Kathrada delivers his eulogy at the funeral of Nelson Mandela
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INTERVIEW
THE KATHRADA FOUNDATION The CEO of the Kathrada Foundation, Neeshan Balton, explains that the foundation is dedicated to continuing to build a non-racial South Africa, free from discrimination based on race, age, class or religion. While the legal framework for apartheid has been dismantled, there is an ongoing legacy of differences that the foundation seeks to address. This is part of Ahmed Kathrada’s lifelong commitment, from the age of 12, to change and social justice. In the euphoria of the post-liberation period, it would have been easy to forget the past and therefore to lose the lessons that are to be garnered from the struggle. The foundation is dedicated to preserving and presenting the history of South Africa, not to embed differences, but to address them as they continue to become apparent. In particular, it wants young people to learn through ongoing dialogue how to be confident in their nationality and their ability to tackle racism. Preserving history will allow the citizens of South Africa to continue to talk openly about transcending barriers.
had to stick to our principles and hold fast to our values. We had no personal beliefs, we acted as a collective and this held us together under the most terrible of circumstances. “When Mandela was described as a saint, he would say: ‘We are a collective. I am an ordinary human being with the shortcomings of a human being.’ We believed in the collective, so however afraid we were, we stuck together. It saved us. One of our biggest hardships was being isolated – from our families, from friends, from companionship, from news. We didn’t have a newspaper for 16 years, other than those we could smuggle in.
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United we stand: Mandela and Kathrada
Kathrada visits Robben Island with US President Barack Obama
Despite all these hardships, Mandela’s first concern was always for his fellow prisoners.”
United we stand Ironically, in 2012, the IBM annual CEO survey identified collaboration as the most desired target, and biggest challenge, facing business. These men were practising collaboration in 1964, under the most threatening of personal circumstances. United we stand, divided we fall is an adage that is highly relevant for today’s leaders. And, in these most extreme of circumstances, Mandela put his fellow prisoners first. While Mandela denied
that he was a leader while in prison, maintaining that all policy and orders now had to be given from outside jail, he still gave extraordinary service to those who followed him and looked to his example in prison. His followers were his first duty. But we have started the story in the middle. Let’s go back in time to 1937, when as an eight-year-old boy of Indian descent, Kathy could not be classified as black or white, so he had to be sent to Johannesburg to be educated in an Indian school. He attended a youth club run by the Young Communist League, which he joined at the age of 12. Apartheid
Dialogue | Mar/May 2014
INTERVIEW
radicalized him that young. In 1946, he joined peaceful protests against discriminatory legislation by the Indian Congress, during which 2,000 Indians, including Kathy, were sent to prison over an 18-month period. The later 1952 protests against zoning and demarcation (people were not allowed into townships without permits) led to more protests using passive resistance and 9,000 people were imprisoned for a month or more at a time. “The first batch of resistors had to be led, so it was the leaders who were the first to be sent to jail.” The leaders had to demonstrate conviction and lead by example, sacrificing personal interests for the good of the whole. Students gave up their studies to participate, so Kathy never graduated from high school. Mandela himself spent more time on his role as National Volunteering Chief, travelling the country to encourage participation in the protests, than he did on his newly founded legal practice. Wouldn’t we like to see more of this from our leaders today and less selfish and self-oriented behaviour? Kathy was particularly struck by how Mandela treated him and others on Robben Island. “Mandela was a university student and I was just a school kid. He was also older than me and deserved the respect due to an elder. But he treated everyone as an equal. I can remember, in later years, waiting for him to get off the phone and as he put the phone down, he said ‘goodbye Elizabeth’. I asked him who he was speaking to and he told me it was Queen Elizabeth, so I asked him why he had the temerity to call her by her first name. He told me: ’Well, she calls me Nelson.’ It didn’t matter if you were a professor, a peasant or a queen, you were treated as an equal.” Again, refreshing advice for leaders – forget status symbols and commandand-control style leadership, give everyone the respect they deserve, from the most mighty to the most humble.
Sense of humility We fast forward to 1994 and Kathy’s years as political adviser to President
Dialogue | Mar/May 2014
Kathrada and Mandela entertain Bill and Hillary Clinton
Ma Mandela Mand deserved the respect due th to an elder. But he treated everyone as an equal al Mandela. Once again, that sense of humility is evident. “It would be completely wrong to assume that I was the only adviser. Mandela had the whole cabinet, the National Executive,
as advisers. To the extent that I could be of service, he would consult me.” Kathy’s lifelong convictions and values are now embodied in the work of the Kathrada Foundation, which continues to seek to build a non-racial South Africa. But if you are looking for advice for leaders today, you need look no further than the eulogy that Kathy delivered at Nelson Mandela’s funeral, where he described his abundant reserves of love, humility, simplicity, honesty, foresight, courage, equality, justice and service. If, as a leader, you can look into the mirror and claim those adjectives, you are doing good work my friend.
A FREE AND FAIR SOUTH AFRICA Sharmla Chetty is regional managing director for Duke CE in South Africa. She carries her own personal memories and scars of apartheid, both figuratively and literally. She became involved in the antiapartheid movement aged 15, when she was involved in her first protest against the unequal education system in South Africa, action which soon led to her expulsion from high school. She faced teargas, guns and batons as a young woman, while zoning laws forced her to live in the poisonous fumes of a petrochemical plant. She is inspired by Martin Luther King: “Injustice anywhere affects justice everywhere.” She hoped that her small role of protest would support leaders like Mandela, who made tremendous sacrifices for a free and fair South Africa. Ahmed Kathrada is a hero of the struggle for the equality from which she benefits as a South African citizen today.
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ANALYSIS
Leading a workforce of four generations Employers will have their work cut out leading simultaneously four generations with four very different outlooks, as David Woods reports
+ DIGITAL EXCLUSIVE Jamie talks about the importance of a generation y led workplace
ILLUSTRATION: CHRIS KING
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Dialogue | Mar/May 2014
ANALYSIS
I
n the mid 19th century, the mathematician Malthus used a simple equation to estimate global populations in the future: double the number 1, and you get 2; double the number 2 and that gives you 4; double 4 to make 8, and so on. By following this rule, the number reached by doubling one 50 times is colossal. The world population has experienced continuous growth since the end of the Black Death in 1350, when it stood at 370 million. In January 2014, the world’s population was 7,177,568,766 (a growth of more than six billion people over the intervening 664 years) and the UN Population Division estimates the population could be as large as 24.8 billion by the year 2150. As population growth continues inexorably, and people live longer, for the first time in history, there will be four generations of employees in the workplace: baby boomers (born in the late 1940s and early 1950s), generation X (born in the late 1950s, 1960s and early 1970s), generation Y/millenials (born in the late 1970s, 1980s and early 1990s) and generation Z (born in the late 1990s). Kevin Kelly, until recently global CEO of Heidrich and Struggles, sums up the issues this brings to employers eloquently, explaining that generation Y expects to have held 14 jobs each by the age of 38. Employers are left with the challenge of trying to recruit, retain, motivate, engage and lead this growing group of aspiring individuals as well as their older colleagues. And Kelly is fearful: “The war for talent is over,” he says. “And talent won.” Employers will have their work cut out, managing simultaneously four generations with four very different outlooks.
Defining Gen Y The UN says 138 million babies were born in the late 1980s and as Steve Hewitt, HR director of Lumesse (a business consultancy with 22 offices in 18 countries), explains: “By 2025, members of generation Y will make up 70% of the global workforce,
Dialogue | Mar/May 2014
according to BPW Foundation’s study. “With the stream of millennials entering the workplace set to become a flood, organizations need a better understanding of how to attract and retain this emerging talent.” So while employers will need to be nimble in demonstrating four different management styles to match four generations, soon the needs of gen Y will be driving new management theories.
By 2025, members of generation Y will make up 70% of the global workforce Jeff Cornwall, director of the Centre for Entrepreneurship at Belmont University in Nashville, thinks that because parents have increasingly raised their children to be independent, one differentiating aspect of generation Y is that they are more inclined to follow their entrepreneurial pursuits. Hewitt continues: “According to a 2012 report by the Kauffman Foundation, the largest entrepreneurial foundation in the US, 29.4% of entrepreneurs were 20 to 34 yearsold and roughly 160,000 start-ups a month were led by millennials in 2011. Additionally, a recent survey of IT candidates aged under 35 by recruitment consultants Harvey Nash found almost half had some entrepreneurial experience. One important way in which gen Y is different and needs to be managed differently at work is that they need their space and freedom to be more entrepreneurial to show what they can do. Hewitt adds: “Once businesses have understood the case for recruiting generation Y, they’ll need to create a talent strategy specifically tailored to doing so.”
Understanding generation Y But employers are struggling. US-based university admissions consulting firm Anna Ivey reports that managers find it hard to discover the best ways to recruit, manage and retain generation Y. Why? Because many employers simply do not understand what makes them tick. “This is not about the age of employees; it’s about experience during the formative years,” says Justine James, founding director of Talent Smoothie, which has completed a study of more than 2,500 generation Y employees. “It’s very much based on how our parents treated us – for example, for baby boomers it was a case of children being seen and not heard, whereas generation Y see themselves as the centre of the universe. “Generation Y are much more likely to go straight over the management layers and speak to the CEO. Generation X would be less likely to do this. “Take the example of going to the cinema and how you would gather people. Generation X didn’t have mobile phones, so they made a plan, couldn’t change it and everyone would stick to it. “In a work context, this means generation X will have a plan – a generation X manager might find it frustrating if generation Y deviated from a plan. Generation X have to learn to manage the outcome rather than the inputs, i.e., have you made it to the cinema? The challenge for these managers is not to judge others by their behaviour, but by the outcomes.” Tech-savvy millennials grew up in a world with a high level of interactive stimulation: TV, video games, the internet and “social web” (Facebook, Twitter), an experience that older generations do not always readily appreciate. “As a result, today’s recruitment communication and channels are rarely aligned with the interests and social media preferences of this target audience,” says Hewitt. “This creates the need for new strategies, which are experience-based,
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ANALYSIS
Baby Boomer
Gen X
Gen Y
Gen Z
Live to work
Work to live
Work to fund lifestyle
Live then work. Workplace irrelevant
Long hours and dedication
Do the necessary and go home
Work-life balance, bored easily
Flexible, rapid progress, achievement without accountability
Motivated by prestige, perks, status
Motivated by change, freedom, respect, outputs
Motivated by making a difference
Motivated by being heard, progress, change
Knowledge = Power
‘Show me what you know’
Ask many questions (Generation ‘Why?’)
Find answers, offer solutions
Compliance, parent-child relationship
Adult-to-adult relationships
Confidence to have adultto-adult relationship
Offer opinions ( to the CEO); equality the norm
Know they have done a good job
Like regular feedback
Like immediate feedback
Constant feedback from variety of sources
Make own decisions without consultation
Take direction and then get on with it
Need constant collaboration/direction
Need consultative approach
Like structure and hierarchy - want to lead
Have disdain for authority Family values – require and structure – self reliant nurturing environment. and cynical Don’t want to lead
Secure and loved, parental support, expect same at work
Resist change
Relish change
Flexibility
Super-flexible, diversity the norm
Parents said: “You can do anything”
“Stand on your own two feet”
“You’re wonderful and brilliant at everything”
“You can be anything you want to be; whatever you do is OK with us”
Source: It’s Never OK to Kiss the Interviewer (Jane Sunley)
responsive and centred on relationships.” Jamie Homer, global director of HR and talent at fashion retail chain Urban Outfitters, agrees: “The very concept of generation Y and Z is a interesting and often complex one for someone from Generation X to comprehend. “I’m a member of generation X. I can still remember getting my first ever email address back in 1997 and my first mobile in 2001. Fast-forward to 2014 and the world is suddenly a tiny online, connected community. Everyone and everything is “Google-able”, accessible and right here for us to discover. “We shop, bank and book GP appointments with our phones, we price-check product in the store to make sure the deal is the best one possible, we watch TV whenever and wherever we want even if it is broadcast live, we order product from any store/ website and have it delivered to any
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address (or Amazon drop box) in the world and we can talk to anyone in the world from anywhere we are, instantly. Not only that, we have come to expect that kind of personal and commercial immediacy – the idea of connectivity is now a commodity to the point that one day service providers may not even be able to charge you for it. “And as we think about what this means in modern day business, I believe we must shift our focus away from these concepts of old and recognize that we, from pre-Y and Z generations likely don’t know what we don’t know in the new reality of today. “And it doesn’t just affect us as employers, it also affects us as business people. To me, the number one challenge facing an older generation that are stuck in their old world mentality is failing to see and grasp the opportunity that technology affords
us all. Mobile commerce does not create issues, rather it creates, and has already created, massive opportunities that forward-thinking businesses have adapted to and integrated into their business models; in other words, they have embraced this challenge, not hidden from or rebelled against it. Technology leads a business forward and we must recognize that our customer expects an easy, seamless, simple and, above all, safe transaction. Failure to embrace this only keeps us firmly planted in the past and unable to drive forward. “And considering the pace at which things move, evolve and grow today, this concept of mobile technology is already yesterday’s event. ‘What’s next?’
Is there a problem? Given mounting evidence of a disconnect in the workplace, will it be possible to lead and engage all the generations going forward? Sally Bibb, founder of Engaging Minds and author
Dialogue | Mar/May 2014
ANALYSIS
of Generation Y for Rookies, thinks so. “Generation Y can be led if they are inspired and feel like they are learning and being stretched,” she explains. “gen Y have a different expectation of what it means to have a leader – they have high expectations of that person and view the relationship as very much equal. They demand as much of the leader as the leader does of them. They don’t hold the hierarchical ideal as gen X and boomers do. It’s much more about servant leadership I guess. “In my experience, the best leaders embrace the generation gap and seek to learn from gen Y. In practice, this takes the form of reciprocal mentoring, eg, a phone company that has gen Y mentoring execs about the internet and social media, and execs helping gen Y with influencing skills and stakeholder management. “Business leaders can embrace and accept the generational differences in the workplace by creating a mutual understanding and appreciation between generations. Mutual appreciation of the views and value each generation brings is key. As is an understanding that you can’t label and box off people according simply to their age. The so-called generational divide can only damage organizational culture when it is not addressed and managed positively. Business leaders certainly need to think about what management and leadership means – in fact, what Gen Y want Gen X would have liked too, but we were conditioned not to expect it.” Jez Langhorn, senior VP (people) at global fast food chain McDonald’s, is emphatic in his belief that employee engagement and the right leadership could and should cut through any generational divide. “At McDonald’s, you will find people of all ages and backgrounds working together and playing an important role in the business,” he tells Dialogue. “Whether it is a 35-year-old mom or a teenager looking for their first job, we look for qualities such as enthusiasm, initiative and passion for delivering great customer service, rather than qualifications or their background. Drawing on her research, Talent
Dialogue | Mar/May 2014
What keeps gen Y engaged and motivated at work?
Feeling as though I am using my strengths
Being trusted
Respect
Training and development
Managers listening to me and my ideas %
0
10
20
30
40
50
60
70
80
90
100
Source: Talent Smoothie
Smoothie’s James supports this. She says: “It’s a misnomer that generation Y are more ‘flighty’. They don’t go into an organization planning to leave – but planning to work their way up the ladder. They’re less likely to put up with stuff they don’t like; but would be more likely to return to an organization they have left. And I have a hunch this is going to happen more depending on salary opportunity.” She explains: “Generation Y have watched their parents remain loyal to organisations and face redundancy, so they don’t have the same ideas of loyalty and a job for life. They want a job they love. Career opportunities and career development are on the list for generation Y, but these are less important for other generations. Society encourages them to be individual and focuses on personalization.” Langhorn tries not to draw lines around generation X, Y and Z in his business: “We offer the same opportunities to all of our employees, regardless of their age.” And returning to the notion that generation X, Y and Z clash over their worldviews and that their misconceptions and miscommunications can stifle business growth, he doesn’t believe this is an issue. “While the vast majority of our employees are under 30, it’s good for our people and good for our business to have a diverse range of ages in our restaurants,’ he says. “Our own research (with Lancaster University)
shows how a blend of generations can be a positive influence. Young people can teach leaders a lot, particularly in an ever-increasing digital world, bringing a new, fresh perspective to business, while the older generation provide mentoring skills to the workplace, helping younger colleagues develop and mature.” Commenting on the research to which Langhorne alludes, Paul Sparrow, director of the Centre for Performance-led HR at Lancaster University, adds: “The research demonstrates the very real business value of recruiting an age diverse workforce. Mature employees are a key part of the performance recipe. “This is good news for the workforce, given the changing demographics of our society. We are likely to see more and more people working for longer, either because they are sufficiently fit and healthy to do so, or to store up their financial security.” Langhorn picks up the story. ‘Talking to young people, we identified a couple of areas where they felt they needed support and which, as employers, we could provide guidance on. For example, many have never had anyone give an employer’s view of their CV, highlighting what works and what doesn’t. The same applies to interview technique – showing them what impresses an employer and how to prepare,” he says. “As a business, we have thought about what we can do to help.
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ANALYSIS
A MILLENNIAL LEADER I think the clichés around generation Y have some truth – but employers are missing the reasoning behind them. It’s not that generation Y don’t care about the workplace. I think they care too much. They want their work to be meaningful and I think some managers are missing the opportunity to engage people who want to be passionate about their job. I think leaders need to think about looking at the similarities between the generations, rather than the differences. Generations are more similar than they are different and I think through mentoring, generation Y can be engaged the same way as baby boomers. Are we speaking a common language? Are we focusing on the right thing? Surely we will widen the divide between the generations if we continue to think they are different. Mentoring has been a big component in my life – I would always be keen to go to a baby boomer and ask for advice. But the main question should be: “How do we accomplish the best work possible and create something as a team?” The market is acting like generation Y with a fast flow of information in a digital age and I think businesses need to adopt a gen Y mentality. It’s no longer about communicating better; it’s about catching up before we are left behind. Josh Allan Dykstra (age 33), co-founder of Work Revolution and member of the Young Entrepreneur Council
Recently we piloted a How to Get Hired programme, extending our internal support for young people to those who don’t work for us. We invited young people who have been unemployed for longer than three months to take part in workshops designed to give them a helping hand in their job hunt. Interestingly, the young people who took part in the workshops told us that their biggest lesson was hearing exactly what an employer is looking for. Many were surprised that relatively simple things such as timekeeping, enthusiasm and demonstrating passion for a business can make a real difference to their prospects of securing that all important first job. This is the kind of basic information that mentoring by an older generation could provide.”
Generation Y as leaders In 2012, during a session called Leadership Across Generations at the World Economic Forum at Davos, a group of 70 millennial leaders from around the world said that leaders need to “think younger” and come up
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with new ways to address the challenges their businesses face. Lumesse’s Hewitt explains that Martina Mangelsdorf, the founder of GAIA Insights, a firm specializing in leadership development for generation Y, believes that recruiting graduates will help to improve a company’s entrpreneurship and bring its associated benefits – a fresh perspective, passion and innovation – to the business. James agrees, adding: “Generation Y and Z tend to get on with the older generations, but I think the trick is about respecting others and being respected by them. Reciprocal mentoring is a good solution – the idea of old mentoring young and young mentoring old (on social media for example), but it has to be equal value on both sides. “With networking, for example, for generation Y, it’s part of the psyche; older generations find this a bit more difficult. This is generation diversity – there have never been four generations in the workplace before at the same time – there are so many
perspectives and the opportunities are endless.’ Urban Outfitters’ Homer picks up the thread from a personal perspective: “It seems to me that if I am going to stay relevant and connected in the world of retail today and into the future, I need to stay in touch with the younger generation, the Y and Z generation, who are living their lives the only way they know how: right here and right now – doing it for themselves. “My daughter only knows how to change her home screen by touching it and interacting with it. As she grows up, I could probably only do myself a favour by understanding her view of the world more and figuring how that will translate into the world of consumption.” In fact, he goes one step further, adding: “The notion of generation Y being led and managed seems to be the antithesis of what this generation is actually all about. “Accepting what they are told, accepting what they read and watch on the news, accepting what their politicians tell them simply doesn’t happen anymore. Why would it when you can do your own research on Google and Wikipedia and form your own opinion in less than 10 minutes? Look at how fast the Arab Spring took hold. World-changing events mediated through social media and online platforms by young people who know more than any of us that if they want something to happen at the pace they have become to expect, they believe they must instigate the change themselves.” This concept of non-conformity presents challenges to the traditional workplace and it is evident that many work cultures are not equipped to handle this. They need to become so. FURTHER READING It’s Never OK to Kiss the Interviewer, Jane Sunley, (2014) Generation Y for Rookies, Sally Bibb, (2008)
Dialogue | Mar/May 2014
When the best leader's work is done the people say, "We did it ourselves." Lao Tzu
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FEMALE LEADERSHIP
Striking the gender balance There is a clear correlation between empowering women and GDP DP ey growth, as well as achieving gender equality, as Lisa Kaiser Hickey discovers ILLUSTRATION: BEN TALLON
+ DIGITAL EXCLUSIVE Interview with Julia Edmonds, MD, Lexington Catering
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oldman Sachs’ Global Economic Report 164 states that investing in female education creates a “growth premium” that can further GDP growth by about 0.2% per year. GDP is also driven by demand by consumers, and the world’s women make up 70% of consumer purchasing decisions. Harsh Purohit of Cognito Advertising in India brilliantly illustrates the dichotomy, noting: “If companies do not relate to gender diversity, then in many cases they are actually missing out: either on 50% of the resource pool or the consumer pool.”
Problem starts with quotas Quotas have increasingly become favoured tools for waging the gender equity battle. These fiercely won – and fiercely fought – quotas require distinct percentages of women to be included in corporate purchases or in corporate boardrooms. Quotas are the means by which Norway has achieved 40% women on corporate boards, and the way that the US Government targets purchases to women and minority firms. Many countries have followed the Norwegian example by setting quotas for women’s participation on corporate boards. However, an extensive study published in the Northwestern Journal on International Law and Business reveals that success is mixed. On the tangible side, there are more women on boards and, in Norway’s case, the quota was quickly met. However, these women have generally missed the internal leadership progression and/ or education that would have better prepared them for existing and/or future board service. Quotas are not long-term solutions. To begin with, nothing crushes the entrepreneurial spirit like quotas, which pre-empts the natural inclination of the entrepreneur to deploy creativity and innovation in the evolution of a sound business model. For decades, entrepreneurs have known that solving problems are the very
Dialogue | Mar/May 2014
essence of a company’s success or failure. Problems lie in every single aspect of the corporate management. Solving problems is simply an exercise in creativity: thinking beyond boundaries, brainstorming and evaluating alternatives are the sequence by which we function as CEOs and – whenever we incorporate the ideas of others – as leadership teams. This process ensures ownership of both the problem and the solution. The same process applies to taking advantage of opportunities (see box “One Billion Reasons for Change”). Quotas, by their very nature, are edicts for results that fail the creativity test and thus fail to win ownership by either the CEO or the leadership team.
U Ultimately, Ult an o organization’s governing principles and values affect everything it do does oes e Quotas that force gender equity on companies pre-empt creative evolution of, and adaptation to, change in the organization. Innovation is grounded on creative idea generation and a process of problem-solving, but innovation cannot actually happen unless the employees of the organization are empowered to think creatively. Long-term change depends on the corporate culture. When McKinsey and Company studied the drivers of cultural revolution in high-performing companies, they found such revolution was led by a committed CEO. Yet Booz & Company, a global management consultancy, shows disconnect between how culture is viewed versus the way it is managed. The November 19 2013 home page of booz.com stated: “Less than half of participants saw their companies effectively managing culture. More than half said a major cultural overhaul was
needed and 96% of respondents said some change to company culture was required.” Creativity was not perceived to permeate the culture described by 96%, as they and their ideas could not rise. It follows that these respondents were likely to be in a working environment in which they could neither trust nor excel. CEOs manage culture by advocating, acting and persuading others to follow their example. In McKinsey’s 2012 Global Gender Agenda, it was noted: “When a CEO is the chief advocate and ‘storyteller’ more people… believe that the story matters and begin to adopt the CEO’s mindset and behaviour. Intensely committed CEOs make their goals clear and specific, tell everyone about them, get other leaders involved and manage talent to help make things happen.” When the CEO sets the pace, policy and process shape structures and work context. Ultimately, “an organization’s governing principles and values affect everything it does”, according to the IFC.
Why the CEO matters The CEO is ultimately accountable for the performance of the company. An enlightened CEO will consider every means by which the performance of the company can be advanced. Assuming that the revolution of corporate culture to embrace gender balance only results in advantage to women is faulty thinking – it benefits every person as well as the corporation’s sustainability and profitability. In addition to treating gender equality like any other business imperative, McKinsey suggests three other priorities for advocacy by the CEO and leadership team. First, measure the data on internal gender balance. Usually there are shortfalls in the work environment that are causing imbalances. Second, tirelessly mentor without bias and encourage the leadership team to do the same. Last, seek and demand diversity of thought so that the best ideas come forward. As McKinsey’s report notes: “A wide range of global companies made real advances in gender diversity over the past five years. They know that this is hard work
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– a journey measured in years rather than months. But they also know that improving the pipeline of female talent is possible, with rewards that include tapping the best brains, improving customer service, increasing employee engagement and everything that comes with these benefits.”
The CEO leads change Whether CEOs regard gender equity as a problem or an opportunity, creativity is required. Indeed, the World Bank states: “Market forces cannot on their own dissolve the ‘durable inequalities’ in rules, norms, assets and choices that perpetuate the historically established disadvantages of certain social al groups,” change-makers are required. The first action to take is to correctly define the problem, lest needless ess hours of conversation be spent on brilliantly rilliantly solving the wrong problem. Consider onsider posing: “How might we add value alue to our services/products?” Obtaining aining the most creative pool of ideas as will be optimized when the question ion is posed to a diverse and representaentative population (gender, internal/ ernal/ external role) of the organization’s ion’s stakeholders (not to be confused with shareholders). Next, the generated ideas must be pared down in terms of how they hey address (solve) the problem and whether the organization realistically ally has the capacity to achieve them. m. This, too, is an exercise for smaller aller groups of the original idea generators. rs. Third, remain committed to development and implementation of the emergent best ideas, and be prepared to accept that your diverse and representative population of idea-generators will want the inclusion of women as a driver of added value.
The business rationale The natural distribution of population between men and women has no inequity. On a worldwide basis, however, women do not participate in equal measure in the workforce, compensation, leadership or even in basic opportunities for health, education, wealth retention or property rights. United Nations Platform for Action Committee
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recently quoted the United Nations saying: “Women do two-thirds of the world’s work, yet earn only 5% of the world’s income and own less than 1% of the world’s real property.” The book Half the Sky: Turning Oppression into Opportunity for Women details the destructive behaviours around the world that diminish and disenfranchise women. Yet as co-author Sheryl DuWunn notes: “Our focus has to be on changing reality, not laws.” Organizations that have as their driving diversity focus to hire and promote women are operating from a clear business rationale: O Sustainable stainable profit management O Empowerment O Social justice and fairness O Widening the talent pool O Synergies with CSR O Consumer demand O Investor demands
Addressing obstacles A UK-commissioned study of the FTSE 350 noted that 30% of corporations without gender balance attribute the cause to attitudes and 30% attribute the cause to work environment. These are both perfectly manageable by a committed CEO. Attitudes are learned, and thus can be re-learned. To change attitudes, the CEO must iterate and demonstrate the values intrinsic to corporate success. These are closely related to the business imperatives (see box “The Bright Thing to Do”). Changing attitudes comes from the actions and advocacy of the CEO. Work environments are easily managed in four buckets, according to McKinsey’s research: O A policy of corporate transparency with gender-diversity key performance e indicato ors (KPIs) indicators
ONE BILLION REASONS FOR CHANGE Booz projects about b 870 million women will enter the global economy by 2020. The projection climbs to one billion within the following decade. These women will, according to Booz, become entrepreneurs and possibly employers; certainly they will be producers and consumers. As a long-frustrated and rights-diminished whole, their emergence will drive “not only gender equality, but global economic growth”. Booz author DeAnne Aguirre affirmed that their data also saw a correlation between empowering women and GDP growth. Reflecting on the most recent 10 years, Booz research has shown that an economic multiplication effect occurs when new consumers and workers are of such size (as they were in China and India) that they create newer and larger markets of consumers and talented workers. McKinsey has indicated its data suggests a shortfall of 24 million people for the 2040 European workforce and noted that if women were hired at the same rate as men, the shortage falls to three million. In a CNBC interview in October 2012, Booz and Company’s Penney Frohling, former business strategist, asserted: “As the world economy grows and develops, countries cannot afford to ignore over 50% of their talent pool.”
Dialogue | Mar/May 2014
FEMALE LEADERSHIP
O Working schedules and benefits that support work-life balance O Adaptation of human resources for gender-diversity support O Teaching women to network; providing coaching, training, mentoring Corporate transparency is the degree to which corporate actions are revealed to the public. Certain items of transparency are dictated by regulation, but most other items are dependent upon the corporation’s internal policies. The “public” can be both internal (line employees, management staff, board) and external (shareholders, governments, public at large). Within the McKinsey context, informing others of progress against gender-diversity goals is in the form of metrics. IFC studies concur with McKinsey on the critical nature of gathering, monitoring and reporting progress on gender equality data.
Gender equality Working schedules and benefits include gender-equal leadership opportunities and gender-equal pay. The International Finance Corporation’s report data asserted that: “Employers should pay employees equal remuneration for work of equal value regardless of gender. It was expected that organizations adhere to this principle, ensure that they have due diligence processes in place regarding this issue and that they implement mitigation measures where a gender wage gap is found to exist.” While equal pay for equal work addresses a fundamental fairness issue, it also helps avoid risk of legal or societal challenge of pay gaps. In a 2011 International Labour Organization webinar, other examples supporting the case for equal pay were simply and clearly made: consider the twin issues of employee turnover and successful recruitment. Equal pay diminishes employee turnover (why stay at firms with uncompetitive wages?) as well as supports employee recruitment (why not take jobs that are offering more competitive pay?). Working schedules and benefits also include family-friendly policies
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The Bright Thing to Do Empowerment. Fostering an environment that supports, trains and encourages people with a broad range of backgrounds and skillsets results in performance driven by empowered employees. In a literal sense, empowering means to give power. Within the work environment, this translates into building employee decisionmaking capacity for the purpose of achieving desired results. In an IDRC-commissioned study, Naila Kabeer, professor of gender and development at the gender Institute, London School of Economics and Political Science, related the further refinement of women’s empowerment as set forth by the UN (2001) as “women’s sense of selfworth; their right to have and determine choices; their right to have access to opportunities and resources; their right to have the power to control their own lives, both within and outside the home; and their ability to influence the direction of social change to create a more just social and economic order, nationally and internationally”. Social justice and fairness. Vusa Vundla, CEO of African Management Services Company (AMSCO) in South Africa, shares his company’s view: “We consider women’s participation not just as being ‘politically correct’ or one of the statistics we must report on – but we consider it as business imperative. We are beyond the state where women are just being accommodated. They play a key role in developing our companies and our economies and play a meaningful role in our l ives and societies.” Widening the talent pool. A UK government-commissioned report asserts that: “Women have become the new majority in the talent pool.” This is partly due to the world demand for labour and the growing numbers of under-utilized women joining the labour pool. Research confirms that advanced educational degrees for women are now exceeding that for men, and it is already known that women generally live several years longer than men. Conversely, countries with aging populations are contributing to a growing scarcity of labourers. Combined, these factors spell increased competition for labours at all levels. Investor demand. Joining firms like Calvert Investments who have long held that performance was positively influenced by board diversity and inclusion of women, rating agencies such as Core Rating, Innovest and Viego are, according to McKinsey, are also applying gender criteria.
to provide flexibility to workers who are care-givers of children and elders. Provision of such policies widens the labour market options of companies by attracting the unemployed or the casually employed. Human resources systems must adapt processes and procedures for gender balance. This translates into matters large and small, including the adaptation of anti-discriminatory policies to gender-neutral terminology on forms and instructions to the provision
of gender-equal health and safety protections and equipment. Finally, a core competency of profitable gender-equal companies is their commitment to developing their workforce. All employees benefit from on-the-job training, coaching and mentoring. Goldman Sachs’ Global Economic Paper 164 states the cautionary adjunct: they “have noted strong evidence that education, particularly post-primary education, has been a positive effect on women’s
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labour force participation and, in many cases, on job opportunities. There is already a great deal of policy focus on education, although some concerns about the quality of education and the need to go beyond primary education. What has had less attention is the potential of vocational and technical education for increasing women’s productivity and employability. Yet the available data suggests that in most contexts, women have fewer training opportunities than men and that the training they do acquire reinforces a gender stereotyped distribution of skills.” Goldman recommends that training for women in particular also includes finance, communications skills and management.
Corporate governance Corporate governance must be developed in every dimension. “Respect for gender equality and transparency on social, environmental and economic factors have been widely recognized as essential components of corporate governance principles,” asserts the IFC. The GRI study found that stakeholders believed values and governance ought to be the starting point for organizational zational practices and reporting g related to gender. Promotion n of gender equality is exemplified ified through sound corporate governance. The following excerpt erpt from the IFC’s study clarifies this point: “In response onse to public interest to institute nstitute good corporate governvernance practices, organiganizations are encouraged ged to pledge their heir commitment to interernational frameworks orks for human and workers’ ork r ers’ rights” (Organisation on for Economic Co-operation peration and Development 2004b). Gender equality features in the international framework of human rights and the he ILO conventions pertaining to workers’ rights, as well as a wide range ange of policies supported by governments ernments across
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Solving problems is simply an exercise in creativity the world. Gender equality is considered as a positive contribution of organizations towards the realization of human rights and is recognized as being relevant for business, not just in an organization’s workplace, but also in the context of its operations. Business case reasons for including gender-equality considerations in policies that determine an organization’s governing principles and organizational culture are increasingly being considered by companies: governing boards have the duty to protect stakeholder value which cannot be achieved if a) the full potential of women is not recognized and/or realized, and b) the organization is protect not being protected from potential business risks associated with, for example, negative reputalitigat tion or litigation risks related to g undesirable gender practices. The con concept of protecting stakehold value resonates stakeholder CE with CEOs, yet many of mo salient actions the most they c can take are unvisited: an optimal mix of diver leadership skills diverse and a leadership populatio lation representative of tthe market(s) signals the public that gender divers diversity is valued and promot promoted. Furt Further, there is consid considerable evidence (studies by Harvard Business Sc School, Brown and Anastasopolo Anastasopolous and Credit Suisse) that the greater the number of w women on a board, the better the corporate
governance, risk aversion and board performance. In the absence of laws to the contrary, CEOs should model international best practices to craft worthy governance practices of their own. A United Nations Conference on Trade and Development study points out a number of awards, ratings and rankings use good governance practices as selection criteria. Likewise, a corporate study by Credit Suisse summarizes its findings that greater diversity diminishes corporate volatility as shareholder value and price increase. Not only can the engagement of enlightened CEOs lead the world to realize its full economic potential, they can also lead it to achieve its social potential. The only sustainable way forward is a world where all people freely enjoy fundamental human rights and the opportunities to pursue their own paths. Such a world will weave equality, social responsibility and environmental integrity into the very fabric of survival. O Lisa Kaiser Hickey is president of The International Alliance for Women
FURTHER READING Empowering the third billion: women in the world of work 2012, D A Aguirre and K Sabbagh (2010). Corporate Culture Is Critical to Business Success, Yet Mismanaged and Underleveraged. Booz & Company (2013). Gender diversity and corporate performance. Credit Suisse (2012). The gender dividend: making the business case for investing in women. Deloitte (2011). Half the sky: Turning oppression into opportunity for women worldwide. Kristof, N and WuDunn, S (2010). The global gender agenda. McKinsey and Company (2012). Women on Board for Change. Sweigart, Anne (2012). Guidance on Good Practices in Corporate Governance Disclosure. United Nations Conference on Trade and Development (2006).
Dialogue | Mar/May 2014
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STRATEGY
Getting stuff done at work: The village strategy for execution There are five steps to successful execution of strategy and the first step is the hardest, biggest and most important, according to Liz Mellon and Simon Carter, who say the initial course of action is to mobilize the “village” ILLUSTRATION: HEATHER LANDIS
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STRATEGY
C
ompanies spend billions of dollars every year on strategy advice and the bill is growing all the time. The consulting market in Europe alone is about $32 billion, and 12% of that goes on strategy consulting – a startling annual spend of $4 billion. The worldwide annual spend on consulting was $415 billion in 2013, making the global spend on strategy consulting about $50 billion. And that is only the start of the story. Have you ever spent money on strategy conferences or strategy retreats where executives meet to plan the future? Or invested in training courses on strategy or on books on strategic planning? That $50 billion bill could easily double with all these add-ons. At the same time, a McKinsey study revealed that 70% of change initiatives fail – systems changes, culture changes, all the kinds of change that become inevitable once we try to implement a new strategy. And a Harvard Business Review collection of articles on change management, published in 2011, suggested that as much as 90% of strategies fail to deliver their intended results, 95% of the workforce says they do not understand the company strategy and 70% fail at execution. So, of that direct spend of $50 billion, we might as well put $35 billion in a pile and burn it.
Something fundamental is going wrong Over the past 30 years, we, the authors, have worked with leaders and organizations throughout the world. We have routinely been impressed by the intelligence and resolve of the people we encounter. They are driven, smart people who want to improve the performance of their organizations and of themselves. But, despite this honest endeavour, there is often disappointment. Programmes of change grind to a halt. Strategies are formulated, but then wither on the corporate vine. Bright ideas and initiatives disappear into the organizational ether.
Dialogue | Mar/May 2014
Businesses spend a fortune on strategy, but it does not work. Why not? Because leaders have overemphasized the role of creating a strategy and, at the same time, underestimated the critical role of execu-
+ DIGITAL EXCLUSIVE Liz defines the village and the threat it poses to global businesses
WATC WA TCH TC CH TH THE E CL CLIP C IP P READ RE AD THE REV EVIE IEW IE W
tion. There has to be a strategy for execution. Moving from strategy to execution has always been tough. In other words, execution was never easy, and people who say otherwise are kidding you or themselves (and possibly both). There are five steps to successful execution of strategy and, as with all journeys, the first step is the hardest, biggest and most important. The first step is to mobilize the village. Let’s unwrap what we mean by that. At the start of the decade, we did some in-depth work with the top 80 executives of an international bank that employs more than 70,000 people. What struck us was how the executives referred to the bank in the third person – the bank does this, the bank insists on that. They were the top 0.1%. What was the bank, if not them? Exactly the same sentiment echoed in the room on a strategy retreat we led with a CEO and his executive team at the end of 2013. The CEO was highly frustrated that his senior executives kept talking about the company in the third person, as though the challenges and opportunities they faced were somehow outside their control. And we think this is where the most fundamental challenge in executing strategy lies. It is a challenge that has been around for at least 13 years and it is still alive and flourishing today. In all the other research we have read on failure in strategy execution, there was a glaring omission. There was no
mention of the role of the top level of executives in strategy execution. We call this senior level of executives “the village” because they generally number about the same as the inhabitants of a village.
Why a village? What started out for us, just over 10 years ago, as a weak signal warning about the potential lack of felt ownership among the most senior leaders in one company has become a cacophony of sound. What was at first a light refrain has grown steadily into a chorus. The most fundamental flaw in executing strategy starts at the top, with lack of ownership from the most senior executives, or the village. The true challenge to effective strategy execution today starts here. There are generally about 100 people in the village, although the actual number varies, depending upon the size, nature and geographic spread of the organization. For example, in Cisco, it is about 70; in Rio Tinto, 120; in Whitbread, 40; and in Jaguar Land Rover, it is 160. Think in terms of the top 0.1–0.2% of the total population. We see them as a community, like a small village. And unless they embrace the strategy and actively engage with it, the strategy (any strategy) is doomed to fail. Anthropologists, such as Roger Dunbar, write that the optimum number of relationships we can deal with is about 150 – again, the size of a small village. This is now known as “Dunbar’s number” and his work is fascinating. According to him, the current mean size of the human neocortex was developed about 250,000 years ago. It is the size of our brain that limits the number of meaningful relationships we can manage, or monitor, simultaneously. When a group’s size exceeds this limit, it becomes unstable and begins to fragment. His surveys of village and tribe sizes support this. The estimated population of a Neolithic farming village was 150; similarly, 150 represented the splitting point of Hutterite settlements and 150 was the basic unit size of professional armies in Rome and in modern times
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since the 16th century. Dunbar also tells us that 150 would be the average group size only for communities with a very high incentive to remain together. For a group of 150 to remain cohesive, he speculates that as much as 42% of the group’s time would have to be devoted to social grooming. In former times, this would have meant eating each other’s fleas. Today, it is more likely to involve a coffee shop outing. The top 100 village is important, because unless its members see themselves as a community and act in accord for the good of the whole enterprise, then internal competition will lead to value destruction. The best-case scenario will be satisfactory under-performance. The worst-case scenario will be the death of the enterprise. If the strategy cascade is getting stuck this high up, then the chance of implementing any strategy – however brilliant – just isn’t going to happen. And our work over many years in this field has convinced us that the strategy execution bottleneck has indeed moved up several levels in the modern organization.
The shifting problem The root of the struggle to execute strategy has shifted over time. Business experts used to think that incalcitrant workers at the bottom of the organization acted as a block. During the first 70 or so years of the last century, any barrier to getting business done was firmly placed at the door of the workers. In fact, this bias stems from the industrial revolution. The most famous consultant of the late 19th and early 20th century was Frederick Winslow Taylor, who used engineering principles to increase productivity dramatically in factories. His underlying belief was that people were lazy and would take any opportunity they could to slack. He believed they needed to be controlled by managers or experts (in the organizational principles he advocated) to get a good day’s work out of them. Fast-forward to the 1980s and the blame had shifted up to middle managers, formerly considered to
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be the glue holding the organization together, but now seen as the roadblock to success. Referred to as the “layer of concrete” and other insulting phrases, they were blamed for failing to translate a perfectly good strategy from the top into actions and deliverables for the workers. Roger Smith, chairman and CEO at General erred to middle Motors from 1981, referred n middle”. managers as “the frozen liminate Leaders tried to eliminate middle managers and create wered leaner, more empowered organizations with fewer cused layers that were focused e to on delivering service customers. Tom Peters, who ment was the first management agewriter to have a manageestment book reach the bestseller list and the first management expert to te: be called a guru, wrote: “Middle management as ce we have known it since the railroads invented it
after the Civil War is dead. Therefore, middle managers as we have known them are cooked geese.” The “cooked geese” ranks of middle managers were decimated during the 1980s and 1990s – and it is not over yet. During 2013, food and healthUnilev was busy reducing care giant Unilever layers of management from a startling 36 tiers at the start of cen this century to six levels. As Eco The Economist put it: “Rising through the grades at such wa often a reward for places was longevity not competence. longevity, b firms simply accuMany big mulate mulated managers over time. It is little surprise, therefo therefore, that recent coste cutting efforts have focused m on the middle manager.” But middle management and bureau bureaucracy are not synonymou A good manager ymous. ca can get extraordin nary performance o of a team, while out
GATHERING THE VILLAGE AT HSBC AMERICA Irene Dorner has been president and CEO of HSBC America since October 2011. In 2013, HSBC was the world’s third-largest publicly held bank and the sixth-largest public company. Dorner shares the issues she faced and the role of her own village (in her case, the top 120) in their challenges to change the culture and to execute the strategy. “I inherited a challenging situation when I arrived, with undeclared business problems and a poor culture, underpinned by various other bad practices,” she says. “There were three companies (two subsidiaries and a holding company), each had a CEO, one of whom was me. Authority and responsibility were too dispersed. I took control of all of the businesses in October 2011 and, in February 2012, I held a leadership conference for the top 120 executives. At that time, none of the business units could articulate each other’s strategies and nor could the support functions. I allowed an amnesty period and forgave everyone for not knowing the strategy – we had no elevator version of it. Normally, not knowing the strategy is a serious flaw.” Dorner’s first act was to gather the village. She understood the problem, that not all of these leaders understood the strategy as a whole, or their contribution to it. Like a level 5 leader, she took the blame for it, because she felt she had not communicated it clearly. She started getting the message out, to get alignment in the village. Her messaging was positive, looking at the business challenges as a burning platform for change and the basis for future success, rather than as the end of the line. She is very clear about the value of the village. Dorner says: “You cannot execute your strategy unless you are seen as credible and can paint the picture and tell the story to this most senior group.”
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a bad manager makes people quit. Good people managers, with enough initiative to balance the needs of the company’s day-to-day operations against the need to implement the wider strategy, can still play a valuable role in organizations today. It may save money in the short run to cut middle managers, especially if leaders have let recruitment or promotion at this level get out of control, although many believe that the savings are illusory. But there is no evidence that the organization gets any better at strategy execution with fewer middle managers. In fact, the opposite may happen. Whereas our own research shows good evidence that unless the village feels ownership for executing the strategy, it will stall early. The primary blocker to strategy execution today has shifted up to the highest level.
What is the answer? In most organizations, the village has no sense of collective responsibility and accountability. Village members do not see or understand the power they can wield as a group. They do not understand the opportunity they have to act as a force for good. They see themselves as individuals, in turn directing and defending their parts of the business, with their teams, under instruction or exhortation from the top. To them, the annual retreat where they are briefed by the CEO on the strategy is a means of tuning into their personal boundaries for action, not an opportunity to challenge, reshape and own the deliverables identified for the organization as a whole. They do not see themselves as enterprise-wide leaders. Nor do they see themselves as a community. How can they? They may only meet once a year at this annual conference, where more time is spent being on the receiving end of presentations than on discussing, debating and taking ownership for executing the strategy for the whole enterprise. They never reach anywhere near Dunbar’s 42% grooming rule. These are executives with considerable responsibility for running the
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business who wield tremendous power. They direct large units of the business. And they feel out of touch and out of control. So what’s to be done? First and foremost, they should meet more often. Meeting just once a year, for a two-to-three day strategy retreat, is wildly insufficient to build a genuine community. The tendency is to fly in and then back home as fast as possible, to spend as little time away from work as is feasible. Yet building this group into a community for action is real work. Done well, it can
Ag good manager go can get extraordinary performance, while a bad manager makes people quit it build a sense of aligned action and shared commitment to change that can sweep the organization forwards. Time spent together, socializing as well as discussing what the strategy means for them, is time well spent. Secondly, they need to be consulted on the strategy. Voice brings ownership. That is, if my opinion counts and is taken into consideration, then I will feel I really own the strategy and will want to make it happen. I will feel like I own it. And lastly, they need to want to execute the strategy for the good of the whole. Under current practice, they are measured on achieving targets in their region or function, which can lead to blinkered or even selfish behaviour. They need to be measured and rewarded in a way that they put the enterprise ahead of their own personal or local business needs.
Summary Our fundamental belief is that the first step towards successful strategy execution, and getting more bang for the huge number of bucks that is spent on a new strategy, is engaging the most senior executives in the organization in a very different way. They need to see themselves as the organization’s senior leadership community, rather than as a community of individual leaders. This top 100 village should understand the strategy and all its nuances and feel ownership for translating that understanding into action. They should be aligned as a community and a force for good for the organization as a whole, making unhealthy internal competition a relic of the past. The village needs to be led with more heart and less head, so that their emotional commitment to the strategy equals their rational understanding of it. Commitment brings ownership and ownership brings action. And that is the first step in successful execution of a strategy. O Liz Mellon is chairman of Dialogue’s editorial board, and Simon Carter is former CEO of Baxi Heating and an adviser to FTSE 100 companies worldwide FURTHER READING The Strategy of Execution: A five-step guide for turning vision into action, Liz Mellon and Simon Carter (2013). See especially chapter 1, Mobilize the Village. Neocortex Size as a Constraint on Group Size in Primates, Roger Dunbar in Journal of Human Evolution, (1992) volume 22, no. 6, pp 469-493. Organizing for Successful Change Management: A McKinsey Global Survey, McKinsey Quarterly. Joseph Isern and Caroline Pung (2006) HBR’s 10 Must Reads on Change Management Cambridge, MA. John P Kotter et al (2011) Harvard Business Press Books Good to Great: Why Some Companies Make the Leap… and Others Don’t, James C Collins (2001) Random House Business Books
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The power of
letting go When leaders let go of power, they get more power back. More is achieved with less effort, employees become more innovative, profits increase and leaders can focus more on strategic activities, according to Vlatka Hlupic ILLUSTRATION: LAURA HAWKINS/ISTOCKPHOTO
+ DIGITAL EXCLUSIVE Vlatka explains why ‘letting go’ is a profitable strategy
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eading by letting go addresses a fundamental mismatch between traditional vertical leadership approaches and the needs of knowledge workers, who tend to ignore corporate hierarchy and favour autonomy to unleash their passion for work, resulting in greater productivity, innovation and engagement. Many management scholars advocate the need to move away from the command and control-based leadership model, but the practice is still lagging behind and far too many organizations are managed using traditional hierarchical approaches.
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The problem Organizations today face unprecedented complexity. A recent IBMsponsored global survey found that the key challenges CEOs face today are the rapidly accelerating pace of change and complexity. Furthermore, performance continues to decline, whether measured by Return on Assets or Return on Invested Capital; US firms’ Return on Assets has progressively dropped 75% since 1965, despite rising labour productivity. Data from consultancy Edge Perspectives shows only 25% of the workforce is passionate about their work despite the plethora of techniques and resources spent on learning and development, and global figures for engagement (Gary Hamel, 2012) reveal
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Table 1: Description of the five levels of the emergent leadership model
80% of employees are less than fully engaged at work. There is a growing consensus that the key cause of this problem is outdated management practices from the past century based on a mechanistic paradigm, hierarchical command and control mindset, bureaucratic processes and standardization. This approach worked well for driving productivity and efficiency in a production economy, but is detrimental to innovation and engagement, the key ingredients for success in modern organizations moving towards a creativity economy (Hamel, 2012). Current mechanistic management practices are not matched to knowledge workers’ needs, who, as research from Rob Goffee (2007) shows,
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Level 5 EMERGENT
Unlimited mindset, strong team cohesion, unbounded by culture, inspirational leaders, strong sense of purpose and passion for work
Level 4 EMERGENT
Enthusiastic mindset, team ethos, collaborative culture, distributed/horizontal leadership, unleashed purpose and passion for work
Level 3 TRADITIONAL
Controlled mindset, orderly culture, command and control/vertical leadership, micromanaging, selfcentred relationships
Level 2 TRADITIONAL
Reluctant mindset, stagnating/blame culture, disengagement, autocratic leadership, overwhelmed employees
Level 1 TRADITIONAL
Lifeless mindset, apathetic/fear based culture, isolated and disengaged employees and leaders
tend to ignore corporate hierarchy, are highly mobile, need to be treated as associates rather than subordinates, and need autonomy and purposeful work. In organizations constrained by outdated Management 1.0 practices, they become less engaged, less collaborative. They cannot thrive and achieve their full potential given the lack of creativity, passion and innovation. Knowledge workers who are treated like subordinates become especially unmotivated when they realize their efforts and initiatives benefit someone else. The result is the labour market becomes a very individualistic system in which employees’ primary concern is expanding their personal gains, such as income, skills and knowledge. Companies, and society in general, lose out as they become comprised of people not engaged in the company’s values and mission, but in advancing their own careers. Such companies fail to accomplish their main purpose, which is to serve the public, society or a market. When employees are fully engaged, committed and contribute with all of their skills and abilities, they feel passionate about the work they are doing, they are intrinsically motivated and they would go an extra mile to delight customers. As a result, innovation thrives, solutions emerge, profits are sustainable and thus everybody
It is all about more effective, m more efficient processes, which are more flexible le is better off. But when this is not the case, a substantial part of a company’s resources is used simply on micromanaging the whole structure, leading to poor results and lack of engagement.
The solution To address this problem, a fundamental change of traditional management and leadership practices is needed, as well as change in the mindset that will result in highly engaging and inspiring organizational cultures. This can be achieved by implementing a leadership approach based on letting go. This means control is reduced, power is distributed and natural leaders emerge on the basis of their knowledge and expertise. Decision-making is distributed on the basis of knowledge rather than formal position in organizational structure, people are given responsibilities rather
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Management 2.0 Emergent leadership Leading by letting go
INDIVIDUAL
ORGANISATIONAL
LIMITLESS
UNBOUNDED
ENTHUSIASTIC
COLLABORATIVE
LEVEL 5 LEVEL 4 EMERGENCE CONTROLLED
ORDERLY
RELUCTANT
STAGNATING
LIFELESS
APATHETIC
LEVEL 3 Management 1.0 Traditional leadership Leading by command and control
LEVEL 2 LEVEL 1
Figure 1: Emergent leadership model
than tasks and culture is based on trust and transparency. There is a community ethos as experimentation with new ideas is encouraged while mistakes are tolerated. When knowledge workers are led using this approach and they are given autonomy, they will unleash their passion for work and intrinsic
motivation. This will ensure that chaos and anarchy will not emerge, and employees will work towards common organizational goals. On the basis of extensive research in individual and organizational development, I have developed an Emergent Leadership model (Figure 1) showing
developmental levels for individuals and corresponding organizational culture. Some of the sources that have informed and influenced development of this model include: Ken Wilber’s integral theory of consciousness; Jane Loevinger’s stages of ego development; Abraham Maslow’s hierarchy of needs, Spiral dynamics model; Jane Loevinger’s stages of ego development; Susan Cook-Greuter’s Leadership Development Framework; Richard Barrett’s Seven Levels of Consciousness Model; Bruce Schneider’s Energy Leadership Model; and Lawrence Kohlberg’s stages of moral development and research related to the Tribal Leadership. The fundamental shift in performance, innovation and engagement happens when a critical mass of individuals move from level 3 to level 4, and leadership style becomes distributed (horizontally). Table 1 shows a description of the characteristics of each level.
CASE STUDY: CSC GERMANY CSC Germany, a division of the $17-billion worldwide IT consulting and services firm Computer Sciences Corporation, experienced problems with its major performance indicators such as the rate of growth, profitability and utilization. Because there were fewer projects for the employed consultants, too many consultants could not be assigned to projects. Revenue dropped, while operating costs stayed high. The kneejerk reaction was to further increase control (pertinent to level 3 culture in the Emergent Leadership model), more decisions were centralized, a formal approval process for all expenses was implemented and an approval from the top management was needed for many entrepreneurial actions. That caused deterioration of performance, negatively impacted on employee motivation and good
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employees started to leave as it became harder to replace them. The costs for replacing and training the new employees added to the costs and lowered the operating income. The changes slowed decisionmaking, reduced risk-taking and eliminated entrepreneurial spirit. But with a new initiative that shifted away from the traditional hierarchical leadership and towards leading by letting go, CSC Germany put highly qualified knowledge workers at the centre of the business. The core values guiding this leadership approach were building an environment of trust, transparency, motivation, responsibility, cultural diversity, fairness, customer orientation and collaboration. Building on the strength of social networks, CSC considered every team to be a social system capable of balancing its strengths and weaknesses by the appropriate combination of selforganizing, self-leading individuals. The leader of a self-organizing
team acts as a partner or facilitator, providing guidance. The culture at CSC Germany moved from level 3 to level 4, with astonishing results. In two divisions where this approach was implemented, the profit margin target achievement was 151% in the first year and 238% in the second year in the first division, and 295% in the first year in the second division. The change programme implemented is illustrated by a quote from one of the executives: “There was a big change programme. The new corporate strategy was about a more collaborative culture, a more emotional approach. It was based on corporate values, which put the people and the knowledge workers at the centre of gravity and business focus on customers. It is all about more effective, more efficient processes, which are more flexible”. A detailed description of how the shift to level 4 culture was achieved and what were the results obtained is provided in an article published in the Organizational Dynamics journal.
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Table 2: Key outcomes of leading by letting go
Table 3: Key processes for implementing leading by letting go
Retention of key talent
Appoint communities of passion leaders and coordinators based on expertise and attitude towards new leadership style
Emergence of informal structures not designed by management
Use democratic process for appointing a leader
Encourage voluntary leadership
Unleashing potential of team
Allow self-organization
Improved performance
Distribute responsibility and control
Increase in profit
Establish coaching and mentoring process
Increase in billability and utilization
Use emergent, loose implementation strategy
No need for sales support for the follow-up work
If possible, use no fixed timescale
Many decisions made in parallel, more quickly by competent people Improved quality and quantity of decisions Improved customer satisfaction Greater level of flexibility, agility and resilience Creating new partnerships
Motivate and energize team members, and help them to change from within to enable new modes of behaviour that allow adaptability Enable collaboration and cross-fertilization of ideas between communities Encourage experimenting with new ideas and tolerate mistakes Delegate responsibility, not tasks – show employees you trust they can do their job well Reward good performance intrinsically and possibly extrinsically Develop synergy between teams of knowledge workers
Motivated and productive workers; improved behavioural system
Develop network-based structure for problem solving
Reduced stress and absenteeism
Do not blame economic crisis for poor performance
Improved loyalty to organization
Delegating and distributing decision-making on the basis of expertise
The aim is to sustain the level 4 mindset and collaborative working practices, and occasionally to reach level 5, where teams achieve extraordinary results. Levels cannot be skipped, it takes months or even years to move one level higher and anyone can move to a lower level at any time. One of the key enabling conditions to move from level 3 to level 4 is to increase collaboration, networking and interactions, give employees more autonomy and lead by letting go. Paradoxically, when leaders let go of power, they get more power back as more is achieved with less effort, employees become more innovative and engaged, profits increase and formal leaders can free more time for strategic activities. In this process, meritocracy is supported and natural leaders also emerge on the basis of their knowledge and informal influence. A shift from level 3 to level 4 is particularly important for knowledgeintensive companies. Basically, the more knowledge-intensive a company is, the more freedom should be given
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to employees because accountability comes naturally to them and they cannot be managed like other types of employees. A possible categorization of employees could be: O Those who seek to optimize themselves – working for position, power and money (extrinsically motivated) O Those who seek purpose and fulfilment in what they do – working and contributing for something greater (intrinsically motivated) O Those who seek safety and security – working only to fund their living (basic needs fulfilment) In reality, there is a quite heterogeneous distribution of these types and no single person corresponds clearly to one or another. But one principle applies to all types: the freedom-accountability principle, by which there is no freedom without accountability and vice versa. O Vlatka Hlupic is CEO of the Drucker Society London and professor of business and management at Westminster Business School
FURTHER READING To Be a Better Leader, Give up Authority, Harvard Business Review, A D Amar, C Hentrich and V Hlupic (2009) What Matters Now, G Hamel (2012), Jossey-Bass The Innovation Audit – Using the 6 Box Leadership Model to Engage, Innovate and Create, Vlatka Hlupic, Palgrave Macmillan: Basingstoke (2014) Making the case for a developmental perspective, Industrial and Commercial Training, S R Cook-Greuter (2004) The New Leadership Paradigm – Leading Self, Leading Others, Leading an Organization, Leading in Society, R Barrett (2010), Values Centre, London Energy Leadership Transforming Your Workplace and You Life from the Core, B Schneider (2008), John Wiley and Sons Inc, New Jersey Tribal Leadership, D Logan, J King and H Fischer-Wright, Harper Collins (2008) How Managers Succeed by Letting Employees Lead, Organizational Dynamics, D Amar, C Hentrich, B Bastani and V Hlupic (2012)
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Why leaders need consciousness Although the unconscious is invisible, it still has to be dealt with, says Shelley Reciniello. One way to tackle this is for leaders to build a conscious culture in the workplace ILLUSTRATION: SHUTTERSTOCK
H
ow would Sherlock or Poirot deduce what went wrong in these situations? A sales and trading division of an investment bank hired an ace off their major competitor’s trading floor. After six months, not only was the trader in question not earning his salary, let alone his guaranteed bonus, he had been a divisive force among a formerly cohesive team who have experienced the downside of his risky trades. The board of a European company replaced a home-grown CEO with an American CEO who promised to usher in the modernity the company lacked. But the new CEO spent his first six months creating an alliance with a US company that was interested in taking over the European organization. A tech company, AlsoRan, is bested by its leading competitor, OlderBrother, who releases a piece of technology to the marketplace that the troops at AlsoRan have been playing with for years. Apparently, upstairs at AlsoRan did not know what downstairs was doing, and so missed the opportunity.
What lies beneath Both Holmes and Poirot look for what other people do not readily see: what is underneath the words and actions that can belie the motivation. Often things go wrong in companies that shouldn’t. On the surface, everything seems poised
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for success and then the worst happens. Unknown psychological factors can negatively impact the leadership, the team and the individual. Entire initiatives can fail for no reason until the “unconscious” motivations of the work team are explored. Departments, and even entire corporations, can have unrecognized unconscious agendas to fail instead of succeed. Our great detectives would conclude that all three examples demonstrate a lack of conscious leadership. They involve leaders who were not aware of their own secret motivations and hidden agendas that caused the result. The head of the sales and trading division hired the ace because he felt his steady but unglamorous team was too risk averse and not flashy enough. His unacknowledged fantasy was to relive his own younger, glory days through the ace. He did not see the player’s narcissism and recklessness as responsible for his willingness to take risks that were ultimately ill matched to the modern
marketplace. The department was better served by the caution and judgement that his team had cultivated. Likewise, the board members of the European company were so blinded by their own feelings of inferiority and envy of US companies that seemed to be cornering the market that they inadvertently invited the fox into the henhouse. While at AlsoRan, the scholarly, old guard bosses upstairs felt threatened by the start-up techie troops downstairs, and sabotaged an open flow of
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communication. The innovative ideas of the young creatives who were hired exactly for that out-of-the-box thinking never made it up the stairs to where the “real thinkers” ran the company. Doing business today requires navigating the underground psychological terrain of people at work: egos that run amok putting personal success ahead
of corporate achievement; palpable, underlying anger in response to company policies; managers who ill treat others; fear so contagious that people spend most of their time just trying to keep their jobs instead of doing their jobs. In the incredible pressure cooker that is the modern workplace, how can leaders hope to keep their eyes on an invisible ball?
Hidden time bombs Every day all over the world, people enter the workplace with personal
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preoccupations: work pressures, health concerns, money worries, family problems, relationship issues, political viewpoints, and more. That’s a lot of variables to consider. And these are the things that people are conscious of, that can impact their work and be difficult for others to cope with. But there are other preoccupations the workforce does not have a clue about – the ones that are unconscious. These could be unresolved childhood issues, fears, anxieties, fantasies, drives, prejudices, obsessions and complicated emotions like anger and guilt. That’s what is happening when a person sabotages something they have been striving for, such as a promotion or a deal – or when someone gets angry with another for no obvious reason. They can then become upset and confused because the behaviour is illogical. People do not leave their psychological selves, conscious or unconscious, at home when they come to the workplace, and there are many permutations of how work and self – and self and others – collide. Human beings are not rational, and every day their illogical, unconscious minds are walking into offices with hidden agendas that even they cannot see. In the 17th and 18th centuries, the Age of Reason and the Enlightenment, human beings were thought to be rational. But over the centuries, people began to seriously doubt the rationality of human beings, especially when confronted by a host of illogical things that people did, such as engaging in barbaric practices and constantly declaring war on each other. Ideas about the “unconscious mind” were frequently bandied about in philosophical circles, but it took Sigmund Freud in the early 1900s to organize them
WHAT YOU DON’T KNOW CAN HURT YOU The reason I am most frequently consulted for executive coaching is not a lack of intelligence or ability, but because the client exhibits a lack of self-awareness. Leaders must be open to selfknowledge and to how they are actually perceived by others to avoid fantasies and delusions. Most people have the same issues throughout their lives and it is vital that leaders know how to handle their own. Take the deep dive into your life and work experiences, ask for feedback and answer these questions about yourself: 1) What is your personal story – family, socio-economic roots, work history – and how has it affected you? 2) What incidents from your past are you still reacting to? 3) What pain, injustice or anger do you cling to? 4) What memories, fantasies, obsessions, biases, fears and other emotions influence your decisions and behaviours? 5) What are your strengths and weaknesses? 6) How do others perceive you? Do they respect or fear you? 7) What is your Achilles heel? What may affect your judgement, limit your vision, sabotage your aspirations, impact your relationships and weaken your confidence? Is this vulnerability something that other people know about you, but you remain blind to? 8) What pretensions do you use to distance or protect yourself? True self-knowledge is power; the lack of it is self-deception that will always leave you powerless and vulnerable to others. The more you can make what is unconscious conscious and know the whole story about yourself, the more you can act in your own best interests.
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into a comprehensive theory that has formed the cornerstone of our knowledge of human psychology. According to psychoanalytic theory, we act irrationally because we are motivated by unconscious forces that our conscious minds are constantly struggling to control. We keep them out of our conscious awareness because we feel they are shameful or frightening or dangerous. Things like impulses, feelings, fears, motivations and desires that come from ourselves, our childhood experiences, life events and interactions with other people. These internal factors interact with other workers’ issues, as well as with the external, real-life demands of the workplace such as productivity, competition, time pressure, profit and loss, marketplace strategy and innovation.
there are two shows going on – the one you are seeing, displayed on the stage in front of you, and the one going on backstage behind the curtain. What you see is only half the story. The secret life that is hidden from view explains what you are really seeing and why it
Building conscious cultures
is happening. Gaining that perspective keeps you from being blindsided by unexpected events and allows you to direct the action toward the goal you want to achieve. The second step is to make “what is unconscious conscious” – know the whole story about yourself and the people you interact with. Without reflection and introspection, irrationality stays underground where it grows more potent every day. The
Although the unconscious is invisible, it still has to be dealt with. One way to do so is for leaders to build a conscious culture. Conscious cultures are built from the top down. The first step is to understand that what you see is not always what you get. Believe in the unconscious mind of your organization and look for it everywhere. It is like being at the theatre and
Th unrecognized The issues of each i employee come into play whenever people work together her er
CONSCIOUSNESS AT WORK Consciousness requires that you become awake and that you stay wide awake and alert to business practices that are not conscious. 1) Make sure your people really understand the “why” of what they’re doing. It should be a conscious reason. You cannot have a conscious workforce if you teach them not to know why, or not to question the why, especially by your own example. 2) Give and get feedback. Your organization needs functioning systems wherein employees on all levels can give their opinions about what works and what doesn’t, without fear of retribution. Make feedback into an honest dialogue.
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3) Be willing to give feedback yourself about systems or policies or procedures that do not readily make sense to you. Having the courage to ask the “stupid” questions makes you a smart and trusted leader. 4) When you are having a conversation with someone, listen deeply. Don’t think about what you want to say next or where you are going for dinner. 5) Become comfortable with not knowing. Not wanting to appear vulnerable to ask a question, or to say that you do not know the answer to something, is one of the traps a leader can fall into that will limit his effectiveness.
conscious rational mind, both the individual one and the corporate one, can only be strengthened by dealing with unconscious issues, not by pretending that they do not exist.
Diversity and inclusion In her feature article for Dialogue, “Cracking the code for women in business” (2013), Liz Mellon referred to unconscious bias as one of three primary reasons why women have not made it to the top tier of management in record numbers. The unconscious plays a particular role in perpetuating the lack of progress for women and other minorities. Becoming aware of our inner prejudices – the ways we classify and stereotype other people – and making the roots of these attitudes conscious will go a long way to turn the tide. The “what” and the “why” of the situation is that embracing diversity is the evolutionary adaptation required of all human beings in this century. The “who” is you, because this kind of deep self-confrontation must come from the top. And it is going to rock you to your core to embrace difference when it is far more comfortable to surround yourself with people who are just like you. You will have to go deep down inside yourself to redo what comes naturally to you and find the truth that will enlarge your world. But there are landmines to avoid, because the “how” of diversity can prove elusive even with the best intentions.
Overlooking differences As business leaders, you may look for similarities – but overlook differences. For example, a company’s new CEO made diversity a top priority. He recruited a senior woman from a competitor to head a newly created division and put her on the traditionally all-male executive board. But after a couple of years, the number of women in leadership roles had actually decreased and no other women had been named to the executive board. In this example, a review of the exit interviews of women who had left revealed not just the usual issues of salaries and promotions, but the discriminatory behaviour of the senior woman who had been recruited by the CEO.
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CONSCIOUSNESS
Senior male leaders all spoke highly of her, remarking about her intelligence, her bawdy sense of humour and that she was not down on men. In fact, that was true, with the addition that she was actually down on women. She laughed when questioned about why no other female candidates were accepted to the executive board and said: “I would never allow one of those women to spoil my relationship with my brothers!” The CEO had wrongly assumed that adding a woman to the executive board would be good for the women of his firm, but the one he picked had made a career of being “the only woman” and wanted to keep it that way, so enhancing diversity was not her priority. A problem occurs when leaders make the assumption that similarities should override differences, and then make the second assumption that all minority group members are the same – see things the same way and want the same things. Individual differences are critical, but they are lost on us when we are so anxious to avoid the big differences among people that we focus only on what is comfortably familiar. In this situation, the assumption was made that all women are the same and so any one of them appointed to the board would suffice, especially this one, who was in many ways, more similar to the male members of the board than to any of the women she was supposed to support. But it gets more complex.
Overlooking similarities If we are not conscious of what our individual prejudices are or might be, we may not realize how much attention we direct toward the differences between ourselves and others. We may seek them out with a vengeance to assure ourselves that the “other” is not like us, so that we can remain safe. Instead, we must look for the meaningful similarities we share with others that will help us overlook unessential differences. To do this properly, we must be conscious of what it is that we carry that influences how we are looking at people and situations. Unless we do the work, we will get it wrong. You and your corporate culture must create an unrelenting commitment
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UNCONSCIOUS BIAS What do you do on a daily basis that might mean you treat others on who you prejudge them to be? Universities and judicial systems have been raising awareness about microinequities and microaggressions, referring to the ways human beings interact and unwittingly convey discriminatory feelings. This can be an offhand remark, a smirk, a wink, a tone that speaks volumes about who is accepted and who is condescended to, tolerated or humored. At the root of these behaviours is unconscious bias.
to consciousness around this issue. Without awareness on a micro level, there can be no real inclusion. United States Supreme Court Justice Sonia Sotomayor (2013, 163) cautions us: “The dynamism of any diverse community depends not only on the diversity itself, but on promoting a sense of belonging among those who formerly would have been considered and felt themselves outsiders.”
Hand in glove When we become comfortable with our essential sameness, our basic humanness, then we can delight in our wonderful differentness. Ultimately, our inclusion must be wide enough to embrace the vital individual differences among us as well, that must not be obscured by colour or nationality. It is this uniqueness that is created, not only by our heritage, our race, our religion, our gender, our sexual orientation, our generation, but also by our own personalities, styles and expressions of where we have come from, that must not be sacrificed. Dr Maya Angelou (1990) observes that we “allow our ignorance to prevail upon us and make us think we can survive alone, alone in patches, alone in groups, alone in races, alone in genders”. Leaders can work against this using consciousness as their antidote to ignorance.
Globalized economy If we are going to create sustainable trade and exchange that benefits all parties, if we are going to take up the responsibility to eliminate poverty and the shortages of food and water, if we are willing to admit that what we do today in New York will have repercussions in Shanghai and Mumbai tomorrow, then we will be “the citizens of the world” that leadership expert Peter Drucker (1993) advised us to become, in order to create a successful, globalized knowledge economy. With a globalized economy comes the need for the capacity to relate to people from different worlds, who look and act in ways that are different from you. If you and your workforce cannot match those differences with openness and curiosity and respect, your competitors will. The best way to achieve that edge is to ensure you have a workforce that understands, through its own experience, how to communicate and relate and negotiate across difference. These are the people who will bring life, true creativity and innovation to business. Former Apple CEO Steve Jobs (1996) summed this up: “A lot of people in our industry haven’t had very diverse experiences. So they don’t have enough dots to connect, and end up with very linear solutions without a broad perspective on the problem. The broader one’s understanding of the human experience, the better design we will have. O Shelley Reciniello is a psychologist and author of The Conscious Leader
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M A N A G I N G M U LT I P L I C I T Y T O D AY B R A N D S O P E R AT E I N A C O M P L E X W O R L D , C R O S S I N G B O U N D A R I E S O F C A T E G O R Y, C O U N T RY A N D AU D I E N C E . T H E VA L U E E N G I N E E R S LO O K B E YO N D T H E CO N VE NT I O N A L , S I N G L E M I N DE D TO O L S O F B RA N D P LA N N I NG , TO H E L P O U R C L I E N T S M A K E S E N S E O F M U LT I PL I C I T Y. TO F I N D O U T M O R E C O N TAC T T H E VA LU E E N G I N E E R S WWW. THEVALUEENGINEERS.COM LO N D O N – + 44 ( 0 ) 14 94 6 8 0 9 9 9 NEW YORK - +1 646 837 8170
RESEARCH
Entrepreneurship in emerging markets: a new millennium Cultural attitudes towards entrepreneurship, ease of starting business and opportunities to raise capital are vital to nurturing the entrepreneurial spirit in emerging nations, as Laura Gonzalez and Diego GarcĂa report
+ DIGITAL EXCLUSIVE Hans Rosling: Debunking third-world myths
ILLUSTRATION: LAURA HAWKINS
Dialogue | Mar/May 2014
Latin America
China
Israel
Brazil
India
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E
ntrepreneurial ventures represent a substantial source of employment – 86% of new jobs according to Aspen Network of Development Entrepreneurs. Leaders across the globe have taken notice by developing programmes and policies to support entrepreneurs, who now amount to about 400 million worldwide, according to the Global Entrepreneurship Monitor survey. Ventures are particularly crucial to increase the competitiveness of emerging nations, where entrepreneurship needs to overcome market inefficiencies. When trying to identify factors associated with variations in national entrepreneurial activity, data suggests that the impact of recent economic growth, protection of property rights, decrease in corruption, and increase in freedom and competition may have been overstated. Furthermore, as Lingelbach, de la Viña and Asel (2005) and Bhide (2000) point out, the most rewarding approach may be to analyze the differences in ambiguity aversion, selfcontrol and other factors that play a crucial role in the formation and evolution of businesses. In this study, we aim to increase understanding about the interplay of cultural attitudes towards entrepreneurship, ease of starting and doing business, and opportunities to raise capital. These factors seem critical to incubating the entrepreneurial spirit in emerging nations such as Brazil and other Latin American regions, as well as China, India, Israel and Russia. This report highlights major challenges and opportunities.
E Entrepreneurship iin Latin America Approximately 600 million people, A (9% of o the world’s population) live in Latin America. If Brazil is excluded, Latin America still accounts for 410 million people, according to the United Nations data. Some Latin American nations lean towards capitalism and democracy – such as Mexico, Chile and Colombia – while others lean towards socialism – Venezuela, Bolivia and Ecuador. And in between, some
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countries are considered pseudo socialist – Argentina and Uruguay. These differences have a significant impact on entrepreneurship. The 2012 Doing Business report, supported by The World Bank and The International Finance Corporation, ranks capitalist
Brazil is a power-house mix of risk-averse and go-getters Chile 39 in ease of doing business, Peru 41, Colombia 42 and Mexico 53. Pseudo socialist Uruguay ranks 90 and Argentina 114, followed by Ecuador 131, Bolivia 147 and Venezuela 177. In terms of cost and complexity of regulatory processes and strength of legal institutions, Latin America ranks just below Southern Asia and Sub-Saharan African regions, only above Middle East & North Africa.
Chile Since 2010, Start-up Chile has supported about 500 start-ups and 900 entrepreneurs from 37 countries, more than 380 meetings and 1,000 workshops and conferences. The processing of visas to Chile for foreign entrepreneurs takes less than a month and entrepreneurs can receive up to $40K in government funds to get started. But according to The Economist, capital is still scarce, bureaucracy excessive, the domestic market small and bankruptcy regulations make it difficult for those who fail to start afresh. However, support towards entrepreneurship is very recent in Chile. It will be through experience, rather than through education and training, that Chile and other emerging nations will harvest from the nurturing of domestic entrepreneurs and venture capitalists, with an increased number of national risk capital organizations.
Mexico Mexico has an enviable location, bordering the US, where the Hispanic and Latino population is the fastest growing demographic group. However, three major roadblocks for ventures still remain, according to CNN Expansion: O Politics and corruption in stateguided capitalism with oligarchic traditions O Private and public owned oligopolies that prevent small companies from developing and competing with them, with frequent early acquisitions O A mindset that favours small business without perspectives of growth, the so-called “chingarros” or “mom and pop” stores. Overall, lack of access to the end customers is a primary reason for the failure of Latin American businesses to move beyond commodity markets into higher value added activities (Fairbanks and Lindway 1997). Access to informational flow and a broader pool of skills and resources through interlocking businesses would provide Latin American entrepreneurs much needed hedging and funding.
E Entrepreneurship iin Brazil The take-off in Brazilian entreT preneurship is the harvest from preneu government seeds planted since the 1990s, leveraging Brazil’s current ranking as the world’s 7th economy in terms of GDP, according to CNN, although other sources depict Brazil tied with the UK at $2.4 trillion. According to a survey backed by the International Finance Corporation (IFC), a sister organization of the World Bank, Brazil is a power-house mix of risk-averse and go-getters. Brazilians do not have a history of innovation, but privatizations have increased competition and efficiencies, and the country’s regulation towards transparency is helping attract foreign capital, boosted by falling poverty and a growing lowermiddle class. In terms of transparency, for example, investment houses need to disclose in a lot more detail than in other countries their trading
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A rising favourite – Private-equity investment in emerging markets, 2010 % of GDP
0
0.1
0.2
0.3
0.4
0.5
0.6
$bn
E Entrepreneurship iin China Although ageing, China is the A world’s most populated nation, with more than 1.3 billion consumers. It is also the second-fastest growing and largest economy, with a GDP of more than $8 trillion, according to the International Monetary Fund (IMF).
ISRAEL
1.3
INDIA
6.2
BRAZIL
4.6
EMERGING ASIA
18.3
Roadblocks to entrepreneurship in China
CHINA
9.2
LATIN AMERICA
6.6
RUSSIA
1.5
Starting a business in China is difficult, ranking 151, and 181 in terms of easiness to get construction permits, according to the 2013 Doing Business report. Starting a business takes around 13 procedures and 33 days, while the OECD average is six days. The report says Chinese entrepreneurs need to spend an average 85.7% of their individual income, and before 2004 there was limited guarantee in private property Overall, given historical precedents, Chinese entrepreneurs prefer to avoid attention. Moreover, Oxford University economist Linda Yeuh (2008) writes that they face the so-called iron rice bowl challenge, the life-long basic safety trade-off of state workers, and for the most part they lack skills to scale ventures, according to Forbes’ Rebecca Fannin (2012). Copyrights, patents, brand names, trademarks and trade secrets are routinely violated, and there is lack of trust in online business. As in Russia, most sales are still made in cash when the product arrives. Even though the government has made the need of capital for small business known, the percentage of loans to small and medium firms coming from state-owned banks is still less than 4%, according to company reports (The Economist, 2011). Economist Linda Yeuh’s research concludes that of the 40 million small- and medium-sized companies in China in 2006, less than 0.5% could obtain loans from banks (China’s entrepreneurs, 2008). Overall, according to The Economist, the government controls the allocation of credit, and large politically-favoured firms receive most of the capital.
Source: Emerging Markets Private Equity Association
positions. However, important reforms are needed in terms of bureaucracy, corruption and education.
Roadblocks to entrepreneurship in Brazil The two main roadblocks in the path to entrepreneurial innovation remain: O Bureaucracy, corruption and a complex taxation system O A mindset that is not oriented towards innovation According to the 2013 Doing Business report from The World Bank International Finance Corporation, Brazil is ranked 130 in the ease of doing business ranking. It takes 119 days to start a business, 13 procedures and a cost of 4.8% of income per capita. The report also reveals a mediumsize enterprise dedicates 2,600 hours on taxes, incurring about 70% of its profits on taxes on its second year of operation. In addition, terms such as innovation or businessmen have a philosophical connotation, and there is substantial risk aversion Brazil spends less than 1.1% of its GDP in R&D compared to China’s 1.4% and Japan’s 3.4%, and overall, innovation in Brazil is by foreign firms.
Opportunities in Brazil Brazil outpaces other BRIC countries in key factors nurturing entrepreneurship. Unlike China, it is a democracy that favours capitalism
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and, unlike Russia, many giant corporations operate at arm’s length from the central government, with diverse exports beyond oil, arms and mineral resources. Unlike India, there is no social unrest due to religious or ethnic diversity, and there is no history of conflicting relations with neighbouring nations. According to Fundação Getulio Vargas, a university, by 2014 Brazil will add approximately 31 million people to the upper-class and about 30 million to the middle-class. In fact, Jonathan Ortmans, president of the Public Forum Institute, notes that wealthy people are expected to increase 50%. Consequently, about 400 pension funds are interested in alternative-investment firms and account for about 22% of investments in private equity and venture capital. The Financing Agency for Projects and Studies (FINEP) offers $65k to innovative start-ups and the Brazilian Development Bank (BNDES) has invested $1.1 billion in private equity funds. As in other emerging nations, Brazil presents four types of entrepreneurial firms: newly, established but not growing, established but growing slowly, and graduates to a larger size (Liedholm and Mead, 1999). In particular, Brazil’s entrepreneurs still depend heavily on commodities and ventures tend to grow too slowly unless supported by conglomerates.
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Opportunities in China China established a company law in 2005, a credit registry in 2006, its first bankruptcy law and a properly law in 2007, plus a civil procedure law and a corporate income tax law in 2008. In addition, the Chinese online population has grown to about 500 million. The main pockets of opportunity in terms of ease of doing business are Hong Kong, ranked 2nd behind Singapore, and Taiwan 16th, with China overall ranked 91st. According to China Macro Finance, a research firm, the number of registered private businesses grew by more than 30% between 2000 and 2009. Zheng Yumin, the Communist Party secretary for Zhejiang’s commerce department, said in 2011 that there were 43 million companies in China, 93% of them private, employing 92% of the country’s workers. In terms of profitability, enterprises that are not state majority-owned account for two thirds of the industrial output, according to the National Bureau of Statistics. From a capital perspective, the National Development and Reform Commission launched venture capital funds totalling about $1.32 billion in 2009 alone, according to Jonathan Ortmans, president of Public Forum Institute. In general, although small-scale Chinese entrepreneurs have designed a wide variety of techniques and institutions to provide informal finance (Tsai 2002), increased consumerism has increased domestic demand for goods and services. Thus, besides political risks, which seem likely to persist, personal debt may be on the rise sooner than expected, which could arguably hinder entrepreneurship.
E Entrepreneurship iin India According to official data, by A 2020 the median age in India will be 28, compared to 38 in America, 45 in Western Europe and 49 in Japan. India’s current population is 1.2 billion people, the world’s second largest, adding every day more people than any other country, with about half under 25-years-old. Like China, a growing internet population has contributed
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In China and Russia, most sales are still made in cash when the product arrives to an explosion in e-commerce and technology-oriented ventures. In 2010, there were 610 million internet users in the BRIC nations and the number will double by 2015, according to NationMaster. Indian income per capita rose 12% from 2008 to 2011, and it is expected to grow 53% by 2016 to reach $2,300 per capita. India and China present other similarities, such as growth and low labour costs. However, India is a democratic English-speaking country with Anglo-Saxon legal codes.
Roadblocks to entrepreneurship in India India makes it easier to start a venture, but there are too many small businesses. In 2011, for example, there were more than 2,000 active firms in the Mumbai Stock Exchange with capitalizations below $200 million, mostly in commodities business competing with a few big family-owned firms. Banks are not willing to lend to small firms without large collaterals, and although there is a sizable and growing venture capital industry, there is not enough capital for small firms. According to investor Haresh Chawla (The Economist, 2011), only 1 to 2% of ventures are able to obtain funding.
Opportunities in India Highly educated Indians are increasingly willing to turn their backs on careers in brand-name companies and start their own. Institutional support has also increased. The non-profit National Entrepreneurship Network, established in 2003, supports highgrowth ventures, more than 300 now, and runs Entrepreneurship Week India,
featuring more than 3,500 events with 350,000 participants. According to the World Bank, India scores surprisingly high on easiness to start a venture. Overall, in India, savings from the sale of land will likely control debt levels for part of the population, but lifestyle changes in urban areas will arguably lead within a generation to increased personal consumer-related indebtedness to grow. That would affect entrepreneurs’ willingness and capability to start new firms.
E Entrepreneurship iin Israel According A to the Global Entrepreneurship and Development Entrep Index, Israel ranks 21st in entrepreneurship. Israel is one of the world’s most vibrant high-tech hubs and given its geographical location, language and political environment, it could have been ranked higher.
Roadblocks in Israel Israel has been referred to as the Start-up Nation, a 60-year-old nation of about seven million people in a constant state of war, with reputation as the tech hub of the Middle East and part of Asia. Israel is considered a hole in the wall, a young nation strategically located close to three continents, but in an arid land, with little oil supplies and surrounded by enemies. Necessity has forced the country to excel in technology that optimizes water, agriculture, energy sources and military expertise. Hebrew, the main native language, was extinct in the 4th century and revived in 1880. Israeli ventures to think global early, but the lack of early-stage venture capital often forces start-ups to sell out to bigger fish after unsuccessful attempts to raise capital in Silicon Valley, as Israel Venture Capital Research Center acknowledges to The Economist (2012).
Opportunities in Israel In Israel, the compulsory military service is credited to build teamwork, improvisation skills and a desire for independent thinking. Almost everybody in Israel wants to be its own boss and, according to Liat Aarson, executive director of the
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RESEARCH
Zell Entrepreneurship Program (2012), it is relatively easy to raise $100,000 to get a minimum viable product. Israel now attracts more venture capital per person than any other country in the world. Besides the Yozma fund, which supports foreign investors backing Israeli start-ups since the early 1990s, the government announced in July 2010 tax breaks for start-ups, as well as guarantees for Israeli pension funds that invest in start-ups, liberalizing previous restrictions and supporting pooled venture capital investment vehicles. After opportunity and sources of financing, apprenticeship and human resources are key to entrepreneurial success. Technical, industry-specific training is an important component in the creation of globally competitive firms (Porter 1998, Kantis and Ishida 2002) and Israel’s entrepreneurship seeds are only expected to render above average returns if the environment remains conducive to business.
E Entrepreneurship iin Russia According to the 2012 World Bank A Doing Business report, Russia ranks 120 out of 183 countries in ease of doing business. In 2011, the number of Russians going online rose 14% to 53 million, about a third of the total population, although only 18% shop online. Overall, Western investors deem Russia too risky. Even the foreign venture capitalists that work with the Skolkovo Foundation do not invest directly in Russia, but funnel the cash through offshore shell companies, according to The Economist (2012).
Roadblocks in Russia Bureaucracy, corruption and country risk prevent Russia from unleashing the potential of its highly-skilled citizens. Ventures concentrate on natural resources and lack of trust leads to a limited use of credit cards and ecommerce alternatives. In the internet sphere, firms linked to the government dominate the market, like in China. As in Mexico, state-owned oligopolies and monopolies are common, and wealth inequality excessive.
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Opportunities in Russia There is some good news for entrepreneurs operating in Russia. Skolkovo, near Moscow, is expected to become within a few years one of the world’s biggest high-tech cities. It uses nearly 400 hectares, will boast a research university of 1,800 students, 40 corporate research and development facilities and, most importantly, a Technopark with 1,000 start-ups. Companies based in Skolkovo will receive tax reliefs and get special treatment for visas and imports, similarly to “Chilecon Valley”. Since its approval in 2010, 500 firms have received resident status and about 100 have received funds. Overall, Russian ventures have significant growth potential, with a market of about 143 million in the world’s 9th most populated country. In Russia, like in other nations with policies identified with a particular leadership stream, political instability leads to economic instability. And countries with more economic instability are more likely to depend on higher rates of private saving, maintained as an insurance mechanism (Loayza et al, 2000).
Take-aways As the title of an Endeavor Insight report, emerging markets entrepreneurs have emerged. Growth-oriented entrepreneurship in China, India, Russia, Israel, Brazil and Latin America is distinctive as it overcomes market inefficiencies and constitutes a major driving force of national competitiveness. There is, for example, a software cluster in India and a wireless market in China. But for the formation of innovative high-growth new ventures, the regulative environment matters little (Stenholms, Acs and Wuebket 2011). For high-impact entrepreneurship, an institutional environment filled with new opportunities created by knowledge spillovers (Audretsch and Keilbach 2007) and capital necessary for high-impact entrepreneurship matter most. Governments that promote certain types of value-added activities can unintentionally or intentionally constrain other activities (Lundstrom
and Stevenson 2005, Wennekers and Thurik 1999). Overall, and although challenges remain for raising capital beyond initial stages, cultural mindsets are becoming more accepting of failure and government support is on the rise worldwide. What comes next? To further understand the importance of the quality of opportunities, beyond quantity, that is, the type of interplay in the regulatory, normative and cultural factors that determine entrepreneurial success. Furthermore, the study of overoptimism and other cognitive biases beyond business disciplines continues providing insight into the resilience and persistence of entrepreneurs in the face of odds of firm survival. In terms of financial innovation, incomelinked loans where repayment is tied to borrowers’ future income could be a valuable alternative. Income-linked loans would offer long-term repayment periods tied to both the venture’s future income and some index of aggregate incomes. The index of aggregate income could include borrows from the same sector throughout a region, corporate borrowers from any sector but in the same geographic region, or a combination of the two. O Laura Gonzales is professor, business economics, Fordham University and Diego García is finance director (Spain & Portugal) in Animal Health for Zoetis
FURTHER READING A new millennium in entrepreneurship worldwide, Laura Gonzalez and Diego Garcia, LID Publishing available at http://bit.ly/LC23Xz. (2014). What’s distinctive about growth-oriented entrepreneurship in developing countries?, Lingelbach, de la Viña, Asel. (2005). Exploring Country-level Institutional Arrangements on the Rate & Type of Entrepreneurial Activity, Stenholm & Wuebker, Journal of Business Venturing. (2010). Brilliant, Crazy, Cocky, Sarah Lacy. (2011). Understanding Entrepreneurship in Developing Countries, E Pennisi, Michigan State University. (2012).
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OPINION
Rural India: opportunities galore Murthy Chaganti
T
he numbers are mind-boggling and alluring. India – one of the fastest growing economies in the world, 32 million square kilometres in area, population in excess of 1.2 billion; 830 million rural population staying in more than 600,000 villages, and rural income expected to treble to $1.8 trillion by 2020.
Th The T he rural market is expanding and exploding – and can give longe term benefits to any marketer er Many companies have met their marketing nemesis (India is one of the few countries where Pepsi outsells Coke; P&G lags behind Unilever; little known Suzuki lords over General Motors; Toyota, Ford and Kellogg’s are still trying to taste Indian habits) trying to wade through the labyrinthine twists and turns of the rural market. At the same time, there are several companies – Indian and multinational – that have won over the rural consumers and have become successful case studies. The rural market is expanding and exploding. With the demographic dividend working in its favour, this market, if tapped into, can give long-term benefits to any marketer. So, how does a company tap into the huge opportunity without burning its hands and pockets?
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I am suggesting a simple tool to check the readiness to take on this market. A company has to pass the RURAL test to succeed in rural India. RURAL is an acronym for Reach, Utility, Relevance, Affordability and Language. Reach – Despite India’s significant economic strides, there are many villages that are still not connected by highways or railways. For a rural consumer, commuting is still a challenge. To succeed, a marketer has to “go” to the customer. Presence in the massive Indian mom and pop retail universe, with an estimated 7.5 million retail outlets, is a solution to this problem. The marketer’s challenge is to weave their strategy into the distribution opportunity. HUL (Hindustan Unilever Limited), the Indian subsidiary of Unilever, is an example of a company that has understood this well. With presence in 6.5 million retail outlets, it has mastered the art of “reach” and is a global success story. The distribution success story built over decades started with reaching out via a network of C&F agents, super stockists, distributors, wholesalers and retailers. Of the 6.5 million outlets, Unilever directly services about two million outlets. The balance reach is delivered through a chain of wholesalers. To reach out to the really poor, self-help groups run by women have been used in villages. Utility – The needs of the rural consumer are still quite different from the urban consumer. Rural India still struggles getting 24 hours of power throughout the year. A high-end smart phone that guzzles battery and needs highspeed broadband has fewer takers than a
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OPINION
data-enabled phone that has longer battery life. Nokia reigned as India’s leading handset seller for more than a decade by focusing on simple utilities like battery life, ease of downloading music and an innovation of a torch in the phone. Relevance – It is often said that India is not a country but a continent. Multiple religions and myriad communities form the mosaic that is India. What is relevant to a community/city/ region is irrelevant in some other place. As an example, India’s biggest festival, Diwali, is not the biggest festival in the southern state of Kerala, where it is Onam. Valentine’s Day, celebrated in big metros like Delhi, Mumbai and Hyderabad, is barely noticed in villages. While North India reels under a cold wave during winters, the southern and western states have minimal weather changes throughout the year. Cricket, religion and movies are the few aspects of life that resonate equally well across the country. For a marketer, the challenge is to understand the nuances of each socio-cultural region individually and independently before finalizing a strategy. Affordability – At $411, the rural Indian annual per capita disposable income leaves little scope for expensive products and variants. “Small is beautiful” gains credence in these markets. The telecommunications and shampoo companies have generated huge revenues from the rural markets by tapping into this insight. The world over, customers are billed by the minute for using telephone services, a concept challenged successfully in India. Here, a customer is charged per second, with tariffs as ridiculously low as 1 Paisa per second (roughly translating to 1/10000th of a pound per second) – a marketing story that has transformed India into the second-largest market in the world in subscriber numbers. Similarly, the leading shampoo stock-keeping unit sold is not a 200ml bottle, but a 6ml (priced at three cents) sachet, an innovation that has triggered penetration and consumption across millions of new users. Language – More than 500 television channels and 7,000 newspapers are the vehicles to communicate with people speaking 22 different official languages of India. Many of these languages are spoken in media isolatable geographies too. In this complex environment, the “one language reaches all” approach to marketing might not be able to deliver desired results. Most successful products have managed this complexity by using multiple languages in their packaging. Similarly, any product that is
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The challenge c is to understand the he nu on ns nuances of socio-cultural regions launched nationally has television communication, point-of-sale material done in about 10-to-11 languages, simultaneously. So, should a marketer setting foot in India be suddenly worried? The answer is a firm “no”. Coca-Cola has become India’s largest beverage seller by continuing to sell a homegrown brand called Thums Up that has a strong Indian imagery. Unilever gained traction by focusing on the skin-whitening segment tapping into the insight that Indians aspire to be fair skinned (the possible impact of 200 years of British rule). Most car manufacturers have entered the small car market, taking cognizance of the rural disposable income. This has helped expand the car market size. Using the unique model of multi-level marketing, a company like Amway has become one of the largest multinationals in India. Japanese consumer electronic firms such as Toshiba and Panasonic, plus US and European car manufacturers are examples of companies that have tasted lesser success due to their inflexible product lines and marketing approach. To sum up, marketers who pass the RURAL test give themselves a great chance to succeed in rural India – a vast, relatively untapped global market. O Murthy Chaganti is a seasoned business professional from India who writes about business, politics and sports. He holds a senior role in the Indian telecom sector.
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GUEST OPINION
Robert Mighall Consultant in branding and corporate storytelling for communications business Radley Yeldar, London, former fellow in English Literature at Merton College, Oxford and former editor at Penguin Classics.
Reaching the final chapter
D
emands for greater transparency and sustainability have compelled businesses to explain themselves better. Hence the return of the corporate brand. A company’s most valuable asset, to be experienced everywhere and “lived” by every employee, Brand was the obvious candidate. But is it the right one? Increasingly, an ancient upstart called Story is encroaching on brand’s territory, and highlighting some of its inherent limitations. A key instance is internally. We all know that brands must be “lived” by every member of the organisation. Yet this is difficult in practice. Let’s be honest, cattle, slaves and logo fetishists are the only life forms successfully “branded”. The rest of us stubbornly retain our free will. Brands are great for helping people make informed choices, but less effective when turned on those who are expected to make their fine promises ring true. Especially when they “live” the organisational reality every working day. And especially now, as the world that gave rise to brands is slowly being challenged by technology. Brands emerged when industrialisation and urbanisation transformed the face of commerce, meaning nobody knew who or what to trust. Originally physical stamps, they guaranteed consistent quality for consumers and allowed their owners control over their intellectual property. Despite the more “spiritual” dimension of branding today, it is still about making an impression – on the hearts rather than hides of
Dialogue | Mar/May 2014
recipients – and controlling the meanings brands carry. Which was fine when brand owners determined the one-way broadcast of those meanings. Yet technology is making the whole world a village again, giving more authority to word-of-mouth networks than official promotional channels, and turning companies into glasshouses at which anyone can pitch stones.
Narrative is the universal human principle and currency By empowering millions to find their voices and share their views, social media draws attention to the “industrial” ethos and controlling impulse of branding. Hence the rise of story, a practice more in tune with our connected “conversational” culture. While brands belong to organisations, story is participated in by every culture on the planet. While it’s hard to “live” brands, we all live our lives by stories, every single day. Narrative is therefore great for connecting personal with professional selves, and so bringing the ambitions and values of corporations and their people into closer alignment.
While branding is intrinsically about control, stories are about movement, journeys, exploring the restless realms of imagination and desire. Businesses are similarly restless, and are forever seeking new domains to conquer, greater value just over the horizon. And so, the journeying momentum of storytelling is better qualified to express the ambitions of business than the fixing, restraining impulse of branding, stamped into it from the start. While employees often resist imposed change, they nurture restless ambitions too, framed in terms of the personal narratives that give shape to our lives. Story can provide a vital bridge between restless organisations and resistant individuals. Narrative is the universal human principle and currency, so the most effective connector and mediator we have. Which is why story is gaining more traction than brand in corporate communications. Whether it’s framing a company’s strategic ambitions in narrative terms; translating codes of conduct, safety or security into real-life anecdotal evidence; or encouraging people to share their own institutional stories to demonstrate corporate values at work – story does the traditional work of corporate brandbuilding in more intuitive accessible ways. Indeed, the word “brand” doesn’t need to be mentioned. This makes me wonder whether Brand’s own story might have reached its final chapter. z In the June edition of Dialogue, we investigate the role of “brand” in leadership excellence
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The Performance Triangle Diagnostic mentoring to manage organizations and people for superior performance in turbulent times Diagnostic mentoring to manage organizations and people for superior performance in turbulent times
Lukas Michel LID
In today’s challenging economic and societal situation, those who have leadership roles in organizations need help: not so much in terms of new theories, but rather better integrated views of existing proven concepts as well as tools and clues for implementation in their specific context. Lukas Michel’s book The Performance Triangle is a notable endeavour in this direction. He bases his ideas on the timeless wisdom of management consultant Peter Drucker and mashes up key knowledge nuggets with his own practice experience, leading straight into his concept of the Performance Triangle. Our environment has changed dramatically since WW II, which means we have to cope with new realities. Technology is changing the rules of the game – but is not providing us with the new answers. This is why putting the human being into the centre of the triangle is so essential. We get carried away too easily with a technology-centric world view such as how big data combined with analytics instruments are now taking over and humans have just to use their outputs. Yet, the role of the knowledge workers becomes even more essential in this data-driven world; and, as described by Drucker, the transition from the industrial to the knowledge society must result in more flexibility and agility in organizations to rapidly adapt or even anticipate external changes. Data will help but the human being, the knowledge worker, will have to make the final judgement. Hence, this new breed of knowledge
Dialogue | Mar/May 2014
workers cannot be put in bureaucratic straightjackets as was the case in typical industrial organizations. Yet the deep impact of Taylorism can be still felt today – how to create organizations where knowledge workers can finally have the autonomy to bring their knowledge to bear and how to manage the changes and transformations that become the norm in our VUCA world (volatility, uncertainty, complexity and ambiguity). The Performance Triangle does not only ask the right questions, it also provides a diagnostic framework to deepen those and thus enables managers and leaders to find answers for the specific context of each organization. It helps to bridge the gap between the human capacity in organizations and the ability to master the challenges at hand. It provides insights for exploring the potential to achieve top performance. And it makes it clear that sustained top performance cannot be achieved without agility of the organization. This is part of the new realities. The book is demanding, but it is a worthwhile investment of ones time as it takes the reader on an intellectual journey providing the backdrop and deeper purpose for the practical advice included. This is in line with today’s most obvious management challenge: better ways to translate sound knowledge into improving the practice of management and thus creating value for all key stakeholders. Richard Straub, president, Peter Drucker Society Europe
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REVIEWS
BIG DATA - BLUE BOTTLE BIZ’S TOP FIVE
Consumer Insight Merlin Stone Kogan Page
Consumer Insight provides market researchers with knowledge of database marketing and CRM techniques. It covers the classic areas that marketers tend to focus on, such as knowing who your customers are, what they do, where they are, what they buy and what they would like to buy. It explores the psychological areas too.
The Engagement Equation Christopher Rice, Fraser Marlow, Mary Ann Masarech Wiley
Digital State Simon Pont Kogan Page
Big data, new distribution platforms, content collaboration, geo-targeting, crowdsourcing, viral marketing, mobile apps – the technological revolution has transformed the way society communicates. Digital State brings together thought-leaders from advertising, marketing, media, publishing, law, finance and more, to explore what the digital age means for brands seeking to engage with us.
The Brain Sell David Lewis Nicholas Brealey
Corporations in hyper-competition are using the new mind sciences to analyze how and when we shop, and the hidden triggers that persuade us to consume. Neuromarketing pioneer Dr David Lewis reveals the tools and techniques, technologies and psychologies seeking to stimulate us all to buy more – often without us consciously realizing it.
Numbersense: How to Use Big Data to Your Advantage Kaiser Fung McGraw-Hill Professional
The more data we have, the more difficult it is to interpret it. From world leaders to average citizens, everyone is prone to making critical decisions based on poor data interpretations. In Numbersense, expert statistician Kaiser Fung explains when you should accept the conclusions of the big data “experts”.
Loyalty 3.0 Rajat Paharia McGraw-Hill Professional
Once revolutionary, loyalty programmes designed to differentiate products quickly became commoditized. Rajat Paharia shows how to create a system powered by human motivation and digital technology that creates ongoing, persistent engagement among customers, employees and partners.
My initial thought on this book was one of scepticism. I thought a book published by a global consulting firm, which specialises in engagement, engagement written by three senior employees of the same organisation, had to be a selfserving attempt at marketing and product promotion... But I was pleasantly surprised to find that the book swiftly moved to the point of recognising that engagement can’t be achieved with series of actions, independent of the rest of the organisations activities, but must be woven into the organisations culture. It then goes on to give some very candid and practical guidance on how to achieve this. It gives a comprehensive overview of all aspects of engagement within an organisation, covering culture, communication, differing roles and measurement. It backs up the theory with real-life insights from many different organisations across the world to help bring engagement to life and this adds real credibility to the views purported. The text is easy going, but it does cover some of the subject matter in such detail that it can disengage at points. It can also seem that there are so many facets to great engagement that it might be an unachievable goal. The most refreshing “take away” from this book is the focus on shared accountability for engagement. So much of the literature and guidance around engagement focuses on this being the sole responsibility of line managers and the organisation as a whole, it was pleasing to see an approach that balances this with the responsibility we must all take for our own individual engagement. In summary, whether you are a seasoned engagement practitioner or just starting out on your engagement journey, this book provides a comprehensive and practical insight into the topic. It gives very candid views and supports them with real-life examples from across the globe. There is a balance of theory with practical advice and tools that make it both educational and pragmatic in its approach. Definitely worth a read. Andy Brown, head of HR, Hamptons International
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Dialogue | Mar/May 2014
REVIEWS
Kill the Company
APPS
End the Status Quo, Start an Innovation Revolution Lisa Bodell Bibliomotion
The ultimate irony companies must accept is that nothing sets them up for epic failure more than spectacular success success. The more significant the success a company experiences in creating a highly desirable product or service, the higher the likelihood that they will enter a dramatic free-fall from the market leading position they created. Even more ironic is the fact that the dramatic demise of most of these companies is often self-inflicted. The natural tendency we have to protect that which we value most is precisely what causes us to lose it. As companies seek to capitalize on their leadership position in a given market, negativity and complacency begin to take hold. Negativity towards anything or anyone that runs counter to maintaining the status quo becomes the de-facto position of legions of professional sceptics (also known as managers) who unwittingly cultivate a culture of complacency within the organization. Once these hold, the company becomes a hollowedout shell of its former creative and innovative self. It begins to operate like a mindless Zombie that oozes negativity, propagates fear and demands conformity. The company becomes a place where addiction to process and obsession with output standardize and sanitize the place to such an extent it looses its very identity. Lisa Bodell suggests we need to approach change differently by changing our approach. Instead of engaging in large-scale, top-down transformational efforts, leaders must empower all employees to become change agents and encourage them to identify and implement a series of changes that will yield a big impact. In Kill the Company, she makes the bold claim that you have to destroy your business in order to save it. The boldness of Lisa’s assertion that we must “kill the company” we work in is only matched by the preciseness of the arguments, examples, tools and techniques she provides us to show us how to do it.
What is Quora? Quora is a website and app based on the principle of questions and answers, created and organised by users. Is a great resource for knowledge, a platform where you can get answers about a large variety of topics from different people all over the world. It is connected with your Twitter or Facebook account, so you can get recommendations about topics to follow. How do you get started? A very important thing to do when you set up your account is to find the right topics, people and questions to follow. When you decide to follow a certain topic, any question or answer tagged with that topic will appear in your feed. Regarding the people you follow, their activity appears in your feed. Following a question will add to your feed all the future answers from the community, as they submit. Quora sets a basic, simple rule from the beginning to make the content more valuable for its users: the goal is information at all times. Questions should be neutral – Quora is used for asking general questions, not starting debates or addressing yes/no questions (closed questions). It’s all about how the user customizes his/hers experience, a little time invested in organizing your feed can bring you a lot of value in terms of the information you get. The choice is yours: you can be an active user – asking questions, writing answers or creating different topics – or you can use it just for reading other users’ contributions. Done properly, both options can be rewarding. An interesting aspect about Quora is the use of credits. You can give your credits to ask a user to answer a question or promote content, and you can receive credits when people follow your questions and vote on your answers. O Perry Timms is an independent HR/OD practitioner,
writer and speaker, and is CIPD advisor on social media & engagement. Follow him on twitter @PerryTimms
Tony O’Driscoll, MD, Duke CE Asia
Dialogue | Mar/May 2014
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REVIEWS
BACK TO THE FUTURE
The Age Of Unreason Charles Handy The Age Of Unreason was published in 1989. The world is changing fast, said the author, and we need to change with it. The numbers prove it, and companies and governments need to acknowledge this and think differently. The future is not inevitable. We can influence it, if we know what we want it to be. Discontinuous change requires discontinuous thinking, and that mean come to see it. His calculation was based on 47 (hours a week) x 47 (weeks a year) x 47 (years). This was very much a standard corporate job post-war. A generation later, he suggested that his son and daughter could expect their jobs to add up to, on average, 50,000 hours: 37 x 37 x 37. Modern Portfolio Man has five types of work: 1. Wage work Money paid for time given. 2. Fee work Money paid for results delivered. 3. Home work All the tasks that make a home function. 4. Gift work Work done for free outside home, such as charity work. 5. Study work Training and reading. The knack is to analyse all these needs and strike the right blend of activity and income generation. In the past, for most men, their work portfolio only really had one item in it – a risky strategy in any walk of life. He introduced the idea of the Shamrock Organisation – with three parts containing a core of well-qualified technicians and professionals, the contractual fringe including individuals and organizations, and the flexible (part-time) labour force. He was even prescient enough to predict the possibility of a fourth leaf in which the customers do the work for the company, in the same way that co-creators do on the internet today. Change was Handy’s central theme, and it was he who explained that if you put a frog in boiling water, it will eventually let itself be boiled to death. Charming, but poignant. He pushes hard against “endemic group-think”, where everyone agrees with each other without thinking properly. This is no way for companies to proceed. In fact, “work is much more fun than fun”, as Noel Coward once said. In a nutshell, the book claimed that we will not survive unless we actively respond to the radical way our world is changing. This is as true now as it was 25 years ago. Kevin Duncan is a business author. His blog greatesthitsblog.com summarizes 200 important books. Contact him on kevinduncanexpertadvice@gmail.com
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Change Lessons from the CEO Real People Real Change Patrick C Flood, Johan Coetsee Wiley
This book brings together well researched academic knowledge and qualitative, anecdotal input from 25 CEO Th i brought b h to lif h d CEOs. Theory is life b by these anecdotes, which are used to provide real-life examples. The input from the CEOs is taken from interviews, no names are attributed to the comments and there is no reference to who the CEOs were. It surprised me in some ways, because it read more like a self-development book than a typical management book. This is not a criticism. In fact, I particularly liked this aspect because it’s saying that change leaders need to be authentic leaders, and to be authentic requires self-awareness. There are exercises and coaching-style questions to help the reader think more deeply about this. The book wants you to be clear about what your values are, what is important to you, because only then will people be willing to follow you; if they share the same values. It presents leading change as a personal mission or hero’s journey during which you will face “crucibles of leadership”, which are the moments that require toughness and strength, but result in you personally transforming. If you are looking for a book to give you some hints and tips as to how to manage change better, this will be able to this. Particular aspects I found interesting were the sections on dealing with the dark side of a leader’s own personality, dealing with cynicism and identifying narcissist leadership styles. There are some great insights for anyone who is responsible for leading change – the focus is around the relational side of change, winning the hearts and minds. The structure of the book is simple, each chapter has a different focus, each building on the previous, and the layout of each chapter includes a brief summary and key learnings – useful if you want to use the book for reference. This book presents a holistic approach to change and comes with a simple message that all change must start with the leader. Mark Pearce, HR consultant and coach, A Life at Work
Dialogue | Mar/May 2014
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The Brand Asia, ethics and everything digital are arguably the future of luxury brands... Ideas and thinking emerging from the growth markets as well as the creatives and entrepreneurs in these regions are driving developments globally. What can the West learn and apply to its own markets? Dialogue’s June focus will investigate the mechanics of the brand, from the personal to the super-corporate, and analyse what makes a brand great. Industry investigate the idea of “brand” and what it y experts p means in the modern world. What are the trials that confront international and successes su marketers and leaders the world over. mar
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DIALOGUE ARTICLE
YOUR COMMENTS: HR: dead or alive?
“The success of HR is down to the ingenuity and inclination of the people leader, not the job title.”
The world is split over a boardroom recluse. The human resources profession is in need of a major overhaul according to some businesses, while others defend it explicitly. David Woods talks to global business leaders about the future of HR Illustration: Travis Black
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Dialogue | Dec 2013/Feb 2014
Dialogue | Dec 2013/Feb 2014
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DOES YOUR BUSINESS REALLY NEED HR? In December’s edition of Dialogue, we asked “Is HR dead?” – and the reaction has been phenomenal. Dialogue followed up the feature with a breakfast summit last year in London in association with employee engagement specialists Purple Cubed. Visit www.youtube.com/ watch?v=rVHyqhNBiEY for the highlights.
YOUR TWEETS: Y Ryan Turner @ansinanser
If the problem is resilience, what is the answer? @DialogueTweets #orgdev
Purple Cubed @PurpleCubed
Great to see Duke CE ranking #1 for custom education. Congrats!
POLL | WE ASKED: “What are the main stumbling blocks to resilience in your organisation?”
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STEVE ROCKEY, head of HR, Byron Hamburgers
“There is a need to have a strong vision for the organization, a strong people policy and values so the people in your organization understand the culture and what is going on.” BEN NOAH, head of customer services, PwC
“We switch off unless HR talks to us about strategy and answers [the question] ‘what are we trying to achieve here?’”
“If HR is credible; if it has a voice in business, it must understand how business works; it must be proactive. If it’s reactive, it’s lost.”
PAUL NISBITT, finance director, Puma Hotels Collection
JAMIE HOMER, director of HR, Urban Outfitters
YOUR LETTERS:
Is HR dead?
In The Fit Mind-Fit Body Strategy Book, the Canadian writer Lorii Myers says: “Resilience is not a commodity you are born with, waiting silently on tap. It is self-manufactured over time by working through your problems and never giving up, even in failure.” Seeing resilience as a gradual state of mind is a helpful perspective. Organizations need leaders capable of creating a compelling vision of an alternative future, reassuring employees that while “the now” may be a challenge, there is every possibility that issues will be solved and even the bleakest of situations turned around. Consistency of message, particularly around common purpose, is something leaders must strive to. Leaders have to balance the unvarnished truth with a brave statement of optimism. They should take calculated risks and press on with a series of bold initiatives that underscore the key point: we’re not finished yet and we’re going to make it.
There are two assumptions in the article “HR – Dead or alive” (Dialogue, Dec 2013). First that HR as an activity is “broken” and there was some golden age when it was not. Second that there is a standard pattern of HR activity. The reality, as one of the more perceptive interviewees stated, is that HR is continuously evolving. The role of HR is bound up with variables such as operating country and the nature of the organization in which it is embedded. Additionally, as circumstances change, so does the pattern of activity and priorities need to change. The area where HR is often weakest is in the advisory activity, especially in policy areas. The danger is that major policy decisions are taken with HR simply being expected to implement, rather than advise on the implications of change before policies are finalised. How much better it would have been if banks had subjected policies on remuneration to analysis before they degenerated into incentive schemes that threatened their survival.
MICHAEL JENKINS, chief executive of the leadership institute Roffey Park
CHRISTINE PORTER, head of HR management, Westminster Business School
Are we born resilient?
Dialogue | Mar/May 2014
Partner with Dialogue Dialogue is a space where ideas are shared, where a network is developed and where brands are taken to a global audience Dialogue can arrange for the digital issue of the journal to be sent to your members We can offer advertising, sponsorship and collaboration opportunities on special projects designed for your brand Make sure your organisation is the talking point among a global audience of engaged business managers and thought leaders
Contact us for more information North America edie.reinhardt@lidpublishing.com Spain and South America jeanne.bracken@lidpublishing.com UK and rest of the world rebecca.nolan@lidpublishing.com
OPINION
Karina Robinson Partner, Robinson Hambro and former editor-in-chief of The Banker
Conquering common fears
H
aving spent much of my time with country and company leaders – formerly as a senior financial journalist, latterly as the CEO of a board search firm – it no longer astounds me to feel the fear. The question simply becomes one of figuring out what fear is dominant in the person in front of me. Take Rajat Gupta, former chief of McKinsey, who sat on the boards of Goldman Sachs and Procter & Gamble: three companies that need no introduction and a global leader whose blue-chip reputation matched those of the corporates he was involved with. Yet in 2011, Gupta was charged by the US SEC in the largest insider trading case in US history. Prison followed. For him, the fear of not having enough money drove him to the point of flinging away a lifetime’s achievement. Retiring with investments worth about £100m may seem comfortable enough, but it is all about comparisons with one’s peers. Mixing with billionaires makes the millions look measly. Gupta is far from alone. A number of former statesmen besmirch their reputations on the back of this specific fear, be it German Chancellor Gerhard Schroeder and his cosying up to Gazprom or UK Prime Minister Tony Blair and his dealings in Sierra Leone. Unlike Gupta, who called a hedge fund founder with insider tips about the companies whose boards he sat on, there is nothing essentially illegal in the actions of these
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two ex-political leaders. But, my, do their business dealings leave a sour taste in one’s mouth. Fascinatingly, one of the other most common fears encountered at top leader level is dread of criticism. Given that the sine qua non of leadership is taking decisions which will never please everyone, this sensitivity is astounding.
A Admitting to fears is unacceptable in a corporate context The corporate cost of a CEO’s not accepting the worth of strategic disagreements from board members and executives can be devastating, leading to company stagnation and employee disenchantment. Questioning the leader’s decisions is perceived as censuring and becomes the equivalent of high treason. The consequence for that executive’s career is the modern equivalent of “off with their heads”: posting to Timbuktu and/or exclusion from decision-making. Years ago, I interviewed Iran’s central bank governor. Inflation was out of control and yet Mahmoud Ahmadinejad
wanted interest rates kept low for political purposes. I voiced doubt about Ebrahim Sheibany’s ability to face up to his political supremo, known for a fearsome temper. He insisted he had shouting matches with the President in a bid to bring in some sensible economic policies. The veteran central banker was telling the truth. A few months later, he had a new job as Ambassador to Austria, Slovenia and Slovakia. Additionally, there is fear of success. Successful leaders, whose paths are strewn with praise, know that the Gods can turn against them from one day to the next. Some shrug it off and are bold in their next endeavour. But others walk through life with the careful tread of a pensioner, hoping that by cautious behaviour they will stave off the evil day when failure will take over from triumph. As a result, in a world that changes at a faster rate than ever before, they will not reproduce their earlier achievement. In an age where executives are virtually banned from using the word “problem” – “challenge” is the politically correct terminology – admitting to fears is unacceptable in a corporate context. Thus, it is all the more refreshing to hear Sheryl Sandberg, Facebook COO, use the phrase “What would you do if you weren’t afraid?” What, gentle reader, is your greatest fear? Conquering it, other than in sporadic instances, may be too much to ask, but naming your fear ensures its damaging consequences can be minimised.
Dialogue | Mar/May 2014
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Global leaders debate the future of HR strategy US OCU FOC F
INTERVIEW 82
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Giovanni Bisignani: the man who revolutionized air travel
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Sir Jeremy Greenstock balances leadership and teamwork
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answers. There is a need for different individuals, companies and governments, and their cultures and traditions, to learn from each other so they can better understand and resolve leadership challenges.
Ult Ultim U lt ately , an organiza o zatio tion on’s n’ss govvern gove rning rnin principle g pri s and values aff affe affec ect everythin yt g it yth do does oes
Dialogue recognizes this fact and provides a vital source of new ideas for top executives creating, leading and developing businesses in today’s world.
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ISSN 2053-4361
and ggling s are mind-bo the fastest one of he number India – the world, ies in alluring. econom es in area, growing square kilometr 830 million 32 million of 1.2 billion; than 600,000 on in excess in more populati d to treble on staying expecte rural populati rural income and villages, 2020. trillion by to $1.8
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g and is expandin l market can give long he rura The T Th err kete g – and e explodin efits to any mar g term ben their marketin s have met
FEMALE LEADERSHIP 64
INNOVATION 78
SOCIAL MEDIA 94
ENTREPRENEURSHIP 98
Building the female talent pipeline at pharma giant Novartis Pharma AG
If leaders really want innovative staff, they must kill stupid business rules
2014: the year social media becomes the essential leadership tool?
Meet the man who reinvented the wheel and took it to a global market
ies few countrie Many companis one of the lags behind (India Coke; P&G lords over nemesis s Suzuki Pepsi outsells Kellogg’ where known Ford and trying to ; little Toyota, Unilever habits) Motors; General taste Indian twists and turns ine trying to are are still the labyrinthsame time, there ional At the wade through market. and multinat and of the rural ies – Indian consumers compan the rural several in villages. won over case studies.ng and – that have successful is expandi dividend have become market aphic The rural if tapped the demogr g. With this market, ts to any explodin benefi in its favour, m tap into working give long-ter a company its does into, can burning r. So, how nity without markete opportu the huge pockets? hands and
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Dialogue
| Mar/May
2014
d 95 Chaganti.ind
94
d 94 Chaganti.ind
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