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The forces of change are gaining momentum. In the past Industrial Age, companies had to contend with dramatic changes but these were relatively infrequent and gradual. Today’s environment presents a different sort of playing field for every institution. They are all faced with a constantly swirling cloud of change. As a result, every institution is surrounded by unpredictable innovations, shifts in the marketplace and other events that can quickly render a long-reliable strategy obsolete. Furthermore, new competitors can emerge from seemingly nowhere.
The problem is not the shifts in themselves, but the lack of abilities among institutional players to change. Consequently, societies all around the world are experiencing an increasing gap between their aspirations for change and their abilities to change. As Peter Drucker, the father of modern management strongly expressed, a re-invention of management is needed to achieve value creation at scale. In Drucker’s words, “management is the central resource, the generic, distinctive, the constitutive organ on which the very survival of society is dependent”.
Five Capabilities for Continuous Innovation
A vast amount is written on new management practices for how an institution could become more innovative, adaptable, and fast. This body of knowledge can be distilled into five necessary key areas of management capabilities that need to be built and practiced:
- Dynamic capabilities. Including the ability to sense and shape opportunities, to seize them, and to build, buy, reorganize, or co-create resources as needed.
- Human-centric capabilities. Based on a belief that people want to be creative and that a company must provide a setting in which they can exercise their creativity.
- Ambidextrous capabilities. Allowing the institution to combine two very different forms of business logics, to optimize daily production and optimize innovation.
- Open innovation and co-creation capabilities. Allowing the institution permeable boundaries to exchange information and knowledge with their surroundings.
- Systemic capabilities. Allowing a holistic and systemic approach when reinventing management components such as: culture, leadership, HR practices, organizational design, and more, that all are interdependent and jointly affect the institution’s outcome.
A New Management Model is needed
When applied, the five areas of management capabilities require not only incremental changes of the current management model, but commonly a 180- degree new management model that includes a new set of cultural beliefs, a new way of leading people and a new way of assigning and coordinating tasks and create user value in the form of product, process, marketing, and management innovations.
Currently societies and their institutions change too slowly and there is therefore an urgent need for use-cases that can first, describe and illustrate versions of this new management model, and second, tell the story how the transformation can be managed.
GE Appliances as A Use Case
In 2022, GE Appliances (GEA) had become the fastest growing home appliances company in the USA and could proudly show-case innovation of its core business, such as Small Appliances and Recreational Vehicle appliances, as well as innovations in new channels, e.g working side-by-side with the Jewish community to develop appliances to be used during the Sabbath and with the visually impaired community to develop the talking laundry. However, what GEA is most proud of is the fact that the company now is, by its employees, labeled as ‘A Great Place to Work’ and that their goal is no longer limited to what competitors do, but instead focused on consistently building new capabilities to co-create and serve more and more users. However, behind all these successes is the most important innovation of them all-the reinvention of their own management model!
Only six years earlier, in 2016, the company was slowly dying with zero-growth. The top leadership was at this time focused on cost control and the culture was risk averse and focused on behavior that secured profit margin and cash flow, not innovation. To ensure this, leadership was top down, command and control and people selected had a long tenure in the company. Some employees described the company as a ‘machine’.
The change of GE Appliances was enabled by a new owner. In 2016, the company was acquired by Haier, which had transformed its own management model over the past years. With coaching and support from the new owner, the executive team of GE Appliances became convinced they could become the number one on the North American market if they followed some key new beliefs. As a result, in 2017, the old beliefs were exchanged with a new set of beliefs:
- The user is the boss, we need zero distance to the users
- Hierarchy is exchanged with a networked organization
- Employees are entrepreneurs
- Pay by enterprise is exchanged with Pay by users
- Management needs to transform into a non-linear leadership
- The corporation is a platform
- The firm is transformed into a win-win ecosystem
Impact on the Management Model
Previous product lines were now transformed into user focused microenterprises, with P&L responsibilities. Previously powerful functions such as supply chain, sourcing, manufacturing, legal and human relations were changed into supporting platforms, serving the user-oriented microenterprises. In this way the whole organization was now focused on the market and user needs.
Decision power and budget accountability were pushed down in the organization and the top leadership became leaner and focused primarily on new growth and inventing the future. By viewing the corporation as a platform, the company consistently added new high-growth businesses to its governance structure, going from 4 businesses in 2017 to 14 in early 2022. As has been mentioned, in July 2022, GE Appliances had become the fastest growing home appliance company in the USA.
New business opportunities also required new domain competences among employees as well as an entrepreneurial mindset and skillset. Coming up with ideas for incremental and radical innovations was now expected and rewarded, and new avenues for funding new initiatives were established.
When the changes within the company were established and rooted, GE Appliances next started to learn more about ecosystem businesses and brands and decided to become the leading ecosystem brand in North America in their industry.
As a result of the new management model, based on a new set of beliefs, GE Appliances improved their dynamic, ambidextrous, human-centric, open innovation, and systemic capabilities, which led to continuous innovation, adaptability and speed.
About the author:
Dr. Annika Steiber, author of the Springer book Leadership for the Digital Age