The “Great Transformation” is the current and on-going global economic transition from the “Industrial Age” (premised on physical production) to a “Knowledge/Creative/Human Economy” driven principally by globalization and technology (information/automation and the Internet). This great change is stressing an old industrial era top down/command-control leadership model with a new and emerging approach that more effectively addresses a complex and dynamic economic environment (“complexity leadership theory”) with a focus on learning, innovation and adaptability.

Companies who have responded to this economic transformation have shifted their leadership style have also recognized that it is the people who bring to work the essential traits that cannot be programmed or delivered by technology: creativity, passion, character and collaborative spirit.

These same organizations are also challenged by the fact that globally only 13% of employees are truly engaged in their business which presents a new challenge in how to dramatically improve the employee engagement function and to leverage as a force/effectiveness/competitive multiplier.

Many organizations are hiring great people and are turning them into average performers and doing so very, very fast. They are struggling to free up the potential in their people. Organizations are also giving up control to more fully leverage human talent and in doing so believe that they are gaining ability to be faster, closer to the customer, and more entrepreneurial (agile).

Three main aspects of The Knowledge Economy:

1. Goal — shift from maximizing shareholder value to continuously adding value to customers
2. Practices: collaboration — transition from hierarchical bureaucracy to leadership and management practices that are collaborative and which draw out the talents and capacities of the people doing the work
3. Metrics: appropriate metrics — focused on solutions for human prosperity rather than narrow financial goals

Innovation

How is the organization building an innovation advantage? Many new companies have an opportunity to create their own innovation culture and climate from day one, and this can also be done with brown field organizations: (1) retrofit the old management model, (2) open up a company wide conversation, (3) ask where is there evidence of bureaucratic drag and how much is this costing us, (4) what are the new principles that will help us build the new organization around, (5) if we were serious about openness what would change, and (6) what would we change in the way we create strategy? According to the CEO of Whirlpool, “…I want innovation from anyone and everyone.”

Companies typically spend only 5% of attention and resources on exploring (innovating) — companies have to change that tooling and make innovation natural and habitual versus unnatural and reactive. To build innovation proficiency there is a need for appropriate governance and funding, and a culture of intelligent failures — “how to learn.”

Key to innovation is making it intrinsic and instinctive in your organization (less than 1% of organizations do this) and then enable the organization to change as fast as markets — making them adaptable at their core.

Technology

Digital technology: (1) systematically and substantially reducing the barriers to entry and barriers to movement on a global scale — intensifying competition, (2) accelerating pace of change, (3) connectivity — tiny events cascade into extreme events and disrupt our big plans — creates mounting performance pressure.

From 1965 to today the ROA for public companies has declined 75% — that is an indicator of mounting performance pressure. There is an increasing disconnect between the world being shaped by digital technology and the mindsets, practices and institutions that we operate. And in closing the gap we may need to ask how we re-purpose our institutions — a fundamental shift that may have to happen and move from rationale, scalable efficiency to scalable learning.

Next Steps

For some organizations, orchestrating wholesale changes to effectively “transform” leadership style, employee engagement, innovation and technology can and may find the process to be daunting, but quite doable. Consider chunking and starting with just a single area of focus, achieving some traction and then expand — it will likely take on its own life and pace. Possibly there is a way to introduce the broader concepts and then allow some enterprising group business leader to run with it, and then drive through the organization. The key is first recognizing the need, benefits and value to these changes and allowing the management teams to determine the best courses of action.

These transformative and strategically significant focus areas can, of course, be evolutionary or revolutionary. The worst choice would be doing nothing (watching and seeing as the market passes by) likely resulting in business decline and stagnation. I believe that those early adopters will clearly experience competitive and sustainable advantage and will achieve an enterprise culture and climate of meaningful engagement, purpose, performance.

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A blog following the Global Peter Drucker Forum 2014. An opportunity to share experiences and learn from one another in the context of The Great Transformation.

The diagram below summarizes disruption forces in the IT and telecoms space from the late 1990s onwards. Reading the diagram from the left, it says that telecoms was a highly consolidated sector comprising network carriers, network infrastructure and device makers.

Telecoms used to be dominated by cartel-like relationships between large carriers, large phone makers, infrastructure providers, and their carrier software support vendors such as the ERP giants. It was almost impossible for a small company to do business with in this environment.

In IT, the entrepreneurial community had attempted to by-pass Microsoft’s control of operating systems (OS) by gravitating to a new device, an Internet appliance that would need its own OS. This was tried by the highly experimental BeOS. BE came close to success but not close enough. The cartel held sway.

Be was started by ex-Apple employees. The migration of key staff is a significant source ofcreative destruction.

Be employees, in turn, went onto Android, which started its life as an attempt to build an OS for Internet appliances

The intra-community activity between these companies created a significant store of experience as well as belief that business could be done differently.

At the same time that Internet entrepreneurs tried to gain traction, a burgeoning Personal Digital Assistant (PDA) market was emerging. This market had been growing and by the mid-2000s, was Internet enabled. It was the precursor of the smartphone in design and personnel.

An apps developer ecosystem was also well established within PDAs. Palm had 50,000 applications before Apple thought about an App Store. There was a well-worked out methodology to assess effectiveness of these innovations, based on consumer feedback and web analytics.

This was the situation when Apple launched the iPhone in 2007 and when Google launched the first Android phones a year later.

One catalyst for change – applications written for mobile devices – was only manageable at the scale reached by companies that had a strong platform background, as both Google and Apple had. Their arrival presaged a period of six years where the rule of management has not been to stick to the core – it has been to seek out the adjacencies.

Apps created a huge well of free content or usage opportunities for smartphones.

And on pricing, high end smartphones could cost $600 – 1000; on the cheap end though they quickly became available for $150 – $250. Radical price reduction is a feature of dramatic change.

There was also structural innovation – the upgrading of the US telecoms networks and with it the new information layer around sites like TechCrunch, who belatedly realized mobile) was an industry to rival and exceed computing. They became strong advocates of Silicon Valley products. Finally the mobile grid became truly global, laying an infrastructure for new ways to do business at scale with low unit costs.

That brief overview of events fits the model above as discussed in the first post. Here’s how it fits banking.

1. Concentration and the development of hubristic conditions. Bank consolidation preceded the Great Recession and was an integral part of the solution. Since the crisis we have seen considerable evidence of hubris (such as LIBOR fixing).
2. Experimental era. The finance sector has been surrounded by innovators seeking ways to pull down the walls of the oligopoly since the early 2000s (PayPal, Internet banking, low cost security brokerage; In retrospect it is surprising that so little of these gained traction, in the sense of creating a vibrant innovation culture.
3. The Content Layer. The growth of awareness and experience among consumers of different forms of substitute products and services has grown over a 10 – 15 year period but more than anything the crisis has created a new information environment.
4. Ecosystem consolidation. Over the past three years Fintech funding has grown three times faster than all VC funding; BitCoin and Ripple have now introduced the disruptive threat of open source and banks themselves are seeking a role in open source project.
5. Platform: Banks are all actively pursuing adjacencies, partnerships and fintech investments. Will another venturer provide the platform to consolidate this activity and renew finance? Already the space is becoming crowded with tech giants and new vendors in specialized areas like trade and supply chain finance, each taking the concept of finance beyond a traditional bank boundaries.

People are migrating between each and all of traditional banking, new finance companies tech platforms experimental era entities (PayPal), and start-ups. The people flow presents real opportunities for companies, incumbent and new, to create new market structures and it reflects a widespread belief that the structure can be and will be changed.

On the technological front, the advent of global mobile networks makes it possible to conceive of ultra-low cost payments’ networks The essence of change though lies in using scale on global mobile networks to make payments a true Internet service with the capacity for individuals and companies to deal with each other without intermediaries, therefore putting pressure on intermediaries to create new types of value rather than just to extract rent. Apple (phone payment via credit card), Google (email payments), Twitter and Facebook (social payments) are not taken seriously enough as future payment infrastructures, yet they operate at a scale most banks don’t yet dream of.

These companies have the capacity to make payments virtually free to the end user, akin to the impact of apps on the mobile business. Other tech companies have the capacity to make working capital and other types of loans to business at rates that don’t need to reflect high fixed costs. By opening up credit lines for businesses tech companies can position themselves to be the provider of all kinds of planning, execution and supply chain coordination software. In transaction banking the process of externalizing functions is creating a new market for payments providers of all types. Here payments are coupled to the changing needs of the enterprise, so the actual payment is subsidiary to services like credit lines and complex fx hedging. There is no need for an enterprise to rely on banks for these services and as non-bank credit lines are opening up and banks will find ways to fund trade without having loans on their own balance sheets.

These examples suggest there is a pattern in structural disruption. Entrepreneurs destroy industry structures, often for ideological reasons; and oligopoly is its own enemy because it leads to poor decision-making. Executives who want to anticipate disruption need to look closely at these factors. Disruption is, after all, predictable.

A longer version of these posts can be found here.

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A blog following the Global Peter Drucker Forum 2014. An opportunity to share experiences and learn from one another in the context of The Great Transformation.

It is important to understand the common themes behind these changes and have a model that helps executives anticipate and manage the impact of disruption or to devise disruptive strategies. Increasingly executives are talking about change as “disruption” and many smaller companies are positioning themselves as “disruptors” of a sector. Arguably “disruption strategy” is taking over from competitive strategy. If so then we need to clarify terms and grasp what this means.

As identified by Christensen, disruption typically creates new markets. If it doesn’t do this then strategy is typically competitive rather than disruptive. If we bear that distinction in mind then the idea of disruption becomes a useful way of looking at enterprise behavior and market change in the great transformation.

People talk about disruption in terms of the historical movement towards new types of productive enterprise, but they identify the root cause of transition as digitization. Given that a digital paradigm has existed for thirty years, this seems ill-conceived. In this post I will dig deeper into the background of disruption thinking and arrive at a simple model of its main characteristics and drivers.

There are five main contributions to thinking on business disruption but do any capture the essence of change that we face in the Great Transformation?

1. In the 1930s Kondratiev explained disruption as 60 year cycles (or waves) in which commodity prices become too high for incumbents to sustain business as normal and therefore needed radical innovation. For Kondratiev disruption was a periodic renewal that took an economy into a different set of relationships around commodity utilization. Technological innovation typically does just that by making business activity and scale cheaper;
2. Schumpeter used this wave theory to suggest that capitalism becomes increasingly corporatist and concentrated; corporatism would alienate key thinkers because it would produce an economy that made entrepreneurism impossible – this would lead to creative destruction or, in other words, an ideological attack on capitalism;
3. In the 1990s Christiansen described disruption as a process where even good companies could be hoodwinked by smaller companies with low cost products picking off low-end customers, meanwhile gaining experience to broaden and change the basic conditions of the market and customer needs, and compete by changing market structure;
4. More recently Larry Downes and Paul Nunnen have described a new form of disruption that they call Big Bang; an example is Twitter that began as an experiment and grew into the world’s largest broadcaster of personal information. Big Bang disruptors can be strategically inept and accidental, yet still very powerful suggesting that some elements of disruption are not that strategically controlled.
5. There is a fifth school of thought that has been given less attention, Steven Klepper’s work on firm survival and new entrants.

Klepper found that firms tend towards oligopoly. They survive for as long as they keep the barriers to entry high and they often do this through high levels of investment in R&D, which in turn gives strong returns to the investment community.

However, complex decision processes at the senior level of firms is are also associated with an inability to respond to competitive pressure. While discussions of disruption tend to focus on singular cases, Klepper illustrated the impact of complex decision processes on whole sectors.

The US Tire industry in the 1930s, TV manufacture from the 1960s and autos from the 1970s all suffered the effects of decision processes that were unresponsive to change – in all three cases the attack came from the rise of cheaper sources of production in Asia. In all three cases the problems lay in complex decision process in publicly quoted firms. Firms that had previously maintained entry barriers through high R&D investment were unable to respond to changes in processes elsewhere.

In contrast to these public firms, private ownership allows for longer-term investment decisions. In banking for example, in a recent unpublished study I found the Bank of New York Mellon, family owned, was far more adept at innovation decisions that the publicly owned Citi.

Klepper also found that in many instances competition arises from the employee-base of an oligopoly. People denied resources internally tend to quit and start their own competitive enterprise.

Klepper did not consider the possibility that whole industry structures can be transformed in ways that destroy oligopoly power very quickly from within, i.e. without competition from low-cost sources of production and without the successive incidence of smart people leaving to join the start-up pool (a process that roughly equates with creative destruction). Indeed the industries he studied were marked also by intense competition from developing economies. In the case of Nokia, the failed European mobile phone maker, competition came from high cost, high price Apple as well as low-cost Google working on a different operating model. This s another important point – we focus on business models when process models are significant sources of advantage.

Drawing on Klepper’s thinking and Schumpeter’s it is possible to identify a five step process that leads to structural disruption that affects all firms in a sector.

1. Concentration and hubris. The consolidation of market structure into an oligopoly, with satisfactory margins, but often accompanied by the growth of hubristic management.
2. The experimental era. What forces change on a highly concentrated industry? In the silicon industry Klepper identified early pressure coming from talented people working in oligopoly firms. This resulted in employees of existing oligopolists leaving to create their own companies because of dissatisfaction with how their innovative mindset is treated. Often accompanied by moves toward open source technologies; these socially organized movements also provide entrepreneurs with access to people whose work-values are part of a broader movement to democratize access to an industry – and today the Cloud makes experimentation and failure much easier to bear.
3. The new content layer. The growth of awareness, or a new content layer or changed information market, as consumers experience alternatives to oligopoly offers, often as co-creators or participants, is an often overlooked aspect of change. Awareness is also about consumer preferences and consumer access to information for making informed choices has never been easier.
4. Ecosystem consolidation. The consolidation of a durable start-up community with continuity of personnel and objectives over time, often represented as an ecosystem that takes on innovation risk is a consequence of an early experimental period. For example, there is a community around BitCoin that is destined to fail with its initial experiments but bound to succeed in the longer term task of disrupting finance through code and a global community.
5. Platform and price. The arrival of a platform company as an organising hub for a new industry, intensifies horizontal pressure on a whole sector and triggers multiple random adjacencies as platform providers can choose their ground – for example can Uber resist going into parcel delivery? Typically there is also a radical price reduction; apps for example, became free; new payments platforms today are radical on price. Platforms often represent the devolution of risk to ecosystem members, a factor that might explain why price reduction is possible. Platforms represent an organizing hub, a radical price point and devolved risk.

In a second post I will summarize disruption forces in the IT and telecoms space and look at how this applies to finance.

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A blog following the Global Peter Drucker Forum 2014. An opportunity to share experiences and learn from one another in the context of The Great Transformation.

The major transformational shifts that we face in terms of a growing world population, changing demographics in developed/developing countries, globalization, growing inequality, digitalization, The Internet of Things, 3D-printing, the rise of machines and automation of jobs, big data, radical transparency and the move from profiteering to purpose driven organizations based on shared values, are merely ongoing technological, environmental and social processes. However, when it comes to changing our perception of normal and understanding of the world, the effect cannot be underestimated.

Shifting vantage point

We find ourselves at a stage between The Industrial Age and The Network Age, which is hardly breaking news to anyone; but recent years have accelerated the interconnected shifts. So why is it that we as human beings continue to pursue strategies that we know are wrong? Why is it that we fail to change our course?

Charles Dickens offers some insight into that question. In 1859, he wrote A Tale of Two Cities to describe a period of turmoil in London and Paris.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us.”

These words illustrate a crumbling elitist hierarchy. Louis XVI and other leaders at the time chose to ignore the many signs of widespread discontent around them and refused to see that fundamental change was on its way. The result was one of the most significant shifts in history: The French Revolution. It is worth remembering that Dickens wrote his book 70 years after social and political upheaval in France began. This illustrates that we often struggle to see progression in the moment because we lack the benefit of hindsight as major shifts unfold in society.

According to historian Thomas Kuhn, the change of a system is ultimately caused by the accumulation of anomalies – observations that cannot be explained by the prevailing paradigm of beliefs and mindsets. As anomalies increase in number and severity, the need for an alternative worldview becomes clearer, and eventually a new paradigm is developed that can solve more problems than the old one.

The closest comparison to the present change would be the Renaissance and Enlightenment collectively viewed as a period of transition from The Middle Ages and all that this entailed in terms of challenging existing knowledge, sciences and mankind’s self-perception manifested in its beliefs and values. It was an ‘in-between’ time with many regarding the rise of individualism, the new economic reality of states and the decline of feudal power as a paradigm shift.

Today, we find ourselves in similar ‘in-between’ times – a liminal state – between two major patterns of socioeconomic reality. The term liminality describes a state of transformation with huge implications for culture, community, identity and values. It is a stage of ambiguity and disorientation that precedes a breakthrough to a new way of thinking. During liminal periods, social hierarchies are often reconfigured, continuity of traditional habits becomes uncertain, and future outcomes – once taken for granted – are questioned. The dissolution of order during liminality creates a fluid situation that eventually enables new ways of thinking, learning, doing and being to become established.

A state of being

When life is changing and constantly in motion there is less stability to hold onto. When our worldview and what we hold to be true is challenged, we experience a sense of personal disorientation similar to a culture shock, the effect of unfamiliar life and radically different social environments, now, however, in an ongoing perpetual cycle of changing realities. We are under such constant bombardment that no illusion allows our mind to rest; instead, we are in a constant state of raised awareness. In Buddhism the term Dukkha describes that state of being. Dukkha is the pain you experience when you cannot figure out how to let go of what is no more. It is usually translated into English as “suffering” but it also means temporary, limited and imperfect.

Exercising good leadership requires human knowledge. Perhaps most importantly, it requires that you know yourself. Soren Kierkegaard described how important self-insight is in order to rise to the occasion as a human being. He emphasized that we must look inward in order to see outward, change obsolete strategies and make better decisions. This is a conscious process that requires contemplation, peace and a more focused attention than what we are seeing today, when we often find ourselves in a state of high intensity, which consumes the lives of many leaders.

The choice is yours

In the film The Matrix, the main character, Neo, is presented with a choice by a mysterious character called Morpheus. Morpheus offers Neo two pills – a red pill and a blue pill.

The red pill will answer the question: ‘What is the Matrix?’ The blue pill will allow for Neo’s life simply to carry on as before.

The question of which pill to take illustrates the personal aspect of the decision – whether to live on in ignorance or whether to lead what Aristotle referred to as ‘the examined life.’ The question then is not about pills, but rather about what they represent.

The blue pill represents the status quo. It will leave us as we are, in a life full of habits and things we believe we know. The red pill on the other hand represents an unknown quantity and the pursuit of trying to understand the world we live in. It symbolizes risk, doubt, questioning and, ultimately, enlightenment.

The scene in The Matrix illustrates the difficult choice that business leaders face nowadays. Do you acknowledge the new reality and adapt to it? Or do you choose to carry on with the same mindset, skills, behavior and organizational culture, knowing that it will potentially damage your future existence?

Enlightenment never comes cheap. The same applies to the transition from The Industrial Age to The Network Age. But one thing is certain: We live in a time that offers great opportunities for reinvention.

The question is whether you take the blue pill or the red pill?

Kenneth Mikkelsen is a leadership advisor, speaker and writer. He is Director of FutureShifts and currently writing a book about the need for expert generalists in modern organizations with Richard Martin. Follow him on Twitter @LeadershipABC.

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A blog following the Global Peter Drucker Forum 2014. An opportunity to share experiences and learn from one another in the context of The Great Transformation.

With business and society merging, it is important for managers to go beyond numbers into rich, deep, and substantive understanding of society and its needs. “Aside from basic survival, the pursuit of happiness is arguably one of the most fundamental concerns of every human being on the planet.” If happiness is what society ultimately striving for, how can a leader tap into that insight? Firstly, it is important to clarify what happiness is. According to the research, 50% of our happiness is determined by genes. The surprising part is that only 10% of our happiness comes from external circumstances. The products we buy, our financial resources, looks, environment where we live – all these things determine just 10% of ongoing level of happiness. Most importantly, the remaining 40% of happiness comes from our intentional activity: what we do and how we think. This percentage, which is in our control, is tied to living one’s authentic aspirations and sharing them with others.

In the economy of yesterday managers could only focus on the 10% – financial drivers and consumerism – and produce thriving organizations. Intellect and reason were enough to sustain and grow businesses. This is no longer the case. Nowadays, business, social, and global landscapes are seamlessly and complexly interconnected, and managers start paying attention to the most important source of society’s happiness: authentic self-expression and alignment. These deeper buried 40% of happiness become hardly accessible to an outward-looking intellect and it alone is unable to provide sustainable, considerate, and successful results. Intuition, on the other hand, speaks directly to the inner source of happiness as its center of gravity is authenticity and essence of life. Thus, in order to prosper and welcome a more sustainable and brighter future, modern business leaders need to recognize the language and core of human life and match them in the way they run their businesses. More specifically, leaders should open up and embrace the totality of their human essence, while organizations need to project authenticity, clear core, and awareness in their relationship with the customers.

If manager’s task is to speak the rich language of essence, authenticity, and alignment in order to create prosperity, then intellect won’t be of great help here: there is nothing authentic about intellect. “If you follow logical mind, then anybody who follows the logical method can catch you anywhere.” Intellect can get managers profits. From that point on, the law of diminishing returns applies. To reach for sustainable prosperity, a totality of human essence needs to be utilized.

Lend your intellect a dose of authenticity. It will thank you for that. Society will thank you for that. Hone your awareness. Observe intently. Stay open-minded. Listen to yourself first, data second. Go on intellectual detox. Come back sharper, more aware, and deeper.

When speaking about relevance to the society, innovation is the key. Continuous innovation is what creates and keeps the customer. Great innovation, however, is possible if leaders welcome uncertainty, transcend established ideas, pursue creative new alleys, and are in tune with their time. Innovation based on intellect won’t get you far: more of the “better sameness”. Innovation based on intuition and insight will, in turn, result in meaningful breakthroughs that speak to the 40% of customer’s happiness, because the resulted product/service is authentic and aware. Here are two reinforcing examples from the world business leaders:

• Steve Jobs believed that “customers cannot tell you what they need.” Customers can articulate their desires based on their current knowledge, but that would not lead to insight and result in great innovation, would it? Jobs did, however, focus on delivering value to the customer and he did it through intense observation and intuition among others.
• David Holder revived a “sleeping beauty” Ladurée (French luxury bakery, famous for its macarons) and positioned it as a premier Parisian experience. Mr. Holder is known to follow his intuition and he did by developing a unique brand concept “beyond the diktat of current trends.” He followed the principle of “beautiful place, beautiful people”, establishing Ladurée shops in places aligned with the core of beauty of the brand, where meaningful connection with local managers was established. By aligning spirit of the brand with the destination he believed customers could receive the most authentic Ladurée experience.

To conclude this series of posts on human essence as a key prosperity, my engagement in Global Drucker Forum 2014 made me think how far we have come and what is next for management. In 1959, Peter Drucker coined the term “knowledge worker” to signify our transition from industrial-based era to knowledge-based are. Considering current turbulent economic climate where business and society have merged, the next era might as well be the era of human essence.

Consider exploring next: A New Breed of Business Leaders: Intuitive Principles for the New Millennium

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A blog following the Global Peter Drucker Forum 2014. An opportunity to share experiences and learn from one another in the context of The Great Transformation.

The oft quoted case study at the Forum was of Morning Star – a California tomato producer which employs 4000 people with a very flat management structure. So flat in fact that anybody can make a capital expenditure proposal, and if it is validated by their peers, it happens.

But still it felt to me that there was something missing. Reading the Morning Star case study by Gary Hamel on the Harvard Business Review blog, it struck me that yet again only corporate objectives have had any credence. We all talk about engaging our employees better, but we don’t seem to bother to find out what objectives those employees have in coming to work. If we simply brush this off as they get paid and incentivised to do better whilst at work, then we’re not that far from the Henry Ford model even after a hundred years. We are still only paying lip service to employee engagement, because we’re still using a simple measure which is money or money equivalents to buy somebody’s time and engagement. If we don’t know what that person values, then we may be missing an opportunity. Dov Seidman spoke at the Forum about How matters in an organisation, and yes it does. But I contend Why matters more and that seems to be ignored by most corporates.

Other sessions at the forum focused on the Mittelstand model, which includes a view of a more extended family to include employees and their families such that sustaining profits is more relevant than maximising profits. The idea is to ensure future generations can benefit from the company model – both future generations of owners, and also employees. This indicates an informal way of understanding employee positions, and isn’t far away from the employee benefits at campuses such as at Google and Nordstrom. These concepts were pioneered by Victorian factory owners such as Lord Lever at Port Sunlight and Cadburys at Bourneville. These paternalistic solutions worked well but left little to employee choice, which at the time was virtually non-existent. Employees have more choice now, and a better standard of living, and might appreciate less paternalism and more inclusiveness.

We do a lot of work with strategic planning for small businesses and always start with personal objectives in detail. That simply doesn’t mean how much money they want but why they want it and what they going to do with it. We drill down to deeply understand what fulfils them as human beings. Aligning business and personal objectives generally produces significant improvements. Then, looking at the business from the customer’s perspective, and aligning this with personal and business objectives produces subtle and powerful forces for change. Businesses become easier to run, with a team that understands themselves, each other, and the business better, and they produces a clear and consistent message to their marketplaces.

Peter Drucker looked for ways of building a more inclusive entity in Management in the 21^st Century (1999) “We will have to redefine the purpose of the employing organization and of its management as both, satisfying the legal owners, such as shareholders, and satisfying the owners of the human capital that gives the organization its wealth-producing power, that is, satisfying the knowledge workers. For increasingly the ability of organizations — and not only of businesses — to survive will come to depend on their ‘comparative advantage’ in making the knowledge worker productive. And the ability to attract and hold the best of the knowledge workers is the first and most fundamental precondition.”

But no methods of doing that as part of core strategy are commonplace. We all talk about employee engagement whereas we put should perhaps be talking about employee capability – discovering all the abilities and drivers that each individual can bring so that business and personal objectives can be better understood and overall performance improvements obtained.

There is a lot of talk about customer engagement as well. It is clear that customers don’t want mass produced, push marketed products. Most have enough things- they now want personalised solutions to their needs. If we expect to do this for our customers, why wouldn’t we expect our colleagues to have the same desires, and expect the same attention to them from their employers?

There is a simple structured way of discovering personal objectives, which can be easily integrated into a performance appraisal meeting, such that HR departments could be at the forefront of driving business improvement. There will be mismatches, and those will have to be managed. But it would be better to find those out and manage them explicitly than wonder why capable people continue to slightly underperform or even leave. Some will show scope for improvement and they will need some support. Whatever the results, having the conversation and sharing business objectives will enable managers to get their people very much more onside, much more engaged, and much more able to take decisions which can be trusted. This will help to build a flexible and agile workplace with less need for rigid bureaucracy, so more able to adapt to a fast changing world.

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A blog following the Global Peter Drucker Forum 2014. An opportunity to share experiences and learn from one another in the context of The Great Transformation.

1. Creating value beyond short-termism. The challenge for companies is to create value from innovation beyond short-termism. As wisely said by Clayton Christensen, to bet on innovations that create markets you can see a return in five to ten years, but when betting on efficiency innovations, you can see a return within months. But what generates wealth is innovation that creates markets and jobs, whereas innovation efficiency often entails major social complications and a loss of jobs. The first and most difficult thing for managers to bet on is long-term innovations (that, according to Drucker, is not simply the sum of short terms, said Rick Wartzman) that create strategic value, the second is to do nothing, and the third and easier option, is to go for short-termism. In this framework there were key issues taken on board by Roger Martin on democratic capitalism and social inequalities. Martin said that so far the company has benefited more by trading with those who create value. The reflection on how to create value for the company and for society in a world marked by innovation is fundamental.

2. Kill bureaucracy. The second major highlight of the conference was about the nature of organizations today. Here, Gary Hamel was emphatic and forceful. Current bureaucracies are not able to achieve “change as fast as change itself”, which is vital to remain creatively competitive in the economy. Hamel’s hope is that senior managers encourage a shift to distributed leadership in the company but he was very pessimistic, (rather than manage without managers, we need everyone to be manager, with a clear nod to holacracy). Hamel’s evaluation is that the leadership of by? a few is overrated and that the real disaster is that committed employees are a tiny minority, (13% on average in USA, a major catastrophe!), food for thought. Management, which was born 150 years ago, complains that this is a radical update.

3. Unleash the full potential of individuals, (which I wrote about recently) the contributions of Dov Seidman and Herminia Ibarra were very interesting. Overall, Wartzman argued that there was a consensus that little thought is paid to people who were in organizations and that the effort to keep them committed was essential, but especially for innovation and change. With a 64% average in USA of employees who are slightly committed to their businesses and 23% actively uncommitted, there is much to improve. Here the changes in the style of inspirational leadership (which converts threats to opportunities and helps each person better themselves said Vineet Nayar) gives purpose to companies that think beyond profit and become the key to change. We need to unlock the potential of people that go far beyond sophisticated machines (“Machines can do the next thing right, but it takes a human to do the next right thing” said Seidman). First people in a company were asked for their hands, then they were asked for their brains, it’s time to ask for their hearts and this would change everything, insisted Seidman. Management requires a “human-centric paradigm” argues Straub.

4. The Tsunami of innovation. With this qualifying term Richard Straub presented his opening speech of the Forum. And innovation was constantly present in the event. Especially important was the contribution from Rita Gunther McGrath. She warned that innovation can not be episodic in companies and stated that the problem is not having ideas, the problem is how to develop them and how to speed them up. For this we need real entrepreneurs upfront in companies (and not bureaucrats, says Hamel, or financial engineers, says Straub!). Flexibility was also a fundamental factor, doing things faster than others provides significant opportunities and advantages remarked McGrath.

Innovation in the creative economy is central, no one disputes that. Denning, always masterful in his columns in Forbes and in his final narration of the Forum, reminded us that for the established creative economy, what matters is not the Internet (which is not the answer but that has overrun everything); the answer is how to radically transform businesses in innovation factories and how they can completely satisfy their customers.

5. The future is social, not created, it is co-created. Ahead of his time, Alfons Cornella says this future has been on our doorstep for years. The contribution by Merchant in this sense was interesting based on his own experience of being introduced into the market with products worth US $18 billion. Equally interesting was the insistence on the need to systematize both unlearning and learning itself, in reference to the use of consumers and the general practices of management.

6. Management is managing complexity. We are already living in complexity and besides that, Big Data has arrived! The Drucker Forum conference, 2013 was devoted to managing complexity and this approach has been present in many of the speakers. The combination of rising inequality (Martin), the victory of capital over labor, the absolute overflow of information, the outbreak of multiple traditional business models, the impossibility of continuing in the bureaucratic and hierarchical management model which does not involve people, the need for innovation as a major lever for new values, all this requires new practices, new tools and above all, great skill in synthesis. Currently, there is complexity without strong synthesis, there is no strategy, there is only paralysis by analysis.

7. Business as an ethical journey. Drucker said ” a healthy business cannot exist in a sick society.” The relationship between business and society becomes a central issue. No longer is it the social responsibility of the willful, nor is it just the “Shared Value” (which the Forum was dedicated to two years ago) it is all about social innovation. It is about companies that know by creating long-term value as a way of being in society and that while driving their businesses, they can solve major societal challenges. Business with purpose and authentic social commitment. Economic results and social results. This challenge forms the main part of the great transformation that the Drucker Forum has focused on.

When it is over, the only important thing is the big question asked by Drucker, “what do we do with all of this on Monday?”

Xavier Marcet, founder and President of the Barcelona Drucker Society

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A blog following the Global Peter Drucker Forum 2014. An opportunity to share experiences and learn from one another in the context of The Great Transformation.

Though he approved of all these developments, he struck a cautionary note:

“Does this flurry of activity add up to more than a bunch of scattered conferences and white papers? Are we actually witnessing the beginnings of a social movement?”

This raises a challenge for those of us who write about the commercial and social benefits of shared value/management shift/conscious capitalism and so on. Do we constitute a movement? Or are we just a loose connection of academics and consultants who communicate principally with one another?

We have an impressive evidence base. The weaknesses of short-termism, and the strength of the case for an alternative, were discussed by the Drucker Institute just over a year ago on this blog. I can demonstrate to the most sceptical audience that returns on investment and corporate longevity are improved by making the shift to an empowering style of leadership, where employees throughout the organization are rightly seen as the source of all value.

But I have come to the conclusion, after around 20 years of research and related work in this field, that we cannot rely on good evidence seeping into the corporate world. We have to think more deeply and act more persuasively.

Think more deeply, because it’s not enough just to condemn speculative activity, corporate short-termism and management by the bottom line; we have to understand the cultural narratives that sustain these ways of operating. And act more persuasively because, given that these practices are supported by entrenched beliefs, we have to win over hearts and minds, not just present evidence and write papers.

Rick mentioned the Global Drucker Forum. At the most recent event, held in Vienna in November 2014, I got talking to Gary Hamel and others. It was the time of the launch of my own book The Management Shift. I floated the idea of a petition and manifesto for enlightened management. I am delighted to report that Gary enthusiastically supported the idea, and promised to support and publicize it.

Since then, in consultation with other thinkers, I have drafted a Petition and Manifesto in two parts – one for employers and business schools, the other for Government (initially, the UK Government).

Of course, there isn’t likely to be a single policy change that can have a dramatic effect.

At the level of an organization, my research shows that the best management teams attend to all key aspects of management. I have distilled this into six broad dimensions, hence my ‘6 Box Leadership Model’. Three relate to people: Individuals, Relationships and Culture. Three relate to processes: Strategy, Systems and Resources. For more details, go to the website: http://www.themanagementshift.com/.

The management shift involves different mindsets and behaviours as well as strategies and policies. It follows, therefore, that a social movement for better management also involves many dimensions, and engages people and institutions emotionally as well as intellectually.

In our Manifesto for Humanizing Management, we have recommended six dimensions of reform:

1. A company is better understood as a dynamic, behavioural entity than as a structure.
2. Management can now move towards being more solidly evidence-based.
3. The quarterly accounting statement needs supplementing with a range of quantitative and qualitative measures at least equal in priority.
4. Careful selection and education of managers at every level is a priority for high-performing organizations.
5. Employers that define and articulate their purpose and values, and seek to uphold them, have a greater chance of becoming high-performing and resilient.
6. In high-performing organizations, innovation is understood as being the responsibility of the whole organization, not just the research & development department.

If you would like to know more about this fledgling movement, please contact me at: vlatka@themanagementshift.com. Do let me know your views about how we can best publicize this message and begin to effect lasting positive change.

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A blog following the Global Peter Drucker Forum 2014. An opportunity to share experiences and learn from one another in the context of The Great Transformation.