Adaptability and resilience are more than just industry jargon in today’s hypercompetitive business environment; they are the backbone of sustainable success. However, traditional governance systems often fail to cultivate these critical attributes, which highlights the need for more dynamic and resilient frameworks. 

Antifragile governance

Antifragile governance is a new approach to corporate governance. This forward-looking model is designed to help companies navigate the complex and ever-evolving business terrain, enabling them not only to withstand, but to thrive in the face of uncertainty and disruption. A shining example of this approach in action is the Chinese multinational Haier.

Traditional approaches magnify risk

Navigating a complex business environment is akin to traversing uncharted terrain, each brimming with unique market opportunities and threats. Traditional, centralized approaches fail to uncover and capitalize on many of those opportunities, much like a single exploration team struggling to map an entire unknown landscape. The risk is significant if the organization’s success depends on this lone effort. Failure of this single team leaves the organization without an immediate backup plan, leading to potential setbacks. Investment-heavy, complex and long-running innovation projects are especially prone to and accumulate such risks.

Spread the risk

Now, consider an alternative approach. Imagine dispatching a swarm of multiple autonomous teams, each eager to explore a certain area of the terrain or, in business terms, a unique market segment. Operating like start-ups, these teams innovate and adapt to specific challenges, learning fast and adjusting their business proposals based on real-time customer feedback. As the teams cooperate and support each other, their shared approach fosters a broader, more comprehensive understanding of the terrain as a whole.

However, the expectation is not for all teams to succeed. Indeed, some will encounter insurmountable obstacles, errors, or outright failure. Yet, in this multi-team model, the overall progress isn’t halted by the failure of one or several teams. While not all teams succeed, overall progress isn’t hindered by a few missteps. The organization can pivot based on the insights gained from unsuccessful attempts, while successful teams continue their work unimpeded. The whole organization continuously learns from failures and successes alike and adjusts future efforts accordingly.

Smart Homes 

This model finds a practical application in the Smart Home industry, where traditional home appliance manufacturers have struggled to adapt to the rapid pace of software-driven products and services. Haier, on the other hand, used multiple teams to explore different segments of the smart home market, resulting in a more comprehensive understanding of different customer needs and the creation of a variety of customizable solutions with a world-class customer experience. Haier customers enjoy similar user benefits despite having different and highly individual needs, domestic solutions and setups. This user experience is the result of a carefully orchestrated multi-team effort. It is being cultivated through dedicated teams in an organizational setup that is unique in its flexibility and speed of adaptation. Haier supports several hundred of these user experiences, each implemented through specific business ecosystems providing associated products and services. This turned Haier into the world’s leading home appliance manufacturer for the 14th consecutive year in a row in 2022.

Multi-team swarms

Haier’s ability to learn, innovate, and adapt very fast resulted in a more comprehensive understanding of customer needs, and allowed for the development of diverse solutions catering to a broad spectrum of preferences. The multi-team swarming ability is central to Haier’s strategic advantage. It enables the company to explore and seize multiple market opportunities simultaneously, much faster and more comprehensively than its competitors. Their rapid development cycles allow Haier to also capitalize on short-term opportunities and local niches. This is a big strategic advantage compared to traditional strategy, which takes longer to develop solutions, and is therefore limited to pursue only longer-lasting opportunities with less-customizable, but highly scalable solutions. In highly dynamic markets like the smart home industry, Haier’s strategy has proven its superiority.

A Guide for Today’s Leaders

Haier’s success story offers valuable insights for leaders embarking on an iterative learning journey of transformation. By integrating the principles of antifragile governance and emphasizing psychological safety, leaders can cultivate robustness, adaptability, and a sense of ownership within their organizations. A powerful starting point is to initiate this journey with a few pilot teams.

Starting with pilot teams allows companies to test and refine their approach in a controlled setting. By granting these teams decentralized decision-making authority, leaders empower employees and foster a culture of autonomy and innovation. This distribution of decision-making authority builds psychological safety, as individuals feel trusted to make decisions related to their work.

The organization can capture valuable insights from the pilot teams’ experiences. Successful approaches and lessons learned can be scaled and applied to the broader organization, while failures can be analyzed to inform adjustments and refinements. This repeated process becomes a continuous cycle of experimentation, learning, and adaptation – an iterative learning journey.

With decision-making authority gradually pushed to more teams throughout the organization, more and more parts of the organization can actively contribute to the transformation journey. This broadened scope promotes a culture of engagement, as individuals feel empowered to contribute their unique perspectives and take ownership of their work and embrace change as an opportunity for growth. Overall, this mindset makes an organization increasingly adaptable and resilient. In combination with entrepreneurial incentives, the organization turns into a fluid system of competition and cooperation at scale – a perfect foundation to implement antifragile business strategies.

Haier’s innovative approach to antifragile governance, combined with their culture of autonomy and entrepreneurship, provides a robust blueprint for navigating the ever-changing business terrain. By fostering a strategy and governance framework that supports innovation, autonomy, and learning from failure, organizations can thrive amidst uncertainty and disruption. The journey to antifragile governance may be challenging, but as Haier’s example shows, the rewards make the journey not only possible, but worthwhile.

About the author:

Janka Krings-Klebe and Jörg Schreiner are founders of co-shift GmbH, educating companies in digital transformation topics. They co-authored several books, the latest being “The Digital Transformation Playbook: What You Need to Know and Do” (Project Management Institute & Thinkers50, 2023). Their upcoming book „Thriving Amidst Disruption“ explains how to turn enterprises into antifragile ecosystems.

“Those who only gradually improve their performance in exponential times fall back exponentially.” Curt Carlson, former CEO Stanford Research Institute

Following the business news in the weeks after this year’s Drucker Forum, it became clear that management, as taught at business schools, is headed for irrelevance. Today it no longer solves problems. It creates them. So-called “best practices” of management have caused a multitude of problems that only became apparent after a delay of decades, but are now making themselves felt with force. Every newly graduated MBA contributed in good faith to the spread of these practices. Now that they are being applied in all companies worldwide, their limitations and weaknesses are becoming increasingly obvious.

They fall short in dynamic market environments. They stifle innovation with bureaucracy and rigid processes. They overextend the decision-making capabilities of companies in increasingly complex and uncertain environments. They are way too slow in learning from and adapting to new challenges. They pitch scarce and valuable human assets into senseless battles of domination. They frustrate workers, discourage entrepreneurial creativity and risk-taking, and impede cooperation across domains or companies.

Drucker Forum 2020

This article is one in the “shape the debate” series relating to the fully digital 12th Global Peter Drucker Forum, under the theme “Leadership Everywhere” on October 28, 29 & 30, 2020.
#DruckerForum

Relevance lost

In short, our “best practices” have lost much of their business value. But why? First, let’s take a look at why they worked so well for so long.

At the dawn of the 20th century F. W. Taylor established the discipline of scientific management. His approaches created immediate benefits for companies by increasing productivity and quality, and reducing personnel costs. It was, in fact, one of the basic innovations of the second industrial revolution. Business schools emerging at this time adopted Taylor’s theories, weaving them into the DNA of management education.

Strict functional separation of the organization, combined with central control, and a shift of knowledge from skilled workers to management, boosted industrial productivity. This was such an advance that specialization, planning and control came to be regarded as general principles for efficient organization of all kinds of work. Taylorian practices were extended to strategic planning, accounting, people management and product innovation. And it all worked quite well, at a time of predictable market growth, with sufficient unconquered space still available for competitors.

Enter globalization and the internet

Yet this situation would not last forever. Enter the disruptive forces of globalization and the internet. Globally distributed value chains and just-in-time delivery increased the complexity of product markets. The internet democratized communication and opened up markets on a global scale by lowering entry barriers to many industries. Competition became ever tougher. Competitors multiplied, as did customer choice, prices fell and margins disappeared in the blink of an eye. Flexibility, speed and adaptability suddenly were in high demand. “Best practices” aimed at achieving maximum efficiency largely lost their power and thus their usefulness. But they had become firmly embedded as the gold standard of corporate management in the mind of managers who cling on to what they once learned, despite the fact that it doesn’t work any more.

Peter Drucker once wrote that the greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.

Today’s market environments are complex and hyper-dynamic. The conditions for success have changed fundamentally. The old “best practices” are no longer even good. Companies need to find better ones if they are to thrive.

New practices for new times

We can do this by overcoming the self-imposed limitations of current management. Why plan in fixed yearly periods, when customers easily turn away from your products at any time? Why wait for the next budget cycle before approving funds for a new market opportunity? Why report and control tasks and resources along predetermined hierarchies, when relevant business activities require fast ad-hoc communication and coordination across networks of knowledge workers?

Today’s market environments call for management practices that can cope with complexity and change, with increasing customization of products and digital processes. In short: With customer-directed innovation at speed. New management principles are emerging from innovative leaders such as Amazon, Haier, Handelsbanken, Nucor, and Morning Star, which have broken up silos and decision-making bottlenecks to focus on customer needs and establishing entrepreneurial skills and incentives throughout the organization. Haier, Handelsbanken and Nucor impressively showcased these new principles at the GPDF20. As these and many more companies around the world demonstrate, such practices are not a privilege of start-ups or digital disruptors. They successfully work for companies of all sizes and industries. But beware: this time it won’t be done with the application of a few new methods at the operational level. The change is more fundamental. It will affect all levels of management.

Frederick Taylor brought one of the biggest management innovations of all time. But his practices have now reached their limits of their usefulness. Today, we need something else. Something better. Something that helps navigating the uncertainties of the digital age. Something that gives purpose again to management.

Change is here. Time to adapt.

About the Authors:
Janka Krings-Klebe and Jörg Schreiner are founders and managing partners of co-shift GmbH, helping companies to transform into business ecosystems, and authors of “Future Legends – Business in Hyper-Dynamic Markets“ (Tredition 2017)

This article is one in the “shape the debate” series relating to the fully digital 12th Global Peter Drucker Forum, under the theme “Leadership Everywhere” on October 28, 29 & 30, 2020.
#DruckerForum

Drucker Forum 2019

This article is one in the “shape the debate” series relating to the 11th Global Peter Drucker Forum, under the theme “The Power of Ecosystems” taking place on November 21 & 22, 2019 in Vienna, Austria.
#GPDF19 #ecosystems

Mainstream management practices aimed at intensifying the levels of planning and control don’t work in conditions of high uncertainty. In fact, they often lead to analysis paralysis, making the situation worse while the business environment accelerates away. In today’s dynamic markets, they appear as outdated as Soviet-type economic planning.

If managers cannot overcome their predisposition for detailed planning and control, this habit will kill European businesses more reliably than anything competitors or customers might do. In the face of the kind of uncertainty businesses experience today, established best-practice management has no answers. Budgeting, accounting, resource allocation and reporting practices still work in yearly cycles, rendering rapid reallocation of resources to emerging business opportunities next to impossible. Current governance norms rule out engaging with risks that appear to be unpredictable. Together, these practices make it impossible to adapt to new customer needs fast enough, spelling death for innovation. We need to reinvent them for the more dynamic and uncertain world opened up by business ecosystems.

Companies like Haier and Amazon have already demonstrated that it can be done, developing new management and governance practices aimed at creating highly dynamic structures inside their companies. This approach has transformed their companies step by step into open ecosystems where market-based structures fluidly balance available resources and capabilities with customer needs. Now their internal dynamism is so great that structures and business operations can rapidly adapt to emergent customer and market needs.

Business ecosystems such as theirs are built on principles of local autonomy, redundancy, diversity and constant experimentation. They use management and governance practices very different from those of mainstream management. Comparing their decision-making processes illustrates the differences.

In business ecosystems, the majority of decisions are made at the edges, at the point with the biggest impact, usually very close to customers – especially in uncertain or new situations. Governance models ensure that decisions in these ecosystems can and are always made as close to the edges as possible.

This is very different from today’s management mainstream, in which all but the most trivial decisions are concentrated at the top of hierarchies, far removed from customers. Only top management is permitted to take decisions involving risk. Unfortunately, in dynamic situations such as those we increasingly experience today, this course simply leads to paralysis.

Business leaders cannot hope to compete in and with dynamic ecosystems unless they take steps to make their own companies much more adaptive. The secret is to give up control at the edges, and to learn from constant experimentation how to make the most of each new challenge and opportunity.

About the Authors:

Janka Krings-Klebe and Jörg Schreiner are founders and managing partners of co-shift GmbH, helping companies to transform into business ecosystems. Their latest book is Future Legends – Business in Hyper-Dynamic Markets (Tredition 2017).

This article is one in the Drucker Forum “shape the debate” series relating to the 11th Global Peter Drucker Forum, under the theme “The Power of Ecosystems”, taking place on November 21-22, 2019 in Vienna, Austria #GPDF19 #ecosystems

In the following, we will outline how to do it, and do it in such a way that it leads to broader prosperity and innovation for society: A lifetime opportunity for entrepreneurs.

Digitalization today increasingly dissolves the borders between industries and markets. The accelerating market dynamic means that businesses can no longer afford to bet their income on single streams of revenue. They need to simultaneously exploit multiple business opportunities, to explore even more opportunities, and to fluidly scale all operations depending on market demand. This cannot be done with organizational structures and business management systems that stem from the industrial age and are largely based on assumptions of predictable market needs.

The institutional inability to deal with dynamic markets offers a big opportunity: To radically rethink business setups and management systems. To be useful in hyperdynamic markets, new business systems must be exceptional in repeatedly doing precisely that which tends to be hard, even impossible, in conventional business setups:

• Connect business operations and markets: Configuring and steering business operations across a wide spectrum of markets, sensing new opportunities and business needs.
• Act on opportunities: Raising awareness for opportunities, exploring their potential for business, and dedicating certain operations to new opportunities without disturbing others.
• Flexibly scale operations: Ramping the possible transaction volume of operations up and down according to market demand without losing flexibility or disturbing other operations.
• Simplify transactions: Ensuring a simple, fast, cheap, secure, and safe transfer of goods, data, and money.
• Adapt to changing business contexts: Changing the purpose of assets and investments according to new opportunities or business needs without disturbing other operations, and fluidly integrating new capabilities into business operations.

The Amazon ecosystem demonstrates these business skills. The company decided early on to use digital technology as a super-efficient, super-scalable backbone for all of its internal operations. In 2002, in an unprecedented move, Jeff Bezos ordered all business units of Amazon to turn into independent, but closely connected services, communicating with each other exclusively through digital interfaces, and able to profitably offer their services internally as well as externally. This order forced all his business units into an entrepreneurial mindset, where every service has a clear focus on customers, value-add and efficiency of all operations.

However, despite all of its success, we are not completely satisfied with Amazon’s approach. Large and fast-growing companies have to watch the impact of their business on the development of society, progress and innovation. This places a big responsibility on them. They can either contribute to a deepening of economic and social disparities or they can pave the way to more and broader participation.

How could the next evolutionary step of companies contribute to more prosperity and inclusion in society? Companies can take advantage of digital technology to incrementally transform themselves into open entrepreneurial marketplaces offering all kinds of business services externally and internally. Every service in an open marketplace connects to its users through highly effective and efficient transactions and collaboration platforms and standards. With these new technologies, companies can collaborate and share their business capabilities across industries. The more companies share their business capabilities in such a way, and the more freedom exists to choose business partners on connected marketplaces, the better for overall competition: Choice prevents the establishment of monopolies, that today can easily force others into unfavorable contracts. Open business ecosystems systematically distribute risks of individual operations across many participants and markets, making the whole environment very resilient to disruption occurring in one of its parts. The multitude, variety, and modular interoperability of its business operations enable it to quickly act on a wide range of business opportunities across markets. The more opportunities it can tap into, the more potent and attractive it becomes as a breeding ground for innovation and problem-solving, combining capabilities that formerly were structurally disconnected or unable to work together.

Well-known examples like Amazon and Haier are showing today what we expect to become the norm for future business operations in all industries. These companies can set up and manage their heterogeneous business operations with frameworks of distributed accountability, offering strong incentives and opportunities for anyone to turn into an entrepreneur. They can unlock the hidden entrepreneurial potential in society much better than other business setups. They can democratize the process of becoming an entrepreneur; by making it much easier and by removing many risks that today still are associated with this decision. They can offer strong economic incentives to share critical assets that are needed to establish a business. Designed in the right way and established with an appropriate system of governance, open business ecosystems can provide anyone with the opportunity to become an entrepreneur on their terms.

This inclusive nature of open business ecosystems will make it possible for a much larger pool of people to become entrepreneurs at some point in their life, to do meaningful work, or to solve urgent challenges for the benefit of society. As a result, more people will be able to take advantage of their talents, making their lives richer in experience and meaning, and themselves financially more independent. Open business ecosystems offer a great opportunity to fundamentally improve working conditions for the benefits of individuals and society, contributing to broad progress and prosperity.

About the authors:

Janka Krings-Klebe, Joachim Heinz and Jörg Schreiner are the founders and managing partners of co-shift. As strategic advisors they prepare businesses for digitally connected markets. This blog post highlights some topics out of their latest book Future Legends – Business in Hyper-Dynamic Markets (Tredition 2017).