“Global Peter Drucker Forum is not so much about better answers as it is about better questions” — Richard Straub

Any discussion about technology invariably has some forms of “What is in the future?” question. What changes will technology have in our lives and professions, how should we be prepared, what will happen to us?

The attitude behind these questions must be a proactive one. There is a big difference between “concern” and “worry”; only the former allows for practical actions. As Peter Drucker said, “The only way to predict the future is to create it”. Technology co-evolves with humans. For anything humans do, we can imagine machines replacing us: the ability to judge and make decisions, to analyze and synthesize information, or even to feel and convey emotions. Somebody will, or are already making these once sci-fi ideas happen.

Let us not forget in the midst of so many talks about “Technology”, the greatest invention for humans has been language — it allows humans to exchange ideas, coordinate actions and develop cultures. Cultural evolution has been faster than the biological one. While it is true that the biological makeup of our human brain hasn’t changed that much since we were all in Africa, the environments have drastically changed. As mentioned by Marten Mickos (CEO of MySQL), the waiting time in every conceivable services of every industry from transportation to healthcare to education has reduced. It also means that we are able to create and iterate on prototypes much quicker. As feedback loops tighten, we can learn exponentially faster as individuals and and even more so as communities. The latter is crucial because it binds societies together, especially in our current fractured world of clashing ideologies and dogmatism. This reminds me of Henry Mintzberg’s quote: “If you want to know the different between community and network, try asking your friends on Facebook to clean your house”. One responsibility for our future is then clear: we need to understand and leverage on the power of networks to strengthen learning communities.

Another message from the forum is that we should not get too distracted by technology and forget the essential challenge: to continually find and define ourselves, regardless of our time. Management should always start with that realization. We must focus on being human and on the human beings around us. I hope the terms “human resources”, “human capital” or “human assets” should be out of the management lingo soon. They all imply being “used”, or at best “renewed”. Why don’t we call it “human potential”? Potential is limitless yet can only be realized through intentional work and effort; it is promising but unguaranteed. The purpose of any kind of leadership is then to realize such potential and thus collectively shape our futures together.

Another dominant theme of the conference is the need to rethink the nature of work. I believe one reason for the theme for Drucker Forum next year being “The Entrepreneurial Society” stems from the question of engagement at the workplace.

Jim Keane, CEO of Steelcase, mentioned the 2015 Gallup study that 87% of employees report they are disengaged. We have designed the workplace with the alarming assumption that most people don’t want to work, and that we have to use incentives (either carrots or sticks) to motivate them. Carrots and sticks are, however, so 19th century ,Industrial Revolution. They no longer work in the knowledge and creative economy of the 21st century, and as long as managers still hold on to that assumption, they won’t survive. How can we inspire people around us when we ourselves are not even inspired?

That grim state of disengagement at work is why we need to foster an entrepreneurial spirit. Few things are as engaging as being part of a new and meaningful endeavor. From startup founders, social entrepreneurs, intra-preneurs, to solo-preneurs, those with such spirit are the boldest, most energetic and creative people. They will set the standard for the next generations for what real engagement at work looks like by setting their own examples.

Having an entrepreneurial spirit doesn’t necessarily mean becoming entrepreneur – or at least the image of all-consuming start-up founders we are used to. In fact, it can be quite draining to surround oneself with this group too often. Some people are more inherently driven to create solutions, while others tend to muse on the problems. Each of us in fact operates everyday by switching between these two modes of being. The task of self-management is thus to balance between the two extremes: mindless actions and actionless mind. I once heard of the “Cry test” to decide if one should pursue an entrepreneurial lifestyle: only when I cry about a problem that I should commit to solving it. An extreme test but not without some truth, given how lonely, tough and all consuming the journey will be.

Regardless of which path to choose, a big lesson that I am learning is that in order to do anything truly good, fear must be explored and transformed into aspiration. There is a great deal of people with the Fear of Being Mediocre syndrome, who think that their lives must shine and that they must be different from the rest. Alas, while the spirit is laudable, worrying too much about being mediocre is a surefire way to become one. What is the antidote then? I’m reminded of Drucker again: focus on contribution and being consistent with one’s effort. The first mantra steers our vision on the right path, and the second ensures we keep moving. They have always been and will continue to be the key to meaningful and valuable work.

How can I bring these ideas into my daily life? By practicing a habit of retreat and reflect often (especially when our smartphones keep vying for our attention) and taking deliberate actions. “Follow effective actions with quiet reflections, and there will come even more effective actions”, as Drucker once said. Each of us has to be both mountain and cloud, always grounded in purpose while floating with changing realities.

About the author:

Khuyen Bui won the Drucker Challenge 2015, and is a current junior at Tufts University. He is interested in organizational learning and development – how do people come together, learn and adapt and how technology can help or harm that process.

Some people don’t get the idea of the plural sector, perhaps because it has been so marginalized by the great debates over left versus right—private sector markets versus public sector governments. Where to put the plural sector, comprising all these community-based and other associations that are neither public nor private? NGOs, clubs, churches, unions, mass movements, social initiatives, and so on? Wolfgang Műller, Chief of Operations of the City of Vienna, who had read my book about Rebalancing Society, got the idea—in principle. Then he experienced it in action.

I met Wolfgang last Wednesday when he organized a workshop I did with his colleagues at the City of Vienna, before I attended the Global Drucker Forum in that city. He recounted a story about how this understanding in principle suddenly became an understanding in practice. I asked him to write his story down.

WM:  On Friday September 4, I was sitting in my office in Vienna City Hall when I learned on twitter that refugees from Syria and Afghanistan, some with children, had decided to walk the several hundred kilometers from Budapest to the border of Austria, determined to get to Germany, their land of hope.

Suddenly, within hours, Vienna’s train stations became organized as hubs for thousands of refugees—buses in, trains out. In such a situation medical care, food, and overnight shelter had to be organized, usually in association with NGOs such as the Red Cross.

While my staff was coordinating the crisis management network, I needed to get a hands-on impression of what was happening. I went to the new central station, where I saw all kinds of people helping with translation, providing medical aid, and distributing blankets, clothing, and food. Among them was a group wearing shirts emblazoned with “Sikh Help Austria”; they were dishing out warm meals from big pots that they had brought.

Something truly amazing had happened. Citizens young and old, some the children of immigrants or themselves earlier immigrants, decided to take action. They asked themselves what in Henry’s book is called “the Irene question”—“What can I do?”—and here they found an answer. Using social media, they organized themselves into a sort of citizens’ start up, dedicated to helping the refugees. They called it The Train of Hope (@trainofhope).

Here are some statistics: 180,000 meals were served in September alone, by 350 volunteers every day, including about 5,000 warm meals by Sikh Help Austria. (These statistics are from what could be called the management accounting “department” of that Train of Hope! Even that sprung up, as if from nowhere.)

Now, when The Train of Hope asks via social media for bread or bananas, the items usually appear within the hour: hundreds of kilos. Social media entries are updated regularly and the posts are now followed avidly by about 300,000 Austrians.

At first, we in the city administration were very surprised. But then we realized that this was not uncoordinated. It was a highly professional, high speed performance. That is when it dawned on us that here was the self-organizing plural sector in action. So we in the city administration decided to give The Train of Hope all the technical support it might need, including background support on call. We then invited The Train of Hope to join the city’s crisis management network, an offer that was accepted. I am delighted to report that this cooperation has continued to perform consistently well, with no end date yet clear.

This is a PPP of a different kind: a public-plural-partnership, agile and flexible—sharing the governing of a crisis. Why Not? Isn’t this smart government? Much has been written about the sharing economy. But this is not like sharing lodging, as in Airbnb. It is about sharing concern, and help, and hope.

I am passionate about my work for the city of Vienna, and I feel privileged to be part of these very special events. Thanks to The Train of Hope, and the contribution of plural sector as a whole, I am now even more positive and optimistic about our future. If you are near Vienna, just go and take a look.

HM: I went on to the conference the following two days. On Friday, Wolfgang sent me his email with the story. I read it late that evening. My alarm was to ring in time to get me to my plane the next morning, but I woke up earlier. What to do with the extra time? Of course: just go and take a look.

It was quiet in the station at 8 am. (Turns out that it is now cleared in the evenings so that every refugee has an overnight bed.) But I was able to walk through where several people were still there, some in family groups, many sleeping, while other young men were talking together, killing time. I asked one family if I could take a photo but a young man waved me off.

Outside, clothing and supplies were stacked up neatly in tents. I saw a rough sign that read “Refugees Welcome.”  Nearby was a plastic sheet meant to be a door. I went in: this turned out to be the volunteers’ area. A woman at a desk asked “Do you want to help?” “I’m sorry, I can’t”, I said, “I have a plane to catch.” But then I realized that I too had an answer to the Irene question: “We’re writing a blog about this.” About hope.

About the authors:

© Henry Mintzberg and Wolfgang Müller 2015. The opinions and views expressed in this article are those of the authors, and do not necessarily reflect those of the institutions to which they are affiliated.

In addition, such commoditized labour experiences a globalization of competition (unless it’s bound to a site like taxi driving). Crowdworkers (freelancers on platforms) will also not have a work contract, but sign standard terms of service instead. Pay is determined by auction, not by minimum wage and work may be allocated by an algorithm, i.e. the boss is a computer.

Hence we have work ‘above the algorithm’, creating the platforms, and work ‘below the algorithm’ receiving their tasks from platforms [2]. Work above the algorithm tends to program its ideology into the code. The ideology found in a number of on-demand platforms is wage dumping. In Turkers’ (casual for freelancers on Amazon Mechanical Turk) descriptive lingo: “Wage theft is a feature, not a bug“.

We have seen this before: As one era ends and another begins, change occurs at a pace and scale that disrupts all aspects of society. We are now leaving the industrial era and enter the network society. When, over centuries, ancient civilization morphed into the industrial era, traditional craftsmen were disrupted by early industrialists. Even government was disrupted: monarchies were replaced by republics and democracy. The early industrialists, the ‘Robber Barons’, could amass great wealth in that they owned machinery and factories, giving them the power to dictate work conditions and wages. Then unions formed and re-established balance.

Today, people, driven out of regular jobs or not making enough as freelancers compete for tasks that are paid a tiny fraction of any possible minimum wage – several hundred thousands of them on Amazon’s Mechanical Turk platform alone. Just like the last era change, but with one difference: the new ‘Digital Robber Barons’ own data and infrastructure as intermediaries, but not the physical assets needed to deliver the actual service sold. Uber as the largest taxi company in the world doesn’t own one taxi, Airbnb doesn’t own a single apartment and Facebook as the largest media concern doesn’t produce content. The physical assets required to do the job are paid for by the workers.

Business models and the way we work, even government, are ready for disruption again, and maybe this is a chance for millions of people to create work for themselves in a self-responsible manner. Following the thoughts of Angus Deaton this could even enable developing countries to better participate in growth. Mankind has come a long way negotiating and fighting for social standards evolving from the tribal and feudal system and early ‘Robber Barons’. As such, business models are up for disruption, but social achievements have to be safeguarded and even developed further to suit network society. In fact it’s less about humans against robots: the question is more about how humans treat humans.

It may not be too realistic to expect the economy to regulate itself in creating fair working conditions. There is no such evidence in history. Without some kind of unions and a suitable legal framework crowdworkers alone may not be able wrest sustainable conditions for themselves (no such earlier evidence either). The responsibility for a smooth transition of society, preventing upheaval and unrest due to poverty or mass unemployment lies with governments, along with setting the rules for a networked society – and co-creating a vision of how such a future should look like.

Governments could be disrupted by corporations that already operate like platforms and networks – later maybe starting to form corporate states similar to the seasteads (floating cities of likeminded people recognized as a sovereign state) as proposed by Peter Thiel of Paypal. Who knows? Government is under attack at its core: MIT’s John Clippinger is quoted saying “Who needs government?” Currently, governments are confronted with a very powerful private sector and face eroding trust by the population. How to regain this trust and re-enter the arena as a balancing factor vis-a-vis the private sector protecting citizens against eroding social standards? Short: How will government disrupt itself?

Across the historical divide the organisation charts of companies and governments of every era took the shape that society showed as a whole. Currently organisation charts are developing into a networked structure. Therefore, government, too, must interact with networks. This way contact with citizens can be re-established and mutual (!) trust may be regained. Change wouldn’t need to be imposed – it could be co-created. Such results may see better endorsement, too – something that current policies often lack.

Finally, when it comes to co-creating a vision and common understanding of how our future should look like, a book by Jonathan Lear comes to mind: In ‘Radical Hope’ [3] he tells the story of the Crow Indians who were confronted with the extinction of the buffalo – their almost sole source of work and food. They were faced with cultural devastation: The way they used to live for centuries would end. Realizing the desperation and depression of his people, Chief Plenty Coups realised that his nation had to develop a new vision of how they should live and eat in the future. He called this concept ‘Radical Hope’. The economist Lawrence Summers warned that the world currently lacked that kind of political leaders – similar to the ones who helped shape the public policy during the industrial era [4].

The Crow Nation survived. Today it is our generations’ common responsibility to build a future that is inspiring and worth while – not just for a few, but for society as a whole. A strong public sector needs to re-enter the playing field to help build shared prosperity in addition to shared economy.

About the author:

Isabella Mader is Director of the Excellence Institute and university lecturer in the fields of Knowledge Management, Information Science and IT Strategy. 2013 she was awarded “Top CIO of the Year”. Her current research focuses on Network Economy, Communities and the Sharing Economy.

[1] Pofelt, Elaine; Shocker: 40% of Workers Now Have ‘Contingent’ Jobs, Says U.S. Government. Forbes, 25 May 2015. [Online]: http://www.forbes.com/sites/elainepofeldt/2015/05/25/shocker-40-of-workers-now-have-contingent-jobs-says-u-s-government/

[2] Compare: Wing Kosner, Anthony: Google Cabs And Uber Bots Will Challenge Jobs ‘Below The API’. Forbes, 4 February 2015 [Online]: http://www.forbes.com/sites/anthonykosner/2015/02/04/google-cabs-and-uber-bots-will-challenge-jobs-below-the-api/
[3] Lear, Jonathan; Radical Hope – Ethics in the Face of Cultural Devastation. Harvard University Press, 2008.
[4] Hill, Andrew; Divisions emerge over effect of digital disruption. Financial Times, 24 January 2014- [Online]: http://app.ft.com/cms/s/3a7190a2-84df-11e3-8968-00144feab7de.html

The preliminary events began with a CEO Roundtable on the afternoon of Wednesday November 6. The opening ‘provocation’ was supplied by Tom Davenport and Julia Kirby’s June 2015 Harvard Business Review article “Beyond Automation”. In it they address the threat that artificial intelligence in the form of smart machines is encroaching on knowledge work to such an extent that it will lead to widespread unemployment. In the past machines took over work that was dangerous, dirty and dull. Now they seem to be taking over decision-making roles. Does it mean automation and the replacement of humans or is there scope for augmentation of human cognitive powers by machines? Should we be worried? The Davenport/Kirby shorthand answer, “Yes-No-Yes”, captured the both uncertainty of our questions about the future and the equivocality of the ‘answers’.

In the two days that followed the executive roundtable speakers and participants alike struggled to understand these questions and to come to grips with Peter Drucker’s acute observation that the major questions regarding technology are a not technical but human. The result was an exhilarating roller-coaster ride with unsettling plunges and thrilling loops that deposited all the riders safely at the end, but with their brains lightly fried. What follows is some of the highlights from the conference.

Tensions and Dilemmas

Tensions and dilemmas were everywhere at the forum. Are we dealing with a technology issue or a mindset issue, technical or moral? Or both? Are there limits to the ability of machine to make decisions? Should there be? How about limits on humans? What if a smart machine had overruled Lufthansa’s suicidal pilot? What distinguishes the zealots from the Luddites; West Coast optimism from East Coast pessimism? Is it a generation gap? Who will be affected and in what way? In the short-term or the long run? How do we distinguish hype from reality? What should who do about what? What’s the game plan? How do you manage? How do you lead? What’s our theory of change?

The conference participants, like the speakers, were a mix of tech-friendlies and tech-skeptics, with a full spectrum between the extremes. A sharper division was that between the values and concerns of small entrepreneurial firms and those of large established organizations, both commercial and governmental. Most of the academics and consultants present seemed more attentive to the latter group, who are presumably their natural clients.

Above and Below the Algorithm

One of the more interesting comments on the role of digital technology came from transportation entrepreneur Robin Chase, who pointed out that major innovations like Airbnb and Uber are aimed at either slicing up or aggregating existing spare capacity in society’s physical assets. This is why they neither own nor produce anything. The assets (housing and automobiles, roads and infrastructure) exist already. They may be disrupting the hospitality and taxi businesses around the world, but at the society level, despite all the talk of a ‘sharing economy’, they are primarily efficiency innovations that will reduce more jobs than they create. This may explain the pervasive ambivalence toward such technologies that create short-term benefits for individuals (albeit through what some describe as insecure, contingent jobs) but may spawn longer run problems for communities. Those who work “above” the algorithm (a tiny minority) may be fine; those who work “below” it will struggle.

Would a Thinking Machine do the Haka?

What does it mean to be human? New Zealander Kevin Roberts, Executive Chairman of Saatchi & Saatchi, captured its essence in a video-laced presentation to illustrate the ‘unreasonable power of ideas’. Rational thinking leads to conclusions but it takes emotion to get action and to generate ‘loyalty beyond reason’. With the 2015 World Cup of Rugby still fresh in fans’ memories, his video of the ultimately victorious All Blacks using their Haka war cry to intimidate their opponents was a compelling example of how humans deal with challenges in a ‘Super-VUCA’ world that is vibrant, unreal, crazy and astounding. It was a very welcome break from the pervasive rationalism that dismisses such human phenomena as ‘biases’ to be countered and eliminated. Would a thinking machine do the Haka? Why?

A Second Silent Spring?

Sherry Turkle, Director of the MIT Initiative on Technology and Self, addressed the growing movement among the digerati of people who would “rather text than talk”. She argued that communications technology makes us forget what we know about life. The result may be a second ‘silent spring’, an ‘assault on empathy’, that makes us less able to appreciate the situation of another person and to ‘give voice to the other’. John Hagel, Co-Chairman of Deloitte Consulting’s Center for the Edge, agreed, saying that technology brings out the worst in us and he stressed the power of narrative, the incomplete story that calls to its listeners to take action and see how it ends.

The Mindset Problem – It’s Bigger than Thinking

Peter Drucker once wrote that “The most important thing in communication is to hear what isn’t being said.” What wasn’t being discussed at the Drucker Forum was the either role of or limits to reason in management, organizations and work, both descriptively and normatively. Ever since the European Enlightenment there has been a struggle between Adam Smith’s “sociology of virtue” and the French “ideology of reason”. Smith contended that the essence of humanity was both a concern for justice driven by empathy and a preoccupation with self-interest enabled by reason. The French philosophes, however insisted on the primacy of reason. There is no doubt where Peter Drucker stood on this issue: he saw humans as living in a world of existential tensions, strung between their concern for others and their preoccupation with themselves. It is a world of “both…and”, not either/or, that offers continual opportunities for creativity and innovation. American management, on the other hand, theorists and practitioners alike, has tended to prefer the ideology of reason and the cult of efficiency that often accompanies it.

Several speakers at the Forum remarked that the CEOs of many large companies pursue efficiency to the exclusion of anything else. This approach places them firmly on the side of the machines and the use of digital technology to replace rather than to support people. Here is a symptom of the ‘mindset’ problem, but its root causes remain to be explored. One suspects that they lie much deeper than many imagine and that their exploration will have a huge impact on how we act and think. Fortunately this means that there is plenty material for future meetings that will do well to match the intensity and excitement of the 2015 Drucker Forum.

About the author:

David K. Hurst is a management author, educator, and consultant. His latest book is The New Ecology of Leadership: Business Mastery in a Chaotic World (Columbia University Press 2012).

…by which I mean they have self-belief, self-control, and self-actualisation.

But they’re not the solution to rising unemployment caused by the rise of machines. We heard a lot at the recent Drucker Forum about the rise of machines, and how natural monopolies are being eliminated as competitive advantages erode quicker. Stability is not normal any more.

So we can plan our societies for reducing levels of employment, and find things for people to fill their time with, together with a socially inclusive way of allowing them to fulfil their needs for food, shelter etc. and/or we can find ways of allowing them employment opportunities which are different from now. There is a rise in freelancing – in other words, small projects for disparate employers, and rising entrepreneurial activities now as big businesses benefits both in employment and market share eroded rapidly. We’ve argued before that small businesses will be taking over from big business and we’ve heard nothing to the contrary. Big business ways of working/models are in the main dead men walking. We want more personalisation and customisation and better experiences with the things that we buy, and big business has difficulty in providing this in a mass production and mass marketing environment.

My suggestion is that we have moved from a village economy pre-Industrial Revolution through mass production and standardisation during the industrial and technological revolutions of the last 200 – 300 years, and we are moving back now to a village economy, albeit a global village, where we can get exactly what we want made with direct input from ourselves to the maker.

How does this help what is becoming a rapidly disenfranchised workforce as jobs are lost through technological advances? A session at the Drucker Forum argued that entrepreneurs would provide much of the solution, but I don’t think this is the case. Entrepreneurs are self-centred. That’s a good thing if you’re an entrepreneur, as it helps you to grow businesses. But individuals cannot grow the many businesses needed to soak up the excess employment capacity that is going to be generated. And I don’t think they need to. Excluding those activities that will still work in big businesses which will maybe run utilities and transport and the like, I think there are now three classes of employment. There will still be the freelancers who work for individual projects for whoever will pay them. There will still be entrepreneurs who will employ a body of people for that activity. But I think the big rise will be in self-employment. And by self-employment I mean people who will work for themselves employing a few people in a localised manner with no real requirement to build the business into something which they will intend to sell, and then start again like an entrepreneur does.

As such I think that the word entrepreneur is being misused. Not all people want to be an entrepreneur, but most aspire to be able to control their own destiny, which self-employment (and freelancing) provides every bit as well as entrepreneurship. Most will actually be entrepreneurial in some aspect of their activities, without having to build a model which relies on rapid growth and sale, just to do that over again. That doesn’t fit with most people’s objectives and aspirations.

The technological revolution has allowed small businesses to compete on a global stage, as we’ve mentioned before, and also compete against any size business. The small business can be more flexible, more personal, and faster to respond to changes in markets. It’s also very quick easy and cheap to test markets in this digital era.

The challenge for government is to stop pouring resource into the 5% of high growth potential businesses which are going to succeed anyway, and start teaching and supporting self-employment in a way that encourages many small business owners to take on at least one extra person. Just by doing this, potential unemployment issues caused by replacement technology could be significantly mitigated.

To achieve this, education on self-employment needs a radical overhaul. Just as graduate business education needs significant changes to nurture softer skills rather than just analytical ones, so does education for the self-employment model need realignment. This is currently being taught as a series of disparate technical disciplines with no way of amalgamating disciplines to see how they interact and fit together. We are taught how to write a business plan, how to do our books, how to do social media marketing, but we are not taught how these pieces of the jigsaw fit into the picture. Essentially businesses get the jigsaw pieces but they never see the picture on the box. How then will they know where the pieces relate to one another and the overall picture, and how they can join those things together? That is the challenge for education and government.

We try in our own small way to coach our client base so they understand how things relate and how they can think better about it. By doing this we expect our clients’ businesses to be easier for them to manage, and to achieve the growth that they want. This is not necessarily the most growth achievable as it is their individual/personal objectives which are important. These may not be wholly money based and in fact they seldom are. As our values change to reflect the richness of our life, this balance of aspirations will become more important.

Entrepreneurs still have their place, as they will lead where markets will be in future. The self-employed can feed from the knowledge created by entrepreneurs of what is new, useful and interesting. But they don’t have to be as daring as the entrepreneurs to achieve their objectives. They can go near the leading edge, instead of what is often the bleeding edge with its higher risks. They may wish to balance their risk profile because of other personal factors, such as family, and community.

Government policy has to recognise this change. Most governments operate some decades behind the times in terms of how they think businesses are structured and work. They also impose and rigorously enforce rules which become increasingly nonsensical in the workplace. Apart from the changing education policy towards self-employment, there needs to be more awareness of how social change affects public policy, and an implicit assumption that policy and rules have to change a lot faster. As government’s main job is to be re-elected, they need to tune in to popular movements which involves doing two things differently. Firstly, they should listen considerably more than they talk, and secondly, they should not assume that they have all the solutions (and neither should the electorate). The American constitution starts with ‘We, the people’, not ‘We, the government’. We need looser public policy to accommodate rapid changes in demographics and work profiles, which needs a growing realisation that people, whether freelancers, self-employed, or entrepreneurs, insist on running their own lives in their own way to make it meaningful for each individual.

About the author:

Nick Hixson is a business adviser and accountant, helping small and medium size business in strategy, leadership, management and team engagement. He also moderates the Drucker blog series.

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.