From old school factory to super-resilient organism
Much has been written about the problem industrial era organisations face as we enter the post-industrial era. The rules of the game have changed and many old school players are finding themselves playing on an unfamiliar pitch. Watching digital age startups and legacy organisations engage is akin to watching mice bully elephants.
So what can the old school players do to stay economically relevant in what is an increasingly uncertain, volatile and unknowable world? And what does it mean for your people?
In the industrial era, the aim was to create a profitable organisation. The steps to this involved:
- Find a market need
- Build a product / service to address that need
- Sell it ad infinitum.
In the course of time, the organisation might have introduced some related offerings and may even have moved into upstream or downstream markets. But largely it stuck to the business model that gave rise to its initial success. More specifically it focused on profit optimisation by creating a faster, cheaper and / or smarter version of this factory model.
This worked well in a steady state market. One of the successes of the industrial era was to cultivate a high degree of ‘synthetic certainty’. This created the conditions to build factories knowing that the demand for their outputs would exist long enough to get a good return on the capital invested. Synthetic certainty was man’s attempt to tame nature, and it worked for circa three centuries. Back then threats and opportunities wore familiar guises. This led to a galvanisation of the factory model. It optimised itself to withstand very specific threats and capitalise on very specific opportunities.
In many respects, this optimised approach made the organisation fragile. Like a plate, it could withstand strong forces in one direction, but was brittle in all others.
As we left the steady-state industrial era, this arthritic factory model was found wanting. Some organisations tried to develop a more robust model that could adjust to new threats and opportunities. The term agile was introduced. The agile organisation, in my view, is to some extent a cosmetic makeover. The organisation is now more in tune with the market but only superficially, like a heavyweight post-prime boxer who throws in some quick moves from time to time. He continues to get floored, but bravely gets back up each time. However the gap between punch and standing up increases over time, until eventually he doesn’t get up. Robust / agile is not a long-term solution to an increasingly uncertain world.
It would be better to build a resilient organisation. Like a rubber ball, where forces such as impact with the ground, cause no loss of energy. This is good, but we can do better. However it requires a deep transformation from the factory model to that of a living organism.
Living organisms are situationally aware. They navigate their environment through their senses and their ability to turn the associated data into meaning and action. They are not locked into a strategic plan, which blinds them to reality, they operate in the here and now.
Organisms also grow stronger as a result of the forces they face. A gym workout makes us stronger as does facing adversity. Humans and other living organisms are thus naturally super-resilient. In the digital age, the same must be true of our organisations and societies. Other terms for super-resilient include anti-fragility and biotensegrity.
Old school vs new school
Organisations founded in the digital age are born with super-resilience. The Lean Startup model is super-resilience in action, constantly sensing, constantly adapting. The digital players do not have the legacy infrastructure and capital chattels that make adaptability so difficult. If you own lots of buildings and quickly need to get out of the hotels business, your inability to offload the properties could result in insolvency.
The successful digital players generally have a more enlightened approach to their people, seeing them less as technology placeholders, or cogs in the factory machine, and more like cognitive athletes who have developed their ‘cognitive muscle’ to the extent that they have become high performance innovators.
Being data-driven, the digital players are more opportunistic. They know exactly when to introduce surge pricing or how to identify weak signals indicative of incoming threats or opportunities.
Their flatter management structure enables quicker decision making. Old school organisations have typically ossified around business functions, thus many of the people in the building have no direct contact with the market, which can make them indifferent to pleasing the market. And thus makes then susceptible to robotisation and eventual economic irrelevance.
Some old school CEOs look on aghast at these digital players, what with their appetite for risk. The old guard are bemused by how the arrivistes have created industries simply through deft data management. Most old school CEOs recognise the digital tsunami is here or fast approaching. They simply don’t know how to respond.
The new old school
You might be thinking that its game over for industrial era firms. Look at what happened to GE when it tried to reinvent itself as a software company. Good idea in principle, but the execution was poor. When migrating to a new business model, it is best not to ignore the part of your business that pays the bills.
Virgin Group, Microsoft and John Deere are great examples of old school super-resilience in action. Deft use of data and technology is one part of that. But the key element is their values in respect of their customers and their people.
Virgin is an exemplar in market disruption. Microsoft is helping us reclaim our lives through its increasingly innovative productivity tools. John Deere has moved from selling products and thus meetings its customers once or twice a year to becoming the farmer’s real-time partner.
So it is possible to make the leap from factory to super-resilient organism. But it takes real determination. The problem is that many old-school organisations today are focused less on transformation and more on digitalisation. Thinking that by sprinkling their factory with AI, IoT and Blockchain they are ‘good to go’. Remember, a faster, cheaper, smarter Titanic is still a Titanic.
There is also a reluctance to transform because of the underlying mistaken belief that ‘what made us successful in the past will continue to make us successful in the future’.
But what about the rise of the robots?
The use of terms such as robot, algorithm, AI and machine learning are a sure-fire way to unsettle employees. Technology advances are obviating the need for humans, but only those humans who are operating as an organic cog in the factory machine, again, a technology placeholder.
The new definition of talent in the digital age is someone who can do something the market values that cannot be done by a robot or an algorithm. This means bringing our cognitive ability to bear. Our ability to be creative, pick up on weak signals in small datasets, think conceptually and empathise are some primary examples of where we currently have an advantage.
If your people like the learned helplessness model of being a cog, then their days are numbered.
Robot Process Automation (RPA) will release many back-office workers from the tyranny of ‘indentured servitude’. However these unfortunate workers will find themselves in the company carpark, box of belongings in hand, with very few alternative economic options.
As an aside, only reckless organisations will use AI and robotics front of house, given the immaturity of these new technologies.
But I like indentured servitude
Industrial era work has given us the opportunity, not just to pay the bills but to build a surplus, which we can use to buy things and architect a lifestyle. But this economic wellness came at a price. That price was our humanity. Prior to the industrial age, we were able to express our natural anthropological drivers. These included our need to:
- Be mobile
- Be social
- Integrate our work and non-work lives
- Be curious
- Be courageous
- Be judged on our productivity, not just activity
- Enjoy a high degree of autonomy
- Have a sense of purpose
- Be creative.
The industrial era, with its factory model, suppressed these ‘anthro drivers’. Digital age companies have worked out that if they enable humans to express themselves anthropologically, ie let humans be humans, they gain greater access to their cognitive capacity. This is a win-win. The worker gets to feel more fulfilled, whilst at the same time performing on a higher plain.
The digital age is a great time to be human, if you are prepared to wake up from the industrial era ‘process sleep working torpor’ and engage with the world as per our pre-industrial ancestors.
Visit any Google campus and you will witness people expressing their anthro drivers in full. In this sense, Google’s offices are cognitive gymnasia.
So let’s look at how you transform your organisation to compete in the digital age.
Create the conditions for innovation – ‘Humans rebooted’
As mentioned, if you can create a working environment where your people can express their natural anthro drivers, they will have less anxiety and thus more cognitive capacity available for doing great work.
Creating the conditions to enable people to be sociable, mobile, creative and so on will require both a workplace and culture redesign. Keep in mind that we are tribal in nature. If you can cultivate a team (or even teams) spirit, not least through a sense of shared purpose(s), you will amass compound gains in respect of collective cognitive bandwidth.
Again there is a strong correlation between bandwidth and innovation. And in the digital age, there is a clear correlation between innovation and organisational success.
Plug the cognitive leaks
Much cognitive capital is squandered in industrial era organisations because of the inherent inhumaneness of the work being carried out. We were not designed to live in a spreadsheet or sit in a cubicle for hours on end. Further cognitive leakage also results from:
- Poor IT systems
- Poor workplace layout
- Poor leadership
- Unnecessary bureaucracy
- Controlling behaviour – Eg. Making people travel to work during rush hour.
Smart organisations will eventually plug all the cognitive leaks. At which point the focus of leadership will be on marginal gains. What are the small environmental improvements you can make to boost the cognitive bandwidth available to do great work?
Study your customers
That said, customers are critical and so organisations must act accordingly.
It is important to realise that homo economicus, a term associated with industrial era economic theory, is no longer fit for purpose.
This notion of a rational buyer is outmoded. Buyers today have limited mental bandwidth in respect of making purchasing decision. Their attention is being pulled in every direction. Often, they are overwhelmed with choice. We live in a world where today if Taylor Swift buys a power drill, the DIY sector would spike as teenagers look to acquire this ‘must have’ gadget.
In many respects, we are entering a post loyalty era. It is time to stop listening to customers and focus more on their behaviour. RIP focus groups. This takes us into the world of neuromarketing. The game is less about loyalty and more about habituation. In what way can your offerings trigger neurotransmitters such as dopamine, serotonin and oxytocin?
Grow your assets
Despite pressure from analysts and investors to focus on profit, we need to focus on growing assets. A focus on profit is akin to failing the famous marshmallow test. Assets generate value over the longer term. The key digital age assets are brand capital, cognitive capital and data capital. Today they are bundled under intangibles on the balance sheet. Clearly accounting is also in need of disruption.
You are encouraged to reduce your physical assets. As mentioned in a fast-moving world, they are the equivalent of a ball and chain.
Reset your approach to risk
If you have one business model, ie a set of services, with a go-to-market model and accompanying financial model, you essentially have one egg in one basket. You need to develop multiple business models. Think plan B, C, D etc. Some of these will be acquisitions, some will be home grown. Some will fail. One or two may keep you afloat when the digital grim reaper enters your plan A reception.
The definition of risk management in the digital age is risk acquisition.
This necessitates developing a tolerance for failure. Think of these plans as experiments. You are at risk if your experiment portfolio lacks substance and diversity. Similarly if your failure rate is too low.
Data is key to a sensing organism. Data can help us understand and anticipate customer behaviour. It can flag internal issues such as disengagement in respect of key people. It can also flag threats and opportunities.
Industrial era organisations are generally not short of data. However, because of poorly integrated IT systems the data is warped. The goal is a data lake, the reality is a data cesspit. No matter how sexy your data analytics tools, if they are drinking from the cesspit, you would be wise to ignore the ‘insights’ on display.
This is a very serious problem. An organism that cannot accurately assess its environment will not survive for long.
As the world becomes more connected, commerce takes on the form of a railroad system. If you want to be part of this new business ecology, you had better have a station / platform that sits alongside one of the tracks. Ideally it would be at the intersection of many tracks. Ideally it would be the central hub of your market. If you own the hub, in many respects, you own the market.
Alternatively you can have multiple platforms on multiple ecosystems, where in some cases you are the hub platform. Again this is an exercise in risk management.
This may seem odd given the theme of this post. But the reality is that if you have built an industrial era organisation where process is everything and employees are recruited for their compliance, rather than creativity, any attempts at transformation will simply threaten your primary cashflows and unsettle your people.
I recommend that you continue with your ‘plan A’ as is. By all means digitalise it to make it smarter, faster and cheaper. Who knows it may generate cash for decades to come? But the risk is that it could get taken out next week by a free app or a change in consumer sentiment.
This is why a new approach is required to risk management, as covered above. Your plan B, C, D etc will be staffed with a more creative type of talent. They will be comfortable with ambiguity and a more frenetic pace. Many of your Plan A people will struggle to make sense of what is happening in the other ‘plans’, “How could anybody work in such a disordered manner?” But some will experience a personal awakening and will have a strong desire to transform to one of your startup plans. Encourage this.
So what next?
This post has taken a general approach to transforming old school organisations into super-resilient organisms. The key message is that this is not an exercise in digitalisation. However digitalisation will be part of this. This has people implications, particularly for those that are in some way decoupled from the market, eg. shared services.
But this does not necessarily have to result in mass headcount culling. Each of your people has millions of years of programming embedded between their ears. I believe it would be wiser to create the conditions that enable your process workers to make better use of their onboard computer.
The first step is to automate their tasks, so that they focus primarily on exception handling.
As the algorithms learn how to handle the exceptions, your people can then focus on deeper and more innovative issues. Think cognition optimisation (HR), data-driven services (IT) and asset management (Finance).
The rules of the industrial era are no longer fit for purpose. From old-school factory to super-resilient organism will not be an easy journey. Those old school players that wake up to the new reality and act have a very good chance of giving the digital age startups a run for their money.