Leadership in the age of disruption

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This article first appeared in The Edge Malaysia Weekly, on November 28 - December 4, 2016.

 

IN the age of disruption, only the quickest to respond and the fastest to change will survive. We are all familiar with the stories of companies who thought they were immune to disruption and ended up paying a heavy price for their mistake.

This is why leaders need to be quick on their feet to stay relevant in today’s environment, said Haresh Khoobchandani, general manager of Microsoft Business Solutions, Microsoft 

Asia-Pacific. “We need to address the fact that the role of information technology (IT) in an organisation has changed. The role of the C-Suites — the CIO [chief information officer], CMO [chief marketing officer], and even the role of the chief executive officer [CEO] has changed.

“The CEO is now pressured to understand the physics of the future and the dynamics of what is going to happen. Disruption is no longer just part of an IT conversation,” said Khoobchandani at The Edge–MDEC “Disrupt or be Disrupted” Conference 2016, an exclusive forum for CEOs on Nov 22.

He cited a study by International Institute for Management Development (IMD) and Cisco Systems that found that digital disruption is not seen as worthy of board-level attention in 45% of 941 companies across the world.

“To be fair, Asia’s representation is very small in the study but this number still shocked and scared me. It does not help that 43% of the companies either do not acknowledge the risk of digital disruption or have not yet addressed it,” said Khoobchandani.

The study found that nearly a third of the companies are taking a wait-and-see approach. Khoobchandani said that the danger of this approach is that by the time the companies see how digital disruption works, it will already be too late for them.

The three key technology areas that companies need to thoroughly understand are data, analytics and cloud. Khoobchandani was disappointed that C-Suite executives are not leveraging these technologies, which could optimise their businesses.

“Imagine if you can connect systems to the cloud, which in turn empowers an individual in your organisation to analyse live data on what is being bought, what is being sold, what colour, what taste and at which location. Imagine what you can turn around in terms of real-time decision-making, marketing and innovation. Imagine what all these can provide for your company. This technology, make no mistake, it is here to stay.” 

The best course of action for a company at this moment is to disrupt itself before someone else does. In order to help CEOs get started, Khoobchandani suggests several things, based on his own experience and conversations with other CEOs.

The first is that company leaders should understand the physics of the future. “It is no longer about understanding the role of technology, it is about understanding the implications of technology. Cloud, for example. Why is it so important? How is it helping you focus on what you can do within your organisation? How can you, with the help of the cloud, focus on your core competency and those in charge of technology focus on theirs? These are some of the things that you need to be fully aware of,” he said.

Khoobchandani added that CEOs should improve themselves by adopting 21st-century skillsets — the skills, work habits and traits that are important and relevant in today’s environment. Having these skillsets will not only influence the development of existing employees, but also the quality and type of people who will potentially be brought on board as well.

The customer journey has changed and companies should acknowledge it, he adds. “We live in the world of influence, not control. Customers are making purchasing decisions like never before across all industries. Your customer now has the control, not you.

“So how do you build a better engagement, better experience and personalise the interactions with the individuals who will eventually help you to collect data and translate it into revenue? These are the things that CEOs need to get their heads around,” said Khoobchandani.

Creating mindfulness in the workplace is also an important part of a company’s digital transformation. Khoobchandani said that essentially, CEOs need to create an environment that facilitates the ability to take risks, learn and make mistakes.

“Even organisations like Google are promoting meditation in the workplace. Why? Because we live in a world of clutter, of infinite information, data and devices. But finite time and attention.

“If we believe people are our greatest asset, the practice of mindfulness can contribute to a great working culture. Curiosity, openness and willingness are all part of being mindful and attributes that can drive a culture of growth in an organisation,” he said.

The next step in digital transformation is building a data culture. He said decisions can be made more impactful provided there is a clear strategy on how data is captured and managed and how it flows across the organisation to genuinely empower people to make real-time decisions.

Companies should also know how to harmonise the old and the new. “The workforce exists, so it cannot just be ‘go digital or go home’. You have got to figure out how to respect the diversity that you have in your organisation and the diversity of the audience that you serve because the older generation may not necessarily be digital.”

Diversity can be a competitive differentiator. Khoobchandani said as we live in a globalised and connected world — different thoughts, perspectives, cultures and genders must be embraced to build a high-performing organisation.

Lastly, it is imperative for companies to make disruption part of the company culture. “The world is being reimagined across all aspects of life. How do we embrace the incubators and accelerators within the organisation? We have to be proactive about the disruptions across business models, organisational structure and even proactive personal disruption. What got us here may not take us where we want to go, so it is important for us to keep on looking ahead,” he said.

Enterprises are customer-obsessed, and consumer behaviour has changed. Information is now in the hands of the user, heavily influencing their decision-making process. Khoobchandani pointed out that, ironically, as organisations grow bigger, they move further from their customers.

“This is why they need to look for more ways to bridge the gap. Marketing as we know it today is evolving rapidly. The future is about engagement, experience and how you drive conversations — it is no longer just about technology.

“Today’s customers can switch more easily than ever before. It brings us to the question — are the customers loyal to the brand, or are they loyal to the experience? This is why I believe that the future of business is marketing. Therefore, I feel that building and retaining customer satisfaction through great customer experience is the critical area that managers have to be focusing on,” said Khoobchandani.

He added that companies need to bear in mind that the competition they are up against is global in nature. This is why it is important for them to ensure that they deliver superior experiences and cater to the needs of human beings rather than the needs of their bottom line.

“The technologies that we have today enable personalised products and services. Therefore, there is a high demand for smarter products and personalised experiences. There is an oxymoron that I call mass customisation which is becoming a reality because of digital technologies. We are now able to understand the people’s preferences and behaviours to drive targeted execution,” said Khoobchandani.

Microsoft has been actively helping companies on their digital transformation. One of the examples he highlighted is its collaboration with Intel and Bosch for the agriculture technology company, The Yield. The Yield provides on-farm sensors and customised information service to help companies make faster decisions while being mobile.

“Oysters is an A$100 million industry in Australia, and the farmers were losing significant amounts of money due to the changes in weather patterns as the water temperature and salinity affect the oysters. In addition, oysters that are affected by rainwater with contaminants cannot be sold. Therefore, the farmers need to get on the front foot of predicting the changes in weather and temperature to avoid wasting oysters.

“Today, with the help of Microsoft’s cloud Azure, farmers are able to collect data that allows them to analyse dynamically and proactively to manage the farming process. Eventually, they were able to save close to A$6 million, improve profitability, and get on the front foot of improving the operations,” said Khoobchandani.

Additionally, Microsoft has recently announced that the company is working with the medical industry to help address cancer. The company is working on treating the disease like a computer virus that invades and corrupts the body’s cells. Once it is able to do so, the company will be able to monitor patients and even potentially “reprogramme” them to be healthy.

“It’s a moon-shot project in the next 10 years. What we are trying to do is actually showcase the potential of analytics in technology. It’s mind-boggling what the opportunities are, but that’s the dream,” said Khoobchandani.

The innovation factor
Most large corporations are aware of the threat of disruption to their long-established businesses but are addressing it in the wrong way.

They do what everyone else is doing without having a clue why, or even, sufficient follow-through on initiatives that could have worked. And they do not address key aspects of change such as culture and creating a sufficient funnel of ideas so that they can get to the next billion-dollar paradigm-changing new product line.

Jordan Schlipf, partner at Rainmaking Innovation Inc, an innovation consultancy firm based in London, has seen it all. The serial entrepreneur, former venture capitalist and expert trainer has created companies, been involved in early-stage tech investing and designed start-up education for top-tier universities, accelerators and government initiatives.

At the “Disrupt or be Disrupted” exclusive CEO conference organised by The Edge Malaysia and Malaysia Digital Economy Corporation in Kuala Lumpur last week, he said some large corporations were too complacent and not even aware of the threat posed by smaller companies, which could prove to be major disruptors, despite the examples that now abound.

Schlipf pointed out that although this threat is evident with the likes of Uber, Airbnb and WhatsApp, many companies are not taking it seriously. “They say things like, ‘We need to start focusing more on innovation, otherwise we will be disrupted in the next 10 to 20 years!’ Try, the next 10 to 20 months!”

He said too many companies were content to sit back and identify the coming waves without bothering to participate. “There are still far too many of us, standing on the beach, surfboard in hand, looking out for those waves we’ve identified to appear. And when they do, we jump on the surfboard and start paddling out, only to realise it’s too late.”

Instead, he said, what companies need to do is put themselves out at sea. “We need to put ourselves at the breakers, where we have the option to catch these waves. And then, we need the right vehicle in order to ride and own those waves.”

He said most large corporations use one of four vehicles — corporate venture capital, mergers and acquisitions, start-up competitions and accelerators. The problem is that some of these methods are ineffective and as for the others, the companies do not get the best value from them.

Schlipf took apart each option one by one. “Personally, I don’t get corporate venture capital. We all know that the key success factor of venture capital is dealflow. Does your organisation really have access to the best entrepreneurs, the best start-up investments, both the quality and the quantity?”

He pointed out that even if you have all that, venture capital is a terrible asset class with 75% failing to return any money. Most corporates, however, get around this by claiming that they can make strategic investments where they connect their portfolio companies to the core business and they can leverage unfair advantage to all its existing resources and infrastructure.

“It sounds great on paper, but prove it. The VC comes along and says, ‘Hey we’ve invested in a start-up. Can we get this business unit to back it?’ And they’re (the big business unit) like, ‘Who are you and why are you talking to me?’”

And even if the corporate VC is successful, what does success look like? “Maybe you return 10 times your cash, but in what timeframe? Realistically, five to seven years. But how has this addressed your underlying issues? Are you really more adaptive, responsive and resilient as an organisation?” Schlipf asked.

He is not impressed with mergers and acquisitions, either. “The truth is, this is super-expensive and more often than not, the results are disappointing. We’ve seen the early days of this in Silicon Valley where corporates ran into stores there like kids in a candy store with cash, buying up a ton of breakthrough technology. And then, they integrated these acquisitions into their core businesses and typically, they suffocated what they bought.

“Did these acquisitions really create shareholder value? I think the jury is out on this and it is very rare in business M&A that start-ups generally create shareholder value.”

On the third option, which is start-up competitions, Schlipf said, “Open innovation! We’re going to crowdsource start-ups and developers to build solutions for our problems. Why would they do that? What is the value proposition to them? It’s so easy to be in that mindset of ‘I’ve got these problems and all these other people can solve them for me.’

“The truth is, start-ups or developers don’t relish being treated as some sort of free outsource development agency. So, until you’re mindful of what’s in it for them, they won’t rally to you.”

He pointed out that accelerators, which is a process where corporations take single-digit chunks of equity in start-ups in exchange for a small amount of capital funding and mentorship, can be great if done well: “at the right time, at the right stage for your organisation”. But they are mediocre and exceptionally overpriced when you get it wrong.

Schlipf said with the right programme, it’s a great tool, for learning, participating in the market and for applied research and development. “It can be super powerful, but you need to be asking the right questions to judge what’s the right programme, partner and stage for your business.”

He said this is provided that corporations know what they are looking for and participate actively in the programme. “Most corporations have conducted accelerator programmes with no engagement with the participants. This is despite the fact that true value from the programme can only be achieved with some level of engagement, capability and commitment.”

What are some of the common pitfalls when it comes to corporate innovation? The first would be a lack of follow-through.

“You do one thing, like a hackathon or an internal innovation drive, what’s the next thing? You don’t just tick the box and put yourself in a worse position when you get around to doing the next thing when you eventually figure out how,” Schlipf said.

However, he does not advocate going from ideation, straight into scoping and development either. “You identify some good ideas that the key internal stakeholders want to champion. And then, you fall back into the typical old-school waterfall approach. You start scoping out and developing a product, a functioning prototype, essentially ignoring the lean start-up approach of small steps of continuous iteration, of validation, of experimentation.”

The other pitfall would be stopping at rapid prototyping. “You build this awesome prototype, this fully functioning early-stage project, only to realise that once you’ve deployed it, you don’t have the requisite knowledge and skills to achieve a market fit to build a business and in turn, capture the full value of this opportunity,” Schlipf said.

He also referred to proof of concepts with a slow and frictional process: “Corporates and start-ups operate at different speeds, different scales with different mindsets and business processes, making successful commercial engagement challenging. And if you haven’t got enough of internal capability, a layer where you connect growth-stage start-ups with your organisation — procurement, legal, security, IT — if you can’t physically connect them and operate at a sufficient level of capability, not only will the desired outcomes of these pilots be unlikely to be achieved but also you can very easily hurt the start-ups.”

Schlipf pointed out that start-ups have a very limited runway. “You’re like the oil tanker to their jet ski. If you drag them along in the wrong direction, you can genuinely end up hurting them and killing them. They run out of runway, they run out of money.”

In turn, he said, the company’s brand and credibility in the start-up ecosystem would be tarnished and it would lose that competitive advantage of being able to tap into it. “If your competitors haven’t got a tarnished brand, they will get more engagement with start-ups.”

The other pitfall would be a lack of ecosystem in a portfolio approach. “Corporate innovation to me, can and should be thought of as an ecosystem. You have a bunch of ideas, the teams are formed, then you have pre-accelerator and really early-stage teams, then accelerator start-ups, seed investments, series A and so on. As you go down this lifecycle, you notice that every good ecosystem has a tapered effect,” Schlipf said.

“At first, you have a ton of ideas. Some of them make it to teams, start-ups and so on, and few really end up disrupting, changing the world — the Ubers, the Airbnbs. But you won’t get those if you don’t have enough at the front of the funnel.”

The other thing is the lack of a portfolio approach. “It’s too risky to take a project management, sort of linear, approach. You need to have a portfolio of lots of things to test and learn. Over time, double down on the stuff that’s working,” Schlipf said.

But beyond these common pitfalls, there are bigger underlying challenges that we face when it comes to innovation, he added.

The first is cultural mindset, that is, mindset about navigating uncertainty. “In business, there is this huge gulf that exists between what we say we should do and what we do. That gulf is the difference between the lip service and the path of emotional least resistance. If people do not actually believe that they won’t get fired if they fail, if they do not believe that their compensation, future prospects will not be tarnished, they won’t do it. So, a lot of this challenge of innovation is essentially a task of cultural engineering,” he said.

The second is knowledge and skill sets. “Do not underestimate the skills and the knowledge that are needed to operate in today’s world, let alone, tomorrow’s. If you keep applying your standard governance decision-making, incentivisation … all of these things, the environment, none of your innovation initiatives will thrive. You need to create the right structure to enable these innovation initiatives to thrive. And that means no one-size-fits-all approach,” Schlipf said.

And then, there is internal buy-in — the political capital that either makes the innovation initiative possible or impossible. Schlipf is still trying to figure this one out. “We’ve seen stuff like executive workshops, videos, internal showcases, structured mentoring and internal meet-ups deliver and create a movement within certain organisations but not work in others. And I don’t really know yet how to do this effectively, in a sort of repeatedly trustworthy way.”