Navigating digital ecosystems

"81% believe that in the future, industry boundaries will dramatically blur as platforms reshape industries into interconnected ecosystems"

The ethos of the emerging internet epoch, where information is ubiquitous and free, where waiting time has disappeared, where the next new thing is already passé at inception, where there are no longer any meaningful classical geographic boundaries, and where both the nature of a job and loyalty to an employer are constantly being redefined has profound implications for the practice and development of leadership. Not only must we rethink work, and its organizational context, but we must also rethink the role of HR in assuring that organizations have leadership capable of taking them into the future.

New Business Models

In a time when innovation is the norm, rather than the exception, business model innovation has become as powerful, if not more so, than product and process innovation, and is reshaping traditional industry norms. More people take pictures with their cell phone today than ever before. There is no cost of failure. A less than satisfactory photo can be deleted and several more can be clicked with the mobile without having to carry a separate camera and add to the weight. The lightweight mobile can do as much as the best cameras. Sharing it with the rest of the world is a one tap action. Just use an app and share it with as many people as you wish on your social network.

Anything digital has two salient characteristics – the cost of failure drops dramatically and the cost of distribution is extremely low. Take these two together and it is easy to see why digitization is a game changer. First it was the digital camera that replaced the film. Very soon, mobile phones replaced the digital camera for amateur photographers. But digitalization has also changed the way in which we think about other aspects of life: ubiquitous sharing is now the first response of millennials to nearly any new experience; similarly, this same sharing has given new life to reliance upon peer-to-peer input for decision-making, wrestling it away from expert-knowledge in many walks of life [witness the ascendency of TripAdvisor over the Michelin Guide]. Digitalization has also put information directly in the hands of all stakeholders simultaneously, ushering in era of “uberization” across many different industries, and changing such managerial dimensions as: capacity deployment, supplier-choice, and the visibility of customer-satisfaction

In fact, Uber, the ride sharing company launched in 2010, originated out of an effort to ease the pain of being unable to locate a cab on the streets of San Francisco. Today they operate in almost sixty countries and more than 300 cities. The Economist found that

“In the third quarter of 2014, Uber accounted for 3% of business travelers’ incidental expenses... Just one quarter later, that share expanded to 5%. As a percentage of total taxi rides, Uber usage has tripled from 11% in January 2014 to 33% in January of this year. To the extent business travelers are using Uber’s taxi and ride-sharing services to replace traditional taxi rides, there’s a modest hit to travel budgets.”

Uber had 160,000 drivers regularly working for it in the United States by December 2014. About 40,000 new drivers signed up in December alone, and the number of sign-ups was doubling every six months. Already on average, Uber’s drivers work fewer hours and earn more per hour than traditional taxi drivers.While they are disrupting the taxi business, they are also challenging many other notions. For instance, are Uber drivers employees of the company? Or is the Uber app on the consumers phone a way for consumers to hail a car that someone drives? The law keeps vacillating trying to answer such questions, but technology constantly challenges the established perspectives of law. The company has a valuation of close to $50 billion. That is more than several companies that may have operated for decades.Uber is well underway to become a verb. Consider Heal, a new smartphone app that can deliver doctors to your doorstep. Heal is a smartphone app similar to the on-demand car service Uber, but instead of a car, a doctor shows up at your door. Users download the app and then type in a few details such as address and the reason for the visit. After adding a credit card and a request for a family doctor or a pediatrician, the physician arrives in 20 to 60 minutes for a flat fee of $99.Once you get the model, there is an “uberization” of many different services. It is true that the pediatrician or doctor you hail on demand will not perform complex medical procedures, but the more basic diagnosis can certainly be done. Technology also allows the doctors to do more complex diagnosis as medical devices get reduced to an app that can reside in the mobile and track everything from food intake to exercise and blood sugar to other data about the patient that helps the doctor make comprehensive diagnosis.A company like Xiaomi that makes smartphones has already become the third largest smart phone manufacturer in the world. In India, they sell their modestly priced feature rich phones through the e-commerce site Flipkart. The result: 20,000 devices sold in 5 seconds. This pace is unimaginable in a brick and mortar store, and one that gives access to the digital society to millions that in the past would have been left out, thereby accelerating the entire process of expectations change.Speed and scale are the hallmarks of these new businesses. Failure also is equally brisk. The consumers go to the showrooms and then do comparison shopping through their phones and order it through an ecommerce site and often pick up the goods from a storefront that acts as a warehouse for the manufacturer. To address an increasingly speed-addicted consumer, Best Buy figured that it was the only way they could compete with Amazon.The consumer to consumer website Airbnb pairs up people that have a spare room with people who need a place to stay. It is part of the sharing economy, a trend that allows individuals to monetize underutilized assets. With a $10b valuation Airbnb is already bigger than hotel chains like Hyatt and has given birth, in turn, to such variants as Airpnp, which rents out bathrooms in New York City by the need to utilize them, or LiquidSpace for desk rentals by the hour, thereby changing entire notions of access to assets, capacity utilization and gainful means of employment. Companies can fall off the S&P 500 when they get too small, or get acquired. No one really knows why the rate of turnover is speeding up, but technological disruption is clearly a big contributor. Since 2002, Google, Amazon, and Netflix have joined the S&P 500, while Kodak, the New York Times, Palm and Compaq have all been forced off, essentially by changing technology. Back in 1958, a company could expect to stay on the list for 61 years. These days, the average is just 18 years. The Internet of Things will be putting sensors in everything from our cars and houses to the refrigerator and even our shoes. The Swiss mattress maker Elite has added sensors to its products allowing it to charge by usage, which changes the business model for an expensive product in a market with great seasonal demand variation. These sensors will be spewing off data streams that can be monetized by only the organizations that can learn to navigate digital ecosystems. Accenture’s Technology Vision 2015 outlines a fabulous example of companies that can navigate the digital ecosystem that extends beyond their own sectors and technologies to create a seamless experience for the user.

Medical equipment manufacturer Philips is teaming up with Salesforce to build a platform that they believe will reshape and optimize the way healthcare is delivered. The envisioned platform will create an ecosystem of developers building healthcare applications to enable collaboration and workflow between doctors and patients across the entire spectrum of care, from self-care and prevention to diagnosis and treatment through recovery and wellness. By integrating data from multiple sources worldwide, Philips sees an enormous opportunity to improve patient health by enhancing the decision-making capability of medical professionals while increasing the active engagement of patients in their own treatment. The ecosystem Philips orchestrates to achieve these improved outcomes is vast: electronic medical records, diagnostic and treatment information obtained through Philips’ imaging equipment, monitoring equipment, and personal devices and technologies like Apple’s HealthKit.

  Long-lived companies

So what will make companies survive in this era? Arie deGeus suggests four factors that have characterized success from historical analysis of firms:

1. 1. 1. 1. Long-lived companies were sensitive to their environment.
         2. Long-lived companies were cohesive, with a strong sense of identity. Regardless of the unit they worked in, the employees felt they worked for one enterprise.
         3. These companies were particularly tolerant of activities on the margin: outliers, experiments, and eccentricities within the boundaries of the cohesive firm, which kept stretching their understanding of possibilities.
         4. Long-lived companies were conservative in financing.

We believe that these factors remain as relevant today even though the world seems to be juggling ever improving and disrupting technology.

Future of Work

It is not only the “customer-facing” activities of firms which are changing, however; the “back office” is being reinvented as well. In 2009, Time Magazine had speculated about the future of work. Their conclusion was that “The key to finding the jobs of the future will be in knowing where to look.”Uber, and more broadly the app-driven labor market it represents, is at the center of a massive redefinition of how we look at jobs. With companies facing disruptions in their business models, they are getting used to laying off vast numbers of their workforce. The end result is an increasingly disengaged workforce. Artificial Intelligence is getting more sophisticated. In 2014 Facebook unveiled an algorithm called DeepFace that can recognize specific human faces in images around 97% of the time, even when those faces are partly hidden or poorly lit. That is on a par with what people can do.Machines and robots are increasingly being used side by side with humans. A number of routine jobs are being done by machines as Artificial Intelligence is getting more sophisticated. The US Army is going to replace several human soldiers with robots, and a growing reliance upon drones is already well-established.More news is written by robots than we think. The AP news service is publishing thousands of earnings articles this year, produced entirely by an automated service.Manufacturing is already being revolutionized by industrial robots whose prices are dropping. That makes them attractive investments to replace humans at least in routine tasks. Companies will have to consider adding robots to the workforce plans that have involved only human workers so far. This is especially useful to do in case of areas like analysis of huge datasets and cybersecurity where it is hard to find top talent. Forward-looking organizations are building blended workforces to fill those skill gaps. The advent of additive manufacturing [3D printing] will not only also change the job of manufacturing, it will also change the location of the activity and the skills needed to be an operator.The training department may need to focus on training robots while the leadership development group will focus on teaching leaders tasks that need more creative thinking and working across disciplines.

Crafting a Learning Strategy for the Future

There is no longer any question regarding the appearance of widespread disruption across our industrial landscape. Ubiquitous and incessant change is the leitmotif of our era. The real question is how do we prepare our leaders -- both corporate and public sector -- to deal with such change in a thoughtful, graceful and effective manner.The salient characteristics of the disruptive changes we are facing provide guidance into the leadership skills required. They include such discordant notions as:

• “temporariness” rather than permanency in the nature of jobs as well as firms
• the commoditization of expertise, reducing reliance on traditional functional knowledge for career-building; yet, having to know about more things more readily
• customer- and employee-expectations that corporate leadership will lead a digital life – always on, speedy decision-making, liberation of work rules, etc.
• sharing of workloads with “outsiders” rather than doing everything by in-house and by one’s self.

Yet, if we are honest about what we see in many of the leadership teams with which we are familiar, their characteristics are at great variance with the emerging needs of our time:

• While these teams may be successful in their present generation of offerings, they are quite vulnerable to disruption from outsiders in the next generation of industry offerings
• They are comprised of earnest, ambitious, successful (& nice) people who are extremely competent in past skills
• There is a noticeable and worrisome lack of urgency
• They are all hesitant… afraid to experiment
• They are all afraid of disturbing existing successful businesses (& cash flows)
• None of these senior leadership teams are comfortable with social media or digital life
• It is difficult for them to Imagine any sort of major reinvention of their business models, or corporate culture, much less try some
• They are beholden to a shareholder value maximization philosophy that is dangerous to the sustainability of both their organizations and our planet
• They are managing complex organizations in ways that diminish talent and by measuring the wrong things

Challenges for Leadership

Disruption is a leadership phenomenon. Past success is the most effective predictor of future failure. Most disruption occurs not by making the wrong choices, as much as failing to choose at all. When the Ritz Carlton's head of training professes to be unaware of Airbnb, or when the publisher of a newspaper depicts future strategy in terms that disown past strategies we can begin to see the magnitude of the challenges ahead. What is needed is close to a complete reworking of our leadership model:

• From well-versed in the present to curious about the future: Most of the expertise at the top of an organization is present- (if not past-) oriented. We need leaders at the top who articulate bold new visions without being tied to the success stories of the past. Ironically, much of executive development today is historical: how past wars were won. While it is difficult to “teach” curiosity, it is certainly possible to encourage future-oriented thinking among managers, and insist on future-oriented exercising.

• From “Is to Ts”: Most career paths assume that past functional success will lead to future leadership excellence, and expertise-deepening is the preferred career development past, but much of what we have described above relies upon the broadening, rather than narrowing, of awareness. As innovation observer Jorge Barba has recognized: “we don’t need a society of more entrepreneurs; we need a society of hungry minds.”

• Digital communication: Tomorrow’s leaders need to be skilled in multiple formats of communication eg blog, WhatsApp, Snapchat, Townhall, face to face across geo, culture and time zones. Ever-connected and living in a real time world of communication.

• Fast > knowledgeable: Speed has become a key differentiator for successful executives as well as organizations. We must recognize that in a world where failure can be cheap, and the future is unknown, that velocity must become more important stability in everything we do, be it going to market, or making managerial choices.

• Innovation as the way we live: Innovation must become a way of life for everyone in tomorrow's organizations. In order for this to happen today's leaders, from the very top down, must become more innovative in their leadership styles. This does not mean that they, themselves, must take-on the burden of idea-generation, far from it! But, they need to become the role-models for the behavior they wish to encourage. If your organization wishes to take more chances, then its senior leaders must prototype/prototype and fail publicly, or else who else will take such chances?

 Conclusion

Gartner, Inc. forecasts that 4.9 billion connected things will be in use in 2015, up 30 percent from 2014, and will reach 25 billion by 2020. As devices get connected the business opportunities will lie beyond the neat boundaries of one enterprise. Every home and every device is a new source of connections and conversations. Being able to build authentic conversations will lie at the heart of business. At the very top the leaders will need to forge relationships unrelated businesses and sectors so that they can craft businesses that operate seamlessly between the digital and the physical world.Collaborating with specialists across geographies and time boundaries will be a key competency at all levels. Navigating digital ecosystems will need leaders who are unafraid to have conversations in real time on the social platforms and learn quickly from others.With industry boundaries blurring and generalists replacing specialists in terms of expertise, it behooves us to design organizations where Roles take precedence over Positions for moving the organization forward. This means considerable tolerance for ambiguity and conflict within an organization setting in the pursuit of directional fluidity. We are still learning how to manage human beings, but now leaders will have to learn to manage workforces that include machines. Work will have to be reimagined so as to leverage the best of humans and machines.None of this should suggest that leadership is a declining art, in fact, it is just the opposite. Leaders are more important than ever, but what will change is that "Letting Go" as a leadership style will become more rewarded and collaboration as a key leadership competency more prized.-----------------------------

Co-authored for the July 2015 issue of NHRD Network Journal with Professor Bill Fischer. Bill Fischer is the Professor of Innovation Management at IMD Lausanne, Switzerland. He is the Director of the Driving Innovation program partnership between IMD and MIT/Sloan School of Management. He tweets at @Bill_Fischer and writes a blog on The Ideas Business for Forbes.com

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