May 8, 2017

10 min read

Skating to Where the Puck is Going to Be

Se7en Game Changers for Organizations to Thrive in Digital Transformations

“I skate to where the puck is going to be, not where it has been.”

Ice-hockey legend
Wayne Gretzky when asked about the key to his success
and quoted by (too) many business executives …

This spring I did one of the keynote presentations in a 2-day workshop on Digital & Culture Transformation in Paris with some 150+ representatives from global, large corporations like GE, Bosch, Telefonica and Ericsson, and, the roundtable conversations during this event were highly inspirational and valuable. I have also shared and learned about ways of working and culture in organizations together with Spotify, Microsoft, Riot Games, Fidelity Investments, Barclays Bank, Ericsson, and a few other companies as a part of the Learning Consortium 2016–2017. Additionally, I’ve been one of the navigators in a large-scale transformation journey of a product development unit over the past eight years.

Based on this, I’d like to share a few fundamental insights and essential questions on ways of working and culture in organizations.

Fundamental Insights

Parts of the world have always been volatile, uncertain, complex and ambiguous — think of tsunamis, freak waves, wars, the Black Death in Europe in the Middle Ages, …

The Wave of the Future. Illustration: Kirpich and Berry

Now, the ongoing digital transformation towards software and world-wide communication is increasing the speed by several orders of magnitude since bits are so much faster than atoms. Organizations are struggling to cope with the massive changes in customer behaviors, products, services, and, business models that this entails. They are also slowly realizing that they need a corresponding internal culture and ways of working transformation to stay relevant for their customers and society at large.

This transformation is notoriously difficult since it should take several game changers (also known as paradigm shifts) into account. Still, these game changers are vital for an organization to be more innovative, deliver more, faster, and, better with happier and more engaged employees. Hence, they are absolute prerequisites for winning the hearts and minds of your customers, existing and potential.

Here’s my take on seven major game changers that are happening in business today.

The Organization at the Center of the Universe → Customers at the Center of the Universe

This is a ”Copernican Revolution” from the 20th Century view that customers revolve around the stationary “center of the universe” — the value chain of the organization — to the view that the organization is one of many organizations revolving around the customer.

The organization survives and thrives only so long as it is flexible enough to meet the customer’s shifting needs and desires. This is valid also for internal customers and internal service functions like human resource, finance, supply, IT, and, sourcing.

Example: Amazon’s mission is to be “earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.” For Amazon, customer-centricity is the end and online commerce is the means. Thanks to their relentless customer focus, Amazon’s revenues have grown from 7 BUSD in 2004 to 136 BUSD in 2016.

Organizations as Tayloristic Machines → Organizations as Complex, Adaptive Systems

U.S. public companies are dying at faster and faster rates; in fact, they have a one in three chance of being delisted in the next five years. Why? They are failing to adapt to the growing volatility, uncertainty, complexity, and, ambiguity of their environments — misreading those environments, selecting the wrong approaches to strategy, or failing to support a viable approach with the right behaviors and capabilities.

Illustration © Brett Ryder, The Economist

Many organizations still see themselves as machines — they talk about: management pipelines, software factories, well-oiled machines. This gives a feeling of control — which is completely illusory — given that the rate of change will never be slower than today!

Other organizations have realized that they work more like living organisms. Understanding and implementing the principles that create resilience in complex, adaptive systems can mean the difference between survival and extinction as explained already in the 7-S model by McKinsey from the early 80s: strategy, structure, systems, superordinate goals, skills, style, staff, and, most importantly, the interplay between all these. Additionally, in order to thrive, organizations should maintain a diversity of people, ideas, and endeavors; sustain a modular structure of loosely connected components; preserve redundancy among components; expect surprise, but reduce uncertainty; create feedback loops and adaptive mechanisms to ensure the variation, selection, and propagation of innovations in all areas: products, services, ways of working, leadership, budgeting, recruitment, …; foster trust and reciprocity in their business eco-systems.

Example: Toyota uses these principles to develop and manufacture more and higher quality vehicles than Volkswagen with less than half the number of employees.

Strategy as Chess → Strategy as Football

In a world where the rate of change will never be slower than today, our ways of working with strategy needs a new strategy.

Many organizations see strategy as a game of chess: a rather slow-moving game of thought with very strictly defined rules, pieces and moves, and, an all-knowing chess master who moves the pieces.

Other organizations see strategy as much more of a fluid game of football (soccer for people in the US :-), where — given a general direction — the players act independently and as a team, creatively trying different approaches depending on the opposing players’ moves and feedback on how things are going.
(For hardcore football fans: what I’m talking is Total Football.)

So, we move from strategy as chess combining a clear destination with excessive planning to strategy as football with an initial direction, autonomous choices, and, iterative experiments

Finding new customers, business models, technology, products, and, services under highly uncertain circumstances means that what is needed cannot be fully known from the beginning. Hence, a general idea of which direction to take (and why) combined with initial assumptions followed by quick, iterative prototypes and experiments to validate or invalidate assumptions about customers, business model, technology, product, or, service offering is needed to “outlearn” competition. The results of the (in)validation of hypotheses will help us make the right choices with respect to customers, business model, technology, product, or, service offering and to pivot in a new direction if needed.

Examples: LEGO Group and Procter & Gamble make explicit choices and validate assumptions early through trials, prototypes, and, experiments — helped by the “Playing to Win” framework.

Leadership: Command and Control → Alignment for Autonomy

Source: Stephen Bungay. Illustration: Henrik Kniberg.

Alignment happens when leaders and teams share the same values, principles and mindset and work towards a common purpose or goal. Autonomy helps teams to work independently of leaders and each other. The stronger alignment we have, the more autonomy we can grant. The leader’s job is to communicate what customer need or problem should be solved, and why. The team’s job is to collaborate with each other and other teams to find the best solution and have the autonomy figure out how to do it. Alignment for autonomy works for individuals, teams and even organizations, in fact, the bigger the organization, the more important alignment for autonomy gets — to decentralize in order unleash innovation close to customers, and, to close the gap between strategy and implementing the strategy.

Examples: Spotify uses alignment for autonomy to get speed, innovation, and engagement in their software development teams to make awesome services for their customers that are aligned with the overall company strategy.

Ways of Working: Resource Efficiency → Flow Efficiency

Source: Niklas Modig & Pär Åhlström. Photo: Håkan Forss.

Resource efficiency means keeping people and equipment as close to (and sometimes even above) 100% utilized as possible to drive down costs.
Flow efficiency is all about fulfilling customer’s needs as quickly as possible to win the hearts and minds of existing and new customers and get revenues as soon as possible.

When organizations focus too much on utilizing resources efficiently, it tends to lead to an increase in the amount of work there is to do and longer lead-times to fulfill customer’s needs. Consequently, the more organizations try to be resource efficient, the more inefficient they will become. It is possible to get both high flow efficiency and high resource efficiency, but only if you start with flow efficiency first.

Examples: In the fast fashion business, H&M is very resource efficient organization and they are competing with Zara, a highly flow efficient organization. The trends in revenues and profitability are clearly in Zara’s favor.

Learning: Fixed Mindset → Growth Mindset

People with a fixed mindset believe that their talent or capabilities comes from within and thus that it’s static and hence that they don’t need to work hard and develop themselves. People with a growth mindset have a strong desire to learn and therefore tend to persist in the face of setbacks, see failure as essential to mastery, learn from positive and negative feedback, find lessons and inspiration in the success of others and embrace challenges with curiosity and agility. An organization where everyone has a growth mindset will outlearn competition to win the hearts and minds of their customers.

Examples: Microsoft’s CEO’s new mantra is “don’t be a know-it-all, be a learn-it-all”. Hence employees don’t need to prove they’re the smartest people in the room, but instead are supposed to learn, since the learn-it-all will always trump the know-it-all over time even if they start with less innate capability.

Finance: Yearly Budgets → Beyond Budgeting

This game changer is about moving from a calendar cadence to a more dynamic and needs based budgeting process: organize your management processes dynamically around business rhythms and events, not around the calendar year only; make planning and forecasting a light-weight and unbiased process, not a rigid and political exercise; foster a cost conscious mindset and make resources available as needed, not through detailed annual budget allocations; reward shared success against competition, not against individual, fixed performance contracts.

Example: Handelsbanken has outperformed their peers from 1971 onwards when they introduced beyond budgeting principles, and, they never had to be bailed out by government.

Essential Questions

What is the culture of an organization?

Based on what I’ve seen and heard, McKinsey’s answer from the early 80s still holds: it’s about beliefs (including mindset and paradigms), rituals (including ways of working and behaviors), heroes and stories. Beliefs and rituals are covered by the seven game changers above. Heroes and stories make the beliefs and rituals come alive.

So, who are the heroes of your organization today? Who gets promoted? Who gets rewarded? Who gets to be in the spotlight? Who gets recruited? Who gets fired?

What stories are you telling? What stories are your leaders telling?

What stories are being told at lunch and in the coffee corners? How do you know?

How will these heroes and stories take you to where the puck is going to be?