The companies that win in the coming decade need to constantly learn and adapt to the dynamic market, use AI in new ways and harness the benefits of broader business systems. This will require a fundamental transformation and it will not be easy.
Most organisations have a deeply entrenched culture that is dependent on hierarchy and human interactions. They will need to redesign their internal processes and build new capabilities. This change will not be one time but an ongoing exercise given the dynamic nature of business.
Traditional approaches to bringing about organisational change may not be effective. Leaders need to take a new approach to change, based on five key components.
Ground change programs in evidence.
Leaders have often depended upon intuition and experience to enact change. However increasing availability of data and analytical tools, makes it possible to empirically identify what works and what doesn't and leaders should do this extensively to arrive at a decision.
Successful companies have a compelling story to change expectations and improve efficiency. Also, take action to increase revenue, spend more on R&D. They launched a detailed transformation program against a series of ad-hoc measures. Finally, initiate the transformation effort when the company is doing well instead of a reaction to the adverse performance.
The analysis can help acquire and transform underperforming businesses. It can also help companies respond to external conditions and help them thrive even in adverse conditions.
De-average change strategies
Organisational change is not a single type of challenges and applies a recipe of common remedies which have been tested over time. In reality, many types of organisational changes present different challenges and different requirements. leaders need to identify various components and understand the right approach. Five different approaches can be considered based on the change required.
- A planned approach that represents the traditional approach, which is useful when there is a clear goal and the process of change is clear. Set clear targets, have a reporting structure and clearly outline accountability.
- A river crossing approach is appropriate when there is a clear goal but the path is uncertain. Here instead of planning in detail in advance, it is more appropriate to adopt an experimental approach to find the right path, learning from those efforts and make concrete progress towards the goal.
- A hill-climbing approach is suitable when the path(means of change) are clear but the final goal or state is uncertain. Start with certain minimum requirements and learning from these experiences build on these and decide on the result/goal/state.
- Next, companies may seek change even when both the approach or the result is not clear, especially when they are looking for the next big opportunity. This approach can be said to be scouting and wandering.
- Finally, companies may need to change urgently and substantially. This is called escape the swamp strategy. This may be a situation where if you don't change, you die.
The transformation strategies that companies may require would be a hybrid mix of the above, in which various methods are applied in sequence or simultaneously in different parts of the company.
Embrace uncertainty and complexity
The traditional management approach is based on the assumption that everything that is required to happen can be planned and changes required can be done through direct intervention.
However, interactions between individuals or systems are becoming more complex as they are more interconnected. Hence there is a need for a biological approach, against a mechanical standard approach, and be realistic about what can be known and controlled. This approach involves
- Adapt to conditions seeing what works
- Shape the context rather than individual actions.
- Allow new approaches rather than rely on standardisation.
- Observe how it behaves as a whole rather than individual parts.
- Compete on resilience and preparedness for unknown instead of efficiency.
New strategies may be required to effect change. Indirect interventions that change the mindset, a context may be more effective than direct interventions.
Use technology to identify the right talent
Large organisational changes may require acquiring new skill sets acquired by reallocating existing employees and when required acquire externally. Ai techniques are now available to find and acquire talent. To ensure that proper capabilities are available to execute a transformation program, leaders should
- Use objective measurements of skills
- Base hiring decisions on learnability and marks for different capabilities.
- Maintain the diversity of skills in the organisation.
Tap into emerging science to enhance change
As science and technology advance, more tools would be available for managing change in complex environments. Some emerging lessons include
- Identify early warning errors. new metrics are available to measure the vitality to identify signs of deterioration before they become obvious.
- Learn how to nudge behaviour. Leaders will need to identify influential leverages that may not be obvious. Behavioural psychology can help leaders identify small interventions to nudge employees into desired behaviours.
- Learn new program management techniques. Dynamic program management platforms can enable managers to continuously adjust change initiatives instead of following timelines.
- Use AI to enhance change. In the coming decade, companies would look to leverage powerful AI capabilities to aid transformation efforts.
The major ongoing change will be necessary to succeed in the coming decade. By recognising the challenge and using lessons from science and analytics leaders can ensure companies are best positioned to win the 20s'.
THE SCIENCE OF ORGANIZATIONAL CHANGE
By Lars Fæste, Martin Reeves, and Kevin Whitaker
BCG 2019/05
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