Management and Leadership in the 4th Industrial Revolution

Capabilities to Achieve Superior Performance

Stephen Wyatt

• Publisher: Kogan Page
• Year: 2020
• Print ISBN: 9781789666809
• eBook ISBN: 9781789666816
• Edition: 1
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

LONGLISTED: CMI Management Book of the Year 2021 The business world is currently experiencing fundamental disruption, in part driven by the technology enabled Fourth Industrial Revolution. Corporate value is created and lost in breathtakingly short periods, and the rise of 'unicorns' against the demise of once-venerated organizations has shown that how firms compete has changed. Management and Leadership in the 4th Industrial Revolution presents a framework for managing and winning in the new accelerated world of business, focusing on the key capabilities organizations now need to achieve competitively superior performance. Building on the 'dynamic capabilities' approach already familiar to strategists and based around his own research, Stephen Wyatt shows how executives can assess the dynamic capacity of their organization - a leading indicator of future performance in comparison to their industry peers. Written in an accessible style with best practice examples from companies and quotes from executives to support each insight, this book includes a self-assessment questionnaire to measure the dynamic capacity of your organization and advice on how to strengthen areas of relative weakness. Management and Leadership in the 4th Industrial Revolution offers timely insights on driving innovation and emphasizes the importance of long-term strategy, change management and new models of dynamic leadership.

Part One

Introduction

As a consultant for the management consulting firm Monitor Group in the mid-1990s, I was based in Hong Kong. One year I spent over 100 nights in the Grand Hyatt Hotel in Seoul. What made that assignment memorable was not the quality of the bed linen but the resounding chorus from the Korean executives at the client that ‘Korea is different… you have to interpret the data differently here’. I must have heard that refrain 30 times before I realized that ‘resistance is useless’. So, instead of trying to defend our analyses, I just asked, ‘How is Korea different?’

The answer was enlightening. It influenced my approach to consulting and running my own businesses over the next 20-plus years – and eventually led to this book. Korea was, at that time, indeed different from the more developed and more stable markets. It was developing rapidly and unpredictably. There was a clear opportunity cost for a firm not moving fast enough. Strategic choices were required, ‘yes’, but with limited insight for the future market conditions. Agility was important, ‘yes’, but not at the expense of operational efficiency. What western management theory started calling VUCA (volatile, uncertain, complex and ambiguous) in the mid-2000s has been ‘normal’ in Asia for several decades. In 2002 an executive at a global agrochemicals company wryly noted, ‘A great deal of our growth has been coming from the so-called Asian Tiger economies – but Harvard didn’t tell us how to ride Tigers!’

For the best part of 20 years, I worked with the Monitor Group, mainly in the Asia-Pacific region. Asia often felt a long way from Cambridge, Massachusetts, where the founders resided. These included some of the most esteemed management thinkers of our time, such as Michael Porter, Mark and Joe Fuller, and thought leaders such as Bernie Jaworski, Roger Martin, Chris Argyris, David Kantor, Michael Jensen, Tom Copeland, Peter Schwartz and others. As a young consultant I didn’t always appreciate the esteemed company I was in, yet I greatly appreciated their personal support as I worked with clients in tackling seemingly intractable problems in the fast-evolving markets in Asia-Pacific. We worked through the ups and downs of financial and political turmoil of different countries in the region. I learnt to appreciate the benefits of consultancy toolkits and the business insights inspired by the perspectives of my colleagues, drawn from their extensive business exposure mainly in the developed countries of the United States and Europe. But I also learned to appreciate the wisdom of the 6th-century BC Chinese philosopher Lao Tzu:

Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.

In unstable and accelerating business environments, the future is very difficult to predict; traditional management and leadership practices and approaches can inhibit firms from adapting fast enough or creating and seizing opportunities. Uncertainties and ambiguities, together with the speed of evolution of competitors and the rapid rate of change of customer behaviours that were then characteristics of Asia, have increasingly become the norm globally, driven not by widely differing rates of economic and social growth but by the technologies, political and social transformations of the 4th Industrial Revolution.

Today, approximately 80 per cent of the value of most western listed firms is driven by expectations of their future earnings stream. Yet past and current period results are decreasingly relevant as indicators of future performance as the speed of change in business, technology, trends and markets increases.1 For many companies, instability is the new norm and agility and adaptation are essential capabilities.

How do big corporations create and maintain the energy to constantly adapt and compete in this new normal of accelerated, unstable business? How do they transform themselves and their ways of operating and continue to drive up their valuation? And how can we have confidence in a strategy when the future is unknown?

As Harvard Business School’s Professor Clayton Christensen said:

The way the world was made for whatever reason, means that we only have data on the past or at best the present, but we have to take decisions for the future. The only way to look into the future is through the lens of a good theory.2

So, what ‘good theory’ can we use to look into the future as marketspaces are disrupted, created and the speed of business continuously accelerates? And if the strategy toolkit that evolved in stable economies with similar regulatory environments is decreasingly applicable or even obsolete, which tools should ambitious, fast-growth firms use as they venture into the unknown future?

The kernel for this book was my wish to put some structure to the insights I had accumulated on the role of the leader and the mechanisms within the corporation that most correspond to high performance in fast-evolving, dynamic contexts. I was especially interested in those firms and leaders that successfully operate across a broad set of markets and business contexts, including both the hyper-dynamic and the more stable. How do they leverage this for advantage and not become trapped with a dominant approach suited for one context but hampering performance elsewhere?

The speed of business is increasing globally, as is the rate of value creation and loss. Much has been written about models of success in relatively stable environments and for businesses whose activities in their home market dominate how they think about their strategy, culture and management practices. This book is for everyone else. It’s a distillation of experiences, formal education, hands-on management and academic research into how firms consistently achieve superior performance in unstable, accelerating business contexts, where the next ‘new’ may come from anywhere in the world.

To formulate my experience-based insights about what makes an effective corporate leader in a rapidly changing environment, I started to interview as many of my clients as possible. I heard how they are equipping their corporations to succeed in faster-evolving, less predictable environments. Increasingly I also found focus on how many of these corporations succeed because they operate across a portfolio of marketspaces with a wide range of levels of instability. Instead of force-fitting the perspective of HQ onto the evolving markets they have ‘reversed polarity’; they look to these dynamic markets as a source of insight into what the emerging future in more ‘developed’ markets might be like.

Many of the corporations that I refer to in the book are large firms operating globally. This is because I wanted to focus on and illustrate the management and organizational tools rather than the impact and personality of any one particular individual leader. Drawing on examples of these corporations across a broad spectrum of industries and markets, I present an integrated model that describes how a corporation can build its capacity to compete dynamically; to thrive, not just survive, in uncertainty and ambiguity. By focusing on developing its dynamic capacity, a corporation can achieve competitively superior performance. The executives at many of the firms in the research were confident in this, and their confidence was borne out over the following five years (December 2014–2019) of tracking the performance of their stock prices relative to those of their relevant competitors.

The book encourages a modified approach to traditional strategic planning and organization management. The firm still requires a winning and motivating strategy but against this it needs to be adaptive as the future unfolds. Purists of strategy will find solace; this book describes how to move from one position of temporary advantage to another, all the time gaining momentum and pursuing the greater mission.

Endnotes

1 https://www.dynamicadvantage.org/ (archived at https://perma.cc/MJM6-NY2T)

2 Clayton Christensen, Thinkers50 Hall of Fame Interview, https://www.youtube.com/watch?v=m4stHDQMblUUt (archived at https://perma.cc/QYS3-KDGG)

01

Competing for tomorrow, today

The future is unknown, yet strategy is about making choices – clear choices – and investing behind those choices, aligning the efforts of the organization. Strategic plans define those choices, and their clarity and communication enable managers and staff throughout the organization to take initiatives and make decisions that are aligned with the strategic intent.

Mission and vision are essential elements of a strategy, but they do not constitute the strategy. A plan is not a strategy either – although the strategy does need to be put into a plan with sequencing and prioritizing of steps. Strategy is not achieved immediately; actions and pivots are tactics, opportunistic or reactive. As professor Michael Porter often said:

Strategy is making choices; what to do and what not to do.1

The right strategy sets out the middle- to long-term direction and choices. While we cannot know the future, a set of strategic choices is essential to navigate the organization forward. As much as some pundits are keen to broadcast the death of strategy, strategy is not dead – long live strategy! As the context of business accelerates, and changing technologies, regulations and non-traditional competitors cause disruptions, the past and present are decreasingly relevant as predictors of the future. Yet far from being ‘dead’, future-oriented strategy is increasingly rewarded by investors. Such forward-leaning firms command significant valuation premiums over others that have demonstrated historic success.

To illustrate the importance of this future orientation, at the time of writing the average price to earnings ratio for companies included in the S&P index is 20 (28 if using the Shiller formula) and the average price to book ratio is 3. In other words, on average, if the recognized assets of the companies in the index could be sold for their ‘book’ value then they would represent approximately 25 per cent of the current total value of the firms, because the other 75 per cent of the value is based on expectations of future earnings.

Management books such as In Search of Excellence,2 Built to Last3 and Good to Great,4 which have sold to readers throughout the world, retrospectively analyse aspects of predominantly American corporations’ approaches to ‘winning’ and standing the test of time. But by 2019, of the companies highlighted in these books, fewer than a handful had managed to outperform the average of the S&P 500 and several had failed or been acquired. Would their approaches have worked in different contexts or at different times or in different cultural settings? Rather than look backwards and try to explain past results, leaders need to look forwards, to peer into the murky, unfolding future. Leaders need to make decisions and take actions that will increase the future prosperity of the corporation, provide security of employment and sustain and nurture...

Table of contents

• About the author
• Foreword by Professor Arnoud de Meyer
• Preface
• Acknowledgements
• PART ONE Introduction
• 01 Competing for tomorrow, today
• PART TWO Build dynamic capacity: Thrive in 4IR
• 02 Sense & Make Sense
• 03 Seize & Replicate
• 04 Reposition & Reconfigure
• PART THREE Drive audacious growth: Be purpose-led
• 05 Purpose-led, forward-leaning
• 06 Ambidextrous: ‘Both AND’ mindset
• 07 Continuous evolution
• PART FOUR Win the 4IR talent race
• 08 The race to develop 4IR talent
• 09 Deploy talent with fluid teaming
• 10 Human-centred workforce management: Duty of care
• PART FIVE Dynamic advantage
• 11 Superior performance in 4IR
• PART SIX Summary
• 12 Boosters and key themes
• Appendix
• Index