The Future of Work is here… what are you doing about it?

The Future of Work is here… what are you doing about it?

#futureofwork #digitaltransformation #shiftmindset #leadership

Retraining and reskilling workers in the age of automation

The world of work faces an epochal transition. By 2030, according to the a recent McKinsey Global Institute report, as many as 375 million workers—or roughly 14 percent of the global workforce—may need to switch occupational categories as digitization, automation, and advances in artificial intelligence disrupt the world of work. The kinds of skills companies require will shift, with profound implications for the career paths individuals will need to pursue.
How big is that challenge?
In terms of magnitude, it’s akin to coping with the large-scale shift from agricultural work to manufacturing that occurred in the early 20th century in North America and Europe, and more recently in China. But in terms of who must find new jobs, we are moving into uncharted territory. Those earlier workforce transformations took place over many decades, allowing older workers to retire and new entrants to the workforce to transition to the growing industries. But the speed of change today is potentially faster. The task confronting every economy, particularly advanced economies, will likely be to retrain and redeploy tens of millions of mid-career, middle-age workers. As the MGI report notes, “there are few precedents in which societies have successfully retrained such large numbers of people.”
So far, growing awareness of the scale of the task ahead has yet to translate into action. Indeed, public spending on labor-force training and support has fallen steadily for years in most member countries of the Organisation for Economic Co-Operation and Development (OECD). Nor do corporate-training budgets appear to be on any kind of upswing.
But that may be about to change.
Among companies on the front lines, according to a recent McKinsey survey, executives increasingly see investing in retraining and “upskilling” existing workers as an urgent business priority—and they also believe that this is an issue where corporations, not governments, must take the lead. Our survey, which was in the field in late 2017, polled more than 1,500 respondents from business, the public sector, and not for profits across regions, industries, and sectors. The analysis that follows focuses on answers from roughly 300 executives at companies with more than $100 million in annual revenues.
Among this group, 66 percent see “addressing potential skills gaps related to automation/digitization” within their workforce as at least a “top-ten priority.” Nearly 30 percent put it in the top five. The driver behind this sense of urgency is the accelerating pace of enterprise-wide transformation. Looking back over the past five years, only about a third of executives in our survey said technological change had caused them to retrain or replace more than a quarter of their employees.
But when they look out over the next five years, that narrative changes.
Sixty-two percent of executives believe they will need to retrain or replace more than a quarter of their workforce between now and 2023 due to advancing automation and digitization. The threat looms larger in the United States and Europe (64 percent and 70 percent respectively) than in the rest of the world (only 55 percent)—and it is felt especially acutely among the biggest companies. Seventy percent of executives at companies with more than $500 million in annual revenues see technological disruption over the next five years affecting more than a quarter of their workers.
Appropriately, this keen sense of the challenge ahead comes with a strong feeling of ownership. While they clearly do not expect to solve this alone—forging creative partnerships with a wide range of relevant players, for example, will be critical—by a nearly a 5:1 margin, the executives in our latest survey believe that corporations, not governments, educators, or individual workers, should take the lead in trying to close the looming skills gap. That’s the view of 64 percent of the private-sector executives in the United States who see this as a top-ten priority issue, and 59 percent in Europe
As for solutions, 82 percent of executives at companies with more than $100 million in annual revenues believe retraining and reskilling must be at least half of the answer to addressing their skills gap. Within that consensus, though, were clear regional differences. Fully 94 percent of those surveyed in Europe insisted the answer would either be an equal mix of hiring and retraining or mainly retraining versus a strong but less resounding 62 percent in this camp in the United States. By contrast, 35 percent of Americans thought the challenge would have to be met mainly or exclusively by hiring new talent, compared to just 7 percent in this camp in Europe
Now the bad news: only 16 percent of private-sector business leaders in this group feel “very prepared” to address potential skills gaps, with roughly twice as many feeling either “somewhat unprepared” or “very unprepared.” The majority felt “somewhat prepared”—hardly a clarion call of confidence.
What are the main barriers? About one-third of executives feel an urgent need to rethink and upgrade their current HR infrastructure. Many companies are also struggling to figure out how job roles will change and what kind of talent they will require over the next five to ten years. Some executives who saw this as a top priority—42 percent in the United States, 24 percent in Europe, and 31 percent in the rest of the world—admit they currently lack a “good understanding of how automation and/or digitization will affect our future skills needs.”
Such a high degree of anxiety is understandable. In our experience, too much traditional training and retraining goes off the rails because it delivers no clear pathway to new work, relies too heavily on theory versus practice, and fails to show a return on investment. Generation, a global youth employment not for profit founded in 2015 by McKinsey, deliberately set out to address those shortcomings. Operating in five countries across over 20 professions, Generation operates programs that focus on targeting training to where strong demand for jobs exists and gathers the data needed to prove the return on investment (ROI) to learners and employers. As a result, Generation’s more than 16,000 graduates have over 82 percent job placement, 72 percent job retention at one year, and two to six times higher income than prior to the program. Generation will soon pilot a new initiative, Re-Generation, to apply this same formula—which includes robust partnerships with employers, governments and not for profits—to helping mid-career employees learn new skills for new jobs.
For many companies, cracking the code on reskilling is partly about retaining their “license to operate” by empowering employees to be more productive. Thirty-eight percent of executives in our survey, across all regions, cited the desire to “align with our organization’s mission and values” as a key reason for taking action. In a similar vein, at last winter’s World Economic Forum in Davos, 80 percent of CEOs who were investing heavily in artificial intelligence also publicly pledged to retain and retrain existing employees.
But the biggest driver is this: as digitization, automation, and AI reshape whole industries and every enterprise, the only way to realize the potential productivity dividends from that investment will be to have the people and processes in place to capture it. Managing this transition well, in short, is not just a social good; it’s a competitive imperative. That’s why a resounding majority of respondents—64 percent across Europe, the United States, and the rest of the world—said the main reason they were willing to invest in retraining was “to increase employee productivity.”
We hear that thought echoed in a growing number of C-suite conversations we are having these days. At the moment, most top executives have far more questions than answers about what it will take to meet the reskilling challenge at the kind of scale the next decade will likely demand. They ask: How can I map the future against my current talent pool and processes? What part of future employment demand can I meet by retraining existing workers, and what is the ROI of doing so, versus simply hiring new ones? How best can I tap into what are, for me, nontraditional talent pools? What partners, either in the private, public, or nongovernmental-organization (NGO) sectors, might help me succeed—and what are our respective roles?
Good questions all.
Success will require first developing a granular map of how technology will change the skill requirements within your company. Once this is understood, the next step will be deciding whether to tap into new models of online and offline learning and training or partner with traditional educational providers. (Over time, a more fundamental rethinking of 100-year-old educational models will also be needed.) Policy makers will need to consider new forms of unemployment income and worker transition support, and foster more intensive and innovative collaboration between the public and private sectors. Individuals will need to step up too, as will governments. Depending on the speed and scale of the coming workforce transition, as MGI noted in its recent report, many countries may conclude they will need to undertake “initiatives on the scale of the Marshall plan.”
But for now, we simply take comfort from the clear message of our latest survey: among large companies, senior executives see an urgent need to rethink and retool their role in helping workers develop the right skills for a rapidly changing economy—and their will to meet this challenge is strong. That’s not a bad place to start.

About the author(s)

Pablo Illanes is a partner in McKinsey’s Stamford office, Susan Lund is a partner of the McKinsey Global Institute, Mona Mourshed and Scott Rutherford are senior partners in the Washington, DC, office, and Magnus Tyreman is a senior partner in the Stockholm office.
How to Design Meetings Your Team Will Want to Attend

How to Design Meetings Your Team Will Want to Attend

Nov 14, 2017: Weekly Curated Thought-Sharing on Digital Disruption, Applied Neuroscience and Other Interesting Related Matters.

By Paul Axtell

Curated by Helena M. Herrero Lamuedra

There’s a lot of advice out there about how to make meetings more efficient and productive. And while it’s true that leading focused, deliberate conversations is critical to organizational performance, meetings aren’t just about delivering results. There’s another outcome that leaders should be paying more attention to: creating a quality experience for each participant.

What is a quality experience in a meeting? I define it as when employees leave feeling more connected, valued, and fulfilled. Of course, you should still be focused on achieving the meeting outcomes, but thoughtful meetings and productive ones don’t have to be at odds.

We begin by asking people to reflect on their best team experience and answer two questions: What does a powerful group look like? What does it mean to be powerful in a group?

The second question typically elicits answers like these:

  • “I never left anything important unsaid. When I spoke, I felt like I was being heard, and I believed that what I said had an impact.”
  • “It felt like I was really a member of the group. Everyone seemed genuinely interested in each other and in what was going on in our lives.”
  • “I knew that I added value, both in the meetings and outside of them.”

In other words, each group meeting added to the experience of being a productive, valued member of the group.

Here’s what I’ve seen leaders do to create that quality experience:

Work hard on being present. Take adequate time to prepare so that you can be available and attentive before and during the meeting. If you’re running late because of another meeting or still thinking about how to conduct this meeting, you’ll be preoccupied and not truly available for anyone who wants to connect.

Preparation allows you to relax about leading the meeting and pay more attention to “reading the room” — noticing how people are doing as they walk in, and throughout the meeting.

Demonstrate empathy. People associate attention with caring — your attention matters. Observe, listen, ask thoughtful questions, and avoid distractions and multitasking. Empathy is a learned skill that can be practiced by simply setting aside your phone and computer for two to three hours each week and really listening to someone. Meetings can be your primary place to hone this skill.

Set up and manage the conversation. Ask the group for permission to deliberately manage the conversation. It’s important to establish some guidelines about distraction. Ask people to:

  • avoid using technology unless it is pertinent to the topics
  • avoid any distracting behavior — verbal or nonverbal
  • listen and respect people when they’re speaking
  • invite others to speak if their view needs to be heard

Include enough time on every topic to allow broad participation. This means having fewer agenda items and more time allocated to each topic. As a target, put 20% fewer items on your agenda and allow 20% more time for each item.

Slow down the conversation to include everyone. I like the idea of social turn-taking, where you have a sense of who has or hasn’t spoken and whether the conversation is being controlled or dominated by one or more people. You don’t need to set this up as a rule, but you can model it as an inclusive style of conversation, so people become more likely to notice who hasn’t spoken yet.

To implement this practice, call on people gently and strategically. By gently, I mean make it feel and sound like an invitation — not some method of controlling participation. By strategically, I mean think through, during your preparation, who needs to be part of the discussion for each topic. Ask yourself:

  • Who would be great at starting the conversation?
  • Who is affected by the outcomes and therefore needs to be asked for their view?
  • Who is most likely to have a different view?
  • Who are the old hands who might sense whether we are making a mistake or missing something?

Check in with people at specific times. Begin each meeting with a question: “Does anyone have anything to say or ask before we begin?” Ask it deliberately and with a tone that signals that this conversation matters to you. And then wait. Pausing conveys that you’re not interested in getting to someplace other than right here, right now — that this conversation matters. Don’t spoil your pauses by making remarks about the lack of response or slowness of a response. People often need a few moments to reflect, find something to say, and think about the best way to express it. Just wait.

Once people realize that you are willing to pause, they’ll become more aware, and when they have a question, they won’t worry that they are slowing down the meeting.

High-quality conversations with broad participation allow people to get to know each other in ways that lead to friendship and collaboration. It’s the act of being with other people in an attentive, caring way that helps us feel that we are all in this together. Crafting a quality experience in your meetings takes time, but it’s worth it.

Why Tomorrow’s Customers Won’t Shop at Today’s Retailers

Why Tomorrow’s Customers Won’t Shop at Today’s Retailers

Oct 18, 2017: Weekly Curated Thought-Sharing on Digital Disruption, Applied Neuroscience and Other Interesting Related Matters.

By Dan Clay

Curated by Helena M. Herrero Lamuedra

Meet Dawn. Her T-shirt is connected to the internet, and her tattoo unlocks her car door. She’s never gone shopping, but she gets a package on her doorstep every week. She’s never been lost or late, and she’s never once waited in line. She never goes anywhere without visiting in VR first, and she doesn’t buy anything that wasn’t made just for her.

Dawn is an average 25-year-old in the not-so-distant future. She craves mobility, flexibility, and uniqueness; she spends more on experience than she does on products; she demands speed, transparency, and control; and she has enough choice to avoid any company that doesn’t give her what she wants. We’re in the midst of remarkable change not seen since the Industrial Revolution, and a noticeable gap is growing between what Dawn wants and what traditional retailers provide.

In 2005 Amazon launched free two-day shipping. In 2014 it launched free two-hour shipping. It’s hard to get faster than “Now,” and once immediacy becomes table stakes, competition will move to prediction. By intelligently applying data from our connected devices, smart digital assistants will be able to deliver products before we even acknowledge the need: Imagine a pharmacy that knows you’re about to get sick; an electronics retailer that knows you forgot your charger; an online merchant that knows you’re out of toilet paper; and a subscription service that knows you have a wedding coming up, have a little extra in your bank account, and that you look good in blue. Near-perfect predictions are the future of retail, and it’s up to CX and UX designers to ensure that they are greeted as miraculous time-savers rather than creepy intrusions.

Every product is personalized

While consumers are increasingly wary about how much of their personal data is being tracked, they’re also increasingly willing to trade privacy for more tangible benefits. It then falls on companies to ensure those benefits justify the exchange. In the retail space this increasingly means perfectly tailored products and a more personally relevant experience. Etsy recently acquired an AI startup to make its search experience more relevant and tailored. HelloAva provides customers with personalized skincare product recommendations based on machine learning combined with a few texts and a selfie. Amazon, constantly at the forefront of customer needs, recently acquired a patent for a custom clothing manufacturing system.

Market to the machines

Dawn, our customer of the future, won’t need to customize all of her purchases; for many of her needs, she’ll give her intelligent, IoT-enabled agent (think Alexa with a master’s degree) personalized filters so the agent can buy on her behalf. When Siri is choosing which shoes to rent, the robot almost becomes the customer, and retailers must win over smart AI assistants before they even reach end customers. Netflix already has a team of people working on this new realm of marketing to machines. As CEO Reed Hastings quipped at this year’s Mobile World Congress, “I’m not sure if in 20 to 50 years we are going to be entertaining you, or entertaining AIs.”

Branded, immersive experiences matter more than ever

As online shopping and automation increase, physical retail spaces will have to deliver much more than just a good shopping experience to compel people to visit. This could be through added education (like the expert stylists at Nordstrom’s store without any merchandise) or heightened service personalization (like Asics on-site 3D foot mapping and gait cycle analysis) or constantly evolving entertainment (like Gentle Monster’s Seoul flagship store’s monthly changing “exhibition“).

In this context, brand is becoming more than a value proposition or signifier—it’s the essential ingredient preventing companies from becoming commoditized by an on-demand, automated world where your car picks its own motor oil. Brands have a vital responsibility to create a community for customers to belong to and believe in.

A mobile world that feels like a single channel experience

Dawn will be increasingly mobile, and she’ll expect retailers to move along with her. She may research dresses on her phone and expect the store associate to know what she’s looked at. It’s no secret that mobile shopping is continuing to grow, but retailers need to think less about developing separate strategies for their channels and more about maintaining a continuous flow with the one channel that matters: the customer channel.

WeChat, for example, China’s largest social media channel, is used for everything from online shopping and paying at supermarkets to ordering a taxi and getting flight updates, creating a seamless “single channel” experience across all interactions. Snapchat’s new Context Cards, allowing users to read location-based reviews, business information and hail rides all within the app, builds towards a similar, single channel experience.

The future promises profound change. Yet perhaps the most pressing challenge for retailers is keeping up with customers’ expectations for immediacy, personalization, innovative experiences, and the other myriad ways technological and societal changes are making Dawn the most demanding customer the retail industry has ever seen. The future is daunting, but it’s also full of opportunity, and the retailers that can anticipate the needs of the customer of the future are well-poised for success in the years to come.

The Science of Storytelling: Why Telling a Story is the Most Powerful Way to Activate Our Brains

The Science of Storytelling: Why Telling a Story is the Most Powerful Way to Activate Our Brains

A good story can make or break a presentation, article, or conversation. But why is that? When Buffer co-founder Leo Widrich started to market his product through stories instead of benefits and bullet points, sign-ups went through the roof. Here he shares the science of why storytelling is so uniquely powerful.

In 1748, the British politician and aristocrat John Montagu, the 4th Earl of Sandwich, spent a lot of his free time playing cards. He greatly enjoyed eating a snack while still keeping one hand free for the cards. So he came up with the idea to eat beef between slices of toast, which would allow him to finally eat and play cards at the same time. Eating his newly invented “sandwich,” the name for two slices of bread with meat in between, became one of the most popular meal inventions in the western world.

What’s interesting about this is that you are very likely to never forget the story of who invented the sandwich ever again. Or at least, much less likely to do so, if it would have been presented to us in bullet points or other purely information-based form.

For over 27,000 years, since the first cave paintings were discovered, telling stories has been one of our most fundamental communication methods. Recently a good friend of mine gave me an introduction to the power of storytelling, and I wanted to learn more.

Here is the science around storytelling and how we can use it to make better decisions every day:

We all enjoy a good story, whether it’s a novel, a movie, or simply something one of our friends is explaining to us. But why do we feel so much more engaged when we hear a narrative about events?

It’s in fact quite simple. If we listen to a powerpoint presentation with boring bullet points, a certain part in the brain gets activated. Scientists call this Broca’s area and Wernicke’s area. Overall, it hits our language processing parts in the brain, where we decode words into meaning. And that’s it, nothing else happens.

When we are being told a story, things change dramatically. Not only are the language processing parts in our brain activated, but any other area in our brain that we would use when experiencing the events of the story are too.

If someone tells us about how delicious certain foods were, our sensory cortex lights up. If it’s about motion, our motor cortex gets active:

“Metaphors like “The singer had a velvet voice” and “He had leathery hands” roused the sensory cortex. […] Then, the brains of participants were scanned as they read sentences like “John grasped the object” and “Pablo kicked the ball.” The scans revealed activity in the motor cortex, which coordinates the body’s movements.”

A story can put your whole brain to work. And yet, it gets better:

When we tell stories to others that have really helped us shape our thinking and way of life, we can have the same effect on them too. The brains of the person telling a story and listening to it can synchronize, says Uri Hasson from Princeton:

“When the woman spoke English, the volunteers understood her story, and their brains synchronized. When she had activity in her insula, an emotional brain region, the listeners did too. When her frontal cortex lit up, so did theirs. By simply telling a story, the woman could plant ideas, thoughts and emotions into the listeners’ brains.”

Anything you’ve experienced, you can get others to experience the same. Or at least, get their brain areas that you’ve activated that way, active too:

Evolution has wired our brains for storytelling—how to make use of it

Now all this is interesting. We know that we can activate our brains better if we listen to stories. The still unanswered question is: Why is that? Why does the format of a story, where events unfold one after the other, have such a profound impact on our learning?

The simple answer is this: We are wired that way. A story, if broken down into the simplest form, is a connection of cause and effect. And that is exactly how we think. We think in narratives all day long, no matter if it is about buying groceries, whether we think about work or our spouse at home. We make up (short) stories in our heads for every action and conversation. In fact, Jeremy Hsu found [that] “personal stories and gossip make up 65% of our conversations.”

Now, whenever we hear a story, we want to relate it to one of our existing experiences. That’s why metaphors work so well with us. While we are busy searching for a similar experience in our brains, we activate a part called insula, which helps us relate to that same experience of pain, joy, or disgust.

The following graphic probably describes it best:

In a great experiment, John Bargh at Yale found the following:

“Volunteers would meet one of the experimenters, believing that they would be starting the experiment shortly. In reality, the experiment began when the experimenter, seemingly struggling with an armful of folders, asks the volunteer to briefly hold their coffee. As the key experimental manipulation, the coffee was either hot or iced. Subjects then read a description of some individual, and those who had held the warmer cup tended to rate the individual as having a warmer personality, with no change in ratings of other attributes.”

We link up metaphors and literal happenings automatically. Everything in our brain is looking for the cause and effect relationship of something we’ve previously experienced.

Let’s dig into some hands on tips to make use of it:

Exchange giving suggestions for telling stories
Do you know the feeling when a good friend tells you a story and then two weeks later, you mention the same story to him, as if it was your idea? This is totally normal and at the same time, one of the most powerful ways to get people on board with your ideas and thoughts. According to Uri Hasson from Princeton, a story is the only way to activate parts in the brain so that a listener turns the story into their own idea and experience.

The next time you struggle with getting people on board with your projects and ideas, simply tell them a story, where the outcome is that doing what you had in mind is the best thing to do.

Write more persuasively—bring in stories from yourself or an expert
The simple story is more successful than the complicated one
Using simple language as well as low complexity is the best way to activate the brain regions that make us truly relate to the happenings of a story. This is a similar reason why multitasking is so hard for us. Try for example to reduce the number of adjectives or complicated nouns in a presentation or article and exchange them with more simple, yet heartfelt language.

Start including storytelling as a Leadership Practice! Coming soon: the Leader as a Storyteller.

Design Thinking as a Powerful Tool for Organizational Change

Design Thinking as a Powerful Tool for Organizational Change

Aug 1, 2017: Weekly Curated Thought-Sharing on Digital Disruption, Applied Neuroscience and Other Interesting Related Matters.

By ExperiencePoint

Curated by Helena M. Herrero Lamuedra

Executives put out the mandate: We need to be more innovative. We want great ideas. Innovation needs to be part of our core principles and everyday practice.

But even when great solutions are introduced to the organization, many remain best-kept secrets, failing to ever reach scale. More often than not, the problem is that the stakeholders who will make or break the idea’s execution aren’t ready, willing and able to support its success. They haven’t bought in to the change.

Here are four ways you can use design thinking as a powerful tool for change:

1. Involving Stakeholders

As great change leaders know, involvement creates ownership. Stakeholders who might otherwise block efforts become keener to support ideas that they have had an opportunity to influence. Even for stakeholders that would likely comply with a mandated change, involvement enhances their commitment to the success of the overall initiative.

Design thinking not only bakes involvement into the process by emphasizing the importance of collaboration and multiple perspectives, it also builds human connections that go deeper. You’re not just creating ownership, you’re creating two-way empathy, which helps people make better decisions.

Think strategically about who might resist your ultimate solution or who might be negatively affected by it, and find ways to involve those people in the process.

2. Reconnecting with Purpose

Organizations often struggle with mundane issues that never seem to get fully resolved. For example, a common one is getting people to submit their expenses in a timely manner. Here, too, design thinking, applied with intention, can be a great tool for changing the mindset behind the problem to help you reach a more effective outcome.

Design thinking looks at issues from a human-centered point of view, first empathizing with users and then building solutions that make their lives better. So you might ask, “How can we help people get their expenses in on time? What are they dealing with, and what would make it easier for them?”

By shifting your view to see this as an opportunity to help people, not impose process and rules on them, design thinking changes your perspective to something more meaningful. The attitudes became empathetic instead of oppositional. There is tremendous satisfaction created when the output of your work visibly improves the lives of others. When leading change, helping stakeholders connect to the purpose of their work can accelerate buy-in to a new way of doing things.

Throughout the process, find ways to share user stories, including challenges, opportunities and the impact of work, to help stakeholders reconnect to the organization’s work and how it genuinely helps users.

3.  Generating Evidence

It happens all the time: people hear an idea, and they immediately say it won’t work. Without evidence, it won’t be easy to convince them otherwise. Design thinking’s process of quickly building and iterating on solutions is valuable for generating the evidence necessary to persuade leaders to fund and support a fledgling idea. Similar evidence should be used with other critical stakeholders as well.

Some evidence (metrics and validation data) will appeal to the head, but it’s more likely that early evidence (in the form of user stories) will appeal to the heart. And when a customer tells you the idea changed their life, that’s a pretty powerful argument for getting on board.

Collect data and identify various vehicles for sharing the material with stakeholder audiences. By including evidence in internal company presentations, newsletters and management meetings, you can continuously and powerfully establish the case for change.

4. Discovering Stakeholder Interests

If you don’t know what the stakeholders really care about, you could be spending your time and energy worrying about inconsequential factors—or overlooking critical ones. As a design team prototypes ideas and runs experiments, it learns about the opportunities for and barriers to ultimate success. As specific stakeholders and stakeholder groups come into contact with a nascent idea, their reactions speak to their interests.

Maybe that presumed barrier isn’t one after all, but you might discover another unanticipated obstacle that could derail success entirely. From a change management perspective, understanding and respecting these interests can help minimize resistance during implementation.

Leverage learning about stakeholder interests to both enhance the design of the solution and the design of the intervention that introduces the solution to the organization.

If you’re going to implement an innovative solution, you’re going to create change. There’s no getting around it. But in too many cases, leaders limit their focus to an either/or proposition: innovation or change.

Don’t let that revolutionary idea languish in a dusty corner (or get brought to life by someone else). Design Thinking provides tools and methods to help lead change more effectively as well and, as a result, achieve the desired impact from our innovation projects. We just have to apply it with purpose and intention.  

 

Turning the linear circular: the future of the global economy, leveraging Internet of Things

Turning the linear circular: the future of the global economy, leveraging Internet of Things

CE

Jun 5, 2017: Weekly Curated Thought-Sharing on Digital Disruption, Applied Neuroscience and Other Interesting Related Matters.

By Mark Esposito

Curated by Helena M. Herrero Lamuedra

Institutions, both in the private and public sector, can always reap the public relations benefits of doing good, even while still accomplishing their goals. As resources become scarcer, a major way to enhance social performance is through resource conservation, which is being underutilized.

Although the traditional model of the linear economy has worked forever, and will never be fully replaced, it is essentially wasteful. The circular economy, in comparison, which involves resources and capital goods reentering the system for reuse instead of being discarded, saves on production costs, promotes recycling, decreases waste, and enhances social performance. When CE models are combined with IoT, internet connected devices that gather and relay data to central computers, efficiency skyrockets. As a result of finite resource depletion, the future economy is destined to become more circular. The economic shift toward CE will undoubtedly be hastened by the already ubiquitous presence of IoT, its profitability, and the positive public response it yields.

Unlike the linear economy which is a “take, make, dispose” model, the circular economy is an industrial economy that increases resource productivity with the intention of reducing waste and pollution. The main value drivers of CE are (1) extending use cycles lengths of an asset (2) increasing utilization of an asset (3) looping/cascading assets through additional use cycles (4) regeneration of nutrients to the biosphere.

The Internet of Things is the inter-networking of physical devices through electronics and sensors which are used to collect and exchange data. The main value drivers of IoT are the ability to define (1) location (2) condition (3) availability of the assets they monitor. By 2020 there are expected to be at least 20 million IoT connected devices worldwide.

The nexus between CEs and IoTs values drivers greatly enhances CE. If an institutions goals are profitability and conservation, IoT enables those goals with big data and analysis. By automatically and remotely monitoring the efficiency of a resource during harvesting, production, and at the end of its use cycle; all parts of the value chain can become more efficient.

When examining the value chain as a whole, the greatest uses for IoT is at its end. One way in which this is accomplished is through reverse logistics. Once the time comes for a user to discard their asset, IoT can aid in the retrieval of the asset so that it can be recycled into its components. With efficient reverse logistics, goods gain second life, less biological nutrients are extracted from the environment, and the looping/cascading of assets is enabled.

One way to change traditional value chain is the IoT enabled leasing model. Instead of selling an expensive appliance or a vehicle, manufacturers can willingly produce them with the intention of leasing to their customers. By imbedding these assets with IoT manufacturers can monitor the asset’s condition; thereby dynamically repairing the assets at precise times. In theory the quality of the asset will improve, since its in the producers best interest to make it durable rather than disposable and replaceable.

Even today, many sectors are already benefiting from IoT in resource conservation. In the energy sector, Barcelona has reduced its power grid energy consumption by 33%, while GE has begun using “smart” power meters that reduce customers power bills 10–20%. GE has also automated their wind turbines and solar panels; thereby automatically adjusting to the wind and angle of the sun.

In the built environment, cities like Hong Kong have implemented IoT monitoring for preventative maintenance of transportation infrastructure, while Rio de Janeiro monitors traffic patterns and crime at their central operations center. Mexico city has installed fans in their buildings which suck up local smog. In the waste management sector, San Francisco and London have installed solar-powered automated waste bins, that alert local authorities to when they are full; creating ideal routes for trash collection and reducing operational costs by 70%.

Despite the many advantages to this innovation, there are numerous current limitations. Due to difficulty in legislating for new technologies, Governmental regulation lags behind innovation. For example, because Brazil, China, and Russia do not have legal standards to distinguish re-manufactured products from used ones, cross-border reverse supply-chains are blocked. Reverse supply chains are also hurt by current lack of consumer demand , which is caused by low residual value of returned products. IoT technology itself, which collects so much data people’s private lives, generates major privacy concerns.

Questions arise like: who owns this data collected? How reliable are IoT dependent systems? How vulnerable to hackers are these assets? Despite the prevalence of IoT today, with 73% of companies invest in big data analytics, most of that data is merely used to detect and control anomalies and IoT remains vastly underutilized. Take an oil rig for example, it may have 30,000 sensors, but only 1% of them are examined. Underutilization of IoT in 2013 cost businesses an estimated 544 billion alone.

Even with these current barriers, because of the potential profits and increased social performance, the future implementation of an IoT enhanced CE is bright.

Estimates are that the potential profits from institutions adopting CE models could decrease costs by 20%, along with waste. The increase in efficiency combined with the goodwill generated by conservation is a win-win proposition for innovation, even with costs implementation, future monetary profitability will make it a no-brainer.

Keeping Up With New Work Culture

Keeping Up With New Work Culture

May 15, 2017: Weekly Curated Thought-Sharing on Digital Disruption, Applied Neuroscience and Other Interesting Related Matters.

By Scott Scalon, Hunt Scalon Media

Curated by Helena M. Herrero Lamuedra

Companies are facing a radically shifting context for the workforce, the workplace, and the world of work, and these shifts have already changed the rules for nearly every organizational people practice, from learning and management to executive recruiting and the definition of work itself. Every business leader, no matter their function or industry, has experienced some form of radical work transformation, whether it be digitally in the form of social media, for example, demographically, or in countless other ways. Old paradigms are out, new ways of thinking are in — and talent, that one ‘commodity’ we’re all after is caught up in the middle of it all.

Almost 90 percent of HR and business leaders rate building the organization of the future as their highest priority, according to Deloitte’s latest Global Human Capital Trends report, “Rewriting the Rules for the Digital Age.” In the report, Deloitte issues a call-to-action for companies to completely reconsider their organizational structure, talent and HR strategies to keep pace with the disruption.

A Networked World of Work

“Technology is advancing at an unprecedented rate and these innovations have completely transformed the way we live, work and communicate,” said Josh Bersin, principal and founder, Bersin by Deloitte, Deloitte Consulting. “Ultimately, the digital world of work has changed the rules of business. Organizations should shift their entire mind-set and behaviors to ensure they can lead, organize, motivate, manage and engage the 21st century workforce, or risk being left behind.”

With more than 10,000 HR and business leaders in 140 countries weighing in, this massive study reveals that business leaders are turning to new organization models, which highlight the networked nature of today’s world of work. However, as business productivity often fails to keep pace with tecnological progress, Deloitte finds that HR leaders are struggling to keep up, with only 35 percent of them rating their capabilities as ‘good’ or ‘excellent.’

“As technology, artificial intelligence, and robotics transform business models and work, companies should start to rethink their management practices and organizational models,” said Brett Walsh, global human capital leader for Deloitte Global. “The future of work is driving the development of a set of ‘new rules’ that organizations should follow if they want to remain competitive.”

Talent Acquisition: Biggest Issue Facing Companies

As the workforce evolves, organizations are focusing on networks of teams, and recruiting and developing the right people is more consequential than ever. However, while Deloitte finds that cognitive technologies have helped leaders bring talent acquisition into the digital world, only 22 percent of survey respondents describe their companies as ‘excellent’ at building a differentiated employee experience once talent is acquired. In fact, the gap between talent acquisition’s importance and the ability to meet the need increased over last year‘s survey.


How Else the World of Work Is Changing

It is, indeed, a landscape of shifting priorities, and nowhere are we seeing this unfold more than among the group that matters most: job candidates. Five years ago, benefits topped their list of preferences. Today it’s culture and flexibility. Organizations need talented employees to drive strategy and achieve goals, but finding, recruiting and retaining people is becoming more difficult. While the severity of the issue varies among organizations, industries and geographies, it’s clear that this new landscape has created new demands. And organizations are scrambling.

It is critical, according to the report, to take an integrated approach to building the employee experience, with a large part of it centering on ‘careers and learning,’ which rose to second place on HRs’ and business leaders’ priority lists, with 83 percent of those surveyed ranking it as ‘important’ or ‘very important.’ Deloitte finds that as organizations shed legacy systems and dismantle yesterday’s hierarchies, it’s important to place a higher premium on implementing immersive learning experiences to develop leaders who can thrive in today’s digital world and appeal to diverse workforce needs.

The importance of leadership as a driver of the employee experience remains strong, as the percentage of companies with experiential programs for leaders rose nearly 20 percentage points from 47 percent in 2015 to 64 percent this year. Deloitte believes there is still a crucial need, however, for stronger and different types of leaders, particularly as today’s business world demands those who demonstrate more agile and digital capabilities.

Time to Rewrite the Rules

As organizations become more digital, leaders should consider disruptive technologies for every aspect of their human capital needs. Deloitte finds that 56 percent of companies are redesigning their HR programs to leverage digital and mobile tools, and 33 percent are already using some form of artificial intelligence (AI) applications to deliver HR solutions.

“HR and other business leaders tell us that they are being asked to create a digital workplace in order to become an ‘organization of the future,’” said Erica Volini, a principal with Deloitte Consulting LLP, and national managing director of the firm’s U.S. human capital practice. “To rewrite the rules on a broad scale, HR should play a leading role in helping the company redesign the organization by bringing digital technologies to both the workforce and to the HR organization itself.”

Deloitte found that the HR function is in the middle of a wide-ranging identity shift. To position themselves effectively as a key business advisor to the organization, it is important for HR to focus on service delivery efficiency and excellence in talent programs, as well as the entire design of work using a digital lens.

How Jobs Are Being Reinvented

While many jobs are being reinvented through technology and some tasks are being automated, Deloitte’s research shows that the essentially human aspects of work – such as empathy, communication, and problem solving – are becoming more important than ever.

This shift is not only driving an increased focus on reskilling, but also on the importance of people analytics to help organizations gain even greater insights into the capabilities of their workforce on a global scale. However, organizations continue to fall short in this area, with only eight percent reporting they have usable data, and only nine percent believing they have a good understanding of the talent factors that drive performance in this new world of work.

One of the new rules for the digital age is to expand our vision of the workforce; think about jobs in the context of tasks that can be automated (or outsourced) and the new role of human skills; and focus even more heavily on the customer experience, employee experience, and employment value proposition for people.

This challenge requires major cross-functional attention, effort, and collaboration. It also represents one of the biggest opportunities for the HR organization. To be able to rewrite the rules, HR needs to prove it has the insights and capabilities to successfully play outside the lines.

Design Culture with the Brain in Mind

Design Culture with the Brain in Mind

May 1, 2017: Weekly Curated Thought-Sharing on Digital Disruption, Applied Neuroscience and Other Interesting Related Matters.

By Charles Roxburgh, McKinsey

Curated by Helena M. Herrero Lamuedra

After nearly 40 years, the theory of business strategy is well developed and widely disseminated. Pioneering work by academics such as Michael E. Porter and Henry Mintzberg has established a rich literature on good strategy. Most senior executives have been trained in its principles, and large corporations have their own skilled strategy departments.

Yet the business world remains littered with examples of bad strategies. Why? What makes chief executives back them when so much know-how is available? Flawed analysis, excessive ambition, greed, and other corporate vices are possible causes, but this article doesn’t attempt to explore all of them. Rather, it looks at one contributing factor that affects every strategist: the human brain.

The brain is a wondrous organ. As scientists uncover more of its inner workings through brain-mapping techniques. But the brain isn’t the rational calculating machine we sometimes imagine. Over the millennia of its evolution, it has developed shortcuts, simplifications, biases, and basic bad habits. Some of them may have helped early humans survive on the savannas of Africa (“if it looks like a wildebeest and everyone else is chasing it, it must be lunch”), but they create problems for us today. Equally, some of the brain’s flaws may result from education and socialization rather than nature. But whatever the root cause, the brain can be a deceptive guide for rational decision making.

These implications of the brain’s inadequacies have been rigorously studied by social scientists and particularly by behavioral economists, who have found that the underlying assumption behind modern economics—human beings as purely rational economic decision makers—doesn’t stack up against the evidence. As most of the theory underpinning business strategy is derived from the rational world of microeconomics, all strategists should be interested in behavioral economics.

Insights from behavioral economics have been used to explain bad decision making in the business world, and bad investment decision making in particular. Some private equity firms have successfully remodeled their investment processes to counteract the biases predicted by behavioral economics. Likewise, behavioral economics has been applied to personal finance, thereby providing an easier route to making money than any hot stock tip. However, the field hasn’t permeated the day-to-day world of strategy formulation.

This article aims to help rectify that omission by highlighting eight.This is far from a complete list of all the flaws in the way we make decisions.

Several examples come from the dot-com era, a particularly rich period for students of bad strategy. But don’t make the mistake of thinking that this was an era of unrepeatable strategic madness. Behavioral economics tells us that the mistakes made in the late 1990s were exactly the sorts of errors our brains are programmed to make—and will probably make again.

Flaw 1: Overconfidence

Our brains are programmed to make us feel overconfident. This can be a good thing; for instance, it requires great confidence to launch a new business. Only a few start-ups will become highly successful. The world would be duller and poorer if our brains didn’t inspire great confidence in our own abilities. But there is a downside when it comes to formulating and judging strategy.

The brain is particularly overconfident of its ability to make accurate estimates. Behavioral economists often illustrate this point with simple quizzes: guess the weight of a fully laden jumbo jet or the length of the River Nile, say. Participants are asked to offer not a precise figure but rather a range in which they feel 90 percent confidence—for example, the Nile is between 2,000 and 10,000 miles long. Time and again, participants walk into the same trap: rather than playing safe with a wide range, they give a narrow one and miss the right answer. Most of us are unwilling and, in fact, unable to reveal our ignorance by specifying a very wide range. Unlike John Maynard Keynes, most of us prefer being precisely wrong rather than vaguely right.

We also tend to be overconfident of our own abilities. In a 1981 survey, for example, 90 percent of Swedes described themselves as above-average drivers. This is a particular problem for strategies based on assessments of core capabilities. Almost all financial institutions, for instance, believe their brands to be of “above-average” value.

Related to overconfidence is the problem of over-optimism. Other than professional pessimists such as financial regulators, we all tend to be optimistic, and our forecasts tend toward the rosier end of the spectrum. The twin problems of overconfidence and overoptimism can have dangerous consequences when it comes to developing strategies, as most of them are based on estimates of what may happen—too often on unrealistically precise and overoptimistic estimates of uncertainties.

One leading investment bank sensibly tested its strategy against a pessimistic scenario—the market conditions of 1994, when a downturn lasted about nine months—and built in some extra downturn. But this wasn’t enough. The 1994 scenario looks rosy compared with current conditions, and the bank, along with its peers, is struggling to make dramatic cuts to its cost base. Other sectors, such as banking services for the affluent and on-line brokerages, are grappling with the same problem.

There are ways to counter the brain’s overconfidence:

  1. Test strategies under a much wider range of scenarios. But don’t give managers a choice of three, as they are likely to play safe and pick the central one. For this reason, the pioneers of scenario planning at Royal Dutch/Shell always insisted on a final choice of two or four options.
  2. Add 20 to 25 percent more downside to the most pessimistic scenario. Given our optimism, the risk of getting pessimistic scenarios wrong is greater than that of getting the upside wrong. The Lloyd’s of London insurance market—which has learned these lessons the hard, expensive way—makes a point of testing the market’s solvency under a series of extreme disasters, such as two 747 aircraft colliding over central London. Testing the resilience of Lloyd’s to these conditions helped it build its reserves and reinsurance to cope with the September 11 disaster.
  3. Build more flexibility and options into your strategy to allow the company to scale up or retrench as uncertainties are resolved. Be skeptical of strategies premised on certainty.

Flaw 2: Mental accounting

Richard Thaler, a pioneer of behavioral economics, coined the term “mental accounting,” defined as “the inclination to categorize and treat money differently depending on where it comes from, where it is kept, and how it is spent.” Gamblers who lose their winnings, for example, typically feel that they haven’t really lost anything, though they would have been richer had they stopped while they were ahead.

Mental accounting pervades the boardrooms of even the most conservative and otherwise rational corporations. Some examples of this flaw include the following:

  • being less concerned with value for money on expenses booked against a restructuring charge than on those taken through the P&L
  • imposing cost caps on a core business while spending freely on a start-up
  • creating new categories of spending, such as “revenue-investment spend” or “strategic investment”

All are examples of spending that tends to be less scrutinized because of the way it is categorized, but all represent real costs.

These delusions can have serious strategic implications. Take cost caps. In some UK financial institutions during the dot-com era, core retail businesses faced stringent constraints on their ability to invest, however sound the proposal, while start-up Internet businesses spent with abandon. These banks have now written off much of their loss from dot-com investment and must reverse their underinvestment in core businesses.

Avoiding mental accounting traps should be easier if you adhere to a basic rule: that every pound (or dollar or euro) is worth exactly that, whatever the category. In this way, you will make sure that all investments are judged on consistent criteria and be wary of spending that has been reclassified. Be particularly skeptical of any investment labeled “strategic.”

Flaw 3: The status quo bias

In one classic experiment, students were asked how they would invest a hypothetical inheritance. Some received several million dollars in low-risk, low-return bonds and typically chose to leave most of the money alone. The rest received higher-risk securities—and also left most of the money alone. What determined the students’ allocation in this experiment was the initial allocation, not their risk preference. People would rather leave things as they are. One explanation for the status quo bias is aversion to loss—people are more concerned about the risk of loss than they are excited by the prospect of gain. The students’ fear of switching into securities that might end up losing value prevented them from making the rational choice: rebalancing their portfolios.

A similar bias, the endowment effect, gives people a strong desire to hang on to what they own; the very fact of owning something makes it more valuable to the owner. Richard Thaler tested this effect with coffee mugs imprinted with the Cornell University logo. Students given one of them wouldn’t part with it for less than $5.25, on average, but students without a mug wouldn’t pay more than $2.75 to acquire it. The gap implies an incremental value of $2.50 from owning the mug.

The status quo bias, the aversion to loss, and the endowment effect contribute to poor strategy decisions in several ways. First, they make CEOs reluctant to sell businesses. McKinsey research shows that divestments are a major potential source of value creation but a largely neglected one. CEOs are prone to ask, “What if we sell for too little—how stupid will we look when this turns out to be a great buy for the acquirer?”

These phenomena also make it hard for companies to shift their asset allocations. Before the recent market downturn, the UK insurer Prudential decided that equities were overvalued and made the bold decision to rebalance its fund toward bonds. Many other UK life insurers, unwilling to break with the status quo, stuck with their high equity weightings and have suffered more severe reductions in their solvency ratios.

This isn’t to say that the status quo is always wrong. Many investment advisers would argue that the best long-term strategy is to buy and hold equities (and, behavioral economists would add, not to check their value for many years, to avoid feeling bad when prices fall). In financial services, too, caution and conservatism can be strategic assets. The challenge for strategists is to distinguish between a status quo option that is genuinely the right course and one that feels deceptively safe because of an innate bias.

To make this distinction, strategists should take two approaches:

  1. Adopt a radical view of all portfolio decisions. View all businesses as “up for sale.” Is the company the natural parent, capable of extracting the most value from a subsidiary? View divestment not as a failure but as a healthy renewal of the corporate portfolio.
  2. Subject status quo options to a risk analysis as rigorous as change options receive. Most strategists are good at identifying the risks of new strategies but less good at seeing the risks of failing to change.

Flaw 4: Anchoring

One of the more peculiar wiring flaws in the brain is called anchoring. Present the brain with a number and then ask it to make an estimate of something completely unrelated, and it will anchor its estimate on that first number. The classic illustration is the Genghis Khan date test. Ask a group of people to write down the last three digits of their phone numbers, and then ask them to estimate the date of Genghis Khan’s death. Time and again, the results show a correlation between the two numbers; people assume that he lived in the first millennium, when in fact he lived from 1162 to 1227.

Anchoring can be a powerful tool for strategists. In negotiations, naming a high sale price for a business can help secure an attractive outcome for the seller, as the buyer’s offer will be anchored around that figure. Anchoring works well in advertising too. Most retail-fund managers advertise their funds on the basis of past performance. Repeated studies have failed to show any statistical correlation between good past performance and future performance. By citing the past-performance record, though, the manager anchors the notion of future top-quartile performance to it in the consumer’s mind.

However, anchoring—particularly becoming anchored to the past—can be dangerous. Most of us have long believed that equities offer high real returns over the long term, an idea anchored in the experience of the past two decades. But in the 1960s and 1970s, UK equities achieved real annual returns of only 3.3 and 0.4 percent, respectively. Indeed, they achieved double-digit real annual returns during only 4 of the past 13 decades. Our expectations about equity returns have been seriously distorted by recent experience.

Besides remaining unswayed by the anchoring tactics of others, strategists should take a long historical perspective. Put trends in the context of the past 20 or 30 years, not the past 2 or 3; for certain economic indicators, such as equity returns or interest rates, use a very long time series of 50 or 75 years. Some commentators who spotted the dot-com bubble early did so by drawing comparisons with previous technology bubbles—for example, the uncannily close parallels between radio stocks in the 1920s and Internet stocks in the 1990s.

Flaw 5: The sunk-cost effect

A familiar problem with investments is called the sunk-cost effect, otherwise known as “throwing good money after bad.” When large projects overrun their schedules and budgets, the original economic case no longer holds, but companies still keep investing to complete them.

Financial institutions often face this dilemma over large-scale IT projects. There are numerous examples, most of which remain private. One of the more public cases was the London Stock Exchange’s automated-settlement system, Taurus. It took the intervention of the Bank of England to force a cancellation, write off the expenses, and take control of building a replacement.

Executives making strategic-investment decisions can also fall into the sunk-cost trap. Certain European banks spent fortunes building up large equities businesses to compete with the global investment-banking firms. It then proved extraordinarily hard for some of these banks to face up to the strategic reality that they had no prospect of ever competing successfully against the likes of Goldman Sachs, Merrill Lynch, and Morgan Stanley in the equities business. Some banks in the United Kingdom took the agonizing decision to write off their investments; other European institutions are still caught in the trap.

Why is it so hard to avoid? One explanation is based on loss aversion: we would rather spend an additional $10 million completing an uneconomic $110 million project than write off $100 million. Another explanation relies on anchoring: once the brain has been anchored at $100 million, an additional $10 million doesn’t seem so bad.

What should strategists do to avoid the trap?

  1. Apply the full rigor of investment analysis to incremental investments, looking only at incremental prospective costs and revenues. This is the textbook response to the sunk-cost fallacy, and it is right.
  2. Be prepared to kill strategic experiments early. In an increasingly uncertain world, companies will often pursue several strategic options. Successfully managing a portfolio of them entails jettisoning the losers. The more quickly you get out, the lower the sunk costs and the easier the exit.
  3. Use “gated funding” for strategic investments, much as pharmaceutical companies do for drug development: release follow-on funding only once strategic experiments have met previously agreed targets.

Flaw 6: The herding instinct

The banking industry, like many others, shows a strong herding instinct. It tends to lend too much money to the same kinds of borrowers at the same time—to UK property developers in the 1970s, less-developed countries in the 1980s, and technology, media, and telecommunications companies more recently. And banks tend to pursue the same strategies, be it creating Internet banks with strange-sounding names during the dot-com boom or building integrated investment banks at the time of the “big bang,” when the London stock market was liberalized.

This desire to conform to the behavior and opinions of others is a fundamental human trait and an accepted principle of psychology. Warren Buffett put his finger on this flaw when he wrote, “Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.” For most CEOs, only one thing is worse than making a huge strategic mistake: being the only person in the industry to make it.

We all felt the tug of the herd during the dot-com era. It was lonely being a Luddite, arguing the case against setting up a stand-alone Internet bank or an on-line brokerage. At times of mass enthusiasm for a strategic trend, pressure to follow the herd rather than rely on one’s own information and analysis is almost irresistible. Yet the best strategies break away from the trend. Some actions may be necessary to match the competition—imagine a bank without ATMs or a good on-line banking offer. But these are not unique sources of strategic advantage, and finding such sources is what strategy is all about. “Me-too” strategies are often simply bad ones. Seeking out the new and the unusual should therefore be the strategist’s aim. Rather than copying what your most established competitors are doing, look to the periphery for innovative ideas, and look outside your own industry.

Initially, an innovative strategy might draw skepticism from industry experts. They may be right, but as long as you kill a failing strategy early, your losses will be limited, and when they are wrong, the rewards will be great.

Flaw 7: Misestimating future hedonic states

What does it mean, in plain English, to misestimate future hedonic states? Simply that people are bad at estimating how much pleasure or pain they will feel if their circumstances change dramatically. Social scientists have shown that when people undergo major changes in circumstances, their lives typically are neither as bad nor as good as they had expected—another case of how bad we are at estimating. People adjust surprisingly quickly, and their level of pleasure (hedonic state) ends up, broadly, where it was before.

This research strikes a chord with anyone who has studied compensation trends in the investment-banking industry. Ever-higher compensation during the 1990s led only to ever-higher expectations—not to a marked change in the general level of happiness on the Street. According to Tom Wolfe’s Sherman McCoy, in Bonfire of the Vanities, it was hard to make ends meet in New York on $1 million a year in 1987. Back then, that was shocking hubris from a (fictional) top bond salesman. By 2000, even adjusted for inflation, it would have seemed a perfectly reasonable lament from a relatively junior managing director.

Another illustration of our poor ability to judge future hedonic states in the business world is the way we deal with a loss of independence. More often than not, takeovers are seen as the corporate equivalent of death, to be avoided at all costs. Yet sometimes they are the right move.

Often, top management is blamed for resisting any loss of independence. Certainly part of the problem is the desire of managements and boards to hang on to the status quo. That said, frontline staff members often resist a takeover or merger however much they are frustrated with the existing top management. Some deeper psychological factor appears to be at work. We do seem very bad at estimating how we would feel if our circumstances changed dramatically—changes in corporate control, like changes in our personal health or wealth.

How can the strategist avoid this pitfall?

  1. In takeovers, adopt a dispassionate and unemotional view. Easier said than done—especially for a management team with years of committed service to an institution and a personal stake in the status quo. Nonexecutives, however, should find it easier to maintain a detached view.
  2. Keep things in perspective. Don’t overreact to apparently deadly strategic threats or get too excited by good news. During the high and low points of the crisis at Lloyd’s of London in the mid-1990s, the chairman used to quote Field Marshall Slim—”In battle nothing is ever as good or as bad as the first reports of excited men would have it.” This is a good guide for every strategist trying to navigate a crisis, with the inevitable swings in emotion and morale.

Flaw 8: False consensus

  • People tend to overestimate the extent to which others share their views, beliefs, and experiences—the false-consensus effect. Research shows many causes, including these:
  • confirmation bias, the tendency to seek out opinions and facts that support our own beliefs and hypotheses
  • selective recall, the habit of remembering only facts and experiences that reinforce our assumptions
  • biased evaluation, the quick acceptance of evidence that supports our hypotheses, while contradictory evidence is subjected to rigorous evaluation and almost certain rejection; we often, for example, impute hostile motives to critics or question their competence
  • groupthink, the pressure to agree with others in team-based cultures

Consider how many times you may have heard a CEO say something like, “the executive team is 100 percent behind the new strategy” (groupthink); “the chairman and the board are fully supportive and they all agree with our strategy” (false consensus); “I’ve heard only good things from dealers and customers about our new product range” (selective recall); “OK, so some analysts are still negative, but those ’teenage scribblers’ don’t understand our business—their latest reports were superficial and full of errors” (biased evaluation). This hypothetical CEO might be right but more likely is heading for trouble. The role of any strategic adviser should be to provide a counterbalance to this tendency toward false consensus. CEOs should welcome the challenge.

False consensus, which ranks among the brain’s most pernicious flaws, can lead strategists to miss important threats to their companies and to persist with doomed strategies. But it can be extremely difficult to uncover—especially if those proposing a strategy are strong role models. We are easily influenced by dominant individuals and seek to emulate them. This can be a force for good if the role models are positive. But negative ones can prove an irresistible source of strategic error.

Many of the worst financial-services strategies can be attributed to over-dominant individuals. Their behavior set the tone and created a culture of noncompliance.

The dangers of false consensus can be minimized in several ways:

  1. Create a culture of challenge. As part of the strategic debate, management teams should value open and constructive criticism. Criticizing a fellow director’s strategy should be seen as a helpful, not a hostile, act. CEOs and strategic advisers should understand criticisms of their strategies, seek contrary views on industry trends, and, if in doubt, take steps to assure themselves that opposing views have been well researched. They shouldn’t automatically ascribe to critics bad intentions or a lack of understanding.
  2. Ensure that strong checks and balances control the dominant role models. A CEO should be particularly wary of dominant individuals who dismiss challenges to their own strategic proposals; the CEO should insist that these proposals undergo an independent review by respected experts. The board should be equally wary of a domineering CEO.
  3. Don’t “lead the witness.” Instead of asking for a validation of your strategy, ask for a detailed refutation. When setting up hypotheses at the start of a strategic analysis, impose contrarian hypotheses or require the team to set up equal and opposite hypotheses for each key analysis. Establish a “challenger team” to identify the flaws in the strategy being proposed by the strategy team.

An awareness of the brain’s “flaws” can help strategists and culture designers steer around them. All strategists should understand the insights of behavioral economics just as much as they understand those of other fields of the “dismal science.” Such an understanding won’t put an end to bad strategy; greed, arrogance, and sloppy analysis will continue to provide plenty of textbook cases of it. Understanding some of the flaws built into our thinking processes, however, may help reduce the chances of good executives backing bad strategies.

About the author(s)

Charles Roxburgh is a director in McKinsey’s London office

Designing Culture: Creating Design Aware Organizations

Designing Culture: Creating Design Aware Organizations

April 25, 2017: Weekly Curated Thought-Sharing on Digital Disruption, Applied Neuroscience and Other Interesting Related Matters.

By Linn Vizard

Curated by Helena M. Herrero Lamuedra

Design is becoming inextricably linked with the creation of products and services, especially within technology -but not only, as John Maeda’s annual design in tech report highlights. As the value proposition of design is gaining more traction, questions are arising about how design fits into companies, and why, when and how it should play a role. ‘Design culture’ is in part the idea that design can permeate the DNA of a company and its modus operandi.

Design works best when it operates as a holistically across an organization, that plays nicely with other functions and approaches. In order to do this, leaders need to build design cultures that are contextually appropriate and contextually aware. In tandem with this, there are some tried and testing ways to foster design culture.

What is Design Culture?

‘Design culture’ is a nebulous (and potentially trend driven!) term. Ryan Rumsey, Director of Experience Design at EA, talked about design culture as “Organizational intent in identifying the core purpose of an activity before going out and trying to do something.” Linda Nakanishi, Design Director at Nascent, echoed this, and talked about the crucial role design plays in understanding the problem, user and organization before building something. One of the value propositions of design is that it can envision products and services that people truly need and love, by deeply researching user needs.

Tom Creighton, Design Director at Wealthsimple, had a slight reframe on the term design culture, preferring the term ‘design awareness.’ “Design aware company culture means giving teams the room to scope and discover a problem through the process, rather than having rigidly defined scope and requirements from day one,” said Creighton. This is an interesting reframe, which potentially shifts from the notion of a pervasive or monolithic seeming ‘design culture’ to one that allows space for recognition of the appropriate uses of design. It also emphasizes the role and responsibility of design in problem framing – making sure that we are building the right solution for the right problem. When a company uses design to ask why before building something, design culture is born.

So how do you know when a culture of design awareness exists in your workplace? For Creighton, the ‘un-scoped scope’ with clear desired outcomes is a function of design awareness. Similarly, for Nakanishi, it means that a design perspective becomes an inherent requirement of the work, even to the point of impacting the type of work and projects that the agency takes on. From Rumsey’s perspective, one clue that design culture exists is that people pause for a moment before they draft business requirement documents and roadmaps.

How to Foster Design Culture

Building something as ephemeral as culture is certainly easier said than done. How do you get to a place where design is valued and recognized as an important part of creating products and services? Nakanishi, Creighton and Rumsey elaborated on some of their strategies and tactics.

Make a clear value proposition: Leading a design function in an organization requires being able to articulate the value of the approach. It’s also crucial to bridge any potential disconnects between design teams and the management or leadership of a company. Creighton captured this really well, “Part of what I’ve discovered in my career is that certainly a lot of design culture is about practicing design and doing the work – but the thing that’s not often taught, that should be a core component, is how to explain the value of design to people who aren’t designers or aren’t design thinkers.” A common mistake among designers can be an over-emphasis on process rather than outcomes. Growing design culture requires a clear articulation of the value design brings in terms of the end game – whether that’s efficiency, revenue or user engagement.

Coalitions of the willing: Rumsey talked about the importance of finding willing partners and collaborators, who are excited about the possibility of using design to solve challenges. “It is difficult to take on design without shifting some of the operational models, and to do that you need to find champions who are working on smaller things,” said Rumsey. Part of the advantage of this approach is being able to demonstrate early successes, and grow the interest and curiosity around the approach. “It leads to people saying hey, how’d you do that, can you help me too?” says Rumsey. This is one way of using problem solving as a Trojan horse for design, sneaking it into the environment without being too directive or pushy.

Creating community: Culture is people, and all of the design leaders emphasised the importance of sharing knowledge within the design team and beyond. This can take the form of weekly design team meetups, or a broader team show and tell. There is something to be said for having really disciplined, organized check ins that are focused on product design, and this is part of what Creighton advocates for at Wealthsimple. On the other hand, while Nakanishi’s team does have design focused show and tell, they are experimenting with more cross-disciplinary sessions. “Through cross-discipline sharing, design culture will spread. At a project level when the full team is involved from the beginning, they will be exposed to the design discovery phase and they can contribute to the discussion.” said Nakanishi.

Design is not just for designers: Both Nakanishi and Rumsey mentioned the need to open design up beyond an exclusive club for those with explicit design roles. One approach Rumsey uses is to run design workshops over a lunch hour. He explains, “What I say is, ‘I’ll buy you a pizza and share with you how designers work.” No one wants to be ‘educated’ or lectured to, so this is a great strategy – get people to come for the pizza, and leave with the design bug! These opportunity workshops allow teams to explore design approaches themselves, as well as serving a clever dual function of allowing Rumsey to identify potential projects, partners and do some pre-scoping.

A Key Design Culture Enabler, and Blockers to Watch Out For

A key success criteria when growing a design function is having buy in from a high level. Without some executive or management team support, seeding and growing design culture can be an uphill battle. “If people at a higher level don’t see value in it, there is a risk that resources don’t get put towards design, for example not including research budget when scoping or not being willing to resource more than one designer to a project. In the past, I’ve pushed and struggled with this, and if it’s not supported it can’t grow,” said Nakanishi. In Creighton’s context, design as a key strategic differentiator means there is excellent support and buy in. “From an investment perspective, our offering is fairly conventional – the differentiator is the way in which we are offering them. The C suite has a huge awareness of design and the importance of design – the solutions we are coming up with are design solutions, not financial ones.”

What about blockers to creating design culture? Resistance to change, a feeling that design is ‘not for me’, or misunderstanding of design are common themes. When Rumsey joined his organization, the word design was already being used, but in a different context – that of solution architecture. “This can lead to massive amounts of confusion around the word design. For example, people trying to understand what designers are accountable for, and what parts of the work should they be involved in?” said Rumsey. For organizations where design thinking is a new way of working, it can require lots of capacity building to get people onto the same page.

Designing Culture is a Team Sport

As Nakanishi put it, “Design culture is about having good people who can rally with you. It’s not about doing it all yourself, it’s about finding good people you can trust and do it together way – rallying together with other managers to grow the culture you want.”

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