Appearing in In The Black, December 2016
These are the key issues for managers in 2017
What are the key issues for managers in 2017? Our survey of the past 12 months’ stand-out business literature offers clear signposts.
The past year has brought increased focus on slow global growth rates, the role of corporations and the difficulties of finding effective leaders. These are some of the main issues now attracting the interest of business thinkers around the world.
The solutions offered in the past 12 months’ business literature will help define how businesses change in 2017.
Innovating for value
Almost a decade after the global financial crisis, businesses are slowly accepting that most countries are in a lower-growth era. In Simon-Kucher & Partners’ 2016 global pricing study, almost half of the 2200 managers surveyed said they were engaged in some sort of price war.
Management experts have been asking which strategies fit in with restrained consumer spending, how to trim production costs and how to track market developments to ensure that no opportunities are missed.
The traditional pattern of innovation has revolved around more sophisticated and higher-margin products, but that pattern was based on an assumption of ever-increasing economic growth and rising personal incomes.
Clayton Christensen, a key thinker in innovation management, is one of those mapping out ways to adjust to slower growth. He is best known for his theory of disruptive innovation, where two things happen: established players move toward more sophisticated and higher-margin products, while new players with fresh offerings enter a market at the lower end to win customers. In Christensen’s original theory, the new players eventually displace the former market leaders.
In his recent writing – including in his 2016 book Competing against Luck: The Story of Innovation and Customer Choice – Christensen has tailored his theory for a world of low economic growth. In such a world, he says, companies will do best if they can service a broader market. They have to resist the urge to move upwards and focus instead on passing on cost reductions from innovations to consumers. Christensen’s influence means this thinking will probably be everywhere in 2017.
The need for cost reduction is also driving the “frugal innovation” trend, examined by thinkers like Silicon Valley-based Navi Radjou and his Cambridge colleague Jaideep Prabhu.
Originally, the concept of frugal innovation (or frugal engineering) related to the process of reducing the complexity and cost of a product by removing non-essential features in order to sell it in developing countries.
However, as Radjou and Prabhu explain in Frugal Innovation: How To Do More with Less, the concept has been transplanted to developed economies and extended to include thinking about what customers actually want in the product and what they want to pay for. In many cases, it means engaging directly with customers to find out.
The two authors have struck a chord; the book won the CMI Management Book of the Year award for 2016.
Crisis of leadership
The past few years have brought a gradual but definite decline in public faith in leaders. US academics James Kouzes and Barry Posner have been studying leadership for over three decades and say in their latest book, Learning Leadership, that the world suffers from a leadership shortage. They point to World Economic Forum survey data where 86 per cent of respondents believe there is a leadership crisis in the world today.
Recent election campaigns and results in nations including Australia and the US have not restored confidence in the capacity of political figures to lead. Gallup survey data says the US Government, for one, faces a hard struggle to rebuild public confidence in leadership institutions.
The coming year can be one when corporate leaders step up, both within their own organisations and in the community at large. However, that will require business leaders to live the values they espouse.
Jeffrey Pfeffer, professor of organisational behaviour at the Stanford Graduate School of Business, writes in his recent book, Leadership BS, that management thinking increasingly sees people as “costs” to be minimised and treats staff and supplier issues as mere transactions.
The result: “The social relations that once bound people together and to their companies have largely disappeared,” says Pfeffer, who believes we need to incorporate social science research into leadership training.
Executives who want to be leaders need to look at classic case studies of true leadership. The best book that has recently appeared on the subject remains 2015’s The Road to Character by David Brooks, a journalist and academic.
Brooks looks at cases as varied as Dwight Eisenhower, St Augustine, Samuel Johnson and George Eliot to show the link between character and leadership.
However, for leaders there is still no better guide than the classic The Prince by Niccolò Machiavelli, first published in 1532 and widely considered a handbook for the ruthless use of power.
While it certainly has plenty of realpolitik lessons, the underlying theme of the book is the responsibility of leaders to lead well, always thinking of the welfare of the whole and seeking honest counsel rather than flattery.
Machiavelli writes with elegance, subtlety and even occasional flashes of humour, and he is clear in his central message that leadership is essentially about service to others. Some management ideas never get old.
Maths is everywhere
The astonishing growth in computer processing power and data storage has begun to transform the practice of business, even as many senior corporate leaders struggle to keep up with it.
While much has been written about big data’s impact on consumer relations, marketing is only one aspect of a deeper change, one where mathematical processes are used to process information to analyse everything from consumer behaviour to machinery maintenance needs to the incidence of disease. Maths is, in other words, a way to use data to understand the business, the market and the world.
“Never before has so much mental power been computerised and made available so broadly,” says Ram Charan, consultant, former Harvard professor and author of a string of business books. “Google, Facebook and Amazon were created as mathematical corporations.”
In a February 2016 Harvard Business Review article, Charan argues that “if you’re not turning your company into a ‘math house’, you’re headed for serious trouble.”
High-level maths can be difficult for people without a maths background to grasp. Senior executives and board members might therefore miss opportunities and fail to properly understand strategic options.
Similarly, education systems have been lagging in this area, although specialist post-graduate degrees, such as the Master of Business Analytics at the Melbourne Business School, are now appearing. Some universities have also begun to build research and consulting capacities, such as the Centre for Industrial and Applied Mathematics, part of the University of South Australia.
The digitised corporation
Digitisation has now moved beyond the point of being an optional extra to being a business necessity. A December 2015 McKinsey Global Institute report, Digital America: A Tale of the Haves and Have-Mores, is focused on the US, but with lessons for other economies.
It suggests that digital companies have experienced remarkable growth in productivity. The economic sectors with high levels of digitisation have grown nearly three times faster than those with lower digitisation. However, many business leaders are still unsure how to exploit digitisation beyond buying the latest IT systems.
The McKinsey research confirms that the main benefits of digitisation flow not from mere investment in hardware but from putting the technology cleverly to work. This is surprisingly hard to do. They highlight engagement with clients and suppliers, where digitising payment and communications systems can boost speed and efficiency.
Another challenge – and perhaps the most critical – is to ensure employees effectively utilise existing technology such as tablets, mobile phones and desktops in their daily activities to enhance client and stakeholder interactions.
Because digitisation involves working with communication and information devices that allow for interconnection and integration – from email to Slack to Salesforce – data can flow around the organisation much more freely. Management can be performed in near real time, with problems quickly identified and addressed. This is changing how we think about the activity of management.
In the Winter 2016 issue of MIT Sloan Management Review, MIT’s Kristine Dery and Ina Sebastian argue for emphasising influence, networks and dynamic decisions above the hierarchies, static decisions and rules of a traditional environment. They stress two management levers to transform the workplace – cross-functional leadership teams dedicated to constant iterations and adjustments to the workplace, and a process of “systemic learning” through real-time experimentation and feedback.
Corporate social responsibility (CSR) programs are likely to undergo reconsideration in 2017. There’s a growing view that such programs have done little to address a rising concern with business conduct in the broader society. John Browne, former chief executive of BP, makes this argument in the book Connect: How Companies Succeed by Engaging Radically with Society, co-authored with Robin Nuttall and Tommy Stadlen.
Roel Nieuwenkamp, chair of the Organisation for Economic Co-operation and Development (OECD) Working Party on Responsible Business Conduct, wrote on the OECD Insights Blog in January 2016 that CSR “committed suicide”.
First, he argues, CSR often falls short of long-term sustainable development, and CSR reports are often largely “descriptions of feel-good projects and activities that ‘give back’ to society”. Second, he says, CSR is mostly still seen as covering only voluntary initiatives. Such issues as corruption are usually “not on the radar screen of a CSR manager”. Third, he believes that CSR has been most often used as a public relations device, so that “scores of companies display CSR logos on their website while ignoring major corporate responsibilities”.
A better way forward, says Nieuwenkamp, is for businesses to focus more attention on avoiding and addressing the adverse impacts of their operations.
A more fragile world
Cost pressures, accelerating technological change and scepticism about leadership: each of these suggests an even tougher environment for business management in 2017.
The ideas that have been put forward in 2016 to address these challenges are likely to become business orthodoxies in the years ahead, just as digitised companies with maths-centric management processes will likely become the norm.
For most businesses, this will not be easy – but it will be necessary.
5 books to prepare you for 2017
The Three Box Solution: A Strategy for Leading Innovation by Vijay Govindarajan (Harvard Business Review Press) – shows a company how to move on from its past, effectively manage its present and create its future.
The Inevitable: Understanding the 12 Technological Forces That Will Shape Our Future by Kevin Kelly (Penguin) – looks at the key trends for the next 30 years, such as AI, collaborative innovation, and a shift away from asset ownership.
Competing against Luck: The Story of Innovation and Customer Choice by Clayton Christensen, Taddy Hall, Karen Dillon, David Duncan (Harper Business) – argues businesses waste much R&D spending but can effectively connect innovations with outcomes by seeing the market clearly.
Learning Leadership: The Five Fundamentals of Becoming an Exemplary Leaderby James Kouzes and Barry Posner (Wiley) – advises on how good leaders can become great leaders and how great leaders can become better.
Capitalism: Money, Morals and Markets by John Plender (Biteback) – provides a clear-minded investigation into how modern capitalism works, with a focus on the difficult period since the 2008 global financial crisis.