Survival of a business in this digital age largely depends on its ability to timely embrace Digital Transformation. Digital Transformation entails using Digital Technologies to streamline business processes, culture, and customer experiences.
In order to compete today—and in future—and to enable Digital Transformation, organizations should work towards fostering a culture of continuous learning, since Digital Transformation depends on learning and innovation. The organizations that holistically embrace this culture are called “Next-Generation Learning Organizations.”
The next generation of Learning Organizations capitalize on the following key variables; Humans, Machines, Timescales, and Scope. These organizations incorporate technology in enabling dynamic learning. Creating Next-Generation Learning Organizations demands reorganizing the entire enterprise to accomplish the following key functions to win in future:
- Learning on Multiple Timescales
- Man and Machine Integration
- Expanding the Ecosystem
- Continuous Learning
Learning on Multiple Timescales
Next-Generation Learning Organizations make the best use of their time. They appreciate the objectives that can be realized in the short term and those that take long term to accomplish. Learning quickly and in the short term is what many organizations are already doing, e.g., by using Artificial Intelligence, algorithms, or dynamic pricing. Other learning variables that effect an organization gradually are also critical, e.g., changing social attitudes.
Man and Machine Integration
Rather than having people to design and control processes, Next-generation Learning Organizations employ intelligent machines that learn and adjust accordingly. The role of people in such organizations keeps evolving to supplement intelligent machines.
Expanding the Ecosystem
The Next-generation Learning Organizations incorporate economic activities beyond their boundaries. These organizations act like platform businesses that facilitate exchanges between consumers and producers by harnessing and creating large networks of users and resources available on demand. These ecosystems are a valuable source for enhanced learning opportunities, rapid experimentation, access to larger data pools, and a wide network of suppliers.
Next-generation Learning Organizations make learning part and parcel of every function and process in their enterprise. They adapt their vision and strategies based on the changing external environments, competition, and market; and extend learning to everything they do.
With the constantly-evolving technology landscape, organizations will require different capabilities and structures to sustain in future. A majority of the organizations today are able to operate only in steady business settings. Transforming these organizations into the Next-Generation Learning Organizations—that are able to effectively traverse the volatile economic environment, competitive landscapes, and unpredictable future—necessitates them to implement these 5 pillars of learning:
- Digital Transformation
- Human Cognition Improvement
- Man and Machine Relationship
- Expanded Ecosystems
- Management Innovation
1. Digital Transformation
Traditional organizations—that are dependent on structures and human involvement in decision making—use technology to simply execute a predesigned process repeatedly or to gain incremental improvements in their existing processes. The Next-generation Learning Organizations (NLOs), in contrast, are governed by their aspiration to continuously seek knowledge by leveraging technology. NLOs implement automation and autonomous decision-making across their businesses to learn at faster timescales. They design autonomous systems by integrating multiple technologies and learning loops.
2. Human Cognition Improvement
NLOs understand AI’s edge at quickly analyzing correlations in complex data sets and are aware of the inadequacies that AI and machines have in terms of reasoning abilities. They focus on the unique strengths of human cognition and assign people roles that add value—e.g., understanding causal relationships, drawing causal inference, counterfactual thinking, and creativity. Design is the center of attention of these organizations and they utilize human imagination and creativity to generate new ideas and produce novel products.
3. Man and Machine Relationship
Next-generation Learning Organizations (NLOs) make the best use of humans and machines combined. They utilize machines to recognize patterns in complex data and deploy people to decipher causal relationships and spark innovative thinking. NLOs make humans and machines cooperate in innovative ways, and constantly revisit the deployment of resources, people, and technology on tasks based on their viability.
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Enterprises invest in Analytics to improve Decision Making and outcomes across the business. This is from Product Strategy and Innovation to Supply Chain Management, Customer Experience, and Risk Management. Yet, many executives are not yet seeing the results of their Analytics initiatives and investments.
Every organization putting on investment in Analytics has experienced several stumbling blocks. This differentiates the leaders from the laggards. Analytics-driven Organizations have clearly established processes, practices, and organizational conditions to achieve Operational Excellence. Their commitment to Analytics is creating a major payoff from their investments and a competitive edge.
What It Takes to Be Analytics-driven
The Harvard Business Review Analytic Services conducted a survey of 744 business executives around the world and across a variety of industries. Their focus was on the performance gap between companies that have struggled to get a return on their Analytics investment and those that have effectively leveraged their investment.
The survey showed that Analytics-driven Organizations get sufficient return on investment in Analytics. In fact, they have been highly successful in gaining a return on Analytics investment. This is gainfully achieved as organizations use Analytics consistently in strategic decision making. Executives of Analytics-driven Organizations rely on Analytics insights when it contradicted their gut feel.
Essentially, Analytics-driven Organizations have reduced costs and risks, increased Productivity, Revenue, and Innovation, and have successfully executed their Strategy. Yet, in evolving the organization’s Analytics approach, there can be 4 core obstacles that can affect their drive to getting a greater return on investment in Analytics.
The Core Obstacles to Finding Return on Analytics Investment
Let’s briefly take a look at the first 2 obstacles:
- Communication and Decision-making Integration. The lack of Communication and Decision-making Integration limits the integration of Analytics into workflows and decision processes do not reach decision-makers. As a result of these core obstacles, the use of Analytics is limited in specific areas.
- Skills to Interpret and Apply Analytics. A second core obstacle is the inadequate skills of business staff to interpret and use Analytics. In fact, the survey showed that only one-quarter of frontline employees use Analytics with only 7% using Analytics regularly.
The other two core obstacles are siloed and fragmented Analytics and time delay. These are two equally important core obstacles that can hinder the use of Analytics to maximize return on investment. Further, the 4 core obstacles are barriers to analytic success.
Are You Ready to Be an Analytics Leader?
Leaders use Analytics consistently in decision making. In fact, based on the survey, 83% of executives use it in business planning and forecasting. On the other hand, laggards only use it 67% of the time. Even in various aspects of the organization such as Marketing, Operations, Strategy Development, Sales, Supply Chain, Pricing and Revenue Management, and Information Technology, laggards use Analytics only half the time compared to Analytics Leaders.
Analytics Leaders always ensure that they establish the processes and organizational conditions to allow them to successfully deploy Analytics. In fact, to increase return on Analytics, organizations must undertake the use of four interrelated initiatives that will drive greater return on investment Analytics. These are four initiatives essential to building an Analytics-driven Organization.
One is building an organizational culture around Analytics. To achieve this the organization must have clear, strategic, and operational objectives that are set for Analytics. Second is deploying Analytics throughout all core functions of the business.
Starting with an Analytics-driven Culture can greatly facilitate cross-functional deployment of Analytics.
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The use of the Internet and other online tools have turned consumers to be more empowered and are now shopping differently. Customers are becoming more demanding and accustomed to getting what they want.
With greater access to reviews and online rating, customers are better equipped to switch to new products and services. Consumers now want to buy products and services when, where, and however they like. They expect companies to interact with them seamlessly, in an easy, integrated fashion with very little friction across channels.
As customer expectation continues to evolve–accelerated by the amplifying forces of interconnectivity and technology–markets are becoming increasingly fragmented with demand for greater product variety, more price points, and numerous purchasing and distribution channels.
Companies should be able to adapt to these increasingly disparate demands quickly and at scale. Staying close to the Customer Experience across an increasingly diverse customer base changing over time is no longer a matter of choice. It is a business imperative and a matter of corporate survival.
The Age of the Customer now calls for companies to be a Customer-centric Organization. Successful ones have discovered that driving customer-centricity depends, first and foremost, on building a Customer-centric Culture.
The Case for Customer-centricity
In the Age of the Customer, business as usual is not enough. Customers expect companies to interact with them seamlessly. Customers want companies to anticipate their needs and technology must have lowered barriers to entry to allow unorthodox competitors to disrupt markets.
The Age of the Customer has made it imperative for companies to have a customer-centric culture. A Customer-centric Culture can empower and control employee behavior. It is a culture that prioritizes the common understanding, sense of purpose, emotional commitment, and resilience. It is a culture where leaders and employees understand the company’s brand promise. Finally, and most importantly, a customer-centric culture is a culture that is committed to delivering exceptional customer experience.
Companies with a Customer-centric Design must integrate, within its core, primary and secondary cultural attributes essential to complete its customer-centric culture framework.
The Corporate Culture Framework: Its Primary and Secondary Cultural Attributes
In a customer-centric Corporate Culture framework, the primary cultural attributes are critical in building a customer-centric culture. It also has 4 Secondary Cultural Attributes to complete that transformation.
The 4 Primary Cultural Attributes
- Collective Focus
This is a shared vision articulated on what it means to deliver great customer service. Significant resources are devoted to communicating the customer value and all employees understand their role in delivering value.
- External Orientation
External Orientation is having a full understanding of the company through the customer’s eyes. Outside-in perspectives are taken, seeing themselves as customers see them.
- Change and Innovation
In Organizational Change and Innovation, the corporate value system is in place that values failing fast and learning quickly. The notion that mistakes are learning opportunities is embedded in the organization.
- Shared Beliefs
Shared Beliefs is an attribute where employees share a common ideology and commitment to core values. The company strongly encourage strong service mentality and the desire to help others.
The 4 Secondary Cultural Attributes
- Risk and Governance
In Risk Management and Governance, the company must have a strong collective focus and shared beliefs about the boundaries of acceptable risk and appropriate behavior.
A Customer-centric Culture with this secondary attribute has the resilience to bounce back when things don’t go as planned.
Commitment is the third secondary attribute where employees show dedication to the customer-centric ethos.
Inclusion, the fourth secondary attribute, is one attribute that reinforces values diversity, authenticity, and uniqueness.
Inculcating these attributes has become imperative to achieve a successful transformation towards a Customer-centric Culture. Strategy Development now requires organizations to master the necessary practices to instill these attributes and the essential reinforcement to ensure that it is sustained.
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Gordon Moore, Intel co-founder, observed that the number of transistors in a dense integrated circuit doubles about every two years. He projected that this rate of growth would continue for at least another decade.
His observation, termed the “Moore’s Law,” has correctly predicted the pace of innovation for several decades and guided strategic planning and research and development in the semiconductor industry. Moore’s law is based on observation and projection of historical trends.
In 2015, Gordon Moore foresaw that the rate of progress would reach saturation. In fact, semiconductor advancement has declined industry-wide since 2010, much lower than the pace predicted by Moore’s law. The doubling time and semi-conductor performance has changed, but it has not impacted the nature of the law much.
Although many people predict the demise of Moore’s law, exponential growth in computing power persists with the emergence of innovative technologies. Moore’s law is only part of the equation for effective Digital Transformation—there are other contributing factors including the role of leadership.
First Law of Digital Transformation
George Westerman—a senior lecturer at the MIT Sloan School of Management—proposes a new law, which states that, “Technology changes quickly, but organizations change much more slowly.” The law known as the “First Law of Digital Transformation” or “George’s Law” is a pretty straightforward observation, but is often ignored by the senior leadership. This is why Digital Transformation is considered more of a leadership—than technical—issue.
Just announcing an organization-wide Transformation program does not change the enterprise. According to George’s Law, successful Digital Transformation hinges on the abilities of senior leadership to effectively manage the so many contrasting mindsets of its workforce, identify and take care of the idiosyncrasies associated with these mindsets, interpret their desires, and focus attention on encouraging people to change.
Above all, the leadership should focus on converting Digital Transformation from a project to a critical capability. This can be done by shifting emphasis from making a limited investment to establishing a sustainable culture of Digital Innovation Factory that concentrates on 3 core elements:
- Provide People with a Clear and Compelling Vision
- Invest in Upgrading or Replacing Legacy Technology Infrastructure
- Change the Way the Organization Collaborates
Let’s now discuss the first 2 elements of the First Law of Digital Transformation.
Provide People with a Clear and Compelling Vision
Without a clear and compelling transformative vision, organizations cannot gather people to support the change agenda. People can be either change resisters, bystanders, or change enablers. However, most people typically tend to like maintaining the status quo, ignore change, or choose to openly or covertly engage in a battle against it.
For the employees to embrace change, leadership needs to make them understand what’s in it for them during the transition and the future organizational state. This necessitates the leaders to develop and share a compelling vision to help the people understand the rationale for change, make people visualize the positive outcomes they can achieve through Transformation, and what they can do to enable change. A compelling vision even urges the people to recommend methods to turn the vision into reality.
Invest in Upgrading or Replacing Legacy Technology Infrastructure
Problems and shortcomings in the legacy platforms is an important area to focus on during Digital Transformation. The legacy technology infrastructure, outdated systems, unorganized processes, and messy data are the main reasons for organizational lethargy. These issues hinder the availability of a unified view of the customer, implementing data analytics, and add to significant costs in the way of executing Digital Transformation.
Successful Digital Innovation necessitates the organizations to invest in streamlining the legacy systems and setting up new technology platforms that are able to enable digital and link the legacy systems. Fixing legacy platforms engenders leaner and faster business processes and helps in maintaining a steady momentum of Innovation.
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Technological innovation and intensifying competition are forcing leaders to rethink how they use Key Performance Indicators (KPIs) to manage and direct organizations. Digitization has reinforced the importance of Key Performance Indicators not only in enhancing employee performance but driving the overall organizational productivity.
The role of KPIs is becoming more dynamic. KPIs are getting demonstrably flexible, smarter, and valuable in achieving strategic advantage. Leading technology-driven organizations—including Amazon, Airbnb, and Uber—rely on metrics considerably and utilize KPIs to steer their strategy and evaluate success. They perceive KPIs quite differently than traditional-focused organizations, and employ them as an input for automation, and to guide, regulate, and improve their machine learning tools.
To make the most out of these dynamic and strategic KPIs of this Digital Age, leaders need to be more insightful and knowledgeable. They should be able to thoroughly determine which KPIs to analyze, how to measure them, and how to effectively improve them. Understanding the value of selected KPIs and their optimization is key to aligning strategies; making the right decision to invest in data, analytics, and automation capabilities; and create a link between people and machines.
KPI Virtuous Cycle
The relationships and dependencies that clarify, educate, and enhance KPI investment are demonstrated by “KPI Virtuous Cycle.” By digitally linking KPIs, data, and decision-making into virtuous cycles, companies can align their immediate situational requirements with long-term strategic planning. The KPI Virtuous Cycle has 3 key components, and it demands active cross-functional collaboration:
- Data Governance
- Decision Rights
The way these 3 components impact—and support each other—keeps changing. Organizations aspiring to become digital-savvy should embrace, value, and relentlessly invest in the KPI Virtuous Cycle.
The first component of the KPI Virtuous Cycle is about employing authority and control (planning, monitoring, and enforcement) through a set of practices and processes to manage organizational data assets. Leading digital organizations consider data as a strategic resource, a valuable tool for measurement and accountability, and a mechanism to facilitate meeting strategic KPIs. Data Governance frameworks are guided by strategic KPIs. Organizations should know what data sets would be ideal to predict and rank—for instance, customers’ lifetime value and their propensity to leave—to prioritize preemptive and preventive action. Data and Analytics serve as a component of Data Governance.
Strategic KPIs shape and govern enterprise Data Governance models. These KPIs include financial, customer, supplier, channel, and partner performance parameters. For instance, Data Governance initiatives in customer-centric organizations are prioritized to facilitate in realizing customer-focused KPIs—e.g., Net Promoter Score (NPS) and Customer Lifetime Value (CLV). Enterprise Data Governance frameworks are strongly influenced and informed by strategic KPIs.
Decision Rights ascertain the decision-making authority required to drive the business and strategic alignment. Making decisions in such a way that it boosts organizational performance involves identifying the individuals explicitly involved in making decisions, charting an outline on how decisions will be made, reinforcing with appropriate processes and tools, and defining various decision rights scenarios to facilitate in automation. It is, however, quite tricky to determine and assign decision rights when an enterprise is aspiring to empower its people and making machines function better.
Imperatives for Creating Dynamic and Strategic KPIs
For the KPIs to be strategically defined and become truly dynamic, the leadership needs to provide the required support by getting thorough data sets compiled and meaningful analytics performed. At the same time, there is a need to:
- Decide whether the decision rights needs to be assigned to individuals (rather than machines or vice versa.
- Enhance the capabilities of people and machines.
- Apply decision rights to generate data to identify and gauge productivity.
- Identify the delays and bottlenecks between KPIs, data, and decisions.
- Verify the diligence in the way KPIs, data, and decisions are mapped and monitored.
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Family businesses did especially well in riding the rising tide. Family businesses were the particular beneficiaries of three decades of favorable global economics. Propelled by fast growth in the emerging world, the share of family businesses in the global Fortune 500 grew from 15% in 2005 to 19% in 2013. Five years ago, founders or their families owned 60% of emerging-market companies with sales of $1 billion or more. By 2025, an additional 4,000 companies may join the list. Family-owned businesses would represent 40% of the world’s large enterprise.
However, despite the growing power and influence of family businesses, executives and investors have a poor understanding of the unique attributes providing the edge. It is difficult to parse the DNA of family businesses. It is a complex mix of family, management, and wealth creation, all overlaid with a rolling ownership dynamic that claims all but 30% of them. This 30% is claimed by the 3rd generation.
The number one worry of family owners is the challenge of developing the next generation as motivated and responsible shareholders. Addressing this concern is critical to the long-term sustainability of family businesses. It calls for both technical and interpersonal focus.
First Things First
Maintaining an entrepreneurial edge is becoming evidently critical for long-term survival. Creative destruction constantly churns the rankings of companies in the S&P 500 index of the largest US companies.
However, as family businesses grow through the generation, barriers to entrepreneurship and innovation creep in. Maintaining the entrepreneurial spirit of the next generation of family leaders is essential. But developing, engaging and motivating them is the biggest challenge.
Family owners want to keep the next generation involved. This is to maintain the business as a source of family pride and to preserve the founder’s legacy to keep it within the family.
Successful generational succession can be achieved. Family Businesses just need to take on 3 important principles.
Preparing the Next Generation: The 3 Important Principles for Succession
- Build emotional connections. A common problem in a family business is fostering communication across generations and borders. It can be difficult but essential when building emotional connections.
- Develop responsible stakeholders. Based on the McKinsey Family Business Practice survey, the next generation family members are willing to take more responsibility in running the family business. Yet, only 30% feel that they are confident about making decisions involving Family Businesses.
- Establish clear rules and career paths. A leadership position is not the only role for members of the next generation. There are several important roles to be played above and beyond full-time employment. A critical need is to develop a path and make family members understand how they can embark on those paths.
Having a good grasp of the 3 important principles will pave the way for effective Succession Planning in family businesses. When these are in place, the very fundamental foundation of the family business is established and ready for the 21st-century challenges.
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