The recession is causing many companies to rethink their organizational priorities and rapidly remake themselves. To prepare for the future, CLOs can take a page from their history book.
Sooner or later, today’s recession will end. When that happens, most companies will face a challenge for which they are unprepared: transformation of the basic rules of business.
Today’s conditions parallel those in the early 1980s. The world was pulling out of the worst economic crisis since the 1930s, but Western companies did not prosper uniformly. A few small companies — Toyota, Datsun, Ricoh — which were little known outside Japan, challenged their dominance with a managerial philosophy now called “lean.” They not only made Japan a towering economy and a beacon for quality, but also transformed the basic norms of business worldwide.
Remarkably simple tools powered this transformation. Western managers could appreciate how tools like statistical process control (SPC) and just-in-time (JIT) worked. Indeed, Americans had developed SPC and, though Japan pioneered JIT, it was much simpler than the tool it replaced. So, the inability to train did not obstruct change.
Nevertheless, companies did struggle to change. Few executives understood that the new tools would force corporate transformation. Since teams, not individuals, became the building blocks of work, organizational structures had to morph. If teams took on problem-solving responsibility, education levels required for basic jobs had to rise and managerial jobs had to be rethought. New processes to link companies tightly to their suppliers had to be designed. These required companies to trust their suppliers. Collectively, these changes could affect culture. Facing existential crises, boards of directors tackled operational issues usually left outside their boardroom doors and forced changes.
How must companies address today’s transformational change? The 1980s offer a key lesson. CLOs must assertively help line executives learn and apply the new doctrines of good management.
The Networked World
Companies face a simple but profound transformation: Competition has evolved from jousts between individual companies to ever-changing scrimmages among networks of companies. Consequently, it is hard to succeed if your network is failing. Virtually every large company is networked today, reliant on others for market access, supplies and technologies.
Networks bring great benefits. Consider Apple. In 1999, it was a highly innovative also-ran, completely dependent on the largesse of its nemesis, Microsoft. By 2006, it had had become hugely successful by building a network across six industries — computers, consumer electronics, music, film, telephony and automobiles. Companies like AT&T, Bose and BMI now have a vested interest in its success, even when their goals are not completely aligned.
Networks also have a dark side. By linking several companies with multiple flows of monies, information and goods, they can enable small localized problems to become major distributed crises with blinding speed. When managers block the most likely paths, the problems take less likely ones. The global financial industry’s tight networking clearly exacerbated today’s fiscal crisis. Lehman’s problems (lots of bad debt) threatened Goldman Sachs (minimal bad debt), and the sequential rescues of AIG and Merrill Lynch failed to save others. Ultimately, America’s mortgage crisis caused a nation’s (Iceland’s) bankruptcy.
Away from the limelight, manufacturers have struggled to master networks. Professors Kevin Hendricks of the University of Western Ontario in Canada and Vinod Singhal at the Georgia Institute of Technology showed that as the networked era emerged, ordinary, routine failures within their networks, like customers changing orders and suppliers not keeping delivery promises, drove down stock prices by 35 to 40 percent over three years. Such declines used to be associated with strategic blunders by CEOs, not everyday challenges typically overseen by midtier managers.
A few years ago, I conducted a survey, sponsored by SAP, of business unit leaders, vice presidents and directors at more than 400 large North American manufacturers. Thirty to 50 percent were challenged by network-based problems like those in the Hendricks-Singhal study. Ever known a business where customers didn’t change their minds? Where every new product was launched flawlessly? How is it, then, that 30 to 50 percent of companies are challenged by such events? Most managers believe that lean, the balanced scorecard and information technologies will control such problems.
Moreover, they don’t realize that their failure to change how they manage can produce catastrophic declines in stock prices. Their thinking resembles that of their predecessors: Managers in the 1980s could not imagine that resisting lean principles could cause corporate bankruptcies. The subtlety of today’s transformational change is keeping companies from appreciating that they must change. So, CLOs must confront the huge challenge of changing mindsets before it is too late.
The Essential New Capabilities
What changes are necessary to make a company an effective networked business today? A simple question routinely asked by executives in global companies — how should I manage remote employees? — gives insight into the answer.
Managers, broadly speaking, do two things: They plan work and they oversee the execution of work. So the traditional answer to the question is: On taking over the job, spend time with remote staff. Visit them regularly if possible. Set precise goals and clarify expectations. Hold regular phone- or video-based check-ins. During team meetings, ensure that local staff don’t subdue their contributions.
Such one-off efforts are no longer sustainable. Networked companies are relying on ever larger numbers of remote staff. Worse, all staff are increasingly mobile; in the United States and the European Union, 30 to 40 percent of the workforce, and in India and China, about 10 percent, spend at least 20 percent of their time away from their primary workplace. Finally, because 40 to 60 percent of companies collaborate with others on a variety of issues, managers increasingly oversee staff employed by other companies with divergent policies, processes and culture. So, while managers may be able to plan most work, they definitely can’t oversee much execution. This lack of visibility lies at the root of many of today’s problems.
So, to deal with remote employees and partners, managers must create the capabilities to sense impending problems and respond to them on the fly. Remote staff members often have early insight into local events — such as changed market or operating conditions — but lack the perspective on the broader implications. Their managers have the perspective but lack the insight. The capabilities to sense and respond enable companies to merge both perspectives if, and only if, these are intrinsic parts of everyday planning and execution. That caveat is key. Without it, capabilities dissolve into traditional crisis management.
Companies also must create the capabilities for all employees, as well as people in partner companies, to learn from each other. Network events that challenge one work group may provoke a yawn in another. Spreading knowledge quickly produces better responses, stabilizing network operations. So, the core issue is not how managers will interact with remote staff, but how all people who are not co-located will routinely interact, and not just under crisis conditions.
The traditional advice about remote employees isn’t adequate. We must help managers supplement planning and execution capabilities with new ones for sensing, responding and learning. Broad deployment of these will require rethinking policies and tinkering with culture. For example, formal policies and secretive cultures in most companies preclude the information sharing that is critical for these capabilities.
Sound like the changes that accompanied becoming lean? It should.
Many readers may wonder, “Who is doing this?” Companies around the world are doing so, including Nokia, Hewlett-Packard, Apple, the Tata Group (India), Toyota, Samsung, Foxconn (Taiwan), Goldman Sachs and Wipro (India). Still other companies, such as Wal-Mart, have addressed the easier challenges of effective networking and are wrestling with the tough ones.
The Chief Learning Officer’s Challenge
CLOs should first assess whether their companies are de facto networked, but not being managed as such. Focusing on a business unit, they should map out all groups — internal and external, and formal and informal — with which it works. How many are involved? How are they linked? How do problems occur and propagate, and how are they resolved? They should repeat this exercise at various organizational levels.
CLOs should use such results to co-opt line executives into leading change. It is worth remembering that lean became synonymous with GE because Jack Welch made its institutionalization — not the usual concerns of CEOs (grand strategy, mergers and acquisitions, and corporate diplomacy) — his signature issue. His choice also accelerated lean’s spread through American businesses.
Finally, CLOs should rethink their companies’ management development programs. Programs for senior executives should focus on policies, strategies, structure and culture of networked companies. Programs for midcareer executives should address the redesign of workflow. Programs for junior managers should teach about issues like managing remote staff.
The good news is that the recession has already forced most companies to think hard about their learning programs. So, what better time could there be to completely reconsider organizational priorities?