Why not imagine an organization that self-adjusts its processes and business models based on Machine Learning algorithmic decisions? With this, the company starts to operate as a living being, evolving and adapting to the changes that happen in its environment
The internet is one of the few things that humans have created and that is not yet fully understood by them. We are taking the first steps and surprising ourselves at every moment. Consolidated business models are replaced by new ones very quickly. Many of these new businesses, in turn, are quickly outnumbered by others that emerge very shortly afterwards.
The symptoms of these changes are already visible. An example is the average life of the companies on the S&P 500 list. 100 years ago it was an average of 67. Now it is only 15 years. The sources of disruption originate from all sides. The boundaries between the industry sectors themselves start to dissolve and, increasingly, not only startups, but companies from other sectors enter areas considered solid and closed.
We already understand that all aspects of our lives will change, bringing about a broader and faster social, cultural and political transformation than in any other period in human history. The numbers are staggering.
By 2025, most of the world’s population will have moved from an almost total lack of access to unfiltered information to a world of information abundance, always accessible by a small device in our hand. All of this in a single generation! Remember, the iPhone came out in 2007!
Given this transformative scenario, how will companies adapt to survive in a new and unknown world? The risk of not adapting is the threat that they will become obsolete and irrelevant. That is, if they don’t just disappear.
This new context, characterized by uncertainty and volatility, forces companies to respond quickly and create constant innovations. Consequently, it demands an organizational model different from the one created to support companies in the industrial society.
The speed of change clearly signals that the hierarchical and matrix model does not allow the necessary agility to survive in the 21st century. In my conversations with executives, it is clear that many are already aware of this context, admitting that their companies are not prepared to deal with emerging and unexpected challenges. The pandemic was an example: many companies that called themselves digital, stumbled badly.
The speed of change clearly signals that the hierarchical and matrix model does not allow the necessary agility to survive in the 21st century
The delay of large and traditional companies in reacting, motivated mainly by their organizational structure shaped in complex hierarchical, top-down and matrix models, is a clear signal. Many of them are going through serious crises that may threaten their survival or relevance in the future.
The reason is simple: the flow of information from large hierarchical corporations follows a slow circular movement, which begins at the top of the organization and gradually spreads through the company. When it reaches the tip, it is already obsolete. The feedback process also follows, in an inverse way, this same process and when it reaches the top management, filtered, it no longer reflects reality. Decisions are then based on the past.
Hierarchical structures worked very well in a period of slower change. On the other hand, they created weaknesses such as the fact that professional ancestry means more power, stricter controls and little flexibility for changes. They naturally tend to be reactive to change, as any change affects the power structure so hard won.
The hierarchical model was created to be static. People work in the context “things were done this way and should continue to be this way”. It is a command and control structure, in which command is at the managerial levels and execution at the lowest levels, whose professionals only perform tasks, without greater autonomy.
The intermediate levels of management function as “buffers” taking orders and sending them down, filtering out problems that arise below, passing on only a few to top management. The rules are clear and deviations are punished.
Innovation is not encouraged, except in theory or on posters on the walls. The structures create silos, often with conflicting objectives, creating a scenario of “us against them”, such as management versus staff, marketing versus finance, IT against everyone!
Innovation is not encouraged, except in theory or on posters on the walls
A common symptom of this in IT is the distrust of the area towards other sectors of the company, treating them as customers or distant entities, and not as partners in the same business. It is still common to hear “users don’t know what they want!”, a clear characteristic of a conflictual relationship caused by the organization’s obsolete structure.
The traditional model still thinks of the employee as his property and the job is assumed to be long-lasting. 20 or 25 years within the same company are celebrated. The predominant values are financial and everything is done in the name of the profitability of the business. Management is by objectives: they must be achieved, no matter how.
We see this explicitly in sales areas with pressures that are often unsustainable so that employees can reach or exceed their goals, which are not always feasible. The indicators used reflect this spirit of the goal at any cost, such as quarterly and annual cycles, KPIs and balanced scorecards.
But does it need to continue like this? A hierarchical structure emulates a machine, always operating in the same way. The result of plastering, the command-control method and short-termism can be seen in the level of employee satisfaction, which is generally very low.
Why not imagine an organization that self-adjusts its processes and business models based on Machine Learning (ML) algorithmic decisions and that self-adjusts with the learning itself? Applying self-adjusting algorithmic principles, as the basis of your “operating model”, not only does the support layer (processes, systems and organizational structure) change and adjust continuously, but the vision and business models also self-adjust to market dynamics .
The company is no longer a rigid structure with top-down decisions going downhill across the organization. AI is not only restricted to predictions to assist in decision making but is incorporated as an operational execution engine, defining and executing day-to-day tasks. The company starts to operate as a living being, evolving and adapting to changes in the environment.
A living being has its cells functioning independently, without central control. The liver reacts on its own, without waiting for orders. Thinking about a self-managed company is a paradigm break, but I don’t think there are alternatives to survive in a world that changes every moment.
This means creating self-managing teams that make their own decisions. There is no figure of the chief; everyone has equal importance in the decision-making process. Teams don’t have bosses, but there is global leadership, much more focused on being inspiring than controlling.
On the other hand, there are no intermediaries between the leadership and the teams, which means that the intermediate management levels, the famous “middle management”, cease to exist. In fact, the controlling leaders are replaced by coaches, advisors, and inspirers.
The leadership structure has few coaches and a CEO with a different role than we see in traditional CEOs. This concept goes against our common sense. But often to go against common sense is to create an innovation that will make all the difference. Maintaining alignment with common sense can mean being on the wrong side, as this common sense, created decades ago, may not reflect the current context.
Going against common sense is often creating an innovation that will make all the difference
A historical example shows this: Nicolau Copernicus and his heliocentric theory. Copernicus is among the geniuses of modern astronomy. He developed the heliocentric system, proposing that the Earth would not be the center of the planet system, but the Sun.
This idea went against common sense since when the Sun was observed rising in the east and setting in the west, it was intuitively concluded that it was revolving around the Earth. In addition, the religious view of the time was biased in placing the Earth, and hence the man, at the center of divine creation. Thus, the geocentric model, attributed to Aristotle, went unchallenged for a long time.
The current model of organizations was refined from the ideas created in the 1920s of the last century, at GM. Alfred P. Sloan Jr.’s book, “My Years With General Motors”, portrays how he laid the foundation for modern management when he was president of General Motors, from 1923 to 1937.
A 1964 article, republished by HBR, “The Great GM Mystery” analyzes the book and the foundations of the then management model that shaped 20th-century organizations. The current scenario is completely different from what it was 100 years ago. Information flows in real-time and practically all tasks and processes in a company are the result of digital media.
But how to create a model? If the company is being created today, it is absolutely a waste of time to create it within the traditional hierarchical model. Forget the emulation of a successful 20-year or 25-year company. It will be doomed to fail in a short time. Start from scratch and create your own organizational model.
The big challenge is how to transform the organizational structure of a company that already exists. The transformation of a company depends on changing the mindset of top management. Executives need to understand the urgency of change to be able to make it happen. Without the support and commitment of the CEO and other C-level executives, the changes will not advance and will not have a long life.
The CEO must lead the transformation. Now, this new CEO has a different role than that currently held by current CEOs. It remains the public face of the company, but unlike the current one that spends 100% of its time approving budgets, managing and controlling executive team and planning top-down strategies, it is much more focused on inspiring change, creating and sustaining an environment for the company to operate in a self-managed way.
The second requirement is that the organization’s board believes in the need for transformation and supports the CEO. The change will hardly be made in one go. It is a change that must happen gradually, but persistently. Many barriers will be encountered, as of the middle managers, which, in this scenario, would cease to exist.
These people do not necessarily leave the organization, but they will fulfill another role. They should understand that “HR” means Robots and Humans and that AI algorithms will be an integral part of their daily lives. This change is not always well accepted, especially by those who have lived their entire lives in another paradigm. The company has to make a great effort to change the current leadership mentality and transform the organizational culture, consolidated for decades, from a command and control model. It is not an easy mission at all.
With this support, a new mentality that encourages change creates attractiveness and facilitates the hiring of talents that currently do not exist in the organization. I quote here a quote from former Nike CEO Mark Parker, who said: “We are an innovation company. Innovation and design are at the epicenter of everything we do ”.
And he adds: “I always like to say that we are going to focus on our potential and the distance between where we are and our potential, not the distance between us and our competition. This is how a leader should act”.
Internet companies are forced to constantly reinvent themselves as they are at the epicenter of the digital transformation vortex
Internet companies are forced to constantly reinvent themselves as they are at the epicenter of the digital transformation vortex, but all organizations, sooner or later, will be sucked into this vortex. Native digital companies have proven that it is possible to be agile and efficient, using algorithms to control their daily lives, such as Alibaba, Amazon, Netflix, and others.
With that, they are transforming the old industrial economy. At first glance, it may appear to be technologically frightening, but it is proving to be increasingly viable. The availability of cloud computing and AI algorithms has made access to large-scale computing and the analytical capabilities that the algorithms can provide to any company.
As these innovations spread over the next few decades, companies that become more algorithmic and intelligent than their competitors will win. The future will be for smart and self-adjusting companies.
*Cezar Taurion is VP of Innovation at CiaTécnica Consulting, and Partner/Head of Digital Transformation at Kick Corporate Ventures. Member of the innovation board of several companies and mentor and investor in AI startups. He is the author of nine books that address topics such as Digital Transformation, Innovation, Big Data, and Emerging Technologies. Guest professor at Fundação Dom Cabral, PUC-RJ and PUC-RS.