We live in an increasingly volatile and uncertain world. Our ability to accurately predict any business trend is fast becoming suspect. One just needs to personally introspect on our own track record in modeling quarterly movements like raw material costs, interest rates, exchange rates or market growth on the one hand or on the other hand, longer-term landscape shaping trends like technology evolution. Would it not be fair to say that unlike 10 years ago, we now look at “expert models” with a skeptical no-one-really-knows-what’s-happening shrug?
The data corroborates what we intrinsically sense. Consider a few India specific facts. The daily volatility of the Sensex has almost increased one and half times; the exchange rate is now about four times more liable to fluctuate and the volatility in repo rate has more than tripled. This rise in uncertainty is also reflected in the performance of companies — both in terms of operating margins and market positions. For example quarterly volatility of operating margins has almost doubled in the last four years. Interestingly, less than half of the top 35 companies in India in the year 2000 retained their position in the list in 2010.
The Boston Consulting Group had extensively spoken to leading CEOs in India to get a hands-on view of what it takes to “Thrive in a Volatile World”. Clearly the business imperatives are consistent irrespective of sector — risk is no longer just a bureaucratic check-box, there is need for a fundamental revamp of planning processes to make them more flexible, endurance requires single-minded organisation-wide focus on customer value addition, squeezing the last drop of efficiency out of our supply chain is a must do and finally the willingness to learn fast and adapt has literally become a do-or-die imperative.
If most companies and business managers have a fairly consistent view of what needs to change in their businesses, what then really differentiates the sustainable winners — the ones that survive and thrive in spite of the uncertainty around us? What are the fundamental differentiators that give these organisations enduring competitive advantage? The answer to this conundrum lies at the heart of each one of our organisations. In our conversations, most leaders spoke of the need for fundamental organisation — wide behavioural changes to become more adaptable, flexible and agile.
The importance of organisational capabilities has been borne out by extensive global research conducted by The Boston Consulting Group. A study spanning 1,600 respondents from over 35 countries (including India) establishes that structural capabilities like organisation structure, scale, project management, etc are important but have become table-stakes. Organisational capabilities have now become the critical differentiators of sustainable success. In particular three key capabilities stood out — leadership, employee engagement and cross functional collaboration.
In a stable environment, leadership at the top of the pyramid supported with strong execution across the ranks was sufficient for success. However, in an uncertain environment where data is insufficient, risks are ubiquitous and speed to respond is critical, operational decision-making has to move to the front-lines. No one leader, however good he or she may be, can process and act on the amount of information and uncertainty that exists. This requires leadership on the battlefield and not just in the command centre. As one CEO puts it, “I want empowered and capable profit owners across the organisation.”
The first challenge for organisations in this new normal is to create the right structures and systems to enable and empower people at the front-lines. The key is to redefine roles, responsibilities, decisions rights, key performance indicators and incentives to give people 360-degree responsibility. For example, is your sales team responsible for maximising profits or sales? Does your sales team have the authority to decide what to sell and what not to? What authority do they have on pricing?
Generalisations can be dangerous given that every industry and every company is unique. However consider the story of a global retailer to understand how far some of our peers have transitioned their organisations. The basic organisational unit at this company is the team, and each store has about eight teams. Team leaders — not national buyers — decide what to stock. Teams have veto power over new hires. They are encouraged to buy from local growers that meet the company’s quality and sustainability standards. And they are rewarded for their performance with bonuses based on store profitability over the previous four weeks.
The second more difficult challenge is to mass produce 360-degree leaders. The revamp has to start with whom you recruit, what qualities you nurture and how you define readiness for promotion. Transitioning the organisation and people to this “new way of life” will take time, needs hand-holding and tremendous patience. Your superstar sales manager who has always worked for market share will not overnight transform herself into an astute profit maximiser. Above all, one must also be ready to empathetically but systematically transition-out those who are unwilling or incapable of fitting into this new normal.
As one astute business leader rightly put it “I manage for engagement. The results will follow.” There is absolutely no limit to what inspired employees passionately committed to a common cause can achieve.
Manage for engagement
Engagement begins with a positive energised mood. As leaders we must start by proactively managing the mood and energy in the organisation. But true engagement comes when employees are passionately connected to the larger goal of your organisation and more importantly are proud of what they are delivering every day. A lab technician in a hospital must see her role as saving lives and an employee on the factory shop floor must see himself as integral to his company’s quality track record. Our experience shows that when people are engaged they will commit their discretionary time and energy to their organisations, and will find ways to address challenges, rather than to create them. They will commit, rather than just comply.
Continuous communication and celebrations of success — small and large — are simple but powerful tools to build engagement. But never forget that people can sense a “fake” from any distance-authentic leadership is the only prerequisite for engagement. Is the sense of purpose, engagement and energy truly reflected in the actions of the leadership team, in the metrics for performance, in the communication in the organisation and in the heroes that are celebrated?
Here are a few typical CEO laments. “We have the required capabilities, ideas and expertise within our organisation. We just don’t seem to be able to work together.” “Many of the individuals achieve their goals but as an organisation we still fail.” “All things keep getting delegated upwards — I am the Chief Agony Aunt.” Silos and bureaucracies become a more frequent reality as organisations become more matrixed. But they are not a necessity.
Going forward, the big opportunities will come from cross functional approaches. Companies who therefore have collaboration in their DNA will always be able to come up with impactful next gen ideas ahead of the curve.
Organisations must move beyond transient structures (like cross-functional teams) to create permanent platforms for collaboration. For example, some organisations are creating centralised cross-business unit R&D platforms to focus on breath — through long-term projects. Needless to say, a lot of attention has to go into defining the new roles precisely and matching the right talent to the right roles. Critical capability gaps need to be addressed through training, coaching and recruiting.
But the biggest constraints to collaboration are the “unwritten rules” of what is important for success in an organisation. Many organisations have metrics and structures that drive individual accountability, and not shared outcomes. Even where there are “team” incentives, these are often perceived to be less important than the individual ones. And finally often times, leaders role model behaviours that limit collaboration in order to protect their domains and influence.
Putting it all together, what does it mean for business leaders?
Clearly there is no standardised template that will apply to every company in every industry. What applies to an IT services firm in unlikely to work for a mining company. Each organisation will need to evolve its own unique approach. But two common themes have emerged clearly. First, a stronger HR organisation while important is not the panacea for all organisational problems.
What is important is for each one of us to also become HR managers in our day-to-day jobs. Second, we must always wear two hats at work — perform for today while simultaneously adapting for tomorrow.
The development and sustenance of the right mix of organisational capabilities are never something that can be achieved in this financial quarter or within the span of a fiscal year. Business leaders must therefore view the necessary changes as a journey and not a one-off project. But this does not mean that the issue of organisational capabilities can be put off to another day. Our findings make it abundantly clear that there is a cast-iron connection between robust, well-articulated organisational capabilities and business performance. This issue has to be part of the CEO agenda starting today.
Bhalla is partner & director, BCG, and Sebastian is senior principal, BCG. The views here are personal.