We are in the Fourth Industrial Revolution—an age of AI, machine learning, robotics, blockchains, and IoT. It is a new era requiring new strategies to remain competitive. Old ways of leading organizations will no longer work. We need Leadership 2.0. If you don’t believe this, look at what is happening to big-box retailers and incumbent organizations that are now on the brink of bankruptcy.
Successfully leading an organization in the digital age takes bold disruption and a commitment to reengineering the company’s DNA. This level of change cannot be a knee-jerk response or just reaching for the newest CRM platform. Mutating from a traditional company with a rigid hierarchy and profit-based mission into a Humachine—a combination of the better qualities of humankind with the mechanical efficiencies of machines—requires five distinct steps: developing a long-term vision, accurately assessing the status quo, allocating resources, embracing organizational transparency, and launching experimental pilot programs.
Step 1: Develop a long-term vision
Many executives feel pressure to become “digital” by acquiring technology rapidly. But research reveals that the most successful companies don’t react to stress. Instead, they begin by developing a long-term vision, driven by their unique intentionality and mission. Then they carefully think about what a company’s structure should look like to support this vision.
Far too often, companies focus on current problems and find quick ways to address them. They merely “patch” the current system. Hasty patches may have worked in the past, but it will not work in the Fourth Industrial Revolution. Preventing your boat from capsizing is not the goal—it’s competing in the boat race.
Yes, making incremental improvements is more relaxed than developing an aspirational vision. It is also easy to get caught up in complaints from various division leaders and managers—each with their limited vantage point—and focus on solutions that address those immediate needs. However, a successful organizational redesign needs to be driven by intentionality, mission, and strategy, all tied to a long-term vision of the future and the organization’s role in it.
Step 2: Understand the current state
Once a long-term vision is in place, and the need for a supporting organizational restructure is appreciated, leaders must objectively assess an organization’s current state. This includes comparing its formal hierarchy to its real organizational hierarchy, which is often different from what is on paper.
Smart organizations understand that their actual culture—the informal social structures and skewed flow of information through human communication—differs from an organization’s logical hierarchy, its “official” lines of communication, and other abstract delineations between departments.
Most companies have assumptions as to how things function based solely on their organizational chart. In doing so, they ignore additional lines of communication that support innovation and collaboration. Be objective about these assumptions and fact-check them. Understand talent capabilities, current incentives, weaknesses, and which relationships to build upon. Leverage the real structure of your organization to bring it closer to the ideal.
Step 3: Allocate sufficient resources
One significant roadblock to reorganization is not allocating sufficient resources toward the effort. Reengineering a company’s DNA must have not only organizational commitment and support in principle but also in monetary and human resources. Leadership must make a thorough assessment of financial consequences, tax implications, and sequencing of rollouts to make sure there is ample funding at each stage. This will help mitigate risks and alleviate anxiety, particularly from the board of directors.
Research has shown that having “slack” in human resources positively impacts financial performance in the pursuit of strategic change. Though not surprising, studies show that companies that increase financial and human resources during times of change have better economic outcomes. The lesson for leaders? Allocate sufficient resources before undergoing strategic restructuring. It pays off to have slack in the system.
Step 4: Embrace transparency
In the age of AI and technology, it is easy to forget that organizations are a collection of human beings. Your employees have emotions, hopes, fears, and beliefs. Restructuring the organization creates uncertainty, and uncertainty makes humans uncomfortable. Too many organizations view employees as “cogs” to be moved around during a restructuring. One of the most critical aspects of successful restructuring is addressing employee’s human needs: fear, anxiety, and defensiveness.
When employees lack insight into the broader context of ongoing business change, they will treat the disruption as a threat. Through informal channels, they will alert others in the organization. Each employee will then interpret the restructure through his or her lens. Different parts of the organization will reach different conclusions about what is happening, which leads to chaos—and it’s a recipe for failure. Successful restructuring requires that the entire organization has the same view, the same insight, and the same understanding as to what is happening. This requires transparency.
Step 5: Start with a pilot
Before a considerable reengineering effort is rolled out, it is best to test it with a small, targeted, and carefully selected pilot project. The test environment could be in an independently operated unit, such as a division. This process is called “purposeful experimentation,” and it allows for bugs and kinks to be worked out.
Rather than jumping into restructuring the entire organization, select a high-potential area in which to experiment and “test and learn.” Once a plan tests well, scaling it rapidly is often the best way to create value from such a small project.
Targeted pilot projects help leaders understand what works. These programs should not be random. Instead, they should be driven by strategy and understanding an organization’s primary and competitive priorities.
Leaping from a traditional brick-and-mortar company that will be left in the dust like Blockbuster to a flat, fluid, innovative, and purpose-driven Humachine depends on many variables. To manage the process and increase the likelihood of success, adopt a long-term vision, peg the status quo, increase resources, lead with transparency, and work out bugs before scaling to the rest of the enterprise. This is leadership for the Fourth Industrial Revolution.