THE BLOG
11/18/2014 05:56 pm ET Updated Jan 18, 2015

The Great Transformation of the Organization Needs the How

Billed as "The Great Transformation", its work was cut out for itself from the moment you could register online. A conference paying homage to the brilliance of Peter Drucker has now become an annual calendar fixture not to be missed. The 6th iteration of the Global Peter Drucker Forum -- recently held in Vienna, naturally -- has arguably become the TED or Davos of all leadership conferences. But could we shift into an era of "managing our way to prosperity," as the conference sub-title suggested?

Could we achieve "The Great Transformation"?

Richard Straub, the Forum's chief architect, asked a rhetorical question in his opening remarks to the Forum, "Have we reached a turning point?" The 'we' he referred to might have been leaders in today's organizations. I reckon you could argue it was 'society' in general that needed an autopsy on turning points. Either way, I sat at my seat, took another look at magnificent mural on the ceiling, and answered the question Richard posed to myself.

No.

We haven't reached a turning point. At least not yet.

We've reached a crisis point.

Think of it as if you were a member of the G7, trying to sort out what to do about Russia, Vladimir Putin and the ongoing saga that is the Ukraine.

Richard went on to suggest Peter Drucker himself would have categorically stated that, "Management has a key role to play in this transformation." Hard to disagree with Richard on that point, however, data suggests management remains ambivalent if not clueless to key transformative opportunities. Concepts such as maximizing shareholder value as the singular measure of success, bureaucracy and command and control tactics as the basis for organizational culture and leadership, amongst various human resources inanities that make it difficult to ever feel engaged at work are as prevalent today as traffic congestion on Silicon Valley's Highway 101 will be decades from now.

Management is the problem. The crisis, ergo, is management.

If we are to reach a transformative "turning point" there would have been many more participants than the 2500 combined in-person and online attendees taking part in this year's conference. This is not to take anything away from Richard or conference attendees -- for these folks are the true trailblazers of organizational change -- but if we are to see a great transformation in our lifetime, the Global Peter Drucker Forum ought to become the vehicle for the turning point itself. And we need more people involved to achieve that type of mission. Quite frankly, the conference should have attracted more than a football stadium full of leaders who want to see such a transformation.

"I wish us all an inspiring conference," Richard gleefully uttered as he concluded his opening remarks. Indeed, it was an inspiring conference ... but by the end of the two days it became a stark reminder of how far society needs to venture if we are to truly aspire to a "great transformation."

Adi Ignateus, Editor-in-Chief of Harvard Business Review, stepped to the microphone looking joyful if not hopeful and bellowed,

"Our starting point is that things are not ok. Debt levels are high, respect for institutions is low, equality is suspect, and we can't beat the stranglehold of short-term thinking."

I wanted to give him an affectionate, Canadian polar bear hug -- mostly because I've been banging on my drum about his opening statement for years -- but I ran out of time because walking up on stage to deliver their opening morning keynotes were Pele, Maradona and Sir Bobby Charlton.

No, not really.

But would you believe the opening act included Clay Christensen, Gary Hamel and Roger Martin? This conference was about to get epic. What a triple-play bill of thought leaders to begin with.

The question this trio was tasked to answer was, "Is management up to today's challenge?"

Renown Harvard Business School professor, Clay Christensen, -- he of the disruption theory and accompanying models -- claimed that growth comes from innovation and the link between growth and innovation is investment. Clay suggested there are three types of innovation:

  1. Market creating innovations (only the rich have access to it) e.g. the computer. It's the source of all corporate and national growth. The kind of innovations that allow access to more people and services.
  2. Sustaining innovations - most of what we see today are sustaining innovations, he said. It helps an organization's margins improve because they make markets vibrant. They don't create growth, per se. These innovations are important but they are replicative.
  3. Efficiency innovations - helps an organization get lean. If the firm doesn't get more efficient, they get kicked out of the game sooner. It's when an organization seeks to "do more with less" as an innovation strategy.

When I heard Clay gracefully and calmly explain the "efficiency innovation" example -- using the term "do more with less" -- I immediately felt my body go into uncontrollable spasms, reminded of the far-too-frequent number of times I've heard that soul-sucking phrase in my various workplace dealings. I always thought it was a practical joke of CFO's to wax lyrical about doing more with less.

Where I felt Clay answered the question most effectively, however, was when he launched into a finance lesson on numerators and denominators. "Prior to 1980, measures of success were based on whole numbers," he remarked. "For example, dollars were used as the measurement." Now that made sense.

But Clay went on to outline something I hadn't thought of before.

"Finance has now given us measures to view how successful we are with capital. These are measures of how efficiently we are using capital. They are ratios and as we know, ratios have a numerator and a denominator."

Although Clay didn't come right out and say leaders need to revert back to reporting on and setting whole numbers as financial targets, he did crystalize the fact that there are now two levers to tweak so an organization can improve growth. Actually, it's been going on for well over 30 years. This, in part, provided me with an answer to the question, "why have our organizations stagnated?" If an organization wants to become more innovative, what they're really playing around with isn't innovation itself, but ratios of capital.

This can't be good. If an organization truly wanted to be innovative, it would invest in the numerator but if that proved too hard -- if IRR (internal rates of return) were too low or too slow to achieve -- the Finance and/or C-Suite could simply reduce the denominator on the capital ratio. It's obvious to me far too many firms are taking the easy way out and shirking their innovation responsibilities by nudging the denominator versus the numerator. Clay said as much by claiming capital has now become abundant and cheap, yet organizations husband it. He believes we're going in the wrong direction and I couldn't agree more. Innovation and thus investment in the numerator is required. We need to refrain from the fixation on share buybacks, and use the capital (i.e. the profit) to invest back in the numerator. Great strategy from Clay, arguably the world's smartest thinker according to Thinkers 50.

"We stand on the shoulders of others," exclaimed another management guru Gary Hamel, as he took the stage in what can only be described as a frenetic delivery style, compared to Christensen at least. With the audience half-scared he might venture off the stage to deliver head-butts, he continued,

"How can we build organizations that are adaptable at its core?"

Gary answered his own question right out of the blocks. "Organizations aren't up to the challenge," he yelled. (Seriously, he yelled.)

I was scared.

"If the organization wants to survive, they have to transform themselves," he continued. Ok, I'm with you Gary ... but what's your strategy for change?

He attempted to answer the rhetorical question I asked myself. Gary believes salvation and prosperity (there's that word again) can be had if the goal of organizations becomes the process in which they can become a self-renewing organization. This happens by innovation which, as he stated, "is the fuel for renewal."

He outlined three approaches (they were questions in all honesty) to build a self-renewing organization:

  1. How have employees been trained as a business investor?
  2. If an employee has an idea, how can they get capital to launch it?
  3. Is the organization measuring the investment/idea and attaching it back to compensation and other targets?

It's hard to argue with Gary's ideas, but three things donned on me when he concluded.

First, he's loud.

Second, the culture within many organizations is far too closed and hierarchical as it stands today, therefore the steps outlined above will never occur unless it's fixed.

Third, as Christensen pointed out, it's far too easy for an organization to impose a "do more with less" mantra and to then fiddle with the denominator than it is to make innovation investments with the numerator. So in reality, this has to be fixed first -- alongside the culture of an organization -- before we can achieve the status of a self-renewing organization that he purports.

Gary is an enthusiastic speaker, replete with plenty of Tweetable catch-phrases -- e.g. Management is the love child of Julius Caesar and Frederic Winslow Taylor by introducing command and control tactics and industrial engineering to organizations -- but I'm not entirely convinced he effectively answered the question, "Is management up to today's challenge?"

The final opening act soccer star (err, speaker) was fellow Canadian, Roger L. Martin, Academic Director of the Martin Prosperity (there's that word again) Institute out of the Rotman School of Business in Toronto. Truth be told, I've always been a fan of Roger's work. He long has railed against the "game" that has been played by publicly traded companies, analysts, hedge funds, pension corporations and the stock market. He, like me, yearns to bring balance to our organizations such that there may be a better sense of equilibrium between purpose and profit.

His talk, as I had hoped, delivered on multiple levels. Speaking on the "Structure of Democratic Capitalist Infrastructure" and how it has become what he calls "perverted", Roger explained to a captivated audience that "patent trolls" exist solely to make money and they do so by raping and pillaging companies that want to use the technology for good. You should tweet that sentence. With this inexcusable mindset in play, the infrastructure inside our organizations is set to be far too narrow, thus basing its interests on short termism type actions.

As I am an opponent of maximizing shareholder value as the sole means to measure a business, Roger deftly argued (and phew, agrees with me) that this sort of deplorable corporate robbing creates stagnation, a lack of innovation, and a skewing of what the true purpose of an organization really should be. It was fun to watch Clay Christensen walk off of the stage where he was seated so he could have a better view of Roger's graphs and charts, which spoke volumes to Roger's overarching thesis.

Notable comments from Roger throughout the conference included how:

"we've structured the corporate world in a way that facilitates the operation of bandits,"

and

"the highest rewards in today's economy go to people who trade value, and not to the people who create value."

As usual, Roger nailed it. (#mancrush)

The Global Peter Drucker Forum was two hours into its journey but, with a tear in my eye, I was becoming more depressed by the second. The talks to this point were splendid but the recipe for change -- the master playbook for "The Great Transformation" -- seemed complex and beyond our reach. Were my expectations off kilter? Or, perhaps, I was correct in asserting we were not at a turning point, but at a continued state of crisis.

The speakers continued throughout day one. Each took a turn identifying the problem, and for some, taking a crack at a solution.

Rick Goings, CEO of Tupperware, told us that:

"leaders are about the sustainability of the organization and that innovation is one of the tools at their disposal."

More importantly, he felt leadership "is not just to build companies, but to create opportunities for all." Alright, no disagreement from me on that point, but where's the how? Nancy Tennant, Vice-President of Innovation at Whirlpool Corporation suggested for an organization to become innovative -- like what they allegedly accomplished at Whirlpool -- they should define what innovation is to the firm, train employees on that definition, and then watch how innovation will become an operating norm. Ok, I'll buy that. Vineet Nayer, the former CEO of HCL -- a company and leader I profiled in FLAT ARMY -- stated the turnaround at HCL was due, in part, to a democratization of innovation where ideas were allowed to surface from anywhere, and decisions were made across any level." He believed that an organization's competitive advantage lies in "putting employees first, and customers second." I've read the book, so if you're looking for the 'how', there are some good examples you might want to investigate.

Would an economist have better luck answering our question? Martin Wolf, Associate Editor and Chief Economics Commentator at the Financial Times, gave it his best shot suggesting no one individual should be allowed to own a company. "No one can own a country," Wolf further stated, "so the claim that shareholders should have absolute control of the company is false." I liked where he was going. It reminded me of the work another economist -- Bill Lazonick -- had put forward recently on Harvard Business Review. The real answer began to surface from him when he said, "If management is to use its position to benefit the company and society, it needs the best arrangement in which to do so." His answer?

"The company should be seen as a semi-permanent institution and philosophically it should be set up much like a trustee relationship."

Bingo! Wolf had set the table (it felt like a feast) and highlighted a possible answer to our vexing question. Perhaps Wolf was suggesting companies re-establish themselves as B-Corps, (I wrote about B-Corps on Huffington Post) otherwise known as Benefits Corporations? I'd be all for that idea.

Pankaj Ghemawat, a professor at NYU laid part of the blame on today's business schools. He said, "Irrespective, there is an error of omission in business school education today without being exposed to market failures." So, in part, an answer can come from the redevelopment of business school education such that market failures are addressed. I'll agree to that, however, business schools need to take a long, hard look at what they're teaching and (perhaps) think about a more balanced view of purpose with profit. (I have more to say on this when we make a spectacular announcement in January)

In his usual thoughtful and cerebrally controversial way, John Hagel -- Co-Chair of the Deloitte Center for the Edge -- claimed most companies are an unnatural bundle of three business types:

  1. Infrastructure management business - high volume e.g. call center
  2. Product innovation and commercialized - e.g. iPad
  3. Customer relationship business - knowing customers better, and helping them more

He reminded us that Peter Drucker once wrote that the role of a CEO is to answer the questions, "what is our business, what should be our business, and what shouldn't it be." Hagel wondered aloud if the organization is to keep all three types of business types alive, the end game of the firm will undoubtedly be compromised. Notably, John indicated between 1965 and present day, ROA (return on assets) has collapsed by 79%, attributing the decrease to a fixation on non-scalable institutions (i.e. the fixation on all three types of business models he defined) as opposed to implementing his answer, the scalable learning organization.

By the end of Day One, it was clear to me many smart people have thought an awful lot about the current crisis. Each had provided a wonderful snapshot explaining "what" was wrong but I still was missing the unified "how is this going to get fixed" answer.

Was there a unified answer out there?

Day two, thankfully, saw the inclusion of several more women delivering talks and panel discussions. Day one was heavily skewed toward the male gender. There were three talks in particular that I found further defined our current crisis, that also provided a glimpse into how our organizations might be fixed.

Rita Gunther McGrath, a professor at Columbia Business School, delivered a delightful talk suggesting "intelligent failures" need to become more common in today's organizations. "You had a plan, you tested it, you knew what went wrong, you shared messages of failure, you learned from it, and you innovated again," was how Rita explained the concept. My take from Rita's talk was organizations need to be resilient and flexible -- while not only being a learning organization -- agreeing to gather and disseminate the tuition value from mistakes.

Nilofer Merchant, entrepreneur extraordinaire, took the conch and wonderfully hammered home the point that social is not a technology, it is a behaviour. (She actually stopped her talk mid-keynote and asked us to get social with someone beside us) Her point? The more people are allowed (and encouraged) to connect and collaborate, the greater payoff your organization will have downstream. I loved Nilofer's message in addition to her delivery style, something I hadn't yet experienced face-to-face. (If you haven't watched her TED Talk, please do so. It's a gem.)

Herminia Ibarra, a professor from Insead, gave incredible insight into the nuances of different types of leaders. From heroic, to charismatic, to visible, to individualistic, to peacetime/wartime, to collaborative, Herminia's examples were insightful, funny and painful for their accuracy. I've always appreciated her work and the connections she makes between effective (and ineffective) leadership and the crisis we find ourselves in today's organizations.

In the lead up to this year's conference, I was asked by Steve Denning, author of Radical Management and one of the coolest provocateurs out there, if I wanted to a) speak at the conference as part of the track he was chairing and b) if I would work with him on a position paper outlining the hopes and dreams for the Drucker Forum itself.

I delivered a talk on day two, focusing my message on three key parts.

First, there is causality between an engaged organization and much improved business metrics.

Second, FLAT ARMY is a "how to" manual for organizations to achieve the open operating culture that can mitigate the issues found in today's organizations.

And third, I used the platform to explain how a corporate culture change at TELUS (my place of work since 2008) helped to increase employee engagement from 53% to 83% while improving countless business metrics in parallel.

The bottom line? If you create an inspired, empowered, authentic and collaborative organization, an innovative, customers first output will be the result. This leads to what so many organizations yearn for ... improved business AND non-business results.

The paper we worked on (with Bill Fisher, Haydn Christensen and Nick Dixson) was posted to Forbes before the conference began, and in it, we posed three questions:

  • Should firms make the shift from the goal of maximizing shareholder value as measured by the current stock price to a principal focus on adding value to those for whom the work is being done?
  • Should organizations make the shift from the practices of hierarchical bureaucracy to the collaborative leadership and management practices of the Creative Economy?
  • Should organizations make a shift from metrics that reflect narrow financial goals to metrics that reflect contributions to prosperity of individuals, organizations and society, for achieving both purpose and profit?

Whilst the aforementioned questions were not answered at the Drucker Forum outright, I left thinking I wasn't alone. From the various speakers, to the attendees I spoke with, to several meaningful and deep conversations, -- it's evident everyone is (for the most part) on the same page. We may not be at a turning point but we're all acutely aware of the crisis we've gotten ourselves into. The questions found above were met with unanimous agreement from a Drucker Forum choir of voices that sang, "but of course, we need to change" in collective harmony. Given we were in Vienna, it was fitting.

We left the conference with an agreement on the 'what'. Phew. Now we need action on the 'how'. And we need it ASAP.

As Clay Christensen remarked in the closing comments to the conference,

"Let's take the best of each other's ideas and languages, -- our ways of communicating -- share, focus and then standardize to make change."

Hallelujah. That sounded like a mission to prosperity indeed.

(There's that word again, only this time there were violas playing.)

_______

Dan Pontefract is the author of FLAT ARMY: Creating a Connected and Engaged Organization and is Chief Envisioner at TELUS Transformation Office where he helps organizations with corporate culture, connected leadership and employee engagement. He's currently at work on his next book.

Reach him at www.danpontefract.com or on Twitter @dpontefract