For industrial companies, “lighthouse” sites that incorporate all applicable tech solutions can help organizations transition from trials to sustainable change.
Industrial “lighthouses” for tech-enabled transformations
Friday, January 31, 2020
How to ensure artificial intelligence benefits society: A conversation with Stuart Russell and James Manyika
Leading artificial-intelligence researcher Stuart Russell shares in a conversation with James Manyika why a new approach for AI is necessary.
How to ensure artificial intelligence benefits society: A conversation with Stuart Russell and James Manyika
How to ensure artificial intelligence benefits society: A conversation with Stuart Russell and James Manyika
Ten principles for successful oil and gas operator transitions
Incoming operators face several challenges when taking over an asset, including managing the transition, improving performance, and capturing value. Ten principles can guide the way.
Ten principles for successful oil and gas operator transitions
Ten principles for successful oil and gas operator transitions
Same-day delivery: Ready for takeoff
Now that customers expect faster delivery times, incumbent omnichannel retailers should leverage their store networks and change gears in areas such as fulfillment processes and IT systems.
Same-day delivery: Ready for takeoff
Same-day delivery: Ready for takeoff
The drive toward sustainability in packaging—beyond the quick wins
Can system-level approaches, including collaboration along the value chain, make our approach to packaging more sustainable?
The drive toward sustainability in packaging—beyond the quick wins
The drive toward sustainability in packaging—beyond the quick wins
The Best of This Week
The Future of Work Can’t Wait for Education to Catch Up
Facing sizable skills gaps in their current and future workforces, companies have stopped waiting for traditional education to supply the workers they need. Amazon, AT&T, and others have stepped in with their own solutions to fill those gaps. These companies may be shaping the future of not only their own workforces but yours as well.
The Challenge Facing Modern CIOs
In today’s competitive landscape, technology is front and center as a value driver for businesses, which requires new skills and capabilities for leaders. This article by McKinsey Digital identifies five traits that will help CIOs find success in their tech transformations.
Four Skills for Tomorrow’s Innovation Workforce
Before organizations can rethink how to design jobs, organize work, and compete for talent in a digital age, they must systematically identify and develop the capabilities that they need now — and over the next decade — to innovate and survive.
Who’s Buying Your Browsing Data?
Avast, an antivirus program used by hundreds of millions of people worldwide, is selling users’ sensitive internet browsing data — in some cases, every single click. The report by Motherboard and PCMag illuminates the secretive sale and supply chain of browsing data, which is supposed to be held in confidence between the data seller and the clients who purchase it.
What Else We’re Reading:
- Will 2020 be the year of AI as a service?
- 24 strategy experts on how companies are planning for climate change
- Yale study shows Silicon Valley may not be the best model for communities looking to boost their economies
Quote of the Week:
“If companies can give themselves some breathing room from obsession with quarterly performance and allow for real innovation in how they do everything, bigger changes are possible.”
— Andrew Winston in “The Pros and Cons of ‘Growth’”
The Best of This Week
Achieving optimal yields and efficiency in European meat processing
Companies that have aggressively pursued automation have cut costs and waste, all while improving beef and pork quality.
Achieving optimal yields and efficiency in European meat processing
Achieving optimal yields and efficiency in European meat processing
Outsmarting the 5G smartphone challenge: How telcos can reinvent their handset business
With device-related expenses already straining margins, the 5G upgrade cycle could prove even tougher for operators—unless they take a comprehensive, new approach to managing consumer hardware costs.
Outsmarting the 5G smartphone challenge: How telcos can reinvent their handset business
Outsmarting the 5G smartphone challenge: How telcos can reinvent their handset business
The technology imperative for life sciences
Digital disruption has reached the healthcare sector, and with it comes an imperative for life-science companies to retool core technology to remain competitive. Here are ten guidelines for success.
The technology imperative for life sciences
The technology imperative for life sciences
Getting practical about the future of work
Adapting to a digital age will require organizations—and not just employees—to equip themselves with new capabilities.
Getting practical about the future of work
Getting practical about the future of work
Thursday, January 30, 2020
Enhanced cyberrisk reporting: Opening doors to risk-based cybersecurity
New cyberrisk management information systems provide executives with the risk transparency they need to transform organizational cyberresilience.
Enhanced cyberrisk reporting: Opening doors to risk-based cybersecurity
Enhanced cyberrisk reporting: Opening doors to risk-based cybersecurity
Climate risk and decarbonization: What every mining CEO needs to know
Building a climate strategy won’t be quick or easy—but waiting is not an option.
Climate risk and decarbonization: What every mining CEO needs to know
Climate risk and decarbonization: What every mining CEO needs to know
Four Skills Tomorrow’s Innovation Workforce Will Need
Image courtesy of Jim Frazier/theispot.com
Throughout history, new technologies have demanded step shifts in the skills that companies need. Like the First Industrial Revolution’s steam-powered factories, the Second Industrial Revolution’s mass-production tools and techniques, and the Third Industrial Revolution’s internet-based technologies, the Fourth Industrial Revolution — currently being driven by the convergence of new digital, biological, and physical technologies — is changing the nature of work as we know it. Now the challenge is to hire and develop the next generation of workers who will use artificial intelligence, robotics, quantum computing, genetic engineering, 3D printing, virtual reality, and the like in their jobs.
The problem, strangely enough, appears to be two-sided. People at all levels complain bitterly about being either underqualified or overqualified for the jobs that companies advertise. In addition, local and regional imbalances among the kinds of people companies want and the skills available in labor pools are resulting in unfilled vacancies, slowing down the adoption of new technologies.
Before organizations can rethink how to design jobs, organize work, and compete for talent in a digital age, they must systematically identify the capabilities they need now, and over the next decade, to innovate and survive. For more than 10 years, we’ve been studying the impact of digital design and product development tools on organizations, their people, and their projects.1 We’ve found that the competencies companies need most are business-oriented rather than technical. That’s true even for brick-and-mortar companies that are trying to become more digital.
And most companies are beginning to realize that they can’t just hire all-new workforces; there aren’t enough qualified recruits, and the expense would be enormous. Instead, they need to retrain and redeploy existing employees and other members of their communities, in addition to hiring and contracting new ones to fill their needs. However, rapid technological change has rendered skill cycles shorter than ever; key competencies of even a decade ago are passé today, and most of tomorrow’s jobs remain unknown.
Waiting for the fog to clear isn’t an option. Companies must identify and develop the core skills their employees will need going forward. Our interviews, surveys, and case studies have revealed that most companies focus on refining the skills their people already possess, which doesn’t prepare existing employees or new hires for the business challenges they’ll face when using emerging technologies in their jobs. We’ve also found that young digerati, many of whom come into the workforce from narrow academic streams, are typically more captivated by digital technologies than they are by business problems. And yet, given the sweeping changes that the new technologies are likely to bring about, companies would do well to cultivate four broad business-oriented competencies in tomorrow’s innovators.
1. Omniscience
To know it all may be a godlike, even insufferable, goal. But tomorrow’s talent must aspire to understand everything — or at least much more than they currently do — about their businesses. Employees must grasp key connections: links between physical machines and digital systems, between each step of the value chain, between the company’s current and future business models.2 And they must know their customers’ businesses — how and when their customers’ products and services are used, how their customers’ organizational processes work, and the related challenges and opportunities. That’s the only way companies will be able to evolve from selling products and services to delivering outcomes — a process that will likely change the very businesses they’re in.
For instance, a major medical device manufacturer we studied has moved from developing R&D-driven solutions to delivering patient outcomes, which has become possible because of new technologies and big data. The company needed to quickly employ more people with a systemic understanding of everything it does, including patient care and rehabilitation and treatment efficacy. To move the needle on patient outcomes, it’s critical to understand all those aspects of the system and the associated variables. Thus, the business will demand that existing and new employees have a broader understanding about the underlying science, the delivery technologies, and the industry than almost all of them, other than top management, currently possess. Breadth of knowledge cannot substitute for depth, either; employees must also be able to make deep dives into the vertical aspects of the business when necessary.
Let’s consider another example: The Canadian company Dental Wings is using recent advancements in digital design, digital imaging, and additive manufacturing, as well as a collaboration platform, to rethink its dental implant business. From the dentist’s initial assessment to patient recovery, the company has started adopting new technologies to improve its processes and provide better care. For instance, all-new imaging capabilities provide more accurate pictures of the dental site that can be used not only to create digital models for implants, but also to develop tools to help surgeons define the optimal surgical paths. That reduces exploration of the implant site, which helps reduce recovery time and lowers the risk of infection. To innovate at each step, Dental Wings’ employees need to understand how the new processes and systems connect and work together.
The need to know more holds true for people in every function, but especially so in R&D and product design. In the not-too-distant future, product designers who are designing new earth-moving equipment will have to use AI and internet of things (IoT) sensor data to model, analyze, develop, and modify features in near real time. Once in the field, each prototype and its digital twin will operate simultaneously so that the designers will have access to data 24-7. They must be trained to use it to develop improvements for the current model on the fly as well as to better design the next generation of equipment.
In almost every brick-and-mortar company, dozens of digital platforms will have to be coordinated, the data mined, and the insights used in a harmonized effort between the human team and AI systems. Orchestrating all that data, whether from design outcomes or field performance, will require people who understand the value of each data point and how all the pieces fit together. It will also require knowledge across myriad disciplines, such as mechanical and electrical engineering, computer sciences, and product development, because the variables in a complex system interact in many ways. For instance, the location of a sensor on a suspension lever (a mechanical issue) will affect the data that the sensor electrically measures, which will in turn affect the mathematical algorithms that determine the lever’s accuracy. Companies whose employees can manage and navigate complex data-based systems will be best equipped to improve the performance of their products, reduce maintenance costs, and attract and retain customers.
2. Entrepreneurial Mindset
Although it may sound obvious, innovation teams will need to become more enterprising to succeed. They must become boundary pushers in terms of not just the products they wish to develop, but also the processes they use. The two are closely linked.
In large businesses, R&D and product development teams are organized like most other functions. They must follow the company’s guidelines about sourcing hardware, materials, and technologies to do their work and can use only IT-approved tools. R&D must adhere to time-tested procedures and rules for sharing information about or testing prototypes and product designs. And traditional R&D teams usually work in a centralized way, relatively insulated from the outside.
All that works well when business is as usual, but these are extraordinary times. R&D is meant to push technical boundaries, so R&D teams must learn to redraw organizational boundaries to keep pace with technological change. Essentially, they must become digital intrapreneurs, using the latest tools or, if necessary, creating them. That involves experimenting with new software and systems outside those recommended by IT, and even
developing some solutions in-house.
For incumbents, that can be a shock to the system — most people are used to working on proprietary systems and tools, getting things “right” before launch, and offering better products over time. Moving toward open systems, beta versions, and constant iteration can feel like a clash of civilizations in established companies, but they need to do so to innovate for today, as well as tomorrow. Collaboration is central to this effort. One study of 152 managers found that companies that used digital tools for collaboration improved performance — as measured by the number of concepts and prototypes developed — during the early stages of innovation. And another study of 400 companies showed that more-innovative organizations, measured by similar yardsticks, used such tools more frequently than less-innovative ones. Since better collaboration leads to more innovation, the collaborative tools and processes that organizations use are critical. Figuring those out requires an entrepreneurial mindset as well.
For example, at a large company outside Boston, a new digital group is working on completely changing the way the organization designs products. This small team has asked for, and been given, the freedom to use any tools it wants, wherever they may originate. So the team has created a new system from scratch that allows it to test design structures in real time. The group also uses several digital platforms, most developed by unknown startups, to communicate and collaborate both internally and externally. It’s unlikely that IT approves or is even aware of what’s happening, but top management realizes that the company’s digital transformation will never occur if teams like this one are confined by rigid boundaries.
There’s a reason entrepreneurs in high-tech startups are risk-tolerant, and it’s time that intrapreneurs, or innovators in established companies, followed in their footsteps. Look at Proto Labs, which manufactures injection molds and machined parts and offers additive manufacturing services. To accelerate the time it takes to develop the first tooling cuts for its clients, the R&D group quickly developed some software on its own. The program could identify possible manufacturing problems in the digital-parts files sent by clients.
Through its automated platform, Proto Labs R&D communicates any possible glitches it detects directly to clients so that they can rectify those well before production starts. If such revisions were made after test production had begun (as they were in the old days, before the homegrown software existed), the process would have been deemed client-unfriendly and would have cost both the client and the company time and money. Proto Labs has also added downloadable tools and other materials to help clients design better parts, ensuring that everyone in the ecosystem benefits from the process improvements. These offers are the outcome of entrepreneurial actions of Proto Labs employees.
3. Bottom-Line Focus
In a data-driven world, employees need to be just as skilled at thinking about business models as they are at designing and implementing systems. Thanks to IoT and other technologies, companies’ value-capture strategies can be shaped not just by the marketing, sales, and business development functions, but also by R&D and product development. IDEO’s Tom Kelley describes people who look for business opportunities, beyond the current challenges, as cross-pollinators. Fostering that capability will be key.
Product engineers, for instance, must consider what kinds of sensors should be used, their placement, and the data types captured in light of possible revenue streams and cost savings. After all, big data poses as many challenges as opportunities. All hands must be on deck. The number of IoT-connected devices, estimated at around 2 billion in 2006, soared to 11 billion by 2019, and, according to Statista, is projected to touch 75 billion by 2025. Companies are capturing an enormous amount of data: IoT-generated data, estimated in 2016 at around 22 zettabytes (1 zettabyte equals 1 trillion gigabytes), reached 52 zettabytes by 2019 and is projected to hit 85 zettabytes by 2021.
While a company’s digital people may appear to be on the front lines of the data explosion, they also need to be able to figure out what all that data means for the business and how it can be monetized. They must go beyond checking where the data originated, how dependable it is, where it is stored, and whether it has a coherent sequence. All that is useful but has become mere hygiene.
In focusing on business relevance, data technicians should be trained to ask some key questions: Can the data be used to monitor our products’ performance and be offered as a service? Can that be done in real time? How else can the data be analyzed to generate insights about customers and their needs? For instance, can it be used to change the way customers schedule preventive maintenance for our products?
The need to be business-focused throughout the organization can lead to dramatically different customer-facing roles. One fast-growing company we studied develops sensor-based modules for the aerospace, automotive, and medical industries. It recently combined the roles of the product development manager and the product manager in all its lines of business — a radical step that immediately helped speed up cycle times.
To have a product position that is both inward- and customer-facing is unusual even today. Traditionally, the product manager would assess market trends and customer needs while developing working relationships with the company’s clients. He or she would then feed the R&D team — led by a product development manager — the information to develop new products, systems, and solutions, or improve old ones. Once the company combined the two roles, the speed with which new technical solutions were matched with prospects, and vice versa, rose dramatically.
Combing the two roles also created avenues for the cocreation of nontraditional solutions. For instance, by drawing on data from IoT sensors, the company was able to develop several new applications that reduced operating costs in areas that could not be assessed earlier, because the product development/product manager could now understand clients’ pain points as well as all the solutions the company’s technologies could provide.
4. Ethical Intelligence
Machines, overseen by smart humans, will make many design decisions. Though they are innately logical, they lack empathy. That will have consequences for companies, consumers, and society. Doing the right thing will become only more challenging as digital systems become increasingly complex.
People must examine machines’ choices through an ethical lens — and weigh in. Companies will have to figure out how design decisions and digital systems affect each stakeholder and factor in the likely unintended consequences. In industries such as aerospace, automotive, and medical device development, traditional engineering processes like risk analysis and failure mode and effects analysis (FMEA) should also be deployed during the development of digital platforms and products. For instance, when Twitter’s founders created the platform, they didn’t imagine it could be used to influence elections with the use of fake accounts and bots. However, a coder putting the platform through a design FMEA would have identified the possibility well before people caught a glimpse of the platform’s dark side.
Given AI’s potential, every company needs to consciously decide what good judgment looks like. Take the case of Boeing’s 737 Max 8, where, according to recent reports, pilots complained about an issue with the aircraft software while testing it years before 346 people died in two crashes.3 However, those concerns never made it to the Federal Aviation Administration — a tragic failure of ethics at all levels of the company. The countermeasures lie beyond the scope of this article but must include new codes of conduct, fresh corporate responsibility norms, KPIs that reinforce personal accountability, and specialized training.
To embed a watchdog mentality in the culture, companies should provide ethics training — and clearly define what ethical means in their specific context. Moreover, agility may be the norm, but companies still need to be disciplined in terms of process. That means a heightened emphasis on developing tools that improve quality and stop bad design from hurting people. Making processes more digital must not take away from the inherent value of techniques such as control plans and independent testing, whose importance should be engrained in tomorrow’s talent.
As ecosystems develop, companies must use ethical intelligence to consider implications for all their stakeholders. At one open innovation platform, we found ethical breeches by the participants as well as the platform’s management. The lapses affected the quality of ideas and input from the community as well as the trust among stakeholders. Companies must build guardrails into their platforms if they want to keep the faith of society, which already views corporations and intelligent machines with distrust. That could include more visibility into management processes and decisions, a clearer articulation of privacy policies, and better identification and reporting of anomalies in the system. Think of the impact on Facebook’s image if it had reported the issues it experienced with foreign bots in 2016 in real time.
Why Structure Matters
Traditional companies will have to experiment with new organizational structures to get the best out of their people. Otherwise, tensions between well-entrenched managers and digital talent may thwart transformation, and the digital folks may walk out the door.
In their restructuring, it’s important for companies to signal that digital transformation is critical for their futures. One radical approach is to replace the central R&D unit with a digital product design group. A well-known shoe company recently did this. The new group oversees the development of a new approach to product design, testing, and analysis, which will include customized generative design and analysis tools. Top management views this group as spearheading the company’s future product development process.
Another option is to form a digital group that floats from project to project across the organization, as one leading consumer electronics company has done. There, digital experts hover over projects in various businesses and countries, providing input whenever asked or needed. The flexibility reduces the number of digital experts the company needs, even as it helps retain them, because they enjoy the variety of opportunities and challenges the arrangement provides.
Some companies, like Apple, have internal venture teams to develop new products. Others are now doing so with a generational twist by creating new venture teams made up entirely of millennials and centennials to come up with new products and processes. A large pharmaceutical manufacturer we studied invited its youngest employees to conceptualize and implement a new way to connect patients, doctors, and the company during clinical trials for its products. Those employees used their native expertise in mobile technologies and social media to keep all stakeholders informed and involved. Top management let them run the show, without allowing the rest of the organization to interfere. Funded by an internal venture capital panel, the project was tested, and eventually the company rolled it out to a wider audience. All too often, such projects are killed after their conceptualization, but companies that institutionalize entrepreneurial ecosystems can substantially improve their ability to innovative.
To be sure, the goal isn’t to have a bifurcated talent pool in a company but rather an organization in which all the talent works together in a continuum, from hardware-focused experts to digital natives, from baby boomers to centennials. That’s how many design and innovation companies now function, with older designers using sketches and hand-formed foam prototypes while recent graduates go right to CAD software. Interestingly, the approaches can be effective if used together. At one design company we studied, the older designers, who preferred traditional methods, learned over time how the younger designers worked, and the younger ones gained a deeper sense of what they were doing from their older colleagues. It wasn’t long before all the designers, regardless of age, were using digital tools for project management, communication, and collaboration.
It isn’t easy for companies to change, especially from within. Kodak’s middle management was skeptical of digital technology, for instance, and internal inertia was one of the key reasons it failed to make the transition from physical film.4 However, identifying and bringing in the skills needed to move forward with innovation can help kick-start the transformation process. Indeed, doing so may make all the difference between success and failure.
Four Skills Tomorrow’s Innovation Workforce Will Need
Tuesday, January 28, 2020
Understanding the leader’s ‘identity mindtrap’: Personal growth for the C-suite
If you’re shackled to who you are now, you can’t recognize—or reach for—who you might become next.
Understanding the leader’s ‘identity mindtrap’: Personal growth for the C-suite
Understanding the leader’s ‘identity mindtrap’: Personal growth for the C-suite
Providing care in nonhospital settings
The CEO of a regional health network foresees more care being delivered outside the hospital—for example, in clinics and in patients’ homes.
Providing care in nonhospital settings
Providing care in nonhospital settings
Supply chain risk management is back
The world is getting riskier—and the most advanced supply-chain leaders are getting smarter about risk. Is your supply chain risk-ready?
Supply chain risk management is back
Supply chain risk management is back
Hospital care in 2030
In this video, three McKinsey partners describe how hospital visits and hospital stays might change in the next decade.
Hospital care in 2030
Hospital care in 2030
Bending the cost curve in brick-and-mortar retail
Retailers can achieve next-generation store efficiency by breaking down silos and optimizing total cost across the value chain.
Bending the cost curve in brick-and-mortar retail
Bending the cost curve in brick-and-mortar retail
‘Test and listen’: Microsoft’s Jim Weinstein on healthcare tech
In this podcast excerpt, Microsoft Healthcare’s head of innovation shares his thoughts on what technology can and can’t do in the healthcare space.
‘Test and listen’: Microsoft’s Jim Weinstein on healthcare tech
‘Test and listen’: Microsoft’s Jim Weinstein on healthcare tech
The road ahead for e-mobility
How can automakers captivate consumers and achieve mass-market electric-vehicle adoption?
The road ahead for e-mobility
The road ahead for e-mobility
The Pros and Cons of ‘Growth’
Two views:
- Economic growth is the path to prosperity, and thus companies and economies should make growth the core aim.
- An obsession with economic growth is a cancer on society that’s eating up our planet and natural resources and making the planet unfit for humanity.
Which view is true? One or two? Both?
It’s a complicated issue, but one we all need to address in a world facing existential challenges like climate change, inequality, and resource pressures.
First, the good side of growth. It is undeniable that economic expansion has increased the well-being of humanity. The wonderful book Factfulness by the late Hans Rosling — who delivered a massively popular TED talk on statistics — shows how much progress we’ve made in reducing human misery. Rosling points out that in 1997, 42% of the people in India and China were living in extreme, soul-crushing poverty (that is, roughly less than $2 per day of income). In just 20 years, India reduced that share to 12% and China to an amazing 0.7%.
About 750 million people moved out of dire poverty — the greatest improvement in human well-being in history, all made possible by rapid economic growth. And now, with about a billion people still in the bottom rung and 2 billion to 3 billion more surviving just above that (with less than $8 per day), we need even more growth. More energy use, more materials of all kinds, more chemicals, more food, more, more, more.
But the giant elephant now filling the room is that our economy cannot use resources or belch carbon at the pace it has if we want to keep the planet livable. The way we got here is now killing us. So there’s a tension between the growth that nearly all economies and companies pursue — accepted almost axiomatically by economists and politicians — and the limits of the planet we depend on.
Fortune Begins Redefining Success
I saw this tension in an issue of Fortune magazine, which is what got me thinking about all this again. Fortune has long used its famous lists to celebrate companies for being the biggest, the fastest growing, the most innovative, the most admired, and the best places to work.
But the most recent ranking is a bit different. Working with BCG, the magazine developed the Future 50 in its third annual iteration, by screening 1,000 megacorporations for “factors that signal the potential for long-term growth.”
The message would seem to be that success means growth. But the methodology for picking the 50 did include some measure of a company’s commitment to sustainability. And Fortune ended the special issue with a long article on how Swiss Re, the giant reinsurer, is trying to survive the fast-rising costs of insuring a world in climate crisis.
So even the most famous purveyor of corporate lists celebrating size seems to be grappling with a core tension that it’s getting harder to define business “success” as just size or expansion, when growth done in the usual way means we keep barreling toward shared pain and devastation. We seem closer to really asking if “growth” is even the right goal for business. Or perhaps more nuanced, the real question is, What kind of growth should we be seeking and celebrating in economies and companies?
Celebrating Renewable, Circular, and Regenerative Practices
Again, there is no thriving world for 10 billion without increasing use of materials and food on the one hand, or without a relatively stable climate on the other. So we must “grow” in a new way. Broadly speaking, we know what a carbon-constrained economy looks like. Renewable energy powering the grid, buildings, and transportation … circular systems for essentially every material flow, so almost everything is made from renewable or recycled stuff and can be reused as many times as possible … regenerative practices, particularly in agriculture, that help repair the damage and capture carbon in vast quantities … and entire economic and human systems designed for justice and equality of opportunity as well — or the human pillar and support will crumble.
So, in theory, that squares the circle. Thoughtful, new practices allow for growth of the right kind of businesses — those producing goods and services in renewable, circular, and regenerative ways and, of course, those directly building a clean economy.
A few leaders are playing around with these tough issues and publicly questioning the wisdom of unbridled consumption. Eileen Fisher, CEO of the American clothing company that bears her name, said recently, “Maybe we don’t have to sell so many clothes.” Or consider the grandfather of questioning consumption, outdoor lifestyle brand Patagonia. The company has long been a leading light of sustainability, and for good reason, given its range of initiatives and actions to reduce its carbon footprint and material use.
In 2011, the company famously ran ads on Black Friday saying, “Don’t buy this jacket,” which encouraged customers to buy only what they need. The company supports this vision through the unusual approach of teaching customers how to repair its clothes. In my experience talking to the founder, Yvon Chouinard, and other Patagonia leaders, the anticonsumption view is for real.
And yet Patagonia has quadrupled in sales since asking people to stop buying some of its products.
That sounds like a contradiction, but I don’t think so. We want the best companies to win, and win fast. We want them to set the pace and show how to think differently. In Patagonia’s case, it’s working. The company is no longer written off as a mission-driven, privately owned company with a model that doesn’t apply to big, public companies. Starting earlier this decade, as The Wall Street Journal has reported, “megacorporations like Walmart, Levi Strauss, and Nike are following [Patagonia’s] lead.”
That’s a good start, but what if the megachallenges we face require even more heretical questions? What if companies stopped making profit the core goal? The time is right, as big companies are starting to question the wisdom of shareholder primacy. So let’s lean in and challenge the status quo.
What if we sought to grow not profits but instead the quality of products, the customer experience, the engagement and fulfillment of employees, the connection of our people to their communities, and our overall well-being? If companies can give themselves some breathing room from obsession with quarterly performance and allow for real innovation in how they do everything, bigger changes are possible. And as the leaders embrace renewable energy and materials, circular models, and regenerative thinking and practices, the profits will come.
In short, the megachallenges we face now force us down a different path as we run into planetary limits. And the best companies adopting new strategies will still profit mightily.
The Pros and Cons of ‘Growth’
The CIO challenge: Modern business needs a new kind of tech leader
As technology becomes increasingly important, an organization’s success depends on whether the CIO can move from being a functional to a strategic business leader.
The CIO challenge: Modern business needs a new kind of tech leader
The CIO challenge: Modern business needs a new kind of tech leader
Monday, January 27, 2020
Education, Disrupted
Image courtesy of Richard Mia/theispot.com
Employers are confronting sizable skills gaps in all parts of their operations, at all levels, and they can’t seem to fill them by simply hiring new people. In today’s tight labor market, there are about 7 million open jobs for which companies are struggling to find qualified candidates because applicants routinely lack the digital and soft skills required to succeed. In the face of rapid technological changes like automation and artificial intelligence, helping employees keep pace is challenging. And companies are wrestling with how to retain top talent — a critical differentiator in a hypercompetitive environment. No wonder a staggering 77% of chief executives report that a scarcity of people with key skills is the biggest threat to their businesses, according to PwC’s 2017 CEO survey.
As a result, companies can no longer afford to wait for the traditional “system” to supply the workers they hope will help shape their future — the need is too acute and too urgent, particularly given that many higher-education institutions remain in denial. We must change how we educate both traditional college-age students and adult learners.
Last year, when 4,500 people gathered at the ASU GSV Summit in San Diego to discuss innovation both in education and in talent development writ large, it was clear that the companies in attendance were eager to find alternative paths. At this conference, political leaders and policymakers join CEOs and VCs to discuss the imperative of investing in human capital. Entrepreneurs in attendance work fervently to sell their wares or make deals, the likes of which have fueled a sharp increase in global mergers and acquisitions of education and talent development companies, up in total value from $4 billion in 2008 to $40 billion in 2018.1 Executives from leading companies like Apple, Google, Facebook, Workday, and Salesforce.com attend to share ideas and learn about new ways forward.
The annual event provides a regular check-in on the state of corporate learning. In part, it’s meant to coax companies to focus their efforts, because there’s still a fundamental mismatch between how much they say they want to strategically invest in their current and future employees and what they actually do.
On a keynote panel last year, Leighanne Levensaler, the executive vice president of corporate strategy at Workday, bemoaned a great lack of investment in human capital despite all the buzz around the topic. Michelle Weise, the senior vice president of workforce strategies at Strada Education Network and the chief innovation officer for the Strada Institute for the Future of Work, has written that although 93% of CEOs surveyed by PwC recognized “the need to change their strategy for attracting and retaining talent,” a stunning 61% revealed that they hadn’t yet taken any steps to do so.2 Employees seem to agree. According to a recent survey by Harvard Business Publishing Corporate Learning and Degreed, nearly half of employees are disappointed in their employer’s learning and development programs.3
But there are some notable exceptions to this prevailing trend. For instance, in July 2019, Amazon announced that it would “spend $700 million over six years on postsecondary job training for 100,000 of its soon-to-be 300,000 workers.” For now, Amazon says it intends to outsource that training to traditional colleges and universities. (For more detail, see “Betting Big on Employee Development,” in this issue.) But once Amazon has begun to provide the bridge for that training, it’s not hard to imagine that it will be well positioned to create that training itself — without the “middle man” of colleges and universities — in the future.4 Although Amazon’s competitors will undoubtedly keep a close eye on its training moves, perhaps the education industry ought to keep an even closer eye, given that those moves may herald a total transformation in the landscape of learning, from college through retirement.
To put this development into perspective, it’s worth stepping back to consider how learning has already evolved in recent years before situating Amazon’s announcement within the broader opportunities and challenges facing employers.
What’s next for adult learning? Education is in the midst of digital transformation.
That this is true is no longer hotly debated. Online learning emerged over two decades ago as a technology category that enables a range of potentially disruptive business models. No longer do students need to convene at a central location to enjoy a real-time, interactive experience with a teacher and peers. They can instead participate from anywhere in the world, in a more affordable and convenient fashion.
This trend is growing rapidly in postsecondary education. Today, roughly a third of students in the United States take at least one online course as part of their accredited higher-ed experience, and over 15% study exclusively online.5 Many of these students are adults who are employed while they learn. Countless more workers take supplemental courses on platforms like Coursera, Udemy, and edX.
Indeed, online learning has led to the creation of numerous organizations and offerings that support companies’ talent development efforts. For example, Pluralsight, LinkedIn Learning (built on the acquisition of Lynda.com), Learn@Forbes, and Udacity help employers re-skill the workforce in myriad areas, often in specialized or cutting-edge fields. Startups like Guild Education and InStride allow companies to work with colleges and universities to offer learning as a benefit. Degreed has emerged to measure and help assess the learning and skills inside an organization. Coding and engineering boot camps like General Assembly and Galvanize, and other so-called last-mile education providers (many of which offer blended or fully online programs), are increasingly working directly with enterprises. And universities like Arizona State, Bellevue, Southern New Hampshire, and Ashford, as well as schools like Ultimate Medical Academy, are partnering directly with companies such as Starbucks and Walmart to offer education to employees.
The pace of innovation in corporate learning is frenetic — and highly uneven. As providers compete to serve enterprises, there is not one monolithic answer for what corporate learning will look like in the future. Just as companies have always patched together a variety of learning solutions to support their needs, they will most likely continue to do so.
But what this abundance of new approaches and players has led to is the same thing that disruptive innovation has wrought in countless other fields: far more affordable and convenient options. In the case of learning and talent development, such offerings have the potential to allow companies to make more significant investments in their greatest asset: their employees. Which companies will leverage this opportunity to improve both their bottom lines and the welfare of their people? The answer to that is not yet clear, although it will be interesting to see whether a critical mass of organizations will follow Amazon’s lead.
An interdependent solution to training. In many ways, Amazon’s announcement shouldn’t have been a surprise. The need for better-trained talent is clear in companies across the globe, and Amazon is taking a somewhat predictable path.
Amazon’s efforts resemble what we’ve seen happening in other technology arenas for decades, bearing out what Clayton Christensen calls the Theory of Interdependence and Modularity. The theory tells us that in the early years of a new paradigm, in order to succeed, product and service providers must integrate across all the unpredictable and performance-defining elements of the value chain. Think of how, in the early days of mainframe computers, IBM integrated hardware manufacturing with the design of interdependent operating systems, core memory systems, application software, and so on. IBM recognized that to thrive, it had to do much more than make machines that would play nicely with modular components created by others. It had to own the whole value chain.
We are now entering a similar moment in workforce education. The status quo that existed in the industrial economy and the early years of the knowledge economy — in which the links between companies and the educational institutions that fed them were predictable and good enough — is no longer adequate.
In the case of Amazon, the step in the value chain that’s not good enough is the education that colleges and universities provide. Because the subject matter Amazon’s employees need to know is changing rapidly and building the curricula through traditional higher-ed faculty and processes would be too cumbersome, Amazon has concluded that it will in essence take a much more active role in the education and training of 100,000 of its employees. What may be equally interesting to monitor is where Amazon goes with this development. The company was its own first customer for Amazon Web Services before opening up that offering to others. It’s not hard to imagine Amazon doing something similar for corporate learning. Will Amazon shape the future of the global workforce through its own education programs? The company’s timing, it would seem, couldn’t be better.
A focus on ROI. For corporations to invest in learning solutions in a sustainable way, there will most likely need to be a clear and compelling return on investment. As Allison Salisbury, a partner and head of innovation at education venture studio Entangled Group, has observed, companies can take at least five different angles when investing in human capital: providing on-ramp programs, upskilling, re-skilling, outskilling, and education as a benefit.6 Some of these approaches may be more sustainable than others, but each one has a distinct ROI. For instance, on-ramp programs bolster the quality and diversity of candidates for hard-to-fill roles by offering short-term training that creates a direct pipeline for employers. Outskilling programs, which are growing, help employees who don’t have a future at a company build a skill set to change careers. Companies offering such services become more desirable places to work and enhance their reputations in the labor market.
In today’s economy, where there are more job openings than there are unemployed Americans, the imperative to invest in many, if not all, of these categories is evident for employers. Companies are competing for a scarce resource: people qualified to execute mission-critical tasks. Hence the Amazons and AT&Ts of the world are announcing major half-billion-dollar-plus bets on training.7
But are these just fair-weather investments? When the economy inevitably turns south, which of these categories will companies abandon? If the past is any guide, the most vulnerable categories will be those where the returns are the least direct — areas such as outskilling, perhaps, where the immediate benefits to the company are more reputational than financial. Even upskilling will probably be at risk — despite its obvious economic upside, given the widely acknowledged skills gaps that businesses urgently need to fill — unless employers can show a clear ROI that is better than other potential investments in automation and the like, as Mike Echols, formerly the director of Bellevue University’s Human Capital Lab, has written.8
The measurement challenge. The biggest challenge for companies that want to invest sustainably and heavily in human capital may lie in figuring out what kinds of people they need. For all their apparent sophistication in data analytics, few employers have a clear sense of the underlying skills, competencies, and habits of their most successful employees — never mind their future workforces. As a result, they don’t know what to look for when they post jobs, interview candidates, and hire new employees.
A key sign of the imprecision of the hiring process is that nearly 50% of newly hired employees fail within 18 months.9 And that failure has significant costs — $15,000 on average, according to a CareerBuilder Survey.10
Why do employers struggle to understand what is important to succeed in certain positions? Partly, it’s because experts are notoriously bad at knowing what they know. According to the book How Learning Works,11 as individuals gain expertise in a particular role or field, they go through stages, from novices who don’t know what they don’t know to novices who do know what they don’t know to experts who know what they know to experts who don’t know what they know. The reason is that automating knowledge — essentially moving it into an individual’s subconscious as background information — is critical to freeing up space for the complex and creative tasks that an expert performs. As a result, though, asking top performers in a company to write a job description, for example, or to say precisely what skills are at the heart of correctly doing a job, is not as simple as it sounds, because the experts literally don’t recall. They are good at their jobs because much of their knowledge has been automated, so they aren’t able to easily articulate what skills are essential. What’s the solution to this problem?
For years, one of the most trusted ways to identify key competencies was cognitive task analysis, a process of observing and documenting the underlying activities involved in performing a job. But cognitive task analysis is relatively costly and time-consuming, so most employers don’t do it.
Herein lies an opportunity — and so a wave of providers is sweeping in to offer new ways to measure the skills of employees. Degreed, for example, has built a platform that records all the learning employees do, in an effort to understand their various learning pathways. It also offers a range of skill assessments to certify experts in various domains. LinkedIn Learning offers similar assessments, along with learning software to help people upskill, and tracks people’s self-reported skills and their connections to various jobs.
If players like these are successful in capturing the real skills at the heart of work and measuring their attainment, that could translate into more precise measurement of the return on investment in human capital. And that could, in turn, lead employers to take far better advantage of the emerging slate of disruptive tools dedicated to helping people learn in a sustainable and strategic way rather than an episodic and ad hoc way.
Education, Disrupted
Saturday, January 25, 2020
Picking winning strategies to improve healthcare productivity: An interview with Jim Weinstein
Jim Weinstein, the senior vice president for Microsoft Healthcare, discusses his perspectives on how to create a sustainable health system and how technology can help healthcare stakeholders improve productivity.
Picking winning strategies to improve healthcare productivity: An interview with Jim Weinstein
Picking winning strategies to improve healthcare productivity: An interview with Jim Weinstein
Is the consumer-goods industry ready for the new world of work?
The skills that made consumer-goods companies successful in the past won’t be good enough for the future. Companies need to start preparing for skill shifts now.
Is the consumer-goods industry ready for the new world of work?
Is the consumer-goods industry ready for the new world of work?
How ALJ—a ‘75-year-old start-up’—leads with purpose
What do Rivian electric vehicles, renewables innovation, empirical philanthropy, and a Nobel Prize have in common? A Saudi Arabian company called ALJ—and a family’s sense of purpose, say its leaders.
How ALJ—a ‘75-year-old start-up’—leads with purpose
How ALJ—a ‘75-year-old start-up’—leads with purpose
The M&A wave in chemicals: Bigger, faster, and more specialized
Long-term trends make M&A in the chemicals sector both a vehicle for growth and a play for safety.
The M&A wave in chemicals: Bigger, faster, and more specialized
The M&A wave in chemicals: Bigger, faster, and more specialized
Rethinking European automotive competitiveness: The R&D CEE opportunity
Western European auto companies could look toward Central and Eastern Europe as a strategic solution to their current challenges in their R&D functions—and to ensure their competitiveness.
Rethinking European automotive competitiveness: The R&D CEE opportunity
Rethinking European automotive competitiveness: The R&D CEE opportunity
Friday, January 24, 2020
The Best of This Week
A Four-Factor Approach for Aspiring Leaders
Professor Deborah Ancona of the MIT Sloan School of Management helped create a model that offers four capabilities that leaders must consider to build on their strengths and compensate for their weaknesses or flaws.
Appointing Women to Boards Delivers Innovation Wins
Recruiting women directors can create positive feedback loops that pave the way for future diversity and strengthen a board’s role in supporting long-term innovation and creativity.
Hey, Tech Community: Take Notes From Atlanta
The city of Atlanta is a tech powerhouse with a growing focus on AI, a robust private sector, and a community of outstanding institutions of higher education. It’s also a rare hotbed of diverse innovation, providing clues to how the technology field can diversify and welcome contributors from underrepresented groups.
Why Evolving Your Technology Systems Is Worth the Challenge
For companies across industries, every major technology choice now represents a vital business decision, and “good enough” decisions are anything but. Recent research conducted by Accenture found that in order to move from average to exceptional, CEOs and IT executives will need to begin matching their technology investments to their ambitions.
Although employees want empathy, coaching, and career advice from their managers — things that machines can’t provide — nearly two-thirds of employees surveyed would trust a robot more than their human manager, according to a recent study conducted by Oracle and Future Workplace.
What Else We’re Reading:
- The world’s most talent competitive countries in 2020
- IBM’s Mark Foster discusses what makes digital transformations succeed
- It’s time to set goals — here’s some help
Quote of the Week:
“AI is one of the most profound things we are working on as humanity; it’s more profound than fire or electricity or any of the bigger things we have worked on. It has tremendous positive sides to it, but it has real negative consequences. … As democratic countries with a shared set of values, we need to build on those values and make sure when we approach AI, we are doing it in a way that serves society.”
— Sundar Pichai, CEO of Google, interviewed at the World Economic Forum’s annual meeting in Davos, Switzerland, this week.
The Best of This Week
Thursday, January 23, 2020
Can telcos create more value by breaking up?
Once primarily a regulators’ tool, structural separation is beginning to attract growing interest from operators facing financial and market pressures.
Can telcos create more value by breaking up?
Can telcos create more value by breaking up?
On the cusp of change: North American wealth management in 2030
The North American wealth-management industry will undergo meaningful changes in the next ten years, influenced by evolving customer segments and rules of engagement, rapid technological advances, and shifting competitive dynamics.
On the cusp of change: North American wealth management in 2030
On the cusp of change: North American wealth management in 2030
Why does prosperous King County have a homelessness crisis?
A careful analysis reveals a primary driver of homelessness in Seattle and King County and a costly, multifaceted solution to the problem.
Why does prosperous King County have a homelessness crisis?
Why does prosperous King County have a homelessness crisis?
Artificial intelligence helps cut emissions and costs in cement plants
AI can help optimize energy consumption and throughput of cement kilns and mills by improving equipment productivity in view of rising environmental concerns and CO2 costs.
Artificial intelligence helps cut emissions and costs in cement plants
Artificial intelligence helps cut emissions and costs in cement plants
Climate change hazards intensifying
Increasing effects of climate change call for better systematic risk management, more adaptation and accelerated decarbonization, writes Jonathan Woetzel in China Daily.
Climate change hazards intensifying
Climate change hazards intensifying
How Leading Organizations Are Getting the Most Value From IT
Many of the most consequential investment decisions facing CEOs today are technology-related. That wasn’t the case a few years ago. But now every company is in effect a technology company, and every CEO a tech CEO. With every major technology choice representing a vital business decision, “good enough” decisions are anything but.
That’s what we are finding as we continue to analyze the technology decisions of more than 8,300 companies across 20 industries in 20 countries, in what we believe is the largest study to date of enterprise systems. This work also includes responses from nearly 900 CEOs across the globe.
Our initial comparisons found that the top 10% of these companies in terms of their levels of technology adoption, technology penetration, and organizational change are achieving levels of revenue growth that are double those of the bottom 25%, which constitute the technology laggards. These leaders also grow revenues more than 50% faster than the middle 20% of the companies we studied.
Further in-depth analysis of the data, the full results of which we released at the 50th World Economic Forum annual meeting earlier this week, indicates why: At critical stages of systems evolution, the 10% of companies that lead the way boldly choose the most challenging, but most rewarding, of the technology options typically available. In contrast, laggards fail to achieve full value from their investments in new technology because they make defensible but suboptimal decisions that inhibit their ability to share and scale technology-driven innovation across business units and processes.
Tempting Solutions Yield Mediocre Returns
Innovating at scale is difficult. Consider a decades-old media giant that operates across three continents. Rapid changes in its competitive landscape, consumer demands, and regulation have forced the company to quickly adopt new technology throughout the enterprise. Often, these technology decisions have been relegated to business unit, product, or geography heads.
This approach seems reasonable. Allowing different parts of the organization to customize and develop their own systems speeds up decision-making. Individual decisions about technology are made carefully and appear defensible. But this results in highly customized systems that are deployed in isolated pockets of the organization.
In an era of platforms that connect people with technologies and systems, this sort of approach is no longer tenable. Over time, updating and modifying such systems becomes increasingly difficult, precisely because of how customized they have become. More important, however, individually customized systems often cannot work with one another. This adds up to a large difference between potential and realized value as companies find themselves unable to scale tech innovations across their businesses.
Leaders Scale Innovation Across More Processes
In general, revenue growth increases as more processes are transformed. On average, leader companies transform 10 processes. Companies in the middle of the spectrum transform five. Laggards transform three or fewer, leading to 1.5 times lower revenue growth compared with leaders.
Meanwhile, new technologies, such as AI and cloud, have opened up new possibilities for transforming business processes of all kinds and all degrees of complexity. Laggards, however, generally choose to use new technologies on a few easily augmented processes — typically those that are customer-facing, like marketing and sales. For example, a major U.S. bank with nearly $200 billion in assets has experimented with AI chatbots in customer service but has yet to achieve any return on the investment. Similarly, a multinational enterprise software company developed a chatbot for the company’s IT help desk and customer service but nothing else.
Somewhat more ambitious companies build innovation centers and hubs to transform multiple processes. For example, one of the oldest banking and financial services companies in the world has created more than a dozen innovation centers to engage with startups and attract tech talent. Companies that build such hubs enjoy higher revenue growth than companies that don’t. But when companies build innovation centers as silos, without transforming their actual processes with technology, they lose out on 20% to 30% of the revenue that would have resulted from added synergies.
Leaders, in contrast, reimagine multiple business processes so that they can scale the same innovative technology across all of them. They not only transform IT and customer experience processes but also new product and service development, including discovery and innovation, as well as business operations and change management.
A large European airline, for instance, is using AI to predict operations, optimize sales channels, and provide automated assistance to customers. VMware, a provider of cloud computing and virtualization software and services, is using AI to improve sales and operations, in addition to using AI bots to automate more services in HR, finance, and other functions.
Leaders Sequence Technology Adoption for Paradigm Change
In our survey, we asked about the adoption of 28 different technologies. Even if we assume that a company is conservatively considering the adoption of only 10 technologies out of all new technologies available, the number of possible combinations can still run into the millions. This presents a maddening number of possibilities for sequencing adoption.
As with decisions about how many processes to target for transformation, too many companies rely on “good enough” options in the face of such unprecedented uncertainty. We found that most laggards experiment with new technologies but aren’t timing and sequencing them correctly. Middlers engage in experimentation and also double down on industry-specific, customized tech. Both options are suboptimal. Failing to sequence tech adoption in the core decreases returns from technology investments. Doubling down on industry-specific tech locks companies in, inhibiting their ability to pivot or combine technologies in the future.
Leaders invest in paradigm change and do so early. Consider the adoption of AI. Not only have more leaders adopted AI — 98% of leaders versus 42% of laggards — but they also deployed it up to three years ago, whereas most laggards deployed it only a year ago. And leaders created the systems to capitalize on AI before scaling it, first putting in place event hubs, containers, and event-driven architectures.
Or consider the timing of the decision to invest in cloud-based software as a service (SaaS). While companies on the lower end of the spectrum took a wait-and-see approach, leaders acted. Twenty percent leaped into SaaS more than five years ago, compared with 9% of middlers and 8% of laggards.
How do leader companies position themselves for success? They carefully consider the landscape of emerging technologies and identify the foundational and complementary technologies to adopt, and then they sequentially create systems that provide strategic agility and scale.
CVS Health, for example, has unified its data and technology initiatives around customer experience, building its system progressively through the cloud, application programming interfaces (APIs), and now AI and blockchain. It used an API management platform, API backbone, and global identity to connect internal systems and software with its health care partners.
To counter the challenge of conflicting data from multiple parties in the ecosystem, the company deployed blockchain technology to identify the most likely source of truth for any given point by preserving the chain of the data, the source, and the context. CVS also employs filtering technology based on AI and machine learning in order to identify and prioritize meaningful events for patients and other stakeholders.
Make the Difficult, More Rewarding Choices
CEOs are necessarily playing a much more involved role in their companies’ technology strategies. However, while 80% of the chief executives in our study said their company has the right systems in place to innovate at scale, only about 9% of those companies were actually in the leader group. To move from average to exceptional, CEOs and their IT executives will need to sort through their technology investments and identify the places where they have succumbed to the siren call of seemingly good-enough solutions, elevate their ambition, and match their actions to it.
How Leading Organizations Are Getting the Most Value From IT
Wednesday, January 22, 2020
Gender Diversity at the Board Level Can Mean Innovation Success
As the economy continues to be reshaped by changing technologies, companies keep searching for ways to better integrate innovation into their strategy. No industry is immune to this need. One way to meet the challenge: focus on gender diversity on corporate boards.
Although evidence on the relationship between gender diversity on boards and financial performance is mixed, studies suggest that gender diversity can play an important role in supporting innovative activity and organizational change. For example, companies with greater gender diversity are associated with higher R&D intensity, obtain more patents, and report higher levels of overall innovation (particularly when there is a critical mass of women directors). This pattern is also reflected in external accolades; companies recognized as innovators have more women directors.
Our research on director recruitment patterns in over 60 countries found that initial investment in recruiting women directors creates positive feedback loops that pave the way for boards’ future diversity and capacity for supporting long-term innovation and creativity. We offer here a variety of suggestions for addressing the gender imbalance on corporate boards.
Gender Diversity on Boards Across the Globe
Despite the purported benefits of greater board diversity, women hold just 17% of board directorships in global companies in the MSCI ASWI Index, and 21% of board seats in the S&P 500. While the proportion of women directors is increasing, women remain the minority on most boards.
To better understand how boards might foster innovation by increasing director diversity, we conducted a global survey (in partnership with WomenCorporateDirectors Foundation, Spencer Stuart, and independent researcher Deborah Bell) that asked 5,000 board directors about their boards’ priorities, demographics, and recruitment patterns.
We found that directors on boards with greater gender diversity were more likely to prioritize innovation and technology. Our survey showed that 32% of directors on boards that included at least three women rated innovation as one of the top three strategic challenges companies face, versus 26% of directors on boards with no women. Women directors were also more likely than men to rate technology as one of the top three most important expertise areas for board service (17% versus 14%).
Addressing gender imbalance on boards can prepare companies for innovation challenges. Finding effective solutions to increase gender diversity on boards means first understanding the origin of the issue — director recruitment. Our survey offers insights on the extent of the gender imbalance in director recruitment, why this imbalance persists, and what boards can do about it.
Gender Imbalance in Director Recruitment
We examined how many candidates were considered for boards’ most recent vacancies for each nonexecutive board seat. Among our survey respondents, the average number of candidates ranged from 1.9 in Japan, 3.4 in the United States, 4.7 in Germany, and up to 5.3 in Australia. The proportion of those candidates who were women also varied: from 22% in Japan to 39% in Australia.
In Japan, 74% of respondents reported considering no women candidates for their most recent open board seat, while 54% of respondents from Australia reported considering at least two women candidates for their most recent opening.
A first step toward diversity for many boards is to simply consider a larger number of candidates for each director search. (Nearly a third — 31% — of U.S. boards in our sample considered just a single candidate in their most recent search.)
Imbalance Is Especially Stark in Private Companies
While publicly traded companies face pressure from investors and proxy advisory firms, as well as scrutiny from advocacy groups, to increase gender diversity on boards, privately owned companies often slip under the radar. Compared with publicly traded companies in the U.S., private companies in our sample considered fewer candidates overall and a smaller proportion of women candidates to fill board seats (26% of candidates in private companies versus 31% of candidates in public companies). Still, 55% of private companies and 40% of public companies did not consider any women candidates at all when filling their most recent vacancy.
In the absence of quotas and external pressures that can catalyze director change and renewal, boards can consider adopting policies like tenure limits to ensure continual refreshment. They should be cognizant, however, of preserving the valuable knowledge held by longtime board members.
Gender Segregation in Recruiting Networks Reinforces Imbalance
Our survey indicates that men are typically better connected to the boards they join. For example, 31% of men appointed to boards, compared with 23% of women, knew the CEO prior to being appointed. Meanwhile, women were more likely to have joined the board through an executive search firm (36% of women directors versus 30% of men). As one director reported, “Men can do it through [their] network, [but] women need to prove ability through qualifications or experience.”
Perhaps the impact of networking isn’t surprising, given that women are underrepresented in executive management roles and that networks tend to fall along gender lines. We asked directors how many individuals in their networks were qualified to serve as directors and how many of those individuals were women. On average, women directors reported knowing 7.6 qualified women candidates, while men directors reported knowing 2.3 qualified women candidates.
Interestingly, women directors also reported spending more time developing their networks than men did (9.8 hours per week versus 8.8 hours per week, respectively). In the words of one director, “The path [to a board directorship] for a woman requires more work, because business networks at the board level are less available to women.”
Because women are more likely to have connections to qualified women candidates, boards without any women directors could be inclined to feel that few qualified women candidates are out there. Boards can expand their pool of candidates by partnering with membership organizations for women, connecting with professional and trade associations, consulting women colleagues for referrals or recommendations, and retaining an executive search firm, among other options.
Recruiting Women Directors Creates a Diversity Feedback Loop
The effects of homogenous or diverse networks manifest in boards’ recruitment patterns. Among U.S. public boards in our sample, those with more women directors tended to consider both a larger pool of candidates and a higher proportion of women candidates when filling vacancies. As the proportion of women directors already on the board increased, so did the number of women candidates on the short list.
At the other end of the distribution, boards without any women directors did not appear to be making targeted efforts to increase gender diversity. Among these, 81% failed to consider a single women candidate for their most recent board vacancy (compared with only 21% of boards with at least three women directors). Just 2% of all-male boards considered two or more women candidates for their last vacant seat (compared with 46% of boards with at least three women directors).
As one director said, “The process of attempting to join a board is not different for women and men, but the outcomes are different because of unconscious as well as conscious bias. In most cases, the desire to maintain the status quo in terms of board culture creates barriers for women.” Cultural inertia tends to impede male-dominated boards’ consideration of women candidates.
Focus on Concrete Solutions
To gauge sentiments in the boardroom toward increasing gender diversity, we asked a subset of directors to give the primary reason the proportion of women on their boards was not increasing. Among male directors, 35% cited a relative lack of access or contacts among qualified women to those with decision-making power on boards, and 26% cited a lack of qualified female candidates.
We asked women directors the same question. The most common reason (45%) they cited: Diversity was not a top priority in board recruiting.
Although men and women diverged in their explanations for the gender imbalance on boards, few believed boards were satisfied with their current level of director diversity. Rather than falling back on these explanations as excuses, boards should focus their attention on finding concrete solutions to the gender imbalance. One easy process adjustment: adopt a more proactive approach to board recruitment. Stay on the lookout for promising candidates, whether or not there is a current vacancy on the board.
The Path Forward
Prominent companies like Twitter and WeWork have faced fierce backlash for a lack of gender diversity on their boards ahead of initial public offerings. Even in the absence of public scrutiny, boards that don’t take gender diversity seriously may find themselves at a disadvantage in the face of ever-evolving technologies.
Boards looking to diversify their ranks and lay the foundation for innovation can start by recognizing the potential benefits of increasing board diversity and scrutinizing how they recruit new directors. Boards can adopt a more deliberate and purposeful recruitment process by considering a larger number of candidates and searching outside their usual networks. They can also periodically review the mix of skills and perspectives represented by their membership and address areas of weakness by targeting and recruiting individuals who fill those gaps.
It can be challenging for boards to take the first step toward increasing gender diversity, but early investments in recruiting women directors can have positive feedback effects. Efforts to increase gender diversity can promote boards’ capacity for supporting innovation and creativity in the long term.
Gender Diversity at the Board Level Can Mean Innovation Success
Tuesday, January 21, 2020
Join Our Twitter Chat: Communicating Digitally and Visually
Whether it’s because you work on a geographically dispersed team, you serve customers with increasingly high demands, you’re too busy to have regular check-ins with your boss or direct reports, or a host of other reasons, you find communication at work challenging. Given the solutions available to facilitate the fast-paced virtual collaboration demanded in many of today’s work environments, and a growing expectation that employees should be fluent in data visualization tools, the team at MIT Sloan Management Review would like to better understand how digital and visual communication work for you.
We hope you’ll join us Tuesday, Jan. 28, to discuss the challenges and opportunities you face communicating and collaborating inside your organization.
To participate, head over to MIT Sloan Management Review’s Twitter feed at the chat start time or search Twitter for the hashtag “#MITSMRChat” to follow along.
Add this event to your Outlook or iCal calendar.
Questions we’ll discuss include the following:
- What communication challenges does your company have?
- Does your organization use visual communication tools, like dashboards, to share important information? What kinds of information?
- Are visual communication skills important for your business? Why or why not?
- Are there specific topics your organization has trouble communicating about?
- What best practices would you offer for effective communication and collaboration?
In advance of this chat, consider reading the following content from MIT SMR:
Choose Charts Everyone Understands
Communication expert Nancy Duarte groups charts into two categories: those used to explain and those used to explore.
It’s Time to Tackle Your Team’s Undiscussables
Review the checklist proposed by IMD professor Ginka Toegel and researcher Jean-Louis Barsoux to diagnose areas of conflict on your team at work.
Why Your Company Needs More Collaboration
MIT SMR executive editor David Kiron looks at how companies focused on digital strategy approach collaboration.
Join Our Twitter Chat: Communicating Digitally and Visually
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