The seven distinctive features of future-fit organisations

 

 

 

Today, many organisations are seeking to make themselves future-fit. Our organisation Bendelta is sometimes engaged to assist organisations with this journey. (Indeed, in November 2019, we won the Australian Workplace Award for Organisational Change for exactly such an achievement.) However, the question of what constitutes a ‘future-fit organisation’ is much less clear.

The term ‘future-fit’ must be placed in context. It is most relevant at times such as these, when the whole world is moving from one paradigm to another – in this case, what is sometimes caused a change from the third Industrial Revolution to the fourth (Schwab, 2016).

The important thing to understand about Industrial Revolutions (or many other major societal changes driven by technology) is that the societal change is exponentially greater than the technological change itself. For example:

  • When Edmund Cartwright developed the power loom in 1784 (often regarded as the iconic event signalling the first Industrial Revolution), this did far more than speed up weaving. It changed the nature of work, the worker and the workplace. Weaving changed from something done primarily by men, in a cottage in the countryside, working solo but supported by their family, to something done primarily by women and children, in a factory in a city, surrounded by hundreds of strangers. It also changed the industrial framework, as the job losses for handweavers and abuses of worker rights led to the creation of trade unions and child labour laws.
  • When Henry Ford applied the assembly line to complex manufacturing for the first time in 1913, with conveyer belts and gravity wells, assembly time dropped from 12.5 hours to 93 minutes and the same factory that produced 100 cars per day now made 1000 vehicles in the same time. As massive as this shift was, this was nothing compared to what happened to the world of work in the second Industrial Revolution.

The five-dollar workday and the five-day working week were instigated to compensate for the monotonous work. The theory of Scientific Management was created, leading to the rise of the corporation as we know it today. The dramatic drop in price of a Model T from $850 to $260 democratised the automobile and empowered an entire society.

  • As most of us have lived through the third Industrial Revolution, we are familiar with how it has reshaped both work and society. In 1968, the world’s first programmable logic controller, the Modicon 084 was created, replacing hard-wired relay systems with electronic computing power. Eventually, this led to world in which many people had a supercomputer in their mobile phone and information became globally and instantaneously available. In business, it shrank manufacturing in the developed world and vastly increased the proportion of knowledge workers.

So, what does it mean in the fourth Industrial Revolution – the era of cyber-physical systems, artificial intelligence and machine learning? Specifically, how do organisations that are well-equipped for this world operate differently from the rest?

While different frameworks exist, the broad differences can be summarised in seven themes. While these themes are best plotted as shifts on a continuum, rather than as binary distinctions, showing the contrasts is helpful to understanding where your organisation is at and where it may be most important to evolve. In many if not all cases, the ‘from’ state may seem eminently sensible – and so it should, as for the last century or more, it has been. However, as the techno-economic structure of society shifts, so too does the most beneficial type of organisational design.

For for-profit organisations, the path to success for many decades has been to own the supply, that is, to produce/distribute a high proportion of a given market’s goods or services. This has been true for anything from razor blades or baked beans to insurance policies or legal advice. In a world with high barriers to entry (including jurisdictional boundaries), this is a path to success. Today, however, that assured strategy no longer works. Indeed, most of the global success stories of the last five years – think AirBnB, Uber, Amazon, Google or AliBaba – have been by organisations that have no supply-side dominance. Indeed, many of them neither produce nor own any of the goods or services they sell. What they do instead is provide a platform which gives customers (and sellers too, in some cases) frictionless access to what they want or need to buy.

In the same way that some decades ago, better supply chain management helped Wal-Mart jump ahead of other retailers through higher productivity, the move from supply-led to demand-led has created an economic efficiency. Think of how the ride-share experience has trumped the traditional taxi industry on almost every front – more options, more transparent and more fair.

While this has revolutionalised the private sector, it also applies to the public and not-for-profit sectors. For government agencies, the reality is that today’s citizens are far more informed and connected than ever before. These citizens have a frequent experience of Amazon or AirBnB and naturally they expect it in all domains of their life, including the provision of government services.

What a future-fit organisation does is continually ask itself how, often through technology, it can provide customers with a nexus (not just a product) and provide the most seamless way to meet their needs. It also asks itself how it can get as close to the customer as possible, so that it can be as sensitive as possible to the customer’s context.

This is a classic example where a traditional model sounds eminently sensible. Why would a company not be financially driven?

It sounds paradoxical, but multiple studies have shown that purpose-driven organisations out-perform profit-driven organisations on profit. An example is shown below:

Source: EY and Harvard Business Review, Purpose-Led Transformation, 2016. Forbes, Why purpose should be a pivotal part of your strategy, 2017

The reason for such an incredible impact is the purpose produces a powerful amalgam of intrinsic and extrinsic motivation. It links to our desires for meaning, connection and contribution.

Again, while this may sound most relevant for private-sector companies, it is important for all organisations. Even charities can suffer from not being sufficiently explicit about how purpose drives what they do.

What a future-fit organisation does is start with purpose. This is not about having a purpose statement (although this can be a useful device) but rather about making purpose the DNA of the organisation, from long-term strategy to daily operational decision-making.

With the rise of scientific management came a focus on the description, monitoring and analysis of activities. While scientific management is largely behind us, the activity-based view has persisted.

Such a view is almost Marxist – attributing worth to the labour inputs, rather than to the outcomes achieved. Economic theory evolved from this almost a century ago – recognising that it is value, rather than activity that matters.

Perhaps no company does this better than Apple. They make only 18% of the world’s smartphones yet gain 86% of the global smartphone profit pool. Nobody asks how much the iPhone cost to manufacture – they pay a large price-tag because of the value they believe the device delivers.

Apple

  • Sells only 18% of the units of smartphones in the world
  • But gains 51% of the global smartphone revenue
  • And receives 86% of the global profits for smartphones!

What a future-fit organisation does is start with the question of how best to create, deliver and capture value. Then they align the activities to match.

The first three shifts speak to the life-blood of the organisation – why they exist and how they win. The remaining four shifts are about how the organisation is configured to make that a reality. It’s important to understand this causal flow – the remaining shifts aren’t happenstance, but rather are evolving to better enable organisations succeed in a different environment from that of the past.

Perhaps the most iconic symbol of the corporate era is the hierarchy – forever depicted as a set of boxes and reporting lines. Hierarchy has been venerated as a source of efficiency, achieved by the vesting of authority.

Yet once again, we find that future-fit organisations have taken a different path. While they may not have eschewed hierarchy in its entirety, they have flattened their organisations.

For example, Spotify’s core organisational unit is an autonomous squad of no more than eight people. Each squad is accountable for a discrete aspect of the product, which it owns cradle to grave. Squads have the authority to decide what to build, how to build it, and with whom to work to make the product interoperable.

As another example, Zappos uses ‘circles’ which people can apply to join, in addition to their normal role, through a ‘Role Martketplace’. There are dedicated circles for hiring, firing and raises. Rather than going through your direct boss
for compensation, you go up in front of a circle of individuals.

While hierarchy has its place, it’s instructive to note that both the internet and our brain – two very successful entitiesindeed – are networks not hierarchies.

 

 

 

 

The key difference between these team-based or network-based approaches and traditional hierarchies is that their fuel is not authority, but rather volunteerism. It’s also more fast-paced and adaptable, which takes us to the next shift.

Another practice perfected over the last century has been planning – whether for the creation of a new product or for the rollout of a major initiative. The idea was to map out everything from the outset, including a precise scope of the final features.

Then software programmers discovered it didn’t work. Analysis revealed a ‘cone of uncertainty’ where initial estimates could often be out by a factor of four in either direction.

This led to the Agile movement, where the model was flipped so that time and cost would be fixed but the features could evolve. It also emphasised rapid prototyping and iterative improvements.

This worked so well that organisations started to wonder if the values and principles of Agile could be applied more broadly. Today, approaches that are Agile, or simply ‘agile’, have been found to deliver numerous benefits in a wide variety of settings, as studies such as the below depict.

Source: McKinsey & Company

What a future-fit organisation does, whether it employs Agile in its formal sense or simply embraces its core principles, is address the uncertainties inherent in the problem it’s trying to solve, rather than pretend they don’t exist.

Along with the hierarchy and the structured approach, a core element of the traditional corporate model has been the role of the manager. Frameworks spoke to the primary responsibilities of the manager as including organising, controlling and directing. By definition, anyone who wasn’t a manager was organised, controlled and directed by them.

Implicit in this view was the notion that managers needed to motivate their people, who otherwise might not be as productive as desired. All of this underplays the role of intrinsic motivation – the possibility that people might be highly productive through their sheer love of the work.

Over the last twenty years or so, Self-Determination Theory has identified five key drivers of ‘self-determined motivation’: autonomy, mastery, stretch, connection to purpose and connection to people. Of all of these, autonomy – the felt sense of sovereignty in one’s decision-making – has been shown to be the most powerful. The positive impact of such elements for employees has been shown repeatedly in studies such as those below.

Because of changes to the nature of work, achieving self-determined motivation has become much more possible for a much greater proportion of the workforce. Because of automation, fewer people find themselves standing in one spot at an assembly line or calculating tables of numbers.

In future-fit organisations, managers focus much less on organising, controlling and directing, and much more on helping their people experience autonomy, mastery, stretch, connection to purpose and connection to people. This is seen in its most powerful form when everyone participates in processes where they feel that they are co-owners and co-authors of the organisation’s future.

Through the relative stability of the last century, decision-making has often been based on precedent. This typically manifests as either ‘let’s do what we did last time’ or ‘let’s do what my manager recommends [typically based on worked for him/her last time]’.

While experience can be a good teacher, such an approach can be flawed in contemporary times for two reasons:

  • Firstly, because as a new Industrial Revolution commences, the discontinuities mean that what worked well last time might not work well this time. Precedent-based decision-making would never have created Tesla or Uber
  • Secondly, the reliance on one person’s views massively increases the likelihood of a bad decision, because of the exposure to that individual’s unconscious cognitive biases, regardless of their intelligence.

For a decision that is more likely to be both robust and co-owned, it is far better to draw inclusively from diverse perspectives. Below is just one example of studies showing the positive impact of diverse teams on decision-making.

In the case of the most significant decisions, this inclusiveness may draw not only on a breadth of employees, but also customers and other stakeholders. That does not mean that the decision should be a vote or a popularity contest, but it does mean that assumptions should be challenged and multiple perspectives should be combined.

What a future-fit organisation does is embrace the power of diverse perspectives and, especially when making novel decisions, take steps to ensure that the drawbacks of precedent-based thinking are challenged.

A new age requires a new organisational model. That was true of the first, second and third industrial revolutions, and is already proving to be true for the fourth.

We have the good fortune to be able to see examples of future-fit organisations that are being wildly successful. Based on the seven distinctive features described above, we see that future-fit organisations are distinguished from the rest of the field by three main areas of difference: a different choice of success drivers; a different organisational model; and, to make it all work, different imperatives for leaders.

If you are leading your organisation to become
future-fit, what can you (and all your fellow leaders) do? You can focus on doing the following:

  • Foster swift moves from current technologies to emerging technologies that enable greater value creation (e.g. AI, automation, machine learning)
  • Foster rapid and effective collaboration and joined-up responses, and eliminate antagonism, hierarchy and competition between different business areas and levels, so that everyone can focus fully on collaborating on creating value
    • Make it frictionless for brilliant ideas from the coalface to make it through to practical implementation
    • Enable employees to feel the strongest sense
      of autonomy, mastery, growth, purpose and connectedness
    • Invest deeply in developing people’s full potential, using the best possible methods to rapidly and durably build much higher personal capability.

While the proportion of organisations that are truly future-fit may be low and the understanding of what future-fit means may be patchy, the good news is that such organisations exist and their success factors are not a secret. We can learn from such pioneers if we are willing to accept that traditional models may no longer be best for a changing environment.

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