Bill Fischer: Can we rely on knowledge or do we need learning in a crisis?

After a hundred years, we are once again fighting a global viral war that is seemingly everywhere and ever voracious. As with the Spanish Flu pandemic, once again we’ve been found wanting in our response, and deficient in our leadership. What’s worked, social distancing and hand-washing, were relatively simple techniques born decades ago. Where we have failed has been in simple leadership skills such as inspiration, vision, curiosity, inclusiveness and imagination. In the worst situations, formal leaders have proved unaware, failed to listen to advice, lacked confidence and decisiveness, and all too often abdicated their leadership roles. This was not leadership at its finest, and we have paid a heavy price in unnecessary lives lost and impact on all our lives. What is even more alarming is that covid-19 is not likely to be the last of the potentially catastrophic challenges that we will face over the next few decades. It is clearly a wake-up call to reassess leadership from top to bottom.

Drucker Forum 2020

This article is one in the “shape the debate” series relating to the fully digital 12th Global Peter Drucker Forum, under the theme “Leadership Everywhere” on October 28, 29 & 30, 2020.
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Interrelated themes

Two key interrelated themes run through the current Covid-19 crisis that must be addressed if leadership is to have credibility in the future. The first is recognizing that learning is more important than knowing. The reservoir of knowledge, so often taken for granted, is actually contextually-dependent, and perishable in crisis situations. The second theme is that innovation, change in general, is a profoundly social phenomenon. Technologies are not enough. It is people who need to be inspired to participate in the often inconvenient struggle against catastrophic environmental challenges.

Learning, not knowing

In a crisis, learning becomes more important than knowing, particularly because what we know may have lost its relevance as a result of the crisis.

Openness, an awareness of new ideas, and a willingness to quickly experiment with them, is something that Peter Drucker recognized in his work on The Effective Executive, when he reminded us that we are all “knowledge workers” and are expected to replenish the working knowledge capital of our organizations as effectively as we managed traditional working capital. Scalable learning is to crises as scalable efficiencies were to profit-harvesting in mature, slow-moving industries. Only scalable learning is much faster in cadence and does not have the benefit of an established learning infrastructure as is in most large, complex organizations.

Learning is social

Making all of this work remains an intensely social phenomenon. Small, autonomous, fast-moving teams, close to the action appears to be the organizational form most appropriate for the improvised choices that are so often necessary. But this only works if leadership roles are shared from the top. Emergence will replace directedness in shaping the organizational structure, and Strategy will fade in importance. Both will defer to tactics which are faster moving and more experimental. We also envision organizational boundaries blurring and ecosystems flourishing in the pursuit of collaborative learning. All of these things are vital to effective responses in the unknown, but all of these require a rethinking of conventional leadership practices.

About the Author:
Bill Fischer is Professor of Innovation Management, at IMD, Lausanne, Switzerland.

This article is one in the “shape the debate” series relating to the fully digital 12th Global Peter Drucker Forum, under the theme “Leadership Everywhere” on October 28, 29 & 30, 2020.
#DruckerForum

In the first blog we discussed where we might find ecosystems and the issues of leading in this type of environment. Now we show examples and explore challenges in new ways of thinking.

Putting Darwin in the Strategists’ Seat

Management currently means to lead and direct, and strategy is choosing the direction. But in ecosystems, where diverse members tend to have value-objectives that are different to one another, any effort at organization, much less direction, alarms the community. Ecosystems work best when they maximize chance idea-collisions based upon first-hand knowledge of market dynamics, and where both entities might come out better off as a result. Any suspicion that one partner is trying to control such interactions almost immediately destroys the trust that is key to such co-creation.

Drucker Forum 2019

This article is one in the “shape the debate” series relating to the 11th Global Peter Drucker Forum, under the theme “The Power of Ecosystems” taking place on November 21 & 22, 2019 in Vienna, Austria.
#GPDF19 #ecosystems

Haier expects its employees to be entrepreneurs and has made it easy for them to start-up new ventures, launching many new bets into an unknown future. By requiring employees fund most or all of the venture, Haier has done this at a relatively low risk. These bets raise Haier’s chances to be in the right future places, at the right time, because they are placing many bets and allowing market receptivity to replace strategic direction. The result is that Haier is now venturing into areas of clothes cleaning, such as shoes and exotic fibers, never thought of before, but which represent attractive new laundering opportunities.

Reliance on chance is the very anthesis of strategic decision-making, yet it is eminently suitable when there is little good logic or data on which to base strategies. There is little integrity in such strategies where the future is unknown, and small bets represent a useful way to explore the future, while reducing risks. However this takes control out of leadership’s hands at the very moment when stakeholders look more to leadership, making ecosystems a difficult sell.

Innovating Organizational Platforms

Placing many bets works only if the rest of the organization is able to respond. Platforms are needed for this; organizational bridges between the chaotic world of the external ecosystem, and the regulated internal world within a large organization. Haier is building such platforms around common market affinities; there are platforms for: Biomedical endeavors, Laundering, Food, the Smart Home and others. These platforms share lessons-learned, coordinate solution- and experience-creating activities of disparate free-wheeling microenterprises and provide a selection of shared services, such as branding, legal, HR, etc. They are the enablers of ecosystem participation, and deserve more attention than they currently receive. Without platforms, microenterprises might be unable to execute the new ideas that they are exposed to.

The challenge of moving from emphasizing holding to sharing power

Earlier, when the linearity of value chains was considered an advantage, there was a belief that governance was important if they were to achieve maximum potential.

Power was often the privilege of the largest organizations, but if novelty is prized over reliability, any form of centrality is suspect as a distorting field. How can we argue that legacy assets endows the holder with increased insight in a completely different future? In addition, there is an inherent “what’s in it for us?” question that needs to be addressed in any ecosystem invitation, if it is to be successful in unleashing co-creation.

The Journey Still To Come

Ecosystems will undoubtedly play a bigger role in the continuing growth j of most firms, not because they wish it, but because they will need access to assets and capabilities that are not presently available to them. The real reason for developing ecosystem engagement is to unleash creativity that has for too long been constrained by a traditional linear view. Because of their unpredictability and their spontaneity, ecosystems offer a greater idea yield from the assembled brains than traditional approaches. This journey is not for the faint-hearted. Rather than building portfolios, the challenge is to abjure a reliance on strategy and power, and to, instead, invite others to come onto your organizational platforms and contribute their dreams, all of which requires a willingness to lose traditional managerial control.

About the authors:

Bill Fischer is Professor of Innovation Management, at IMD business school. He coauthored the book “Reinventing Giants” which describes Haier’s évolution as an innovative organization and he and Simone Cicero have been working with Haier developing the story of  Haier’s emergence as an ecosystem participant. He was inducted into the Thinkers50 Hall of Fame in 2019.

Simone Cicero is a designer and facilitator, speaker and entrepreneur, with a special focus on open business models, both in software and in hardware.
Simone created the first completely open source methodology for the design of Platforms and Ecosystems, The Platform Design Toolkit, that has contributed a new design domain emerging.

This article is one in the Drucker Forum “shape the debate” series relating to the 11th Global Peter Drucker Forum, under the theme “The Power of Ecosystems”, taking place on November 21-22, 2019 in Vienna, Austria #GPDF19 #ecosystems

Value-chains have been a mainstay of organizational strategy; they are designed for reliability, and a well-run value-chain will inevitably reduce operational surprise, but they are also linear and therefore slow and limited in how they respond to a fast changing environment. Ecosystems however, with many possible partners self-defining how they might interact, are better suited for novelty than for routine, and can be perfect when new ideas or experimentation are required.

Drucker Forum 2019

This article is one in the “shape the debate” series relating to the 11th Global Peter Drucker Forum, under the theme “The Power of Ecosystems” taking place on November 21 & 22, 2019 in Vienna, Austria.
#GPDF19 #ecosystems

As we move into a future characterized by hyper-connectivity, there will be an unprecedented opportunity for the sorts of innovative spontaneity that ecosystems excel at to become a competitive differentiator; but they need leadership to think differently regarding strategy and organizational boundaries.

Our work with ecosystem pioneers offers guidance to those managers who will face these choices in the near future, and we highlight some especially intriguing scenarios.

Ecosystems are not new in organizational discussions. The richness of their randomness in promoting sustained vitality in biological communities is well-established, and their possible application to economic activity might provide new forms of expertise in the face of ever-demanding customer expectations, without adding to the balance sheet.

Ecosystem potential is often hiding in plain sight

Many of the ecosystems we are working with were already in place, without being recognized for the potential that they offered to generate ideas. The traditional process-linearity and role-sequentiality of value-chain thinking acts as a limiting factor in envisioning possible sorts of partnering.

One European tier three commodity supplier for the automobile industry has told us that they are stereotyped by the efficiency with which they play their current role. There is no thought given to what they could add in customer experience innovation, and the invitation to redefine their role never comes. This is a testimony to limited imaginations without tangible evidence of ecosystem possibility. But In Copenhagen, concern over a lack of software design talent was the catalyst that led to public recognition of an already existing, but latent, local ecosystem that was already exceling. Once recognized, it was much easier for stakeholders to invest in its future development, but the recognition was the essential first step. Leadership imagination is an essential ingredient in such situations, but former head of GE’s business innovations, Beth Comstock, has argued recently that that the ability to “imagine forward” is not as abundant as we might have hoped.

We see ecosystems in nature but our leadership imagination does not inherently make the leap to business as they require a light touch on the strategy wheel allowing generosity in the way in which that value is distributed among partners.

In our next blog, we explore the challenges this produces for existing management thinking, and how that might be changed.

About the authors:

Bill Fischer is Professor of Innovation Management, at IMD business school. He coauthored the book “Reinventing Giants” which describes Haier’s évolution as an innovative organization and he and Simone Cicero have been working with Haier developing the story of  Haier’s emergence as an ecosystem participant. He was inducted into the Thinkers50 Hall of Fame in 2019.

Simone Cicero is a designer and facilitator, speaker and entrepreneur, with a special focus on open business models, both in software and in hardware.
Simone created the first completely open source methodology for the design of Platforms and Ecosystems, The Platform Design Toolkit, that has contributed a new design domain emerging.

This article is one in the Drucker Forum “shape the debate” series relating to the 11th Global Peter Drucker Forum, under the theme “The Power of Ecosystems”, taking place on November 21-22, 2019 in Vienna, Austria #GPDF19 #ecosystems

For some industries in the West, this question will appear somewhat ridiculous. The American textile and apparel industries, for example, will tell you that the evidence is found in the blood on the floor – their blood, on what used to be their floor. Similarly, American and European metals industries and wind-turbine and solar panel producers will echo that. But despite all the pain that they have experienced, they are wrong. Far from being disruptive, in these industries, Chinese players have done little that has been different from the practices that they found when they entered them.  What the Chinese competitors did was merely to lower costs and lower prices, benefitting from the so-called “China price.” They were “displacers”, not “disrupters.”  Is it realistic to assume that this will continue to be the pattern for the future?

The difference between displacement – outperforming existing market incumbents at their own game, and disruption – changing the game, is a strategically important one, no matter that the pain felt might be similar. There is good reason to believe that, to date, China has been more of a displacer than a disrupter. That should be good news for Western interests because displacement can be combatted in various well-known ways including process improvements and government trade actions.  Moreover, cost advantages tend to be temporary sources of competitiveness.  Actual disruption, on the other hand, is a much more profound challenge, and one that calls for a real transformation of the challenged incumbent firms; something, as the Chinese and we have found out, that is considerably harder to achieve.

The catch is that most of our ideas of innovation are technology based, but what if we rethought these impressions by broadening our definition of “innovation” to that of “offerings”, or, better yet “customer experience”? Then, China’s innovative potential shifts significantly. Xiaomi’s phones, which are technically not disruptive, suddenly become vehicles for changing the cadence of relating to customers, as they come to appreciate Xiaomi’s weekly updating of its OS; this type of sustained behavior can be highly disruptive! Haier’s organizational reinventions allowed it to accelerate the time to market for its Tianzun advanced household heater/air conditioner/air purifier; again, a potentially disruptive advantage in what is otherwise a slow-moving industry. All of these are real innovations, despite not being technical, and all of them speak to disrupting business as usual, rather than a mere lower cost model.  In fact, it is possible to interpret the departure of BMW’s core electric-vehicle design team, along with that of two Tesla executives, to Future Mobility Company, as talent looking for a chance ignite a critical disruption in the EV industry. Such is the attraction of the sort of business model disruption we are sensing in China today.

What is so ironic about the current situation regarding China’s innovation trajectory is that we in the West have for so long prided ourselves on our business acumen and customer centricity, while stereotyping Chinese competition as being simply “low cost.” As a result, our technology focus when we speak about innovation consigns China to the less intimidating role of displacer rather than a disruptor. But, if we recognize innovation as being more about things such as customer experience and less about technology, then China’s challenge becomes considerably more disruptive than we have previously given it credit for, making China a much more formidable competitor in the future.

At a recent conference on “China’s Role in the Global Innovation System,” at Duke Kunshan University,  we saw some early glances at China’s disruptive possibility, punctuated by BGI’s [formerly Bejing Genomics Institute]  President Mr Wang Jian,  who claimed that the genomic research powerhouse is truly a “rule-breaker,”.  Similarly, sophisticated M&A and incubator activities by established players from both the public and private sectors all attest to a quickening of the pace of China’s innovation.

However, disruption may not yet be the norm, and innovation may not be the break-out source of economic growth that many envision for China in the immediate future. The major barrier to be overcome is more likely entrepreneurial rather than technical. Chinese entrepreneurs, whom we spoke with, presented a picture of their innovation scene that appeared to be anything but disruptive.  Was entrepreneurial innovation happening in China? Yes! Without a doubt, there was tremendous innovative activity taking place! But, Chinese entrepreneurs, we were told, were too short-term oriented to create truly disruptive change; and the country’s cumbersome state-owned enterprises were too slow.  Some even stated that China’s insistence on domestic standards was resulting in less ambitious innovation; the education system was not supporting appropriate talent development, and there was a general lack of trust throughout the innovation ecosphere. All in all, the impression was far less disruptive than the popular press, Western or Chinese, has been portraying. China was still accelerating through innovation most often along an existing S-curve in nearly every case, not creating new ones.

What we also heard were sentiments such as “China’s core innovation strength remains dependent upon manufacturing-based activities, or where the quest for short-term profits prevailed there was no meaningful innovation.”  It was admitted that “made for China,” rather than “made for the world,” was often easier, cheaper & more profitable than pursuing truly disruptive changes. We were told that returning young Chinese scientists also avoided new challenges, preferring, instead, to  “continue their advisor’s work.”

In fact, despite the really disruptive accomplishments of BGI, the overarching message from most experiences were best captured by entrepreneurial drone-maker Ehang’s Derick Xiong, who sheepishly admitted that: “I worry that most Chinese firms are not doing real R&D.  They are only doing application. It is possible that in 10-15 years, China could once again be well behind.”

There is no surprise here. In almost every industry, China’s innovation has been along existing S-curves rather than creating new ones; displacement much more than disruption, as long as the S-curves are seen as technology trajectories, as is traditionally the case.  Nonetheless, there are enough suggestions of business model disruption appearing on the China scene that it is highly conceivable that we soon might be entering a period of two-speed change: continued displacement by ever more competitive Chinese firms, and occasional disruptive business model innovation appearing in less familiar sectors of the Chinese economy, powered by emerging entrepreneurs.   These emerging formulas for disruptive success are not easily identifiable, though it is evident they will more likely be the product of significant firm-level behavioral discontinuities than evolving out of the prevailing status quo in the bulk of China’s industries.

[This is a longer version of the blog that appeared in HBR]

About the authors:

Bill Fischer is Professor of Innovation Management at IMD, Lausanne, Switzerland. He is the former Executive President and Dean of the China-Europe International Business School (CEIBS) in Shanghai, and a co-author of Reinventing Giants, a study of business model and organizational culture reinvention at Haier.

Denis Simon is Executive Vice Chancellor of Duke Kunshan University.  He is the co-author (with Cong CAO）of China’s Emerging Technological Edge, which looks at the supply, demand and utilization of high end talent in China

Far-fetched, you think? Well, in fact, the what if is no longer speculative; it is here already. Talk to people in such professional service industries as: private banking, auditing, consulting, even engineering, and you begin to hear concerns about the commoditization of professional knowledge. A consulting civil engineer [the field in which I was first educated, and still find so deliciously complex] admitted to me that much of what you need to know in that field is on line, and that their corporate clients were a new breed who didn’t so much want what he and his colleagues already knew (since that was easily available), as what they didn’t know. Increasingly, tax preparation is being automated, and even auditing is going the way of algorithmic review and big data “sweeps” instead of sampling. Artificial intelligence is writing content that you reading [not this!], and Jancis Robinson, the wine expert and writer, recently wrote that she has “gone from being a unique provider of information to having to fight for attention.” Increasingly, expertise, and the role of “the expert” is losing the respect that for years had earned it premiums in any market where uncertainty was present and complex knowledge valued. Along with it, we are shedding our reverence for “expert evaluation,” resigning our regard for our Michelin guides and casting our lot with the peer-generated TripAdvisors and Yelps of the world.

In fact, as if in a perfect storm, not only is the character of expertise changing, but at the same time, new client needs, and new clients, are emerging and the potential for new delivery of expertise content is also changing in fundamental ways. Firms are fearful of being vulnerable to an unknown [not uncertain] future; and at the same time, conditioned by living in an internet world, they expect instant knowledge responses at reasonable prices. Expertise providers are finding that the models that they have long-relied upon [e.g., the familiar five forces model] are losing some of their potency, as they are based upon assumed knowledge that is increasingly difficult to determine [What industry are we in? Who are our competitors? What are our core-competencies?]. Finally, in a world where advancement is being driven more by experimentation than by reliance upon experts, and where the need for advice has moved from episodic to continuous, the entire delivery model for expertise is also being reinvented, leaving an entire expert value-chain from classical university education, post-graduate professional certification, to continuous education, in disarray:

If expertise is over, or at least no longer commanding its traditional premium in the marketplace, and if the old ways of conveying expertise are also in upheaval, what then do experts have to offer? An answer might be found in David W. Maister et.al.’s trust equation for the professional service firm:

If trustworthiness is the coin of the realm for becoming a trusted business advisor, and if Maister and his colleagues are correct in describing the factors that determine trustworthiness, then it would appear that while Credibility is being commoditized via popular access to expertise and artificial intelligence, Reliability may actually be raised by the reduced variance associated with AI, but at the same time it becomes attribute which is presumably available to all, leaving Intimacy and Self-Orientation as the two remaining variables that are independent of algorithmic thinking and ubiquitous availability. They must be exactly what Richard Straub, President and founder of the Peter Drucker Society Europe, had in mind when we he observed:

Being human is consciously to bring judgment, intuition, creativity, empathy and values into play. In business, it is the domain of entrepreneurial thinking and innovation, of weighing decisions, of collaboration and trust – qualities that are utterly different from the machine logic of networked sensors and processors.

Not surprisingly, because they are so nuanced, these are also exactly the topics that are most difficult to master through a reliance upon a traditional business education. While most business schools offer coursework in entrepreneurship and innovation, there is considerable doubt as to what exactly these subjects mean and how best to convey such learning. Judgment and intuition are even more difficult to define, yet are probably even more important. When Straub suggests that “management is in need of a second curve that sets a new positive path away from the diminishing returns of the first” he is undoubtedly correct, but what might that second curve look like and how to prepare for it?

Innovative organizations require leaders who are role models for living innovatively. While not necessarily being the source of new ideas, these leaders of the future must be comfortable in participating in an organizational environment where everyone is responsible for innovation, where others know more, where experimentation is the key to learning, where inclusiveness is necessary to assure that no good idea goes overlooked and where risk-taking and even daring are the hallmarks of a successful strategy. In a world where expertise is dead, no longer will functional training alone be sufficient to rise to the top, or to take a lead-role. New, more intuitive and relationship-oriented skills will prevail. One is reminded of Apollo 13’s Project Manager, Gene Kranz, possibly the person in the room with the fewest formal educational credentials, yet the one irreplaceable person on the team, thanks to his ability to inspire, direct and maneuver a team of seriously smart people towards a success that their expertise had convinced them was unattainable. In addition, Leadership in the future will undoubtedly be more metaphorically digital, in that it will be: faster, more connected, more inclusive, more risky, but it will also be more intimate and caring as well. In looking at the development of leaders in a future where technical expertise is a commodity, we might well pay attention to Kevin Roberts, Executive Chairman of Saatchi & Saatchi, who suggests that all of this is vivid testimony to “the idea of business management as a liberal art.”

About the author:

Bill Fischer is Professor of Innovation Management at IMD. He is co-founder and director of IMD’s partnership program with MIT/Sloan: Driving Strategic Innovation.