We live in a disrupted age. For those already struggling, the situation is unlikely to improve. Indeed, listen to management consultants like McKinsey and Company, and they will tell you all value chains will be disrupted.
But we are not so much accelerating towards entropy, as replacing an old order with a new one.
In a paper published in December 2017, called Why Digital Transformation is now on the CEO’s shoulders, McKinsey notes that big data, the Internet of Things, and artificial intelligence hold such disruptive power that they have inverted the dynamics of technology leadership.
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This is the environment that company leaders in businesses large and small find themselves needing to traverse. That means building innovative cultures, making smart bets with new technology, and ensuring their businesses possess the skills and capabilities to exploit both.
It’s a challenge that is increasingly recognised at the very top by Australia’s corporate leaders. Gail Pemberton, now a non-executive director of companies like Paypal, Prospa, Eclipx told Which-50, “In today’s business environment where disruptive competition, shorter product life cycles and agile, iterative design processes are a constant for most industries and sectors.”
Pemberton, who has been nominated to sit on the Board of Colonial First State when it is spun off from the Commonwealth Bank, said “Management should be regularly monitoring the competitive landscape and fostering a culture that has innovation as a core tenet of corporate culture.
“The role of the Board is to encourage innovation and agility, and recognise that today, most businesses need to invest a portion of their earnings in order to maintain their competitive lead in the future.”
In the view of management consultants like McKinsey and Co, the disappearance of 50 per cent of companies from the Fortune 500 since the year 2000 due to acquisitions, mergers and bankruptcy should provide a clear warning of the alternative.
However, a study by Gartner looking at CEO priorities around the world suggests that the message is getting through. Growth is still the top priority for business leaders, but how they deliver it is changing. The emphasis is shifting away from incremental improvements to more structural realignment of their companies.
According to the 2018 Gartner CEO and Senior Business Executive Survey, 63 per cent of CEOs said that they are likely to change their business models between 2018 and 2020.
The survey looked at responses from 460 CEOs and C-level business executives to pinpoint goals and concerns from the C-suite.
Given that self-doubt is a rare quality among leaders, a good many of them are generally bullish on their own abilities to innovate. Forty-one per cent of respondents think their company is an innovation pioneer, and 37 per cent called themselves fast followers.
Gartner’s survey respondents also placed significantly higher priority on workforce and talent issues than in previous years. Workforce rose to the fourth priority up from seventh in 2017 and the number of CEOs mentioning it in their top three priorities rose from 16 per cent to 23 per cent (an increase of 75 per cent).
Again, their reason for this is a need to accelerate. Employee and talent issues were the most significant internal constraints to growth, according to the CEOs surveyed.
In a market like Australia, it’s easy to find a weakness in the talent membrane. The country needs an additional 200,000 Australian tech workers to become a global digital leader, according to the Digital Pulse report released by Australian Computer Society (ACS) and Deloitte last week.
“The demand for digital skills in our economy is exploding,” says a spokesperson for the ACS. “The growth of artificial intelligence, automation and the Internet of Things is driving significant disruption across all industries, and highly trained ICT professionals are in more demand than ever before.”
Bridget Gray is the Managing Director of executive recruiter Harvey Nash, which places C-suite executives into Australia’s leading companies.
Gray told Which-50, “Through various phases of digital transformation, business leaders have made significant progress on using digital technology to innovate their product and service offering. Many corporates have realised that rather than having an adversarial relationship with young innovative start-ups, large organisations should embrace them as part of their innovation ecosystem.”
She suggested that this is why there have been a huge rise in the number of dedicated innovation programs, labs and corporate incubators. “This is good news and a positive step forward but not sufficient to change the core of an organisation.”
Gray also noted that after many years of struggling with innovation, business leaders have started to embrace much more flexible innovation techniques using agile and design thinking. “Most large organisations have now streamlined their innovation process from ideation to minimum viable product or prototype.”
However, she expressed some skepticism on one point: “Where I think the business leaders might be a little optimistic (41%) is in the area of demonstrating expected ROI on their innovation investment. Scaling successful innovation is still a huge struggle for large companies, as is innovation at the business model level itself.”
We asked company leaders – CEOs, managing directors and founders, across a range of industries what they saw as their role when it comes to promoting innovation, what skills and capabilities they expect to bring into their company over the medium term, and what technologies they expect to have the most impact on their businesses, their industry and their customers in the next few years.
Kate Morris, CEO of online retailer Adore Beauty, said companies need to have a culture that “permits failure and embraces calculated risk” to encourage innovation.
“So many companies do not permit failure of any kind, which makes it pretty impossible to innovate. Each company needs to have a portfolio of innovative ‘experiments’ — as many as possible — knowing that most of them will fail. Every failure can then offer new learnings that can be used towards the next experiment,” Morris told Which-50.
According to Morris, Adore Beauty’s biggest challenge is scaling up operationally. “It’s a growth problem so we can’t complain,” she said.
In terms of workforce, Morris expresses a view that reflects an emerging philosophy where specific skills are merely table stakes, because something bigger is in play. She said the company hires based on attitude.
“We try to hire staff that love challenging themselves and trying new things. In this way, we have been able to evolve through massive technological changes in the last 18 years. We feel excited about keeping up with change, rather than resistant,” she said.
Looking ahead, Morris is confident artificial intelligence (AI) will provide value to retailers. “I’m very excited about AI and machine learning as a way of delivering better and better product recommendations to our customers,” Morris said.
Staying in the world of online retail, Sandradee Makejev, founder and Director of online apparel retailer St Frock, echoes the growth sentiment from the McKinsey study, and says she is looking to expand both domestic and international pecks of the business.
“International retailers like ASOS and Pretty Little Thing have seamlessly closed the gaps across borders, and we want to get involved and push our seasonal best-sellers all year round!
“Back home on domestic soil, we will be focussing our efforts on strengthening our margins with a strong product offering that includes some exciting product expansion driven by F18 data, investing in a more robust customer email journey, and ensuring we’re on the front foot of new technology wins for our brand and customer.”
Makejev is a firm believer that company culture is a key driver for innovation.
“Ensuring you create an environment of acceptance, where diversity and points of difference are celebrated, ultimately stimulates innovation at every level in the business — we want everyone at St Frock to feel comfortable sharing new ideas and ways of thinking, no matter how big or small.”
The business also works hard to create a stimulating environment by inviting visitors from other countries and industries to visit their office, as well as getting out and about to industry and networking events.
“We work in an environment where no two days are the same — it’s nearly impossible to get complacent or bored in your role at St Frock, and we work hard to achieve that,” she told Which-50.
For example, in April this year, Makejev and the senior leadership team toured some of the most innovative tech businesses in the world, like Facebook and Google HQ in San Jose, visited some of the most innovative retailers they could find throughout California, and attended the Magento Imagine Conference in Las Vegas.
“The objective of the trip was to stimulate innovative thinking and experiences as a senior leadership team together, so each leader was able to bring new ideas back to their teams to roll out.”
Makejev also singled out AI as a key technology investment for the business.
“To date, one of our biggest tech wins has been SLI’s Learning Nav, which allows much more flexibility and automation in the merchandising of your site based on business logic rules that can be customised. We look forward to seeing how far this type of AI can go,” she said.
“Additionally, the ability to optimise ad spend according to numerous different factors such as creative and time of day has done wonders for our business, as I’m sure it has many others.
“We are currently looking at optimising ad spend to weather across the country — a huge win for a fashion e-tailer! This sort of artificial intelligence and automation, when used mindfully, will no doubt play a big role in our future growth.”
A Cultural Imperative
Culture change was also a factor for the CEOs Gartner surveyed — 37 per cent want a significant or deep corporate culture change by 2020. That number was higher among companies with digital initiatives in place.
“The most important types of cultural change that CEOs intend to make include making the culture more proactive, collaborative, innovative, empowered and customer-centric. They also highly rate a move to a more digital and tech-centric culture,” Gartner’s analysts wrote.
Adobe Australia and New Zealand managing director Suzanne Steele heads the local operation of an organisation that has not only formalised its approach to innovation but actually provides that approach as an open source tool.
According to Steele, with the pace of change in the workplace, employees who continue to challenge themselves to learn new skills and techniques — those who continue to push the leading edge of their expertise — have a competitive advantage.
She told Which-50, “These individuals are open to breaking out of their comfort zones and trying completely new areas. I see this not only in individual skill sets, but also new and innovative ways in how we change how we operate within the organisation and interact with the community.”
Adode pursues this is a number of ways, said Steele. “Kickbox is our set of tools that help employees define, refine, validate and evolve their idea. We have open sourced our approach so other companies can learn, evolve or adopt it.”
The company also has one it describes as check-ins. Steele describes this is a new take on performance management and HR innovation that eliminates ratings and rankings and is based on information conversations focused on goals, feedback and growth.
Community collaboration is another important aspect of Adobe’s approach to innovation. “We forge relationships with top universities, including Swinburne to help bridge the digital divide in Australia.”
And finally, of course, there are the kinds of problems most people working in corporate environments would be familiar with. “We have a number of programs we drive internally – from Career Month to learning seminars featuring experts from inside and outside of the business – to keep people thinking about how they can drive change and grow their skillset that will directly impact their career.”
Caitlin Green, CEO of digital agency KINSHIP Digital, argued that culture is closely connected to talent.
“Culture trumps everything. At KINSHIP, trust is explicit — and that builds a holistic culture of engagement, empowerment and effectiveness. Fix your culture, and talent will follow,” Green told Which-50.
She said innovation starts with focusing on the customer and re-imagining the customer relationship to establish repeatable outcomes that deliver business value.
In terms of technology, Green believes AI and big data will have a significant impact on her business in the future.
“Building an interaction cloud supported by a data lake and AI — this innovation allows for analysing possible solutions by searching data. The intent is determined by brand interactions in a data lake, where AI is applied to determine the next logical action with a customer. Interactions include both marketing and non-marketing actions — the sum of all factors must influence the next logical interaction.”
The views expressed by these three CEOs track closely to the what Harvey Nash’s Bridget Gray hears in her conversations with industry leaders every day.
“I believe the digital skill and competency gap that most companies are facing is probably the single buggest impediment to accelerating their digital transformation.”
She explains that the skills dilemma can we viewed across two dimensions.
First, there has been a shortage of very specific digital skills that everyone is fighting over — for example data scientists, cloud architects, and digital marketers. “It is still hard for large firms in traditional industries to attract such talent, as they prefer to work for startup technology companies. Most of these skills are had to train for, so hiring is the best option, although many firms have now established partnerships with external providers to effectively outsource rare skills or have your analytics done by an external firm on a managed service.”
Second, says Gray, there is is a huge need for reskilling the existing workforce. “This ranges from raising the general digital IQ of employees to very specific retraining on technical skills like new programming languages or algorithm design.” Take the exampe of the IT department (see below) where MIT identified measurably improvements to profitability by diversifying skill sets.
However, Gray says most organisations struggle with mass reskilling exercises as they have neither the infrastructure in place nor the HR/talent competence to carry these kinds of programs.
“There is a dire need to get HR and the business community to partner to solve this problem, as it will be key to the competitiveness of companies of the future. There is no silver bullet — you cannot hire an entirely new population. The skill shortages mentioned will continue, and reskilling becomes a must.
Pemberton’s view from board confirms the challenge businesses face. “Attracting digital skills is a definite priority and these skills are in short supply. This talent is usually different to traditional IT talent. As an example they can have skills that straddle product design, user experience as well as technology. Or a blend of social media, marketing analytics, technology and data.”
“It’s definitely a priority in the war for talent. It is really management’s role rather than the board to procure this talent but sometimes it can be challenging for management to find the right place in the organisation for these individuals and some encouragement from the Board might be needed to be a little less rigid about traditional reporting lines,” she says.
Gray recommends a balanced strategy to solve the digital competence issue. Not all millennials and Gen Zs want to work for startups, and there remains a large cohort of young adults wanting to join large companies that can provide training and access to interesting work. “So firms must provide excellent training and development through well thought-out graduate programs and market them effectively to the Universities.”
Gray as confirms that AI sits front and centre of medium-term thinking for leaders.
“By far the most disruptive digital technology available today is automation/AI. It will have a profound effect on how work is organised, how people work, and how companies are structured.”
She cautions that AI is overhyped today, as it is still early in the adoption curve. “Still most firms are experimenting with this technology.
“We are entering a world where intelligence in organisations will be distributed between workforces and machines. Corporations today are not really prepared, as there are no rule books that can tell us how work will be organised differently.”
And, as a final note, Gray suggests the newspaper headlines are correct — the side effects on employment are real, even if the initial estimates were exaggerated.
“Smart companies are both extracting new sources of value and innovating through AI/automation and putting in place reskilling programmes for their workforce at the same time. The companies that do both will gain a substantial advantage in the future.”