The Next Phase in Business Evolution
When we think 'business', we hardly ever think 'evolution' and yet an organisation is not a machine. It is not a static and immutable object. Organisations are human-made systems that reflect the values, expectations, aspirations, emotions and cultures of the individuals involved in them. They are more like living organisms. They are complex systems and complex systems are evolving systems and should as such be perfectly capable of self-maintenance, self-renewal and self-transcendence just like any living organism.
Business is in fact constantly evolving. It is a dynamic process. Trying to understand it would therefore require a dynamic evolutionary approach and a thorough understanding of the dynamics of change is an important step towards achieving that. Interestingly enough, this should shed some light on how organisational strategies, structures and processes should be designed. Increasing competition and economic expansion meant that companies could no longer keep a competitive edge while being hermetic and self-centred.
While the first half of the 20th century was dedicated to improving internal processes and procedures, in the second half of the century, businesses had to look beyond the enterprise itself and learn more about not only the market but also the industry and the consumers and in the 1980s, a new kind of business knowledge emerged, one that is more contextual and less esoteric. It was later transcended by a third kind of business knowledge, one which includes a comprehensive understanding of all the Dynamics of a given organisational environment, drawing insights from its complexity and putting in place new strategies for innovation and value creation. Evolutionary approaches to business and economy as a whole are some of the most compelling theories brought forward in the late 20th and 21st centuries by the likes of Ervin and Christopher Laszlo (1997), Alfonso Montuori (1998) and Nattrass and Altomare (1999). According to Laszlo, evolution is a process of self-organisation into higher levels of functional and structural complexity (1996). It is a process whereby something changes into something else, often more complex or of a different form. Organisational life and, by the same token, business itself are both dynamic and complex in nature.
Considering that we are currently on the verge of a Fourth Industrial Revolution, profound changes to business environments are already under way. These changes are believed to be massively disruptive but also transformative for the existing business models and overall business environments and are driven by a multitude of political, economic, demographic as well as technological factors.
Future Disruptions and Drivers for Change
The changing nature of work and working arrangements and the emergence of a middle-class in emerging markets are not the only factors that are affecting business models and business environments, longevity and ageing societies combined with young demographics in emerging markets and women's rising aspirations and economic power are also likely to have a major disruptive impact leading up to 2017. Concurrently, climate change, new constraints on natural resources and the transitioning to a greener economy are also impacting global economies. New consumer concerns about ethical and privacy issues, the rising geopolitical vulnerability and rapid urbanisation are also already impacting global markets and disrupting business models.
Alongside the socio-economic, geopolitical and demographic factors, the current technological revolution is believed to be one of the main drivers of change and is perceived to cause even further disruptions to business models in the years leading up to 2020. The growth in cheap computing power and the mobile Internet have already had a widespread impact on existing business models and before 2020, it is expected that 3D printing, the Internet of Things, Machine learning and Artificial Intelligence would have developed enough to become a further source of disruption for organisational structures and business models.
Collectively, the socio-economic, geopolitical, demographic and technological drivers of change are expected to have a widespread catatonic impact on global industries, posing major challenges for organisations, businesses and governments alike and requiring a major overhaul of existing business models and organisational structures. Given the rapid pace at which these changes are taking place, constant and relentless efforts to deal with these new and ever-evolving business environments will be required and businesses will be facing one of their toughest challenges yet. New regulatory challenges will have to be tackled and new adjustments made.
Future Challenges and the Need to Manage Change
Dealing with very unpredictable, perhaps volatile, environments and having to constantly shift and adapt is in fact the major challenge that companies and businesses will be facing in the years to come. What experts seem to be recommending, however, is to constantly observe, monitor and analyse data in an attempt to predict future trends and consumer habits with a view to redefine future business models and organisational requirements.
James Canton, former Apple Executive author of Future Smart, CEO of the Institute for Global futures and self-proclaimed Future Guru, predicts that the battle for the future of business will be won or lost based on predictive awareness. According to Dr Canton, better prediction is the strategic deliverable that will redefine the Enterprise. "Data --captured, analysed, understood and even monetarist is the secret sauce that is leading the massive changes coming in business", he explains and "the endgame of this new era is the Predictive Enterprise". This is further confirmed by the prediction that there will be a major job growth in roles such as data analysts and database and network professionals with data analysts being the one that dominates most Industries and geographies. These are expected to help companies make sense and derive insights from the torrent of data generated by technological disruptions.
With all due respect to Dr Canton, however, this approach is not only short-sighted and lacking in vision but more like the excited cheer of a three-year old who just worked out how to add a new piece to the puzzle than the ingenious discovery of a true visionary. Data Analytics or 'predictive awareness', to use James Canton's own terminology, is in fact only a minuscule part of the next phase in business evolution. It is more like a quick fix to a much deeper and more profound issue and while the value and importance of data Analytics are undeniable, it remains simply a tool among many other tools contributing to the evolutionary processes of business development and not a very reliable one at that.
The pace at which these developments are taking place is not only staggering and unprecedented but also almost impossible to predict with any level of accuracy and while businesses might have a reasonable rate of success at predicting trends, it is almost impossible to predict them in time for making the necessary adjustments that would allow them to have a positive rate of success at coping with their likely disruptions and successfully transitioning from one phase to another. In fact, by the time they analysed, planned and predicted and the required response is made and action taken, it might be too late and new data would have emerged requiring other, perhaps even conflicting, actions to be taken leading thus to a vicious circle, an eternal and never-ending loop of playing catch-up with an unprecedented and unstoppable wave of new and upcoming drivers of change and transitional patterns.
There is also the question of how reliable these results are. When information is obtained or data is collected, the method or process used to gather information greatly affects the results. Measuring or collecting data depends on the instrument or method used. Changing the method would undeniably change the results, leading thus to action without direction and without constancy of purpose. Investigating data with the purpose of deriving insights on how to move forward could not only be described as trying to make it to the finish line of a long and treacherous obstacle course with a blindfold on and relying solely on instructions from your co-pilot. It's only a matter time before you crash.
Information is not knowledge explains Professor Deming in his Economics for Industry, Government, Education, "The world is drowning in information but is slow in acquisition of knowledge". There is no substitute for knowledge, according to Deming and to "successfully respond to the myriad of changes that shake the world, transformation into a new style of management is required. The route to take is what I call profound knowledge - knowledge for Leadership of transformation". Professor Deming was not only an Engineer, a Statistician, an Author, a Lecturer and a Management Consultant but also a visionary. He could see, before anyone else could, the need for a new vision, one that entails the overall transformation of the way in which people work and businesses are run.
The second major challenge that businesses will be facing in the coming years is their structural and organisational rigidity and how fixed they are in terms of processes, procedures and overall approach. A quote from Professor John Gardner seems quite appropriate here: "We can't write off the danger of complacency, of growing rigidity or of imprisonment by our own comfortable habits and opinions". The report published in January of this year by the World Economic Forum makes the following recommendations: reinventing the HR, talent Diversity and leveraging flexible working arrangements in the short-term alongside rethinking education, incentivising lifelong learning and cross-industry and public-private collaboration in the long term.
The WEF report also recommends that businesses make use of data Analytics to improve their workforce, planning and management and the need for organisations to become significantly more agile in the way they think about managing people's work and about the workforce as a whole. Where the report falls short, however, is that it fails to highlight the need for that workforce itself to be flexible and agile in terms of skills and abilities and the need for businesses to have a flexible and agile approach to how projects are run and businesses are managed and does, at no point, recommend that organisations be agile in their business models, methodologies, processes, procedures and overall approach to business.
The Next Phase in Business Evolution
Contrary to popular belief, evolution is not a linear process whereby adaptation is a constant and mutations occur in a straight, steady progression and therefore our approach to business should by no means be linear. Business is not a mechanical process and, by far, the most important step in business evolution would be to accept that business is like a living organism. It is a dynamic and nonlinear process which requires a dynamic and nonlinear approach.
Technology, and as a direct result, business are evolving beyond our control and it is a fallacy to believe that we have any power or control over it. The only ones that are not evolving at the same pace are us. We are merely trying to keep up with them rather than evolve alongside them. To evolve at the same rate, we need to do some ground work at the very core of our own beliefs, ideas, thought processes, principles and values and shake up the very foundations of our limiting beliefs and ideologies and only then can we see the full extent of our evolved beings.
An Evolutionary Approach to Business:
An evolutionary approach to business would allow for a non-mechanical, non-linear and more dynamic approach. The implication being that businesses will no longer strive to adapt to existing environments but rather aspire to creating new and more evolved ones. Repeated formations of new models, changes within existing ones and loss of others will no longer be perceived as major disruptions to business models and cause for concern but rather as part of the process and as a natural progression toward more evolved and diverse environments.
Once this perception is accepted, business environments will be capable of self-maintenance, self-renewal and self-transcendence and progress would occur a lot faster and a lot less forcefully giving rise to new concepts and ideas and allowing for a lot more business fluidity. Regimented business models and organisational structures will be a thing of the past and the new evolutionary processes will favour fluidity, diversity and creativity which in turn will drive innovation. The Business environments of the future will look more like Technopoles or Development hubs for learning and innovation than dull and structurally rigid environments regimented by strict rules and regulations and enforced by figure-driven outcomes, with little room for creativity, initiative or experimentation.
A Dynamic Business Culture:
Culture is a difficult issue because it is tacit and tightly linked to the identity of individuals and the organization (Star, 1995). A lot has been written over the years, more particularly in the last decade or so, about organisational culture and although most of it is quite sensible and innovative, it remains quite prescriptive. Business cultures are made, not copied or dictated. You cannot build a culture by copying someone else's nor does a culture choose to be the way it is based on a set of prescriptive rules and binding guidelines however flexible they may be. A business culture is an evolving set of collective beliefs, values and attitudes. They should be representative, 'democratic' and as such dynamic and able to evolve, mutate, transform and constantly shape and be shaped by the collective cultures of the people that make them.
When business is perceived in a non-mechanical and nonlinear way, it then follows that its culture would be dynamic and its collective beliefs, values and attitudes would be evolutional and more progressive. It is stating the obvious to say that businesses are moving away from the regimentation and mechanisation of business organisations but not enough is being done and not quickly enough. An organisation's culture should reflect the attitudes, values and core beliefs of the people involved in it but if these organisations are linear and non-diverse, how could they possibly offer more or something different?
Evolution is diversity. Without evolution, there is no diversity and without diversity evolution ceases to exist. A diverse business environment is a thriving environment, one that is likely to evolve faster and grow bigger. A business culture made of diverse ethnic and cultural groups, work experiences, educational backgrounds, qualifications and skills is a dynamic culture where different perspectives, ideas and experiences are allowed to coexist. It creates the perfect environment for diverse and new ideas to be exchanged and new business attitudes to be created. When people look at things from different perspectives, it allows for creativity and innovation, their horizons are widened and their ideas stretch further and reach farther.
A dynamic business culture that promotes diversity, innovation and creativity is a transformed and transformative culture where everyone is allowed to have a contribution and where collaborative working is not only encouraged but highly appreciated. It is a dynamic evolving environment, a collective hive of connected minds working together, learning from each other, constructing ideas, creating concepts, building visions and making further developmental strides in the process of business evolution.
A Self-renewing Business Model:
The most complicated aspect of the next phase in business evolution is probably to do with business models. The speed at which technology has been evolving is causing major disruptions to current and existing business models. Every time a new product or technology appears on the market, current and existing business models will be disrupted requiring businesses to constantly review and/or change their current or existing models. When a business is having trouble thinking of new ways to make new improvements and customers are increasingly finding new alternatives, it usually is a sign that their existing business model is no longer working for them and it is time to introduce a better one. Introducing a better business model into the market, is called "disruptive innovation".
In a joint article that appeared on the Harvard Business Review, Consultant Johnson, Harvard Business School Professor Christensen and CEO Kagerman explain that successful companies already operate according to a business model that can be broken into four elements: a customer value proposition that fulfills an important job for the customer in a better way than competitors do; a profit formula that lays out how the company makes money delivering the value proposition; and the key resources and key processes needed to deliver that proposition. And yet established companies find it very difficult to pull off the new growth that business model innovation can bring often because they don't understand their current business model well enough to know if it would suit a new opportunity or hinder it and they don't know how to build a new model when they need it.
The term business model didn't really exist before the dot.com era and the advent of spreadsheets and personal computers which allowed various components to be tested and modelled. It is essentially a description of how a business runs and ultimately a set of assumptions and hypotheses. Business models are often confused with business strategies. A business model is simply a description of how the business is run while the strategy is about how you plan to do better than your competitors which could be either by offering a better business model or by keeping the same and introducing it to a different market.
The real challenge however is identifying what business model innovation actually entails. "Without a framework for identifying opportunities, it is hard to be systematic about the process, which explains why it is generally done on an ad hoc basis", explain Girotta and Netessine. Drawing on the idea that any business model is essentially a set of key decisions that collectively determine how a business earns its revenue, incurs its costs and manages its risks, Girotta and Netessine view innovations to the model as changes to certain key decisions. In fact, they believe that to improve the company's combination of revenue and cost, successful changes along these dimensions should be made: what will you be offering? When are your decisions made? Who makes them? And why?
Alex Osterwalder's nine-part Business Model Canvas, as shown below, is believed to be the most comprehensive template for a business model and is essentially an organised way of laying out assumptions about the key resources and key activities of a business value chain, its value proposition, customer relationships and segments, channels, cost structures and revenue streams.
Source: Harvard Business Review
Osterwalder's business model canvas, however, lacks one major component which is that of innovation. It asks a myriad of questions around business value but not one that relates to business innovation. The real issue here is that business models are unfortunately, as it stands, not geared up for self-renewal. They are not designed to self-renew. A critical component of evolution is self-renewal. If a model is not equipped to automatically renew itself, it is bound to become obsolete. It is beggar’s belief really that even the most comprehensive of these models does not include a crucial component which is that of innovation. Nowhere is there mention of how the business is offering in terms of future innovations, of new and novel ideas and concepts, of the kind of research that would need to be done to find these new concepts and to source the most innovative people with the most creative ideas.
Yet again, the mechanized perception of business is hindering its evolution. If business models were designed in a way that privileges innovation and puts it at the centre of its structure, they would no doubt be able to automatically renew themselves. Businesses that aspires to improve their revenue streams without having continuous improvement and innovation as a central component of their business plans are businesses that are almost as doomed as the trees that expected to bear fruit in a hot and dry climate without being watered. A business model that is not dynamic is a model that will hinder the evolution of a business and won't allow it to survive, grow and/or expand.
A Self-transcending Business Strategy:
The problem with most current business strategies is that they are very aggressive sales and marketing focused strategies. Somehow in the last decade or so, this belief that good marketing and sales operations account for the success of a business. They also mostly aim to gain a competitive edge by comparing themselves to the competition. If a competitor's business model is a better or more evolved one, then they would try and emulate it with the hope that it might allow them to snatch a bigger share of the market. They are mostly focused on the 'what's here and now' rather than on 'what's possible' and as such they lack vision and intuition. If Google or Amazon or other successful businesses focused on their immediate needs rather innovative and visionary ideas, they would have not set themselves aside from anything else that was available and they would have not evolved to be the big and successful businesses they are today.
Most strategies focus on what I call 'creating a need' rather than 'creating a want'. People always know what they want when they see it. People certainly did not know they wanted Facebook until Mark Zuckerberg put it out there for them, or Twitter or Napster for that matter and even if they knew, most of the time they could neither describe it, nor design it or even put their finger on exactly what it is. People wished they could go to space one day or that they had cars that would drive them to work, phones they could carry around everywhere they went. They probably did not even see smart phones coming either. But they knew what they wanted as soon as they saw it. It took the minds of visionaries, people who believed in what's possible, people who created the want rather than satisfy the need.
Based on the premise that we cannot stop the progress, we might as well embrace it.
A Self-transcending strategy is a strategy that is capable of transcending the 'here' and 'now', the 'what's possible', 'what's available' and 'what's so'. It is a visionary strategy envisioned by visionary minds. It transcends the present and its needs for immediacy, the set-backs of all limiting beliefs and the desire to satisfy the basic immediate needs. It is a strategy that does not copy or emulate, it is a strategy that creates and what it creates is a want, a desire for something new and for what's novel and unprecedented. It makes, shapes and evolves the market by being novelty-driven, creative and future-oriented and it is therefore evolutional and dynamic at all levels and in all respects.
A Fluid and Organic Business Structure:
An evolutional business with a dynamic culture and a fluid business model requires a flexible, organic structure that enables it to evolve without being set back by rigid rules and regimented by regulations and inflexible processes and procedures. The term 'organic organisations' is a term that was created by Tom Burns and G. M. Stalker in the late fifties in contrast to what they referred to as 'mechanistic' organisational structures. Burns and Stalker theorised that companies facing a changing environment may have to use an organic organisational structure in order to quickly adapt to changes.
According to Burns and Stalker, an organic organisation thrives on the power of personalities and relationships, on the lack of rigid procedures and on communication and can react quickly to changes in the environment. Decisions arise from the needs felt by individuals in the group proposing changes to the group either by discussion of by changing behaviour or operations without the need for discussion. The rest of the individuals in the group adapt to the changes as they need to.
Of course, for this model to thrive, it requires the full cooperation and constant adjustment of all the members. These members should be not only multi-skilled and very talented but also extremely agile. Flexibility, versatility and the willingness to keep an open mind coupled with a constant drive for continuous learning and improvement are key characteristics for the future workforce.
A Flexible/Agile Methodology:
No evolutionary approach and no organic structure could work without a flexible workforce and an agile mindset throughout the whole organisation from the lowest to the highest of organisational ranks and at all business levels. Adopting specific iterative and incremental work practices such as scrum and Agile or Lean and Kanban or any other methodologies where the key principle is that requirements can be volatile and that unpredicted challenges cannot be easily addressed in a traditional linear, predictive or planned manner is the way forward. Focus should be on maximizing the teams' ability to deliver quickly, respond to emergency requirements, adapt to evolving technologies and changes in market conditions.
Agile environments have a facilitation-based management framework which focuses on facilitating the day-to-day operations and removing obstacles or impediments to the team’s ability to deliver product or project goals and deliverable and, as such, empower people to collaborate and make team decisions coupled with continuous planning, continuous testing and continuous integration. They engage, integrate and embed customers/stakeholders within all delivery processes with real-time feedback from those first-hand involved in the success of a project or product and favour the creation of an organisational structure that fosters staff engagement and enables them to have their own autonomy as well as flexible and adaptive work practices across all business functions from sales to HR to finance and marketing.
Originally introduced in the late 1980s and early 1990s, possibly even earlier, the Agile Methodology is gaining momentum and is now becoming a more commonly accepted practice. Initially, typically used in software development as an alternative to waterfall or traditional sequential development and project management, the Agile Methodology was introduced to help teams respond to unpredictability through incremental, iterative work cadences known as sprints. Today, its techniques are being applied to the development of non-software products too from medical devices, to motor vehicles, food, clothing and music. It is also adopted in general management practices such as strategy, governance, risk and finance.
Agility's success is probably mostly due to these basic but crucial management principles: communication, adaptation and awareness. While some of its principles have long been adopted and largely accepted in the business world as a contributing factor to the success of any business or organisation, agility was often overshadowed by criticism and huge resistance among professionals and organisations, especially larger ones. A lot of the scepticism has been blamed on how difficult it can be for larger organisations such as governmental or multi-national organisations to faithfully adopt the methodology and some have opted for a hybrid approach mixing elements of agile and non agile approaches. The resistance is however, in my opinion as well as that of many Agile professionals I have spoken to, mostly due to internal politics within organisations. Agile expert Philip Korolev, in a recent interview to The Cognoscent, explains that "Businesses justify themselves by monitoring linear processes with an expectation of a successful and valuable return at the end of a linear journey".
A Collaborative Knowledge Management Theory:
Today, learning and innovation are at the core of any successful long-term business strategy and essential to the maintenance of a competitive advantage. Creation and sharing of knowledge are a constituent part of learning and as such Knowledge Management is considered to be central to the development of good business performance. Knowledge management is inherently a collaborative activity and a wide range of collaborative technologies that can be used to support knowledge management practices are available. These tools allow people to work collaboratively and/or remotely wherever they are in the world and are a valuable support for organisational learning.
There are, nevertheless, a variety of issues with technology. The use of tools changes organizational practice, and an explicit awareness of how tool use can best bring about the desired effects is critical. The policies and ways in which collaborative knowledge management tools are used can facilitate or impede organizational learning and, to be useful, knowledge management technologies ought to least provide persistence and relevant indexing strategies so that people can find information that was created in the past. These explicit process models can however rigidify the real nature of work and explicit representations also tend to highlight some aspects of what is represented and leave out others; in other words, all representations are political.
Another critical issue relates to organizational culture. An organization must be willing to admit to changing circumstances, less than optimal past performance, or some level of failure. Organizational culture and structure affects individual behaviour in a variety of ways and may include a number of barriers to the appropriation of technology. Poor usability can be a barrier to widespread adoption and use of new technologies. In other words, if technology is seen as a crutch to support incompetent people or as an unnecessary inconvenience for competent people, it will probably not be adopted.
Another critical issue with organisational knowledge relates to the likely outcome of that knowledge and its impact on future decisions and future actions, an aspect quite often underestimated by organisations but crucial for their survival. For in fact, although knowledge management is now mainly focused on knowledge creation rather than knowledge sharing, the role of collaboration still seems to be underrated and altogether neglected in favour of communication.
Communication is critical but it does not necessarily result in collaboration. When people communicate, they don't necessarily collaborate. The real issue here is that the link between collaborative knowledge and knowledge management is still missing. There exists so much literature about collaborative knowledge and as many theories about knowledge management but none that do specifically put the two together. What is really missing is in fact a complete and comprehensive collaborative knowledge management theory that encompasses all the aspects and technicalities of collaborative knowledge, including all potential and likely issues relating to how to establish a clear link with value creation, how to incorporate it within an already existing culture, how to adapt it to pre-existing processes and procedures, sensitivity of the information shared, use and purpose of sharing and collaboration and the incentives to collaborate.
To that effect, knowledge pools or innovation centres could be the ideal place to start, an idea also shared by Agile expert, Philip Korolev, who recommends the creation of “centres of excellences where people are given the autonomy to create. You will naturally develop factions of autonomy and excellence that are expert in their field, encourage cross functional activities and the sharing of knowledge across the organisation”.
Last but not least, a quotation from W. E. Deming, something to ponder upon and think about: "A system must be managed [..]. Left to themselves in the Western world, components become selfish, competitive, independent profit centres, and thus destroy the system [...]. The secret is cooperation between components towards the aim of the organisation".
^ Deming, W. Edwards, Out of the Crisis, MIT Press, 1986.
^ Deming, W. Edwards, The New Economics for Industry, Government, Education, 2nd edition, MIT Press, 2000.
^ Deming, W. Edwards, Some Theory of Sampling, Dover Publications, 1966.
^ William J. Latzko, David M. Saunders, "Four Days with Dr. Deming: A Strategy for Modern Methods of Management", Prentice Hall PTR, January 26, 1995.
^ Burns, T. & Stalker, G. M., The Management of Innovation, Tavistock, London, 1961.
D. A. Morand, “The Role of Behavioral Formality and Informality in the Enactment of Bureaucratic versus ^ Organic Organizations” Academy of Management Review, 1995.
Gardner, John, “The Road to Self-Renewal”, Stanford Alumni Magazine, March 1994.
^ Andrea Ovans, "What Is A Business Model?", Harvard Business Review, January 23, 2015.
^ James Canton, "The Predictive Enterprise: Five Trends Shaping the Future Of Business", Huffington Post, edited November 26, 2015.
^ Girotta, Karan and Netessine, Serguei, "Four Paths to Business Model Innovation", Harvard Business Review, July - August 2014 issue.
^ Bergendahl, Adam and Jensen, Martin, “The challenges of Collaborative Knowledge Management: Why Grassroots Technology Needs Help From the Top”, Master of Science Thesis, Sweden 2011.
^ Castro Laszlo, Kathia, “The Evolution of Business: Learning, Innovation And Sustainability in the 21st Century”, The Graduate School of Business Administration & Leadership (EGADE), July 2001, https://www.oasis-open.org/committees/download.php/%2020459/06-09-00014.000.pdf
^ Clarke Peter and Cooper Maggie, “Knowledge Management and Collaboration”, City University, http://ceur-ws.org/Vol-34/clarke_cooper.pdf
^ The world Economic Forum, Global Challenges Insight Report, “The Future of Jobs: Employment, Skills and workforce Strategy for the Fourth Industrial Revolution”, January 2016, http://www3.weforum.org/docs/WEF_Future_of_Jobs.pdf