The new, old, new work paradigm

Andrew Cornell

Past Managing Editor, bluenotes

It is an era of business transformation. Obviously not the first. Certainly not the last. But not since the halcyon days of McKinsey’s “Creative Destruction” or The Boston Consulting Group’s “four box matrix” have consultants proselytised and companies committed so emphatically to the need to fundamentally transform.

Financial companies are at the epicentre: a new report from global consultancy Accenture of nearly 800 financial services executives across Europe, Asia and North America found more than half reported their organisations plan to increase their investments in major corporate transformation initiatives or “change programs” over the next 12 months.

The major incentives are cost pressures, new regulations, increased customer expectations and digital disruption. This bank, ANZ, is one of those in the throes of a major change program which chief executive Shayne Elliott has described as breaking down the traditional hierarchical structure of management.

In the Accenture survey, 53 per cent of respondents said they expect to increase investments in transformation initiatives over the next year. A further 37 per cent said they expect to maintain their current – already elevated - investment levels.

Accenture’s analysis of the incentives is broadly correct: with revenue still constrained, there is considerable pressure to reduce absolute costs. New regulatory regimes are changing not just rules but responsibilities and accountability; digital disruption is indisputable.

But “customer expectations” is actually the one which is more equal than all the others.

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Source: accenture newsroom.

" Now customer experience is measured by consumers against every other sector, particularly the most innovative, most technologically advanced and most customer sensitive."

Not just digital

The fundamental need to change comes not from the internet but the internet has enabled it. Hence it’s not digital transformation, although that is vital.

What has changed is customer demands. And not just any demands, not just the inchoate “I’m dissatisfied”. It is the focussed demands: why can’t you understand me like Amazon (for the moment anyway when such knowledge is still seen as a positive); why can’t you be as flexible and easy as Uber (for the moment anyway); why can’t you be as intuitive as Google (for the moment anyway).

Companies, not just in financial services, have of course long claimed to be customer-centric or customer driven or listening to their customers – but in the past that has been in an environment where competition was largely sector specific.

A company only needed to be more responsive and more innovative than other companies in its industry; now customer experience is measured by consumers against every other sector, particularly the most innovative, most technologically advanced and most customer sensitive. Anywhere.

The internet and digitalisation have made these new rivals possible in the first place but it is the ones which are actually most responsive to customers which are succeeding. Spotify has flourished, Pandora is struggling and Guvera is effectively gone.

It’s not enough to offer a new service – streaming music online – as this rundown from Gizmodo makes clear.

Poster child

Significantly, Spotify is a case study of an online digital service which has also been revolutionary in organisational structure and operation.

It’s already a modern poster child of customer focused organisational change, an exponent of the kind of “agile” thinking underpinning many change programs, including ANZ’s.

Spotify’s infographic of how it does it may be a mess but it’s fascinating. The company has also produced its own videos outlining its “engineering culture”.

A paper for the upcoming Culture & Change Management for Business Transformation Summit outlines what Airways New Zealand did to make customers central to business transformation “in order to drive wider organisational efficiency and productivity”.

In this case, according chief financial officer Mark Loveard, the shared services function in the group was vital: “the strategy begins and ends with the internal customers - the employees.”

The organisation of corporations is a fascinating field. In the west the two major historical factors have been the military order of command and control; and the need for scale to drive not just efficiency but capability.

Economies of scale – in the typing pool, in manufacturing, in managing accounts – drove companies to become larger. Larger companies needed fixed orders of command to avoid descending into chaos.

But the emergence of the internet and new services predicated on it is now reversing that once-unassailable proposition: small, even micro, companies can outsource to the cloud or to service providers the kind of fundamental processes which before could only be managed by large companies.

Creative destruction

Ironically, we’re back in the era of creative destruction. Organisational paradigms which once may have persisted for generations can now be overturned in a few scant years.

For example, IBM is back-tracking on a development which is still only just gaining traction more broadly, remote working.

The Wharton Business School’s Peter Cappelli analysed IBM’s move, itself a response to a more “agile” model, predicting it might presage more widespread changes.

“IBM is switching to a business methodology known as ‘agile management’ which necessitates the end of telecommuting for many,” he said. Agile management emphasises highly flexible cooperation, face-to-face communication and daily interaction as keys to fostering innovation, according to Cappelli. “You really need people together in order for this to work.”

He added a rider which is perhaps the most significant insight – there are no longer clear “right” models for organisations.

“That doesn’t mean it doesn’t make sense for other people in other organisations to work from home,” he said. “The boundaries on that are always changing.”

The key challenge with organisational change, if it is to be truly responsive to customer expectations, is customers are profoundly individual.

Take the key shift in financial services towards digital banking. A recent J.D. Power survey – of American banks - found 71 per cent of bank customers visited a branch over the past year. On average 14 times.

Even among the tech-savvy millennial generation, 71 per cent visited a branch, with an average of 11 visits, compared with 49 per cent who use mobile banking.

Critically the survey found overall satisfaction among those who visited a bank branch within the past year was 27 index points higher than among those who didn’t.

People still like people. Improved automation and artificial intelligence are unlikely to change that. The challenge for organisational change is how to best deploy the humans.

In a case study from a paper for the Culture & Change Management for Business Transformation Summit, NSW Transport, which reorganised itself around design thinking, Agile delivery practices and better collaboration, created a concept of Minimal Viable Bureaucracy (MVB).

“In the spirit of Agile we have established the principle of MVB,” Tony Braxton-Smith, Deputy Secretary, Customer Services, TfNSW, said. “This means the least amount of bureaucracy necessary in order to deliver a specified outcome.”

Four-box-matrixers BCG have their own, monumental work as part of their “The New New Way of Working Series”, Twelve forces that will radically change how organizations (sic) work.

“A tidal wave of change is coming that will soon make the way we work almost unrecognisable to today’s business leaders,” the report proclaims. “BCG identified 60 major trends propelling this tidal wave, which we’ve grouped into 12 primary forces.”

“These forces, or megatrends, fall into four categories. The first two address changes in the demand for talent: technological and digital productivity and shifts in ways of generating business value. The second two address changes in the supply of talent: shifts in resource distribution and changing workforce cultures and values.”

This new epoch of organisational reorganisation has only just begun. To revert to McKinsey: digital technologies and processes have penetrated only about 35 per cent of the way into the average industry, meaning merely a third of a typical company’s products and operations which could be digitised have been.

Andrew Cornell is managing editor at bluenotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.