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The logic of luck


Themes: Management science and operations

Logic of luckToday’s ICT revolution is changing the way corporations, governments and non-profits are organised. The pyramid hierarchy is being replaced by a complex network of nodes where command and control has little leverage. Successful leaders will now be those who can demonstrate collaborative skills, achieving results by working with their peers; influencing, seducing and convincing them. They also need to have a friend in Lady Luck. Professor Arnoud De Meyer, Director of Cambridge Judge Business School, explains the role business schools need to play in this cultural shift.

 
Business schools and MBA programmes in particular are about leadership development. We are preparing our graduates to take on leadership positions in the world of business, government and NGO’s. In a cursory glance at the websites of many of the top business schools you will see that leadership in one way or another is indeed at the core of our unique selling proposition. Developing for leadership, grooming for international leadership, … are only a few of the iterations one can find on our websites.

But do we know what these leadership qualities really stand for? Research on leadership has of course come up with multiple variants of leadership. It can refer to traditional ‘command and control’ leadership, moral authority, intuitive, charismatic or seductive leadership, a capability to become a global learner, etc. This broad and, to be honest, rather dispersed literature on leadership does not help us a lot further in defining what business schools have to offer in their programmes in order to prepare the graduates for the challenges in the professional world.

In my opinion the best approach to what business schools need to do, is to prepare our graduates to becoming effective managers of change. Organisations need to change constantly to survive, and it is the capability to give leadership in this process of change that will make our MBA graduates attractive for recruiters and successful in their professional development.

The challenges for change managers in 2009

Managing change today is not what it used to be. Or rather the environment in which change has to be managed has changed dramatically. A few months ago I would have argued that there were eight new trends that create a different context in which change has to be managed. They are the growing internationalisation of the organisations, the creeping increase in knowledge workers, the demands that civil society puts on companies to be drivers of social change, the fragmentation of the value chains, the diffusions of the sources of knowledge production and innovation, the networked multinational organisations, the increasing need for risk management in a world where the gradual reduction of borders and trade barriers have led to an increasing level playing field for companies, and the role of information and telecommunication technologies in networking. I will spend a few lines on each of these trends.

Internationalisation

We are living in a world that has become truly international, and where organisations themselves have also become truly international. It is a bit of a sweeping generalisation, but in most of the cases there are no national companies any more. They are either regional or international. This is relatively straightforward for large organisations, but even small and medium enterprises are often networked and integrated into international networks of suppliers, subcontractors, distributors and partners. Many of these organisations have actually become truly international. As a consequence they have to manage diversity, both culturally and geographically. And they have to understand how international supply chains operate and how global geopolitical equilibriums influence their markets for talent, resources and outputs. There is not one solution fits all in for leading change. It is contextual, it has to be adapted to the key characteristics of the cultural, religious and geographical environment in which it operates. This cultural sensitivity has to become an order more sophisticated than it used to be ten years ago.

More knowledge workers

For many organisations the main production factors remain people, capital and in the case of manufacturing the raw materials and components. But knowledge has become a production factor of growing importance. In recruiting we often look for brains, rather than a pair of hands. A large group of our workforce consists of knowledge workers, of people whose major contribution to the value creation is their creativity and expertise. Such knowledge workers have a different attitude than their predecessors. They are often more independent, have some loyalty to their area of expertise, rather than to their organisation, dislike authority, unless it is based on expertise. In short, they require a somewhat different style of leadership, one that is based on seduction and convincing on the basis of rational arguments, rather than on command and control. There have always been a small number of knowledge workers in our organisations. But as long as they remained a relatively marginal group in the organisation, you could lead them on a quasi individualised basis. But their growing importance requires systems to be developed to lead them, and leads to a transformation of our organisations.

The increasing demands of society

Society expects more contributions from companies in the social area. Over the last twenty years we have seen the triumph of shareholder value based organisations. One of the underlying assumptions of this approach was that the main, if not the only, role of a company was to create value for its shareholders and that by doing so the company would create wealth for society. More was not expected from them. The redistribution of this wealth was the State’s role. — This has always been a somewhat stylised view and companies did engage in social activities, i.e. deployed some activities of corporate social responsibility. — But the growing trend of corporatisation and privatisation of public services has changed this somewhat extreme view. Many companies are now expected by their governments to engage in public-private partnership to support education, health provision, public transport, and in some cases even protection, services that were traditionally provided by the State. Society does not care necessarily about the mantra of shareholder value and expects profit oriented organisations to behave as corporate citizens. Leadership requires to work with local and national communities in order to preserve the integrity of the company’s image and brand.

Fragmentation of the value chain

No company still controls its whole value chain. The advice to focus on the core business of the organisation and to outsource or subcontract all non essential activities has been one of the most successful messages from both business schools and consultants over the last 15 years. As a consequence our companies have outsourced many activities and have fragmented their value creation. They have created collaborative networks for value creation. The outsourcing happens often on an international scale, and involves partners which are lot bigger than the company itself. That leads to major changes in the power equilibrium in the value chain. Some of the outsourcing partners may produce a relatively unimportant part of your value, but may be in a position of power vis a vis their principal and can dictate their terms and impose their systems. Managing change and providing leadership in these collaborative networks cannot rely on traditional power relations and hierarchies, but requires a style of management that again is based on seduction and convincing.

Dispersion of the sources of knowledge and innovation

Innovation does not come exclusively out of a limited set of sources in the industrialised world. Thirty years ago the world looked relatively simple. In most of the areas of innovation, in particular if such innovation was enabled by technology, the sources of innovative ideas were rather limited and concentrated. Innovation based on micro-electronics and software thirty years ago came virtually all out of Silicon Valley, Boston and Texas. Pharmaceutical innovation was perhaps a bit more spread out, but there only a few major centres of innovation in the USA, the UK, Switzerland and Germany. This has gradually changed and the sources of ideas and knowledge, but also the sources of innovative consumer behaviour have become a lot more dispersed. If you want to follow what is going on in genetic engineering you have to listen to what is going on in West and East Coast of the USA, Cambridge (UK), the South of Sweden, Munich, the North of Italy, Bangalore, Singapore, Seoul, etc. And at the same time we witness the emergence of a lower middle class with specific consumer preferences in the emerging countries e.g. China, India, South East Asia and Latin America. By my own calculations there are about 580 million people living in the South, South East and East Asia at this level of lower middle class (defined as a spending power for an average family of at least 5000 € per year). This is almost twice the USA and one and a half times the European Union. One can see this group as a target for products developed in Japan, the USA or Europe, or as a formidable source of new ideas. Leading change in a world where the sources of ideas for innovation have become so dispersed will require people who can listen all over the world, and who can combine these ideas in new products, services and organisations, and roll these out in a very effective way.

Multinationals start looking differently

Multinational organisations move from a pyramidical structure to a networked structure. Multinational, transnational or global organisations may have had different structures, but most of them had a clear reporting structure into one headquarters (and bi-national organisations e.g. Shell were a great exception). This ‘master-slave’ organisation whereby the regional organisations and subsidiaries report into a master at the HQ is gradually slipping away, not in the least because of the commercial and financial success of some of the subsidiaries in emerging regions, and who demand a more equitable balance of power in the organisation. This is reinforced by the technological developments that allow for international coordination and integration of employees without having them co-located in one place. This flattening and distribution of organisations may reflect better the reality of these multinationals, but it has the disadvantage that it reduces clarity. Managing change in such networked and flatter organisations, where the core management group is not necessarily in one location, and where power is more evenly distributed will require managers than can live with ambiguity and can trigger action through collaboration.

Increased importance of risk management

Good leaders will be those who can calculate and cope with risk. The internationalisation of the economy goes and will keep on going through cycles. But unless there is a major geopolitical catastrophe, one can safely predict that we will continue to see in the long term a growing internationalisation of trade, a reduction of trade barriers, and a decrease in the importance of national borders. This reduces the protection of the individual firm by its national authorities and increases the interdependence of the players in the world market. That means that shock waves will spread faster throughout the world, and that the amplitude of the shocks may increase. In such a world the quality of management becomes more important for the success of an organisation than the protection offered by staying behind trade barriers. Managers will become more exposed and high quality leaders will be those who can estimate risk and uncertainty, and are better at coping with it through experimentation and quick learning.

The role of ICT in networking

It has become a classic to argue that ICT is changing the world. In reality the world of business has quite well adapted to the opportunities that are offered through better electronic communication. But I am convinced that there are two areas where we have only seen the start of the challenge: how do we exploit the value and the format of the weak ties that are created in the social networking sites, and how do we cope with information overload. Social networking as we observe it in Facebook, LinkedIn, Youtubes increase by several orders of magnitude the number and the nature of weak ties. As we know from the research carried out since the 1970’ies these weak ties are most important in getting things done, in asserting leadership. I am convinced that we still have no clue how to handle these new types of relationships and what to do with them in the business world. Moreover as a consequence of these new networks and many other evolutions in the internet world, we have moved from a world of information scarcity to a world of information abundance. Most of our decision analysis and management tools were developed for a world with scarcity of information. We don’t have yet the tools to lead and decide in a world where everybody has access to an abundance of information, and where every decision can be challenged, based on evidence available on the world wide web.

… And all these changes in a very different context for the markets

As I said, a few months ago I would have argued that these eight categories capture to a large extent the changes in the context in which we need to exert our leadership. The financial turbulence and the ensuing economic crisis have actually created an additional difference. We come out of a period of at least twenty years where business was good. The most eagerly pursued jobs were in business and the top talent wanted to have a job in finance or business. Business leaders were upheld as role models. Entrepreneurship has become popular entertainment on TV. Governments were lectured by business people on how to run their affairs. Running public services required a business attitude and public private partnership were often well accepted disguises for privatisation. Regulation could be better replaced by self regulation and codes of conduct. Business was good for you!

The recent crisis and scandals in which business has shown incompetence and an inability to satisfactorily self regulate. I fear there is a significant risk that the pendulum will swing back and that the business world will constantly have to justify its actions to an increasingly sceptical society. That will impose new requirements on business leaders in terms of interactions with the societies in which they operate. They might be admired less as ‘captains of industries’ but more vilified as incompetent schemers. Let’s hope that this is not true, but we cannot avoid to prepare for this possibility. True leadership will require us to collaborate with other stakeholders in society and improve the communication about the role of business in society.

The new collaborative leader

I do admit that the trends that I indicated are to some extent speculative and many of them are somewhat correlated. But when you put all these potential changes together, you get a picture where the future leaders that we train will require a different portfolio of skills. The three words that I would like to propose as key to future leaders are collaboration, influencing and adaptation.

In many of the nine trends above the word network was used. Multinationals become networks, value is created in fragmented networks, knowledge workers prefer to work in networks of peers, ICT leads to networks of weak ties, and sources of new ideas come from combining ideas from different geographical and cultural networks. In these networks management becomes ‘getting things done through a community of people’. Action requires collaboration.

Change in these networks will not come through command and control. It requires evidence based influencing. Peers in social networks, knowledge workers, equals in the multinational networks, stakeholders in society want to be convinced. Influencing rather than telling will become the required modus operandi.

Finally the world becomes more uncertain, contains more risks. It becomes at the same time more complex because of the dispersion of sources of knowledge. The successful manager and leader will be the one that is able to adapt very rapidly to these changing circumstances, and who can appreciate and manage the increased risks in the environment.

We have at Judge Business School summarised these characteristics under the term ‘Collaborative Leadership’ and we strongly emphasise the need to develop a collaborative ethos among our students and graduates.

What does it require?

What do you need to do to prepare students at business schools for such collaborative leadership? A lot is about process, but there are eight areas of insights that I find important we share with our students.

  • It follows from above that we need to teach our students the tools and techniques, and also the attitude of influencing, as opposed to an attitude of command and control.
  • Action that is implemented through a community of people requires first and foremost consensus building about the decision and creating ownership for the implementation of the decision among the widest group of peers.
  • Consensus building has a big risk: it may lead to the least common denominator of the group and thus to a less than optimal decision. We need to understand how to build consensus, but at the same time how to get the optimal and most performing decision with the group.
  • We know from earlier research that cultural diversity can enhance the quality of decision making, on condition that we confront the cultural and contextual differences. The worst one can do is to cover up the differences out of a misplaced sense of politeness, respect or political correctness. Differences need to be confronted and addressed. Groups that are able to do so perform better than mono-cultural groups, because they benefit from the creativity and the differences in perspectives that the diversity offers.
  • Collaborative leaders need to be good social networkers. The creation of a wide network of weak ties will enhance significantly their capabilities to perform. We can and should teach them how to build and maintain these networks.
  • The world is full of dualities. The right approach is often not ‘either, or’, but ‘and and’. We need to be conforming with the group and yet creatively think out of the box. We need to be formal and informal. We need to listen to experience and at the same time challenge it through experimentation. It is uncomfortable to live with such dualities. But we have no choice, we need to train our graduates to cope with them.
  • Organisations that collaborate may have very different, sometimes opposing objectives. This is all the more so when one collaborates with organisations from different countries, or with a fundamentally different value system. NGO’s. Government and business organisations increasingly need to work together. Collaborative leaders need to understand how one can get common action between organisations that have incompatible objectives and value systems.
  • Finally a good collaborative leader needs to understand that his or her domain of action does not stop at the border of the organisation. Organisational boundaries become often fuzzy in a collaborative world, and both authority and accountability do not stop at the border of the organisation. Companies can be made accountable for what their subcontractors do, or how their partners communicate. Leadership has to go beyond the borders of the organisation.

How do you prepare for such collaborative leadership?

This is a new area and I do not pretend that we have at Judge Business School all the answers to this question. But to stimulate a debate on this I would like to make five propositions.

Leadership development is essentially experiential. You develop people through on the job training, projects, role flexibility, role modelling, mentoring, special assignments. Formal education is only a small part of it. We need to provide our students the opportunity to become master of their own leadership destiny. Therefore our programmes need to include a significant element of experiential learning.

Collaborative leadership development requires interdisciplinary interactions, beyond the boundaries of a business, and of business. It requires strong interactions and learning from scientists, social leaders, politicians, philosophers, etc. to create an openness in one’s thinking and a capability of listening to information coming from unexpected corners.

Collaborative leadership requires our students to learn how to manage the difficult triangle of listening, influencing and action orientation. Leadership requires all three, and it is all too easy to fall into the trap of overemphasising only one or two of them. Only listening may be good for a coach or a counselor, only influencing is good for a teacher or a consultant, only action is perhaps good for a crisis manager, but true collaborative leadership requires a careful balance between the three.

Leadership is about managing constant change. Collaborative leadership requires that that change is managed through others. How to get groups to act and implement change is what we need to teach our students through more group work and an ethos of collaboration.

Finally we need to accept that leaders in a risky networked world cannot predict and control everything, and that some dose of luck is needed. Tongue in cheek I would like to argue that we need to believe in the logic of luck. Successful action is not only about cold analysis and structured decision making. And once you are lucky you have to be able to spot it and exploit it quickly. That is another trick that we our students can learn.