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Nine Real Risks in 2022

Issue 38: January 13, 2022

The existential and operational risks facing any leader have been ramped up because of an ongoing pandemic, economic disruption, global supply chain breakdowns and a series of demands from all stakeholders delivered through an increasingly contentious civil discourse. Our organizations have faced tough times in the past; what feels different this time is the perfect storm of forces most leaders have no control over. The irony is that on the surface it looks like everything is growing and thriving. The stock market is booming, there is a wave of investment activity and corporate profits are up, for the most part. Yet, the financial metrics do not reveal the undercurrents of dissatisfaction that could erode the infrastructure of our organizations.

What skills does a modern leader need? Never before has the balance of art and science been more essential. Effective leaders must be deeply human as well as tech-savvy. They also need to be big thinking strategists and on-the-ground operators. It no longer suffices to be deeply knowledgeable and conversant on a single leadership skill; managing and leading an organization now reflects connections and dependencies on data, technology, and how humans interact and respond to each other.

Most importantly, there is safety in numbers, and leaders need to form coalitions and partnerships, internally and externally. Flexibility without compromising the north star of ethics and integrity and leading with humility aware of their own biases are also key to great leadership. They also need to think globally and act locally. And when we say leadership, we are talking about everyday leaders as well as the executive team. To sum it up in Teddy Roosevelt’s words, “Keep your eyes on the stars and your feet on the ground.”

Not to sound alarmist, but we have identified the top nine risks facing organizations today. These risks are foundational to the human factor of our organizations. All the technology in the world cannot save people from themselves when their inherent biases (conscious and/or subconscious) guide their decision-making, strategy setting and managing customers and the workforce. Being aware of these nine risks is a start. Anticipating how these risks can affect organizational culture, the value it represents, and its financial success is the next step to establishing the checks, balances, and safeguards to weather through the next 18 months. And transcending both steps, requires the skill of critical thinking, the structure of systems thinking and the construct of collaboration to find the right actions and solutions for your own enterprise.

Nine Risks Facing Organizations Hidden in Plain Sight

1. Hoping that what existed as normal pre-Covid is going to return.

There is nothing worse than wishful thinking when it comes to running an organization. And the polarization of the impact of Covid on society has been hotly contested and debated. Susan Urahn, CEO of the Pew Charitable Trusts has watched the scientific research on Covid done in real-time. She says, “It’s absolutely astonishing, watching the data be debated by some of the leading epidemiologists in the world.” Dan LeDuc, editor at the Pew Charitable Trusts adds, “We’re in an era in which there are what we now call alternate facts. One’s a label and then there is flat-out misinformation that we’re seeing throughout the digital space that has clearly influenced public opinion.” How do leaders face the facts and craft the future of their organizations? Only change endures and embracing it is the roadmap to change and transformation. Longing for a return to the past may be a deeply felt human emotion, but it is suicidal as a leadership strategy. Believing that customers and the workforce will quickly forget how they adapted and changed post-Covid and retract to former behaviors is nothing but misguided. Any belief that customers and a workforce will forget how empowered they have become is a fool’s mission. The floodgates are open to the “power of the people” propelled by the transparency our digital world enables. The past informs the present, but it is not a reliable model to use in creating the future.

2. Believing that in-person work will return en masse.

One of the most dramatic changes because of the pandemic is the shift to work from home. A Grant Thornton survey reveals that 79% of full-time employees want flexibility in when and where they work. And 69% agree that working from home has improved work/life balance plus half (51%) would give up 10% to 20% of a future salary increase to have flexibility in when and where they work. More revealing is that 45% believe that their employer doesn’t understand their needs. To that, we say start talking! Working from home has become the new normal. According to Grant Thornton, while 56% of workers surveyed say they look forward to returning to the office, 40% say they will seek another job if forced to return there full-time. Forcing in-person work will contribute to and further deepen the great resignation. Working from home has empowered workers to make the quality of life demands, which in turn has promoted war for talent. In terms of creating a functional and modern workplace, the past typically informs the present, but the factors and variables of a high-performance workplace today are very different. Those retrenching in their belief that culture cannot be managed virtually, believing that teams fail without physical interaction or that the only way to effectively communicate is in person, are failing to admit to themselves the adaptations and changes that occurred over the past two years. Harshly speaking, they are dinosaurs who seek to return to what they were comfortable with and not transitioning and accept change within themselves.

Hybrid work, of course, is the compromise solution, necessitating infrastructure improvements both in the office and remotely. Redesigned offices will enable safety and security and may become places for socialization, not focused on actual work. Community and culture are undergoing a review in how to maintain team effectiveness in a remote model. Collaboration and communication tools (like Slack, Teams and Zoom) are on the rise as remote networks. One antidote to the great resignation is to implement entry interviews as part of the onboarding process. Thrive Global says “almost all companies conduct an exit interview when an employee leaves, quizzing the employee about their experience, what worked, what didn’t work — with the idea of the company doing better with other employees in the future. But what if managers understood these factors when it could make the biggest impact: on the employee’s first day instead of their last?” The entry interview is a conversation between a new hire and their manager on day one that starts by asking what’s important to them outside of work. Thrive adds, “For parents, it might be taking a child to school. For others, it might be logging off at a certain time one night a week for a physical therapy session or for a fitness class. It’s about acknowledging that we take our whole selves to work and that nobody should have to choose between being successful at their job and being fulfilled in other parts of their lives. It’s a way of making onboarding a more meaningful, ongoing conversation, because when we know what matters to someone in their personal life, our regular check-ins become deeper, and we are more likely to know how they are faring at work and in life as their needs and priorities evolve over time. As the saying goes, people don’t leave jobs, they leave managers. In this age of hybrid work and constant uncertainty, empathetic leadership is more critical than ever.”

3. Not changing or transforming organizational constructs and business models in response to disruptions and demands, internal and external.

A recent survey of executives’ top priorities of disruptive forces over the next 12 months (AlixPartners) reveals that automation, AI and robotics top the list (12 %), followed by new competition and business models, and technological advances in materials and processes (both at 11%). The next three risks, pervasive connective technology infrastructure; expectations of personalized products, services, and experiences; and data privacy and cybersecurity are third-tier priorities (all at 10%). The least concerning is Covid (3%); protectionism and tariffs (5%); regulation, policy, or geopolitics; major shifts of demographics and income; and growth of emerging markets. Not to dispute the researchers, but we believe that ranking major shifts on demographics and emerging markets last entirely misses the point. The obvious concerns of tech, business models and cybersecurity are critical short-term challenges and key to operational continuity. However, ignoring the human factor that will change the culture of customers and the workforce is to overlook the most important fact of preparing any organization for the future. In our weekly newsletters, we have emphasized the importance of context, aligning to a shared purpose, the application of critical thinking and the use of active listening. The intent is to demonstrate that humans are the most important element in any plans, strategies, and across the organizational system. It is critical to understand how they think, interpret information and how they respond to the influences around them. In this regard, many people tend to be shortsighted and reactive to the hype in a marketplace. Short-sightedness and superficial reaction result in short-term impact but never produce sustainable, long-term change and adaptation. When an organization checks the box of completion for any short-term hype-based initiative or operational imperative, another trendy idea quickly takes its place. This focus on task limits an organization to reflect internally and therefore misses the important changes that are occurring around it.

4. Not recognizing the criticality of the human factor in sustaining, changing, and transforming an organization.

Many leaders have been accused of charting a strategy for the future with an inner circle of executives, without consulting with, and including the workforce as change agents. But change management is a team sport and people need to know how their roles will change, what they will gain, and what they will lose. Paul Leinwand and Mahadeva Matt Mani principals at PWC advise, “Reinvent the social contract with your people. Engaging employees in executing a transformation has always been important, but today it’s taking on a whole new meaning. Given the increasing reliance on capabilities that people help shape and the rapid pace of change, the only way to succeed is to adopt a ‘citizen-led approach’—to have employees deep inside the organization and the ecosystem continuously contributing and innovating. To get people to own where the organization is headed via a shared purpose, reassure them of their importance in shaping the company’s future, aid them in understanding how they can transition and most importantly express how valuable their roles and individual contributions are. Once people understand their role, engage them more meaningfully.” Everyone can and should contribute to solutions. With a sense of community, a workforce can pull together to share the skills and experiences an organization needs to build differentiating capabilities. Also, by making your organization outcome-oriented, you can build more resilient teams that bring together the needed expertise, knowledge, technology, data, processes, and behaviors from across the organization. Outputs tend to take center stage as work is measured but outcomes are often overlooked. Leinwand and Mani add, “This sort of thinking will let you shift from the old functional and fixed organization to a model of outcome-oriented teams that work across organizational boundaries to deliver your capabilities. These teams will coexist with the organization’s offices, business units, functions, and shared services, but will increasingly become more prominent elements of the organization.”

5. Overlooking inherent bias and failing to seek objective data to inform decision-making.

Sarah Rosen Wartell, President, Urban Institute says, “I’m increasingly seeing that we are sorting ourselves physically where we live with people who are more like us, who think like us. They are trying to find communities where there are cultural affinities, and those communities are ones where then those same characteristics are things that have a lot to do with people’s politics.” We self-segregate to the extent that we surround ourselves with people who think like we do. Urahn adds we have always been partisan, “but it’s definitely gotten worse over time. And, certainly, the echo chamber of the media, and the jobs, and everything where you just talk to people who think the way you do has intensified it.” Leinwand and Mani suggest, “Invert the focus of the leadership team. Just as your company needs a strategic effort to build the right differentiating capabilities, your leadership team will need new skills and mechanisms to shift to this new form of value creation. Step back and start thinking from a clean sheet: Do you have the right roles? Do you have the right people? Are you focusing on the right things? Are you driving the transformational change required or spending most of your time responding to the organization’s short-term needs? Are you working together effectively?” Overcoming bias is essential so that your leadership team can operate openly by recognizing the virtuous outcomes of DEI and reinforcing a workplace culture that is recognized by employees and customers as fair and equitable.

6. Believing technology is the answer to problems and issues.

First of all, technology is not evenly distributed. Wartell explains that “parts of our society are seeing amazing returns, from technology that are improving our standards of living exponentially. And yet, others aren’t experiencing that at all. And these divides are not only the haves and have-nots because within that there’s a lot more complexity.” There is an ongoing dispute over the popular notion that technology is a silver bullet that will solve all problems and unlock the doors to prosperity and sustainability. Leinwand and Mani say “Being digital has become the mantra for business survival. Digital efforts have been proliferating greatly as organizations work to catch up with technological innovation. Yet despite having put so much energy and investment into digitizing, most have not gained a competitive edge. In fact, digitizing may have even made things worse as organizations dedicated more and more of their cash, time, and energy into simply playing catch-up with their rivals focused on the tech and not the very human workforce who is responsible for the work of the organization.

Organizations need to move beyond viewing technology as a silver bullet that solves all problems and recognizes the criticality of market orientation and shared purpose that can organically reveal an organization’s opportunities for differentiation.

How do organizations do this? Leinwand and Mani add if you get your “differentiated capabilities right, and then the flow of digital-powered products, services, solutions, and experiences naturally follows.” These capabilities involve much more than technology. They require dynamic combinations of a knowledge base, processes, technologies, data, skills, culture, and organizational models that together allow companies to create value in ways that others cannot. Leinwand and Mani, add “Be clear about how technology decisions support your capabilities rather than playing the game of investing in every technology solution.”

7. Failing to understand how to transition individuals and teams to new roles, ways of working, collaborating and most importantly, in how they see their own value.

The only way for organizations to thrive in this disruptive age is to recognize the importance of the humans who represent the workforce. Your workforce is your most powerful natural resource and your organization’s foundation. In positioning, transformation, change and moving to a shared purpose, it is important to recognize the need for transition management. Managing how individual roles are changing, how responsibilities are changing and most importantly how an individual can re-value, realign, reassess and internalize their contribution to an organization’s shared purpose is central to success. Organizations often overlook or deemphasize the importance of addressing and planning to guide individuals through the transition.

Failure will result if each individual cannot answer the following three questions:

  • What will we no longer be doing?
  • What will be different because of the change?
  • Who will lose what?

8. Misinterpreting the needs and expectations of customer stakeholders.

Wartell studies how people learn in a world where people are highly polarized. She reports that “it’s not that they don’t trust the information. They don’t even always engage with it. So, on the one hand, we are mining research and data for evidence. On the other hand, the number of people who are going to digest a spreadsheet, or a wonky piece of information, is relatively limited.” Understanding the needs and expectations of stakeholders requires active listening. It also means companies must establish a solid foundation of shared purpose and trust. In an analytics-driven marketplace, first-party data is golden to understanding what customer stakeholders expect. Leinwand and Mani add that “customers will share private information with you, but only if the value you offer in exchange resonates with them and they trust you to make good use of their data. Building on this foundation, organizations can then focus on solving their customers’ most important problems. You can use the privileged insights you gain to systematically strengthen your value propositions, capabilities systems, and products and services offered. In fact, gaining privileged insights may become one of your most important capabilities. The better your insights, the more you can increase your value for customers. The more you improve your value propositions, the more trust you generate by delivering on your promises and the more customers engage with you. The more customers engage with you and trust you, the more you remain connected with and relevant to them—no matter what changes happen in the world around you.”

9. Not recognizing that change, transformation, and adaptations in response to market dynamics are table stakes.

Change is hard and we resist venturing outside of our comfort zone. Humans want predictability and comfort which bring security. But that is becoming an occupational hazard in a dynamically changing society. In fact, 72% of CEOs worry about losing their jobs due to disruptions facing their industries. According to AlixPartners that is a 20% jump from just a year ago. We have accepted the reality that the pandemic has been a massive force for organizations to adapt or fail; 94% of the executive say their business models need to change over the next three years, but 57% fear their companies aren’t adapting quickly enough. Anxiety can have a crippling effect and too much analysis can lead to paralysis. The role of any leader is to mobilize a team to anticipate the macro shifts that shape the future and then create the appropriate meso systems and structures to actualize the strategies and operations required to remain competitive. This requires being rigorously informed about the key issues that will impact your organization; active listening to all stakeholders; and supporting a collaborative workplace culture to promote the free exchange of shared knowledge. Leinwand and Mani advise, “Reimagine your place in the world. look beyond your current portfolio and products and determine what value you will create and for whom. You will need to be much more ambitious than you might have imagined just five to ten years ago, thanks in part to the evolution of powerful digital platforms and ecosystems you can now participate in. Whatever your new value proposition is, make sure you have identified a meaningful position and shared purpose that is unique to you and powered by your capabilities. Fundamentally reconceiving how you create value combines art and science. Looking at data trends and asking customers what they want isn’t enough. You need to develop your own one-of-a-kind point of view on how value will be assessed and created in the future and what capabilities you will need to fulfill that value proposition.”

Managing Risk

At 2040 we have deep experience and expertise in helping our clients navigate, mitigate, and manage risk. These nine risks that face organizations as we emerge into 2022 are manageable with the tools that we have developed to ensure leaders on all levels anticipate the future and do not catch up to it. We live in turbulent times surrounded by ambiguity, market disruptions, and the uneven distribution of resources. We can help you develop the right plan to match your market mission to thrive and prosper in 2022.

20Forty Continue Reading

The Truth about Transformation

Book Preview Excerpt

Organizations, whether private companies, non-profits, charities or governments seek to transform to take advantage of new opportunities, including technological advances. Often, technology is the major driver of change that results in transformation. As a result, the organization often fails to achieve its objective and goal to truly transform. You see, technology remains an enabler, not a silver bullet. True transformative change requires understanding of the human factors at play, human conscious and subconscious behaviors, how humans inter-relate and how society itself and all of its members are changing.

Our workforces are changing, the expertise we need is becoming harder to acquire and roles are shifting. In addition, before and because of Covid in 2020, the world around us is becoming very different, a new reality is taking hold, one that will fundamentally change who we are, how we work and yes, how we seek to ensure organizations transform for today and for the future.

The Truth about Transformation, a new book by Kevin Novak, will soon become available. Enjoy a short preview.

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