Transformational Leadership: The Other Side of Disruption

The business landscape is shifting. Change is constant and the pace is faster. The skills gap is wider and customer focus is narrower. We’ve been disrupted, and we’ve been the disruptors. Now what?

In the latest global survey of AESC Members, AESC explored how constant disruption has affected members’ clients, including the impact of tech, the need for creativity, and how leaders are fostering innovative cultures.

Tech and Industry: The state of play

Sophisticated sensors, real language processing, facial recognition, 3-D printing, predictive analytics, machine learning and the full range of evolving technologies continue to transform industries. Communities, companies, and even broad industrial sectors are adopting technology at different rates and for different purposes, but technology’s ongoing influence on products, processes and populations demands that organizations embrace transformational leadership.

In the life sciences sector, “The different technologies that are appearing in the hospital environment put the patient at the center,” David Colorado, Partner in Talengo/TGCL Life Science Practice says. And leveraging that technology “is not just about the amount of data available, it’s really about the expertise that we need to manage the different kinds of technology appearing in the healthcare professions.” He says, “I think we are at the beginning here in Europe and specifically in Spain. We have many examples of physicians using artificial intelligence to really give support to their patients. Hospitals are using aggregate data to really forecast medical issues in the near future, to care for patients. So it’s right here, the technology is here.

CEOs can use technology to find new sales channels, new connectivity and customer engagement platforms.

Marcelo Apovian is Managing Partner at Signium, Brazil, with a professional focus on consumer goods. “Our market is changing, but not so fast,” he says. Brazil, Apovian explains, has incorporated many consumer-driven technologies. “We have Uber, we have the Itaú Bike app, but we also need to have technology in manufacturing. We need to enable the supply chain, and this is not so evident in Brazil.” For Apovian, “CEOs need to focus on technology. They need to ask ‘How can I have an up-to-date inventory platform that can help my business grow?” For example, he says, “CEOs can use technology to find new sales channels, new connectivity and customer engagement platforms."

According to industrial manufacturing specialist Jose J. Ruiz, CEO & Managing Partner at Alder Koten, “There is a lot of talk about digital transformation and the way these new technologies are impacting the products and the way that business is done, but the biggest impact comes in how cultures and the management styles are being shaped.” Ruiz explains, “Traditional management incorporates longer planning and execution cycles, while the new, tech-driven management trends are shortening the planning and execution cycles in a way that shifts away from trying to achieve certainty in the planning process and execution phase, toward having to live with a bit more uncertainty and executing with a focus on experimentation and very short cycles.” Ruiz calls it “a little bit of the ‘fail-quick, fail-small’ business approach.”

The biggest impact comes in how cultures and the management styles are being shaped.

For Bob Brown, Managing Director, Kaplan Partners, technology is leveling the financial services playing field. “For mid-cap companies, appropriately using the Cloud is going to become much more important because you can play bigger than your size if you utilize the Cloud.” It’s also simplifying the customer experience. He says, “Something as simple as when you dial in for customer assistance, the whole front end now is automated, so by the time the customer service representative gets the call, it’s the right person, they already know who they have on the phone, and the information is on the screen.” He adds, “In general, if you get that right, it’s a better customer experience, it enhances the employees’ effectiveness, and on top of all that they’re getting data about what customers are calling about and why they’re calling and what are the problems so that they can go back to the front end and fix them.”

Alan Kaplan, founder and CEO of Kaplan Partners, also points to the use of technology to improve the customer experience; he finds particular value in the security that technology affords. “We’re a big American Express customer, and on the rare occasion when there’s something nefarious going on, literally at the exact same time my office phone rings, I get an email, and I receive a text. Literally just this morning, all of a sudden there was a charge from a gas station in Florida, and the system just picked that up and knows.” He adds, “How beneficial is that? Maybe there’s more value in trying to protect the customer than there is making their transaction marginally faster and marginally more efficient. Because a security problem is a big problem.”

Insurance companies are similarly focused on using technology to engage better with customers, according to Amanda Williams, Co-Head Insurance Practice at Korn Ferry, Australasia. “Digital channels and digital connectivity are key in terms of how insurance companies are engaging with their customers.” For example, she says, “Insurance companies used to interact with customers at the point of renewing a policy and at the point of making a claim, but now they’re using the power of data and AI to understand what a customer journey might look like, about how else they might interact with a customer, and how else can they create conversation—an ongoing conversation—to identify what other needs that customer has and bring value to it.”

Annelize van Rensburg, Executive Search Director, Signium Africa and global leader of consumer goods and services practice at Signium, highlights the value of Blockchain technology. Van Rensburg who focuses her work on the food production and consumer products industries, explains that with Blockchain, “You can literally just scan the label, and get the exact origin of the product. People want to know that the food has come from a place where no laborers were abused. They want to know where the product actually comes from for both health and social reasons.”

Van Rensburg continues, “In South Africa we are pretty proud of where our produce comes from. We don’t import much, and although there are a lot of cheap textiles and stuff coming into our country, the products that are South African are really a source of pride. So I think that domestic consumers really like the fact that they can see from which region the wine is coming from, or where the vegetables and fruits are coming from. And I think it gives a lot of comfort to the countries where they’re exporting, too.”

Auguste (Gusti) Coetzer, Executive Search Director, Signium Africa points out that use of new or disruptive technology involves choices and potential costs. She says, “Our unemployment in South Africa is already sky high, and the problem that can come with technology is that you can remove the human element. In a country where we need to create jobs, from the consumer perspective sometimes or the employee perspective, technology use can present a bit of a challenge.” Coetzer also recognizes the benefits of adopting new technologies: “Then again, by producing better quality products, your foreign and export revenue is built up, you make more money, and you can reinvest in creating other jobs.”

Driving Creativity

“It used to be that innovation was incremental,” Ruiz says. “Now we realize that innovation has to be disruptive. Companies that aren’t disrupting themselves, they know for a fact that they are going to be disrupted by somebody else. Now you’ve got start-up industries that are starting to merge into traditional businesses. Tesla is a great example of a company that wasn’t taken seriously, and is now driving the electric vehicle industry.”

How do organizations drive creativity? Successful approaches include learning to listen, including different voices, creating opportunities and accepting missteps.

Brown suggests that encouraging creativity in an organization can require a measure of self-discipline in leaders. “When you start encouraging employees to be creative and come up with ideas, a number of things will happen. You will get some good ideas that you really want to run with—ideas that will drive change and revenue and profits. But you’ll also get a lot of bad ideas, and ideas that have been tried before and didn’t work out. It’s easy to say you want to change, and you want ideas, but if you end up at the first meeting with an employee who says ‘what if we painted our signs red rather than blue’ and the leader responds with ‘that’s the dumbest thing I’ve ever heard,’ you’re sending a message that you’re not really serious about ideas. You have to sit there and let things unfold.”

New ideas are less likely to come from the same people whose views have always been represented.

What helps to enhance and foster the kind of innovative thinking we're looking for starts with getting people who look at things differently.

Kaplan says, “A big part of what helps to enhance and foster the kind of innovative thinking we’re looking for starts with getting people who look at things differently than the way the company management and the board might have looked at things fifteen, twenty, thirty years ago.” For example, he says, “There’s an untapped segment of the market, and we have a client with an Asian-American director on their board who educates people about the fact that the Asian-American community banks differently and looks at the relationship with a financial institution in a completely different paradigm than you or I do.”

In addition to the traditionally recognized elements of diversity, that different paradigm can be based on a person’s role or rank in the business. For Colorado, “I think that one of the worst things in a company is that you have the decisions made only by the CEO, a committee or task force.” Diversity, he says, “is the opportunity for everybody to be free to contribute with different ideas. If you’re taking in account diversity in a company, you can have innovation when everyone is heard.”

“Everyone is free to say what they think and in some cases that will be good and some cases not, but everyone is heard,” Colorado says.

Van Rensburg tells a story about a leader who sought out the ideas of everyone in the company. “We actually have a bank in South Africa where the CEO had a competition where any staff member could come up with a suggestion on the innovative side, and if your innovative suggestions were implemented, you really got a lot of money. One of the bank’s employees came up with an amazing banking app for a phone.”

Williams describes one such exercise in creativity. “One of the major Financial Services organizations here in Australia, they ended up with hundreds of ideas of which most were activated, creating over AUD100 million in savings for the business.”

“It’s very inspiring,” she says.

Not every CEO is going to be able to open a contest to encourage employees to get creative, so Van Rensburg says “sometimes it’s just keeping the communication lines open, because people at the bottom sometimes see what the problem is and come up with some solutions, and if they’re not given the opportunity to speak up and, and bring those suggestions to the floor, then it’s lost.”

Formal, structured approaches to inspiring and nurturing creativity can include training around ideation, experimentation, and skills that support innovative thinking. Williams says “some organizations might give people the opportunity to take on new development opportunities in an area of interest. High performers tend to be motivated by challenges, and challenges tend to drive interest and creativity in people.” She says, “That inspires talented people, so organizations could for example, provide an opportunity to work in an autonomous or self-managed environment where they have a reputation to live up to.” Williams suggests “a spinoff or an incubated team that is set up to explore disruptive innovation in some way. In Australia, a number of the major insurance companies and banks have innovation hubs or innovation centers, and those are areas of great creativity.”

A significant driver of creativity is the freedom to fail.

Is it even possible to adapt, advance, and disrupt without taking chances? If creative people are only recognized and rewarded for their successful ideas, chances are the only ideas they’ll put forward are safe bets. Williams observes, “Organizations that are prepared to celebrate small failures that deliver valuable learnings have an advantage.” She says, “People feel safe having a crack at initiatives aimed at optimizing ROE if they know they can fail and it’s not a major disaster.”

“We need to take into account that the health sector is very heavily regulated,” Colorado says, and that inhibits innovation. “In an industry with many issues around compliance, many people who have been working in this industry for a long time have some fear of error, fear of compliance, fear of regulations, and one of the main things that all the companies are trying to do is to change this fear of taking risks, and allowing people to do different things and try new ideas.”

Failing to embrace failure is actually a threat to a culture of innovation. Colorado explains, “A company needs to be interested in new ideas, but should not believe that all the new ideas in the future will be good ideas. If you penalize mistakes or if you do not allow the people to make errors, to make mistakes, those people are not giving you their ideas in the future.” He says “You need to allow people to fail, to generate a culture of innovation in the company.”

For Ruiz, “there has to be a cultural transformation that changes the organizational management from a traditional management style toward something that is more similar to design thinking, which fosters natural experimentation. It has to be a culture that allows and encourages people to experiment and not be afraid of failure. You can’t have creativity if people are constrained by the fear of changing things because they fear that it’s not going to be well-viewed.”

Ruiz understands the seismic shift from zero tolerance to acceptance of failure. When leading a manufacturing operation, he says “if we were working on a manufacturing line and a change needed to be made in the product, we would do a lot of analysis for many months, and then go implement the change, with a full cycle time of maybe six months.” Now, he says, “It’s more of a culture of experimentation, and it’s counterintuitive to what many of us learned in the manufacturing environment in the 90’s, when variation was the enemy. So I think that’s the big shock factor with industrial companies. Technology is forcing us into a very ‘quick reaction, short cycle’ type of implementation and it’s throwing a curve in the traditional management style and planning cycles.”

What about culture?

Failure tolerance is cultural, and culture also plays a role in both sparking creativity and innovation, and helping it take root.

Brown says, “It’s not enough just to say we want new ideas, there has to be some compelling vision of what an organization wants to look like. It wants to be different, it wants to serve different customers, it wants to have a different quality. There needs to be some burning platform so that employees understand the need to get to a better place. And after you’ve established a burning platform it’s really a matter of then providing an environment that fosters creativity,” he says.

“You can’t simply say ‘we want to become X’ and do business as usual.”

Colorado says, “You need to have very strong, diverse leadership to generate this culture of innovation. Many of the companies in the pharmaceutical industry have been doing the same things for a long time. And when you are doing the same things, you will get the same results.”

Some markets are eager for a culture of transformation that has not quite arrived. Apovian says “We are not part of the transformation, but we don’t want to be out of the transformation. We are really trying to have this culture in Brazil.”

Apovian explains, “It’s not a matter of time, or of fiscal transformation for a company. It’s a cultural change. It’s a cultural transformation. And you cannot change the culture of your company hiring only one person, for example having one Chief of Digital Transformation. So what we see over here with these big companies and even with international companies is that they have to be attractive to the new generation.”

Why is it so difficult for markets, industries or organizations? Apovian says “The transformation and innovation is much closer to the 20 year old people, so companies need to attract the new generation. And they don’t have to work in a corporate office, they want to work in WeWork because they can have other companies nearby, and they can exchange culture and ideas between companies and other people. It is much more informal, so it’s not easy to have this kind of people in my company. It’s been difficult to recruit someone to implement innovation in a very traditional company because they don’t have the interest. The traditional company is not sexy. So it’s a cultural issue.”

A critical cultural issue is making certain that creative ideas and innovators are planted in fertile soil.

Williams says, “A lot of organizations might think to create an environment that’s generating innovation and transformation, that they just hire people in, but that’s not the right approach. It’s also about the operating model. The organisation must create an environment and culture where innovative and creative people can operate or they won’t stay.”

Can a work environment that fosters creativity and innovation improve recruiting and retention?

Coetzer thinks it can. “Innovation, if it’s encouraged, increases work satisfaction,” she says. “You find that a lot of people stay longer at a place purely because they enjoy the position, even if they don’t see a promotion coming. But, but there’s a great respect for what they do, they definitely will stay longer.”

Innovative, transformational companies also have a recruiting advantage, according to Apovian “In Brazil, when I started my company, maybe 70-80% of my friends they had the dream to work in financial services or consumer goods. Nowadays, maybe 20-30% of the new generation wants to work in the financial services segment. The other 70-80% want to work for a tech company and they want to do something that will generate something good. They don’t want to make a lot of money, they want to work regular hours, and they want to know if it’s possible to do something good for the firm, for the population. So it’s a totally different way of thinking. And the financial services companies here in Brazil, they are having a lot of problems. They are striking out, because they are not so attractive anymore.”

Will embracing transformational culture help companies with next gen leaders? Ruiz believes that companies and industries have no choice. “They’re being forced to embrace transformation, and Millennials and the Y generation are going to be the main drivers.” He says, “You have the X generation right now, who were still taught to manage things the old way so its uncomfortable, but now we’ve got people in the work place that are naturally driving this new thinking because they are digital natives. We learn digital, they’re just natives.”

What’s next? Ruiz says, “This whole cultural shift is what I mean when I say the fundamental shift has nothing to do with technology itself, but the way that new technology has shaped our behaviors. Digital natives want these micro-goals, they want to be able to earn this badge for being a silver runner or this badge for being a gold level book reader. Technology has shifted our expectations of how we receive feedback and what an ‘accomplishment’ means, and I think this is where the new generation clashes with the old management style.

Transformational Leadership: What is it, and why do we need it?

In “What the Best Transformational Leaders Do,” Scott Anthony and Evan Schwartz at The Conference Board discuss the analysis of the most successful transformations among S&P 500 and Global 500 firms. “Our analysis revealed characteristics shared by the winning firm’s leaders as well as common strategies they employed.”

• Transformational leaders tend to be insider outsiders
• They strategically pursue two separate journeys
• They use culture to drive engagement
• They communicate powerful narratives about the future, and
• They develop a road map before disruption takes hold.

AESC Members would add that transformational leadership requires a customer mindset.

For example, as a result of digital markets and communication, Coetzer says “consumers are becoming more sophisticated,” and businesses are responding. “In the past, specifically in South Africa, the consumer goods companies would decide which products they would place in the market, and that’s it. Now, they are listening a lot more to their customers. In the past, it was, ‘this is our product range, take it or leave it.’ Now they say, ‘how we can accommodate you?’”

You can't steer your company through constant change if you are relying on the safety of your cruise control.

Transformation is more than just about digital. “What I see in the middle-market, when the top of the house talks a lot about transformational leadership, they’re talking about digital transformation,” Kaplan says. “But more than anything, I think the companies that I see being the most successful are not thinking about transformation because ‘oh, Amazon’s gonna kill us’ or ‘Google’s taking over the world’, rather, they are thinking ‘how do we enhance our customer experience so that they can be successful, grow more, do more business with us? How do we change how we acquire new customer relationships—that’s not a website refresh. It’s that broader strategic, customer-centric thinking which I see as being the key,’” he says.

“It’s not ‘hey, we need to update our website,’ it’s ‘how are we using our knowledge, our skills, our capabilities, our technologies—whatever those are, to make life better and to make business better for our customers.’ It’s the customer centricity that’s really driving transformation.”

Additional advice to those who would be transformational leaders?

Stay nimble

“To stay relevant, leaders need to be open to new mindsets and methods, to explore new business models and innovate while still protecting their core business.” Williams says it is critical that transformational leaders “continually respond to digital change and create what we call digital sustainability, that ability to continuously transform, rather than seeing transformation as an end point in itself.”

Understand the next generation

Ruiz says “these next generations love experimenting, they love getting the immediate feedback, and that’s really where the organization has to go, but it is a very difficult transformation shift.” He explains “Our generation equated success with a title. The new generation does not. They equate it with being valued. What we need to do is make sure to make it easy for them to see their value in an objective way and a quantifiable way.”

Value the outside perspective

As in most industries, Colorado observes “the people who are coming to work in life sciences are already in the life sciences, and this is a big mistake.” He describes a client who is doing something radically different in the sector. “I have one client that created a new role called Digital Transformation Lead, and they hired a person from an innovative digital travel company. They decided to pull someone from outside life sciences in order to help us to understand better what is happening in another sector that we can apply to our own.”

Achieving and sustaining true transformation is complex, fraught with risk, and unrelenting. It is also essential. Perhaps that’s why transformational leaders are so rare, and organizations are going to great lengths to search for transformational leaders and cultivate fertile environments. Apovian says, “If you don’t have transformation in your blood, you’re not going to succeed.”

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