Dealing with Disruption

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Companies that can’t find a way to reinvent themselves in this digital era risk losing ground quickly and, ultimately, face obsolescence. The smorgasbord of advanced technology that enables digital transformation can easily overwhelm those without an IT background. Yet, it is the board’s role to understand the risks and opportunities of disruption, make sure the company’s vision for both the near and long term is sound, and monitor strategy execution. Just how to do that was the topic of CBM’s 2019 Disruptive Tech Summit, held in June at the Massachusetts Institute of Technology.

The board’s ability to understand the technology being deployed and to support management’s investment is critical for the company to stay focused on long-term innovation and growth, said Kris Pederson, corporate governance leader, EY. “You need to put the right governance structure around it because it’s really easy for management to pull away in order to make the short-term numbers,” she said. “You have to make sure that you, as a board, understand, ‘Hey, we know we’re suffering here, maybe in the next two, three, four quarters, but we’ve got management’s back because we know we’ve got a couple of things in the hopper that will pay dividends long term.”

First, however, directors have to understand what is in the hopper. The interactive, two-day summit sought to put the latest technologies—such as A.I., blockchain and robotics—in real-world perspective to help directors separate the promise from the hype in evaluating their own companies’ strategies.

Stop Predicting, Start Preparing

As boards know well, the future is highly uncertain—and humans are terrible at predicting the future, said Dr. Chris Caplice, executive director of MIT’s Center for Transportation and Logistics. “We are all provincials in time. We look to the future using today’s lenses, and we think today will go on forever. Once we get there, we look back and think it was obvious how we got here, it seems pre-ordained.”

But while humans struggle to spot the next wave of disruption, they do excel at preparing for a variety of possible scenarios. Caplice advised thinking in terms of effects or outcomes from a variety of scenarios rather than spending any time trying to figure out which one is likely to win. “Start with, what are the big things that would drive us down?” he suggested.

Jay Hooley, chairman of State Street, spoke with Linda Hill, former State Street director and current faculty chair of Harvard Business School’s Digital Initiative

When you find a golden opportunity, be prepared to pounce. In a fireside chat, Jay Hooley,chairman of State Street, spoke with Linda Hill, former State Street director and current faculty chair of Harvard Business School’s Leadership Initiative, about the firm’s decision almost a decade ago to spend half a billion dollars on innovation. Hooley, who was CEO at the time, noted that as they began to digitize and connect systems, “we realized that the big opportunity here was really around data. In an organization that services $34 trillion of assets and processes 50 percent of the world’s tradable securities every day, to mine that data, to organize it in a way that we could re-present it to our clients to benefit their business and also to create new products—that was the grand prize.”

To take advantage of the fourth industrial revolution, companies need a talent strategy tailored to the new era—and the board can and should be the catalyst for that. Alison Quirk, CHRO of State Street, recalled when, several years back, her board began grilling management about talent strategy. “We were kind of defensive about it in the beginning because we thought we were really good at it, but truth be told, we hadn’t spent enough time digging into how effective we really were,” she said. “That made us take a step back and say, really, what is the future? How are we mapping from where we are today to where we need to get to? What will those skill-sets look like and how are we acquiring them?”

In addition to recruiting top talent, upskilling and reskilling have become crucial tools for assembling the new digital work force. “Increasingly, all careers are hybrid careers—technology infuses everything,” said Mike Fenlon, chief people officer, PwC U.S. “I’m a CHRO, but many days I feel like a CIO in terms of the amount of time and mindshare spent on technology.” To encourage constant learning, PwC uses, among other tools, gamification, digital personal training and “badging,” which asks employees to earn digital acumen knowledge badges by completing various assessments. “These digital badges stay with you even if you leave the firm. You can post them on LinkedIn—think blockchain of verified skills.”

At Liberty Mutual Insurance, employees were offered an immersive three-month reskilling program to prepare for new jobs. “We put over 300 people through this program and brought them back into new roles,” said Melanie Foley, EVP and chief talent and enterprise services officer. “But we also had to lay off significant volumes of people who didn’t have the growth mindset or the desire to change.”

Beware the Hype

While much of the latest technology has solid applications for business, not all are worth the expense. Hype is infectious, and the board is often the last line of defense, said Ron Harbour, senior partner, Oliver Wyman, adding that the first question to ask when management pitches an investment is: “What is this going to do for the customer?”

Harbour recalled touring an auto manufacturing plant where a large robot had been installed to place the windshields. The robot took the place of two workers, but because it was often [offline], more people ultimately had to be deployed. “It didn’t do anything for the customer. It didn’t improve quality or anything else. It just added cost.”

It also meant the company couldn’t make changes to the line without moving a heavy piece of equipment. “As board members, you have got to ask this question: is that technology going to improve my flexibility or take it away?” Similarly, a fleet of cobots would be exciting, but directors have to probe management as to whether the company has the technical skills to keep them running and to reprogram them when there’s a line change—and whether they will indeed add to the bottom line.

Some tools simply don’t make sense. James Mickens, professor at the Harvard School of Engineering, explained why blockchain, despite being the most buzzed about technology of the past five years, is not a good fit for most business applications. “A lot of the blockchain snake oil is being sold because people don’t have a root understanding of the technical issues,” he said. Instead of buying the buzz, said Mickens, “you should think about, ‘How can I leverage preexisting, commodity cloud offerings and preexisting database research to build an application?’”

A.I., on the other hand, will have a huge impact on companies in the next several years, according to Angela Zutavern, head of A.I. for AlixPartners and co-author of The Mathematical Corporation. While most companies are using it to automate some basic tasks and decision-making, “that’s only scratching the surface,” she said. Plenty of decisions are too complex to be made by A.I., “but if you can rule out the 30 percent of decisions that are easy, no-brainers and take those off the table, that allows you to focus your valuable human resources on the ones that are left. That’s the real game changer.”

A.I. will also change how companies are organized, as they move from a centralized model, where A.I. is housed in a technology department, to a deployed model, where A.I. scientists will work closely with business units, and finally, to where companies are doing enterprise A.I. at scale, the embedded model, said Zutavern. “This is where A.I. is no longer a specialty function—it’s really a part of everything the company does. That will be the ultimate goal.”

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