Leading Transformation: How to Take Charge of Your Company's Future

Nathan Furr, Kyle Nel, & Thomas Zoega Ramsoy

256 pages, Harvard Business Review Press, 2018

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For the last century, leadership frameworks stemming from classical management theory have been the go-to resource for leaders and organizations alike.

As a field, however, classical management was developed as a response to the demands and challenges of the industrial revolution, which occurred during a time when the primary focus of enterprise was to capture value in a more certain world.

Today, leaders and organizations are facing a fundamentally different era of business, and one that is filled with rapid change, emerging technologies, and converging industries. The demands presented by today’s more uncertain and accelerated business environment are placing a new stress on leaders to innovate, and quickly. But the old theories on how to achieve this are falling short.

Leading within uncertainty, it turns out, calls for a new set of tools and frameworks to do so successfully.

To address this gap, new practices such as human-centered design, lean startup methodology, and business model innovation have begun emerging to transform new product development, and in our book, Leading Transformation: How to Take Charge of Your Company's Future, we present another new method designed to help leaders overcome the intractable human responses to change and transformation. The process outlined in the book is based on a novel field called behavioral transformation, which examines the behavioral and cognitive science behind how innovation and transformation actually happen within organizations.

Behavioral transformation brings specific attention to the behavioral limitations that stymie organizations from seeing and capturing opportunities for transformational change, such as incremental thinking, ingrained habits and biases, and innate fear of the unknown. In doing so, it teaches leaders how to reshape their thinking towards innovation, change, and reaching their highest potential.

It took nearly 200 years from the start of the industrial revolution, to the formation of the first business school in 1881, to truly refine the current field of classical management as it is today. Knowing this, developing a new and mature discipline focused on creating value in today’s more uncertain climate will likely also take considerable time.

Leading Transformation is our effort to start this now by understanding and addressing the human roadblocks to transformational change. The below text is an excerpt from Leading Transformation: How to Take Charge of Your Company's Future (Harvard Business Review Press; November, 2018).— Nathan Furr, Kyle Nel, & Thomas Zoëga Ramsøy

The Behavioral Innovation Manifesto

In 1850, the president of Harvard University remarked in surprise that over half of its graduates were going into a new profession, one that hadn’t even existed a few decades earlier. Although people were flocking to this new profession, no schools yet trained those wanting to join its ranks, and no programs existed to provide certifications. Yet this new profession would go on to become the largest professional class in history, spawning thousands of new colleges, programs, and schools.

This new profession, which today we call management, hadn’t previously existed because there had been no need for it before the industrial revolution. At that time, pre–industrial revolution, virtually all companies were small businesses, with thirty or fewer people employed in small workshops. But during the industrial revolution, the social order that had existed for centuries began to rapidly change. First, the formation of the Dutch East India Company in the 1600s laid the groundwork for the large corporation, with the creation of joint stock ownership. Then, technology, particularly the steam engine, changed the entire economic landscape, transforming it from an ecosystem of small workshops into a handful of giant organizations.

Suddenly, the world faced new problems, namely, how to coordinate the exploding rail system so the trains ran on time, how to hire the armies of laborers now needed and how to pay them for their work, how to optimize production, and how to coordinate a huge enterprise. Business schools were founded to train the leaders who could solve these problems, primarily how to coordinate, optimize, and compete. Frederick Winslow Taylor, the father of modern management, was literally trying to answer the question of what size of shovel to use when a worker was shoveling iron ore, and at what pace, to optimize production. At the heart of these challenges was the question of how to capture value in the gold rush created by industrial manufacturing technology.

But in the last few decades, new forms of digital technology, starting with the transistor and all its digital ancestors, including microprocessors, sensors, and connectivity, have again transformed that landscape. Digital technologies have lowered the barriers to participate and create while magnifying the potential impact of such participation. So have geopolitical, social, and educational changes. As more and more individuals participate, the pace of invention, creation, and adoption has exploded while the dominance of big companies has fallen. For example, consider that the US patent application rate increased more than sevenfold. Over fifty million new businesses are created each year worldwide today.

Meanwhile, from the 1930s until today, the number of years a Fortune 500 company stays on that list of titans has fallen from seventy-five to just eleven.

In this more uncertain environment, the problems we face are less and less about how to capture value, which was the primary concern during the first industrial revolution, and more and more about how to iterate, explore, and innovate or, more generally, how to create value. But if the primary occupation of classical management has been capturing value in a world of relative certainty, what are the right frameworks for creating value in a world of uncertainty?

Classical management has comparatively little of substance to say on this front. As the environment continues to become more uncertain and complex, leaders will require new perspectives and tools to solve new problems.

Fortunately, many new frameworks have emerged to fill this need. In computer science, agile methodologies emphasizing rapid sprints and iterative cycles were developed as a reaction to the failure of earlier waterfall planning methodologies (sequential approaches in which one step is not initiated until the preceding step is completed). Similarly, human-centered design that expresses empathy for customer problems was a reaction to more-traditional stage-gate product development. Likewise, the lean-startup methodology, focusing on rapid experimentation and minimum viable products, was created to countervail the armchair-quarterback approaches to business planning. Similarly, business model innovation approaches have become popular and highlight the possibilities of creating value with new business models.

Each of these frameworks has added immensely to our emerging understanding of how to manage in a world of uncertainty. But are they the complete answers? Does the lean startup offer all that we need in this complex world? Possibly not. Although each framework offers useful tools, they may offer only part of the eventual solution set for a world of uncertainty.

Indeed, as a thought experiment, ask yourself, Is design thinking or the lean-startup approach likely to produce the next SpaceX, the next AI breakthrough, or the next figurative transistor? Or does making a “moonshot” require something different—imagination, commitment, and even denial of easily observed consumer reactions (consumers hated the Aeron chair, and Steve Jobs notoriously refused to listen to customer feedback on radical products). Just as it took almost two hundred years from the start of the industrial revolution to the formation of the first business school (in 1881) and then another century to refine the discipline of management, it may take more time to develop the mature discipline to navigate uncertainty and value creation.

Arguably, more radical innovations are characterized by both more uncertainty and situations with greater experimentation costs (the costs of experimenting with reusable rockets are orders of magnitude greater than those associated with app development).

As Nathan argues in his previous book, we should be looking more broadly for the theories and frameworks that are still missing, the theories that would help us better navigate and prosper from both uncertainty and opportunity.

Leading Transformation represents one of these frameworks, particularly in its attention to the behavioral limitations that keep us from seeing and capturing radical opportunities or transformational changes. But it does not represent the full spectrum of ideas, frameworks, or theories that can help us prosper in an uncertain world.