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    Global Peter Drucker Forum: Day 2 highlights

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    The 2018 edition of the Global Peter Drucker Forum was convened in Vienna, Austria this week. This post summarises insights from the second day (click here for insights from Day 1). I didn't take as many notes on the second day, preferring instead to sit, listen and dwell on what was said. (I also missed a couple of sessions, one to finalise my own preparations to speak; another to spend time privately with a two inspirational thinkers.) However, there were, for me, two speakers that really stamped their mark on the day, as follows:
    Hermann Hauser,​ director of Amadeus Capital Partners and chair of the European Innovation Council, delivered a strong message, arguing that humanity is on the cusp of an inflection point (moving beyond evolution to design thinking) that has the potential to 'change everything' in the reasonably near future. He identified four significant disrupters:
    • Artificial intelligence and machine learning: Allows for smart processes and removal of menial work
    • Block chain and smart contracts: Enables automated [process] execution to be designed into systems
    • Synthetic biology: Enables biological patterns of life to be modified, at the will of man
    • Quantum computing: Nascent technology with the potential to render security systems useless
    The implications of these disrupters are, frankly, rather daunting. Synthetic biology offers the prospect of defeating disease, but at what cost? Quantum computing has the potential to render electronic security systems useless. One doesn't have to be a rocket scientist to realise the massive implications for commerce, banking and warfare. Researchers and technologists are committed to bringing these capabilities to market. But at what cost to humanity? The ethical implications are not insignificant. Recognising this, Hauser suggested that the state has an important role to play, to ensure appropriate regulatory boundaries and safeguards are established. But it must act quickly, before the genie gets out. 
    Martin Wolf, chief economics editor of the Financial Times, spoke passionately about the role of the state; in his view, the single-most important institution in human history. I first heard Wolf speak a few years ago. He left a strong impression on me then, and did so again as he spoke. Addressing the question of how states can 'work better', Wolf named several important roles that the state 'must' fulfil par excellence:
    • To ensure society is both collective and inclusive (no one left behind)
    • To provide a fair and effective judicial system
    • To underpin the monetary system
    • To regulate and control sovereign borders
    • To finance innovation (in effect R&D, not product development)
    • To regulate and guide economic activity
    • To protect the commons
    • To collaborate with other states, to ensure stability of 'global' governance
    • To establish the laws, roles, purposes and legitimate operations of all business
    Such roles need to be implemented with aplomb. Failure to do so will inevitably lead to anarchy, in Wolf's view.
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    Global Peter Drucker Forum: Day 1 observations

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    The 2018 edition of the Global Peter Drucker Forum, the tenth annual gathering of leaders, philosophers and students of management was convened in Vienna, Austria this week, at the Hofburg, the Imperial Palace. The location was a wonderful, historical backdrop for two full days of discussions and debates on topical issues directly relevant to managers and leaders around the world.
    Overall, the purpose of the Forum is to share expertise and build capability in line with Peter Drucker's philosophies. This year, the theme was management . the human dimension. It was the second time I have attended the Forum. The decision to do so was relatively straightforward; made soon after I had the opportunity to stand amongst giants in November 2017. As was the case then, the programme followed a reasonably conventional format dominated by panel-based discussions and plenaries. One major difference from last year though was the scale of the event. Some 500 people attended in 2017. The tenth anniversary edition took a step up, to enable 1000 people to join the conversation. This led to some quite different dynamics at a personal level (notably that it was much more difficult to find people or to access the speakers). As a consequence, some intimacy was lost. But this is a minor point, especially when viewed in the context of a very well-run event.
    The following three summaries, presented in no particular order, provide a glimpse of the ideas shared and learnings from the first day. (If you would like to know more, please get in touch.)
    Business and society:​ Four panelists including Jean-Dominique Senard, CEO of Michelin Group, and Yves Doz, Emeritus Professor of Strategic Management at INSEAD, shared their thoughts on the importance of holding business and society together (the implication being that business and society have, or are at risk of, drifting apart). Key takeaways:
    • Whereas the people challenge during the industrial revolution was to manage staff (think, human resources), the challenge of our time as we proceed through the knowledge revolution is how to inspire staff (think, people).
    • Organisational purpose and underlying values are core to motivation and behaviour. These must be clearly established and inculcated throughout the firm (and even beyond), starting with the board of directors. If either purpose or values are ambiguous, or if people don't buy into them, the natural response is that people will offer their effort (at best), not their hearts and minds. The resultant firm performance can only be mediocrity. 
    • Collaboration, both within the firm and with others (think, ecosystem) is necessary if a firm is to scale quickly.
    • Most established businesses know they need to put people in the middle—but they struggle to implement the change needed to put this into practice.
    • Perhaps counterintuitively, 'legacy' businesses are often much more able to 'win', despite startups having greater mindshare and seeming to be better funded (Hyundai and BMW v. Tesla, for example).
    • Change is a constant now. Therefore, chief executives must operate from the perspective of leadership, not management.
    • Economic liberalism needs to be refined (to end the excesses of self-centred capitalism). If it is not, expect government intervention, through taxation and regulation. 
    Human questions, machine answers: Hal Gregersen kicked off this session with some stark predictions:
    • 15% of the jobs currently available will be removed in the future, due to automation
    • 60% of the jobs currently available will be substantially altered by technology
    The insight from the first of these numbers is that predictions of cataclysmic job-loss and unemployment are little more than scaremongering. However, the second number demonstrates that the impact of technology on work will continue to be very significant into the future. But we need to get past the numbers for focus on what actually matters: it is people.
    People everywhere need to become more adept at using computers, especially for menial and repetitive tasks, and, even more importantly, people need to be taught to be some computers can never be: humans; empathetic, curious, social beings. As humans, our ability to thrive in a world seemingly falling head-long into the embrace of AI is to ensure we ask the 'right questions', many of which will be social, ethical and spiritual.
    Other speakers added that capabilities need to prevail over skills. This might sound like semantics, but the difference between the two is both significant and important. Curiosity, situational awareness, contextual understanding and creativity are far more important than operational or tactical skills, for example. Such capabilities need to be nurtured and exercised, lest they become like unused muscles—atrophied.
    Re-engaging the humanities: The aim of this fascinating session was to argue the merit of re-connecting humans with the humanities. The starting point for the discussion was an assertion that humanity's adoption of technology has come at a great cost: mankind is rapidly losing touch with what makes him distinct from other species. Simply, the pursuit of technological 'solutions' has seen many lose sight of the meaning of life. 
    Humans are social beings, and meaning is revealed through interaction and insight. Unlike molecules that behave in a consistent manner when they are heated (cooled) or put under pressure, humans do not. As a consequence, if organisations are to thrive in the future, conceptions need to change. Rather than using deterministic and mechanistic models to understand and explain organisations and performance, a biological 'ecosystem' may provide a more instructive. In this context, the term 'ecosystem' means a community of organisms that interact contingently and their physical environment. While such communities have defining characteristics, 'success' is dependent on many factors, and it is neither predictable or guaranteed.
    A summary of observations and insights from second day is available here.
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    Global Peter Drucker Forum: Innovation Leadership Summit

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    The third stopover of my trip across Western Europe sees me in the beautiful city of Vienna, for the Global Peter Drucker Forum on 28–29 November. This year, the organisers expanded the programme to include a half-day 'innovation leadership summit' (summarised here) and an afternoon of round table and workshop sessions (more on that later).
    About 170 people gathered at the House of Industry, the headquarters of the Federation of Austrian Industries. The beautiful building was inaugurated by Franz Josef in 1911. The format  of the summit was straightforward: three panel-based sessions—discussions that explored innovation from three perspectives. A lot of thought-provoking material was shared. Here's a few of the insights that stood out (for me, anyway):
    A new innovation landscape
    Julie Teigland, Regional Managing Partner of EY Germany, Switzerland and Austria, chaired the first session. Panel members included Curtis Carlson, Founder and CEO of The Practice of Innovation and former CEO of SRI (who developed SIRI); Rita McGrath, Professional at Columbia Business School; and Georg Kopetz, Co-founder of Executive Board TTTech.
    Insights: McGrath kicked off the discussion by asserted that strategy and innovation "go together". We can't talk. about one without also discussing the other. 'Digital' is a game-changer because it undermines many of the obstacles (barriers to entry) of market-based contracting. Barriers to entry and the ability to scale are undermined. With it, a fundamental shift, from firms to markets, is underway.
    Carlson picked up the discussion by asking whether entrepreneurship is the 'right' thing to be focused on. He noted that, since 1987, fewer than 20 per cent of startups have created any value at all. The problem is that entrepreneurs are pursuing two vital activities in the wrong order. The creation of value needs to precede entrepreneurship. When entrepreneurs focus first on value, then magic can, and often does, happen.
    Kopetz entered the discussion by asserting the 'born digital' means 'born global'. There is no option. If you are operating in the electronic world, sovereign borders are meaningless. However, scaling is tough; and collaboration is necessary. Interestingly, nearly all major innovations and step changes occur outside major companies, despite such companies being better resourced the most start-ups.
    Making innovation work
    Denise Kenyon-Rouvinez, Director of the IMD Global Family Business Center, chaired the second session. Panel members included Betsey Zeigler, CEO of 1871; Alex Osterwalder, Entrepreneur and Business Model Innovator; Yoshi Takashige, VP Marketing Strategy and Vision at Fujitsu; and Hal Gregersen, Executive Director of the MIT Leadership Center and MIT Sloan School of Management.
    Insights: ​Having set the scene in the first session, the purpose of this session was to 'talk dirty'. Innovation is most likely to occur when people crash into each other. When the do, they tell stories, share ideas and commit to dreams. The natural; outflow is an intelligent human-centric society; one that places people at the centre, not processes or things.
    Gregersen added that the 'digital economy' emerged, in effect, from the convergence of globalisation, innovation and transformation. Being new, all of these elements operate on the edge of uncertainty. Success (in terms of establishing capability) is dependent on leaders being happy to be wrong, create uncomfortable spaces and remain quiet as they listen carefully for weak signals. Yet somewhat paradoxically, isolation (quiet) is the enemy of innovation; and discovery depends on contact.
    CEO perspectives
    Linda Hill, Professor of Business Administration at Harvard Business School chaired the third session just before lunch. Panel members included Vineet Nayar, CEO of Sampark Foundation; Peter Oswald, CEO of Mondi Group; Gilbert Rühl, CEO of Klöckner & Co SE; and Helmut Reisinger, CEO of Orange Business Services.
    Insights:​ The purpose of this session was to listen to established chief executives as they offered coal-face insights about innovation, leadership and 'getting things done' in an increasing volatile world. A natural curiosity, combined with a well-developed propensity to both ask questions and listen carefully to answers, is crucial if the protagonistics are to be effective leaders.
    Standing back, this Summit created space for interactions between delegates and with the speaker panel. As such it provided a wonderful 'on ramp' to the main event, the Global Peter Drucker Forum, but more on that soon.
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    Notes from a nomad in Europe

    Accountability Conferences Corporate Governance Governance Leadership Research Strategy
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    My speaking and advisory tour of several European cities got off to a great start on Sunday evening. The first port of call was Stockholm. Liselotte Hägertz Engstam, an established director and board chair in the Nordics, hosted a seminar at Tändstickspalatset; a great venue. The theme was [the] Board's role in innovation strategy and governing new digital business models. ​Some 35–40 directors and board chairs with just over 100 board mandates between them, gathered to hear two speakers, namely, Stephanie Woerner and yours truly. The following paragraphs tell the story.
    Digital business model and board contributions
    Stephanie Woerner, a Research scientist at Sloan School of Management in Boston, explored value creation in the digital economy. She observed that many (most?) corporations were somewhat lumberous, offered rather average customer service and, tellingly, were ill-equipped to take advantage of emerging 'digital opportunities'. As such, they are at risk of losing out to younger, more nimble businesses. Woerner identified six questions that companies need to resolve if they are to compete effectively in the digital economy:
    • What is your digital threat?
    • What business model is best for your enterprise's future?
    • What is your digital competitive advantage?
    • How will you connect with your prospective clients?
    • What capabilities are needed to reinvent the enterprise?
    • Do you have the leadership to make it happen?
    Then, Woerner spoke about digital savviness, making two points along the way. First, 62% of directors claim to be 'digital savvy' (and, presumably, ready to tackle emergent challenges), but only 24% are indeed savvy. Second, the presence of three digital savvy directors is sufficient to drive improved [financial] performance outcomes. With that, I sat up. How might a quantitative analysis be a reliable predictor of a contingent outcome? A person at the table I was seated at was similarly exercised. She interjected, asking what the term 'digital savvy' meant. "Great question. We used the experience and qualifications of board members as a proxy." Woerner went on the explain how this has been arrived at: a keyword analysis of resumés (searching for words such as technology, CIO, disruption, software). The presence of such words on a resumé was deemed sufficient to categorise someone as being digitally savvy. You could have heard a pin drop.
    While Woerner's assertion (that boards need to be knowledgeable of emerging technology trends) is intuitively reasonable, the underpinning research appeared to be flawed. Others seemed to agree, suggesting it is more important for directors to have a curious mind, read widely and ask probing questions. Notwithstanding this, Woerner's core point was on the money: boards need to get up to speed with technological innovations and the opportunities they present.
    ​Making a difference, from the boardroom
    I spoke second, the task being to both build on Woerner's comments and add some insights of my own. I started by acknowledging today's reality, that change seems to be the only constant. Woerner set a great platform so there was no need to labour the point, except to say that directors need to work hard to keep up. Importantly,  contemporary recommendations including so-called 'best practices' provide little assurance of better board practice much less improved firm performance.
    An important duty of all boards is ensure the future performance of the governed company. If boards are to make a difference, they need to make informed decisions about the future direction of the company, and verify whether desired performance outcomes are actually being achieved or not. Four crucial questions that boards need to ask were tabled, these being:
    • Are we doing the right things? (explores context, purpose and strategy)
    • Is strategy being actioned as expected? (explores implementation)
    • Are expected benefits being achieved? (verifies performance by way of outcomes, not just effort)
    • Are we making good decisions? (tests efficacy of board's decision-making)
    After suggesting some practical considerations, I introduced the strategic governance framework, an option for more effective contributions (as revealed from my doctoral research and subsequently lauded by both practicing directors and scholars around the world).
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    ​Insights
    The seminar presented two perspectives, namely, that directors need to become a lot more digital savvy if they are to contribute effectively in the boardroom, and that effectiveness is a function of director capability, board activity and underlying behavioural characteristics of directors, not what they look like.
    Board readiness to lead well in the emerging 'digital' world is a concern—made worse given boards tend to pay much more attention to historical performance than wrestling with the [largely unknown] future. This is the elephant in the room. 'Digital' is but a symptom, I suspect. If boards are to have any hope of influencing firm performance, what they do in the boardroom (i.e., corporate governance) needs to change.
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    Re-conceiving 'control', as a constructive mechanism

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    In business, as in life, the task of exerting control is commonly perceived as being one of exercising limits; of saying 'no' and imposing constraints. Such perceptions are well-founded. Check these verb usages of 'control', lifted straight from the dictionary:
    • to exercise restraint or direction over; dominate; command
    • to hold in check; curb
    • to test or verify (scientific experiment)
    • to eliminate or prevent the flourishing or spread of
    If you have spent much time in boardrooms, you'll know that director behaviour tends to be consistent with these definitions, more so if the chief executive is ambitious or entrepreneurially-minded (the two attributes are not necessarily the same). When asked, board justification for exercising caution is straightforward: to keep the chief executive honest and to keep things 'on track'.
    Such an understanding—holding management to account—seems admirable. Monitoring and supervising management is one key task (of four) of corporate governance after all. But does a strong hand actually lead to better outcomes? More pointedly, how might the exercise of restraint and limits advance the purposes of the company (noting the board is responsible for ensuring performance goals are achieved)? Such conduct is analogous to applying the brake when the intention is to drive on. A growing body of academic and empirical evidence suggests that a strong hand, like increased compliance, may actually counter-productive.
    Rather than persist with what is demonstrably a problematic approach, it might be more fruitful for boards to consider another perspective. ​What if control is re-conceived in positive terms (namely, constructive control), whereby the board's mindset is to provide guidance (think: shepherd or coach) by ensuring the safety of the company and steering management to stay focused on agreed purpose and strategy? Might this deliver a better outcome? 
    Emerging research (here, but contact me to learn more) suggests the answer is 'yes'. Strongly-engaged and strategically competent boards that display high levels of situational awareness as they debate issues from multiple perspectives and make informed decisions in the context of the long-term purpose of the company can make a difference. Constructive control is one of five important behavioural characteristics of effective boards identified in this research.
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    Towards a better understanding of corporate governance

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    Research is a funny thing. On one hand, experience can be greatly helpful: knowing what one is looking for or expecting to see is a boon. On the other, experience can be a hinderance: knowledge often resulting in bias and  preconception, and the very real possibility of missing vital clues. This is one of the great dilemmas for board and governance research.
    Some forty years have now passed since researchers started investigating boards in earnest. That an answer to the question of the role of the board and how they influence firm performance (i.e., what corporate governance is and how it is practiced) remains elusive is an indictment on the research community. Directors and boards need clear and well-founded guidance so they can become effective in role.
    Medical research is conducted by medics; cultural research is conducted by anthropologists; and, engineering research is conducted by engineers, so why is board research typically conducted by academics with little if any business experience? How might a researcher who has never been inside a boardroom hope to recognise the normative practices of board meetings? Or that a subtle interaction between two directors might actually be material to a pending decision?
    ​That most board and governance researchers have never been in a boardroom or served as a director is alarming. Yes, gaining access to observe boards directly is difficult to achieve. But to restrict board and governance research to counting isolated attributes of boards from outside the boardroom is folly. To be useful, recommendations need to account for the socially-dynamic nature of boards and the behaviours of directors (both of which can only be reliably discerned through direct observation).
    If the question of explaining how boards influence firm performance is to be answered, three things are needed: 
    • Researchers need to get inside boardrooms, to observe boards in action. (What directors actually do can be quite different from what they say they do when interviewed.)
    • Research needs to be conducted through the lens of experience.
    • Recommendations need to be holistic, accounting for both the activities of boards (what they do) and behaviours of directors (individually and collectively). That the structure and composition of boards is, relatively speaking, far less important.