Companies around the world are going through tough times due to the coronavirus pandemic. It has required companies to accept the challenges and bear the responsibilities by focusing on safety, cutting costs, reducing headcount and to conserving cash by stopping investments. Shifts have taken place. Investors have pushed the values of some industries higher such as high tech, consumer services, logistics & trading while discounting others such as banks, oil & gas, air & travel during the COVID-19 crisis.
An Autumn 2020 European CFO study by Deloitte shows that investment intentions of companies will focus on cost reduction, digitalization and expansion by acquisition as key areas for the next 12 months. McKinsey research shows that 40 percent of a successful transformation’s value comes from growth initiatives, not from cost reductions, layoffs, getting rid of a lot of people, systems in an organization. Exponential shifts in technology will change the job landscape forever. AI and new technologies are augmenting the worlds of Education, Mobility, Healthcare, Farming, Urbanization.
Hence to succeed in the ‘new normal’ companies need to make fundamental changes.
HOW ARE LEADERS REACTING TO COVID |
A crisis at different levels and at the magnitude of COVID creates significant stress. This is compounded for leaders who know that their decisions have impact not just on their future but on the livelihoods of many families that depend on the company they lead.
As such leaders have this difficult task of managing a number of paradoxes at the same time. They have to constantly make choices. This is further exasperated by the fact that leaders are expected to make their choices known not just to the organization but also publicly.
Typically, two classic reactions are visible in the way leaders are responding to these demands. Some are hunkering down and getting ready to weather out the storm – evidenced by extensive cost control, restructuring and more controlling from the head offices.
Some started out that way but have pivoted quickly to more inspiring and agile ways of working with reinventing the business models and fostering learning and growth mindsets.
LEADERSHIP CHANGE REQUIRED FOR THE NEW WORLD |
In many public listed and private (equity backed) companies around the world – big and small – not enough change is happening to adapt to the requirements of the new world. Speaking to Global heads of innovation of MNC’s, the majority of the existing geographical or LOB business leaders don’t want to change. They want to keep the things as they are. There is still too much politics and hidden agendas. People are worried about their own position and job. Why change if I only have 5 more years to go until retirement or the current performance of my business is fine, why change? The organizational structure is still hierarchical, top-down, pre-dominantly male dominated. Shareholder value is still top of the agenda. Decision-making about top management positions and compensation is in the hands of a small group of shareholder(s). The diversity of the non-executive directors has improved marginally over the past year, according to an European Korn Ferry study (2019). 32% are female, 68% of directors currently are male, 92% of non-executive chairs are men, there is still a 6% gender pay-gap in favor of men.
A Harvard Business Review study shows that leaders worldwide are lacking self-awareness and insight, which is actually the starting point for all improvement and change. Another study of PWC showed that only 8% of senior executives turned out to be strategic leaders – effective at leading transformations. Such inefficiencies are exasperated when the organization is put under stress – in a state like COVID.
DIVERSE LEADERSHIP TEAMS ENHANCE STRATEGIC EXECUTION |
Numerous global studies have found that companies with an above-average diversity score in leadership teams can enjoy an up to 20% higher rate of revenue growth. Having people from different nationalities and backgrounds in leadership positions is beneficial to company performance, teamwork and culture. Bringing in different views, management styles and cultural heritage into decision-making has been found to enhance the execution of strategic plans.
Diverse leadership teams are proven to not only make better business decisions; they also influence better team behavior. On average teams make better business decisions than individuals about 66 percent of the time. Teams of people are better at identifying new and better choices that were previously not considered, resulting in a better decision. They bring more perspectives, experience and information which helps to reduce cognitive biases and improves accountability. The more creative the team, the better the decision. Teams that identify 7 or more choices make better decisions 92% of the time (Cloverpop).
For organizations to stay in the game, to stand out from the pack, to become one of the winners, they need to adapt to the requirements of the new world. For leadership this means to understand the requirements of the new world and to lead from the inside-out:
- To understand the ways in which continued disruption, the speed of change, ongoing globalization and meta changes in technology will change the way your customer does business. Can you clearly describe where your business is heading? How will success look like in the coming 3 to 5 years?
- The world is changing, the customer is changing. In what way are your teams changing? How resilient are they? What do they do to invest in personal growth? Does your organization have the technical expertise, agility, leadership to meet the emerging customer expectations? Do you have diverse leadership teams or a collection of individuals? What needs to be done to make it a world-class team?
- As strategy is work in progress due to the constant changes, what stands firm and differentiates your company is your company culture. How do you manage culture? How do you measure culture? What is your current culture and what culture do you require to be successful tomorrow? How do your company values relate to the culture?
- Top talent is going to be more difficult to find than ever. Think hiring with tomorrow’s culture in mind, not hierarchy. Think leading the charge, not being in charge. Recognize you need super teams not super stars. They will bring more perspectives, experiences, information and creativity for better decision-making.
LEADING THE TRANSFORMATIONS |
Now is the time for organizations to make fundamental business changes. The chances are pretty slim that businesses will go back to pre-covid.
Transformations are tough. Research shows that 70 percent of transformations fail. Taking a more holistic, cross-disciplinary approach increases the chances that organization will, in fact, see significant and sustainable improvement in the years ahead. It all starts with the leaders choice.
CHANGE STARTS AT THE TOP |
To transform organizations starts at the top and requires from leaders to change their mindset and leadership styles from traditional commanding, pace setting towards visionary, coaching, affiliative and democratic leadership styles. McKinsey suggests that ‘centered’ leaders – those with development and self-awareness around meaning, positive framing, connecting, engaging and energizing – are up to 20 times more effective in managing change than people who aren’t. The key is to create an organizational structure as a network of teams and an agile climate of innovation with cross-border and cross-functional diverse teams. Carefully selecting and building diverse teams with people coming from different backgrounds and experiences for the right challenge will set organizations up for future success in the new world.