During the pandemic, many organizations rapidly adapted, moving with more agility than ever before. Now, as we hang in the limbo between the crisis and a post-pandemic reality, CEOs are concerned that their organizations will snap back into old ways of working. James Allen, a partner with Bain's Strategy practice, outlines four steps for CEOs to rebuild the organization for a faster, more turbulent world.
Read the transcript of the video below:
JAMES ALLEN: It's hard to know when you've gone through a pandemic whether that changes everything. Because frankly, for every CEO, you know, it's your first pandemic. And how do I think about that? Does that change everything I'm doing or not?
And the way I would think about it is the pandemic was a dress rehearsal for a new, more turbulent world. But without that pandemic, you'd still be heading for a new, more turbulent world. You just wouldn't have had the dress rehearsal.
And we've been talking about the fact that you are hurtling towards the era of the scale insurgent. You are moving into a new era of the firm where you need to compete on the basis of speed and scale. And this is a result of conversations across over 35 markets, through more than 85 forums, talking to 2,000 executives, and specifically 600 CEOs.
And that conversation has evolved throughout 2020. In fact, it's evolved as the pandemic has evolved. I use Tomas Pueyo's language around the long dance. Well, we started our conversations during lockdown.
We all know what that was, where we had to lock down our societies and try to deal with Covid. But what we've been facing now, since then, going into the autumn, going into 2021, is the long dance. And so this period from lockdown to long dance has been an evolution for everybody.
And in fact, in our first series of CEO conversations, during lockdown, the conversation was really about risk. For many boards, this was almost the second black swan within a decade.
They had gone through the great financial crisis, and suddenly they're facing a pandemic. And the question at the beginning of this was risk. How do I handle risk? And we spent time with CEOs to say, let's break down the problem.
And the problem is the board is really saying three different questions to you. The first is, are you going to do a better job predicting the future? Now, how good are you at prediction? And of course, you can go in with better strategic planning and scenario planning, but that question is of limited ability for you to answer it. Yes, I will try to do better at predicting.
Another question the board is actually asking is, how resilient are the decisions that we're making? We've learned a lot about the lack of resiliency of our decisions. And so the resiliency question really is a conversation with the board about, where do you need to add buffer capacity to make sure the decisions we make can last through various crises?
So there, it's really, yes, I can add buffer capacity anywhere and everywhere in my operations. Who's going to pay for it? How do we think about that?
But the third issue that the board is asking when they talk about risk is, how adaptable are you to more turbulence? And this is where our conversation has been the richest. Because if there's one thing the CEO can control, it is the adaptability of their organization. And in that context, Covid has been a dress rehearsal for a more turbulent world.
And that led to our second series of conversations, which is, what does it mean to be more adaptable, and how do I think about it? And as we tried to answer that question with CEOs, it became very clear: Listen to your heroes. They have shown you a way forward.
But be very clear that, as you tell your hero stories, these extraordinary stories of how your organization adapted to Covid, there are two very different kinds of stories. The first are where you knew what to do. You knew the playbook. You knew how to operate. And frankly, you just got the hell out of the way and empowered your people to do the right thing.
And we said, that's one set of hero stories. Well, let's call it delivery. When you knew what to do and you could just deliver, you were magnificent.
But there's another set of hero stories. And that's when we didn't know what to do, when our supply chains had crumbled, our route to market had crumbled, and we had to come up with new solutions. There, the lesson was, you know what, we actually acted like entrepreneurs and business builders. We actually did that Agile stuff that we used to talk about. We actually did it. We tested, adapted, and learned, and moved in cross-functional teams. And that was extraordinary.
But the key is you can't create an average organization that does both those things sort of well. Whatever you do coming out of the crisis has to say, we have to be extraordinarily good at that delivery stuff. Empower our people, and get out of the way. And incredibly good at that business-building stuff.
But the one thing that is very clear that emerged from that series of conversations was we cannot snap back to old ways of working, that the heroes in our organization understand more than anyone that we need to return to some sense of normalcy. The mental health issues are real. The exhaustion is real.
But a return to normalcy is not snapping back to old ways of working. In fact, the heroes think they're going to disappear. The heroes think they will go back to the hierarchies and you won't see them again. And part of what you need to think about as a CEO is, how do I create an organization that empowers, celebrates those heroes, while simultaneously making sure we're great at delivery and great at development?
And so that's what we're going to talk about today. What would that roadmap look like? How do I think about a new social contract with my people, a new way of working?
Now, I'm very aware what I'm going to be doing to you today, which is adding to your action list. And you should say immediately to me, thank you very much. The last thing I need is more stuff on my agenda. I'm pretty damn busy. Thank you very much.
And in fact, that is why, moving into 2021, the conversation will shift. Which is, how does the CEO begin to free up time on their agenda? What can they do to free up the time and energy they need to begin to execute on the new roadmap? As we've polled the CEOs through each of these forums, we've learned a lot about how they're viewing the crisis.
And the first thing they say is, the crisis hasn't changed our strategy. But it sure as hell has brought that strategy forward. Things that were on a three-year roadmap have become a three-month roadmap.
We thought we would move to digital salesforces at some point in our operation. We didn't know it would be Tuesday. And the strategy has been brought forward, and the world is accelerating. That's finding number one.
Finding number two is even after deep conversations about the cultural entropy risk, about the fact that you really are running an exhausted organization, that you're bringing on new recruits that have never seen the organization live. That the differences between the white-collar workers who are working from home and the blue-collar workers who are every day at risk for them and their families serving your customers ... these things are real.
Even with all that, CEOs are saying, now is the time for radical change. What do we mean when we think about strategy coming forward? To us, it's very, very clear, which is a new era of a business is accelerating towards you. And as simply as possible, it demands that you learn to compete on the basis of scale and speed. And it challenges over 100 years of the professional management system.
Now, a little bit of history. Bain has looked at this. I am part of a team called Bain Futures, which has tried to look at the future of business. And it's forced us to look at the past of business. And roughly every 50 years or so, the nature of the firm changes. The levers the CEO uses work for about 50 years. And then those levers stop working.
The nature of the firm changes. And to bring this into life, most of what we know about global business really started in the late 1880s when a group of founders from around the world started what we would now say is global businesses. They vertically, horizontally integrated industries—think of Rockefeller, think of Getty, think of Ford, think of Mitsubishi—and created what we would say is roughly modern business.
But that era, which we now refer to as the trust era, began to be really challenged in the 1910–1920s. One, because those were all natural monopolies, and there was a desire by government to try to bust them up. But secondly, a lot of those founders got old. I mean, the rise and fall of Henry Ford, one of the greatest innovators of business history who then became a blockage to change, is a tragedy.
And this was happening across the firms. And a reaction to that was the idea of the professional manager. We've got to bring in a set of people whose duties and responsibilities are to the firm.
And they are dispassionate custodians of the firm. They're not going to name the cars after their children. They're not going to be caught up. It's precisely their dispassion that they bring which is their great strength. And it's a science.
And this move into professional management, the idea that these people are fungible, can change between functions, and frankly, disposable—because we will get the business schools to produce them in the thousands—was key to probably the biggest value-creation explosion in human history, just extraordinary what this group did.
That group was amended slightly in 1975 when Mike Jensen wrote an article saying, why the hell are all of these professional managers billing their country club memberships to the firm? And the answer was, because they don't have a stake in the value they create. So boom, let's align more of the professional management as a skill set with the value they create. Huge explosion again, led to the LBO industry, led to the transformation of various industries, 100 years of value creation.
But the professional management system always had a problem. While it brilliantly competed on the basis of scale and brought in routine, it also always brought in complexity. The bigger we got, the slower we got. That's okay, as long as we are competing against other incumbents.
But when the insurgents started coming and competed on the basis of speed and scale, many of those incumbents couldn't compete. This is the era now of scale insurgents, where we have to operate on the basis of scale and speed to thrive and survive. Now, the good news is you can all name some of them, some of the big tech companies that are the current wave of scale insurgents.
And while they've been extraordinary in their dominance and their ability to compete on scale and speed, they've yet to prove, because they're too young, one of the major things a firm needs to prove: Can you be a good citizen in the communities in which you operate? And so the challenge is, can you as a CEO discover speed faster than they discover citizenship as you move into the new era?
And that new era demands a different way of looking at the firm. This was the purpose of our book Founder's Mentality. Don't just look at how well you're gaining the benefits of size. Think about, are you retaining the sense of Founder's Mentality?
Every great firm starts as an insurgent at war against their industry on behalf of underserved customers. And then they professionalize and bring on the benefits of size. And they move from insurgency to incumbency. They don't realize the culture rot.
Then they're an incumbent. They start to compete with the next wave of insurgents. And they discover their size, rather than being an asset, becomes a liability because, in fact, they've drifted to a struggling bureaucracy. And this is the default path, insurgency to incumbency to struggling bureaucracy.
And the job of the leader is to not let that happen to them and to try to move to become the scale insurgent in everything we do. And this leads to a new roadmap of how to think about the firm. And we know enough to know it has to start with a sense of purpose. Why do we exist?
And then, of course, it has to think about our job. It's not only to run the business but change the business. So we need equal time between the delivery of the stuff we know and the development of the new things that we're going to have to have to compete in the future. And both of those require scale and speed.
And the problems are well known. We know for delivery the issue is, how do you deliver last-mile strategy? How do you compete where our strategy that lives in the boardroom also lives in the routines and behaviors of our people? And we know to fight that, we are always dealing with hierarchy, management thinking they're more important than the front line. And entropy, everybody gets tired of playbooks.
The issues of development are known, too, but probably less so. It isn't about ideation and incubation. Those are fads, and we're way too obsessed with it. Our job in development is to build businesses, which means scaling is as important as anything else. And we need to think about that.
And then we need to learn. And we need to learn from the people competing on speed. They think about their organizations differently. They don't think about the matrix, front line, and functions. They say, who are the proposition owners? And how do we embed with them the direct services that make them do their job better?
And that applies to delivery and development. And then if we need the center to do something, let's call it an operating system. It's unchangeable.
You don't negotiate the operating system. That is what it is. Nobody negotiates with AWS and Amazon.com. This is what we provide. And then your job is to excel in delivery or development with that operating system.
The problem and curse of the incumbent is indirect services. I don't know what my embedded services are, and I'm not sure if I'm part of the operating system. And we call them bureaucrats. And we call them middle management.
It's not their fault. It's the fault of the CEO who has not clarified their roles. And it's time to stop blaming the people that have not yet been given the clarity of their role and start blaming leaders, for their job is to figure this out.
And once you understand the new roadmap, the imperatives are clear. I need to reconfirm the sense of insurgency in my organization. Purpose is too vague a word. Insurgency is, I'm at war against my industry on behalf of underserved customers. And it tells everybody why I exist.
And then I simultaneously need to be a master of delivery and a master of development. And it's a 50-50 job. Of course I need to run the business. But I need to change the business, because I need my people to believe I not only control the present, but I control the future.
And then I need to figure out how to integrate those two things. I need to be the master of integration and simplification. It means I need to declare war on the lack of clarity on indirect services, and get people into the right jobs, and use the funds I release to fund development in a responsible way. That is the new roadmap.
It will demand you change your metaphors. The old way was lots of documents on vision, vision, values, thrown into PowerPoint and Word. The new way is, I better be able to state it on my hand. With my thumb I state the insurgent mission, which delivers the customer at the heart of what we do and describes why we exist. With my fingers—and please note, I'm biologically constrained—I then describe the spiky capabilities that deliver that mission.
The opposite of insurgency on a hand are either 27-page Word documents of vision and values and things that no one looks at, or the tyranny of functional excellence programs. Because we've not listed our spiky capabilities, every function declares that their job is to pursue functional excellence. And that overwhelms my agenda.
I ask every CEO, please, right now, go back and look at your 2019 September ExCom agenda. How much of that are you doing today? Almost none of it, because that agenda was dominated by the tyranny of functional excellence. And we don't have time to do that. Our focus is on the spiky capabilities that make sure we deliver our promises to customers.
The metaphor in delivery is the matrix. We know the metaphor. I need to have my people in the front line and the function supporting them. And I need to clarify every decision right, make the matrix work, introduce playbooks, and introduce compliance to force the organization to pursue the playbooks.
It doesn't work. It doesn't work. It is soul destroying. It is energy vampires running around the organization, sucking the life out of your people.
The metaphor is delivery is about the Formula One team. The driver is the hero of the organization. The driver takes the podium, not the management. And the driver, every lap, you win or lose on the customer experience.
And so if you stop for a pit stop, you're not negotiating your tire strategy or checking compliance. You're getting your damn tires changed. And you do it fast, and the routines are known, and then you get back in the race. And the idea that delivery is about the driver and pit crew working together where speed matters is the metaphor for our day. And how you empower to do that is going to be central.
Development, the metaphor is the innovation funnel. Oh my god, the innovation funnel says, the first thing we do to change our business is come up with a lot of ideas. And then we send them through a funnel to come up with the little ideas.
That is the opposite of business building. That ends up with the fewer little ideas at the end of a funnel, and all of the organizational energy is spent culling and killing ideas.
The metaphor of development is the megaphone. The job of leadership is to take business-building ideas and scale them and make them bigger than the ones you started with, using the domain expertise and energy of the company to drive that forward.
Now, the metaphor of integration starts with, what do we think about our talent, and where do we put them? And the metaphor with this that we use typically is, our job in HR is to get people in the right lanes and give them the right map. It's a goal of providing certainty.
Now, the origin story of HR is always clear. The origin story is some small insurgent company where every people decision was unfair and capricious. And you bring in systems to try to stop that.
But you've inadvertently created too much stability and certainty, which traps resources from where they need to go and is, by the way, soul sucking for the people involved. They get into their lane. They know, follow the bumper ahead of you, don't make risk, don't make change. Follow, and you'll get to where you need to go on the map.
The new metaphor is a passport with stamps. Welcome to the organization. I have no idea what you're going to do specifically in any one month, but here is the world. Journey it, and collect as many passport stamps as possible, and celebrate the success of every team you joined.
And by the way, I can't give you a map because you're going to have to navigate, but here's a compass. And it points directly at our insurgent mission. Follow that, and you'll get to the right place.
This is where we need to move. This is the new roadmap.