Systems hold quests
Whoever grasps
Whoever grasps the thousand contradictions of his life,
pulls them together into a single image, that man, joyful
and thankful, drives the rioters out of the palace,
becomes celebratory in a different way.
Rainer Maria Rilke
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Similar to Norske Skog, its Swedish-Finnish paper rival, Stora Enso went through several rounds of painful restructuring. The decline in demand for paper hit Stora Enso just as hard. By 2011 the pulp and paper giant — the world’s oldest corporation, dating back to 1288 — had laid off over one-third of its 30,000 employees. However, it chose a different path by deciding to transform itself into a global renewable materials company - a whole new purpose and way to create value.
Shrinking and expanding at the same time.
The company’s catalyst for transformation was the plunging demand for paper along with the rise of digitization. Stora saw that it desperately needed not only to cut costs but also to rethink its business focus. Members of the top team consulted widely with various divisions and layers of the company and engaged in lengthy deliberations. Weighing the options, they concluded that pursuing nimbleness, global presence, or customer focus would merely yield more market share in a declining industry. Innovation would not solve the main issue either. But the company had developed some breakthrough green offerings, including environmentally friendly packaging for the expanding e-commerce delivery market. Its greatest opportunity lay in shifting the whole axis of the business to specialize in offerings made with renewable and bio-based materials. So Stora’s became a sustainability quest.
Becoming open to new and fresh perspectives.
Hidden within this quest is also a key decision that Jouko Karvinen, the CEO at the time, and his team made to not depend on consultants, which would have been the typical way to go. Instead, they decided to re-energize and leverage their own people, but, Karvinen explained, “We also did not just want to handpick the usual senior managers we had always worked with before, because we knew that, in order to drive the transformation of the company, we needed new and fresh perspectives.”
Embracing the shadow and those in the shadow.
Among the number of initiatives to kindle the transformation, Stora Enso took a novel approach to change management. Rather than handpick the usual senior managers, a team called Pathbuilder was formed of a diverse group of insiders to present senior leaders with new ideas. Think of it as a “shadow cabinet.” To start, the Pathbuilder team undertook establishing a new company purpose and values along with the design of a group-wide process for how to implement disruptive innovations and digitalization.
Supporting the whole system.
On a larger scale, the Pathbuilder group supported Stora Enso’s transformation into a global renewable materials company. In 2006, 70% of revenues and 60% of the company’s profits still came from paper; today the new growth businesses contribute 67% of sales and 76% of profits. Since 2011 the share price has more than doubled. The culture is also evolving and improving, as evidenced by an annual survey that tracks the main levers for the transformation, including innovation and sustainability, leadership, team, and engagement.
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Microsoft is one of the best-known examples of corporate transformation in recent years, moving from a software company to a cloud-services company and gaining $1.5 trillion in market capitalization. A core element of its overall restructuring and strategic shift was an overhaul of the company’s vision, which in turn affected all aspects of the employee experience, from team dynamics to compensation.
Admitting one’s tiredness.
The process of a cultural shift to stop playing defense and go on offense began with Nadella taking the reins in 2014, when Microsoft’s board picked him to replace retiring CEO Steve Ballmer. At the time, he was the head of the company’s fast-growing cloud computing division, and his promotion seemed unlikely to change the lumbering giant’s trajectory. But Nadella, and the board, were tired of seeing the technology world pass by the one-time leader. The company’s corporate culture had been characterized by individualism, competitiveness, and a “know it all” attitude among employees. He announced it was time to “rediscover the soul of Microsoft, our reason for being.” Nadella and other executives partnered with HR leaders to craft a refreshed mission and vision that better reflected the ideals of empathy, humanity, understanding of cultural differences, and Microsoft’s place in the world. The result was a mission that shifted from a product focus to a more inclusive, people focus — an aim to “empower every person and organization on the planet to achieve more.”
Making a decision to not escape.
This wasn’t just another exercise in corporate purpose — Nadella treated it as an existential moment. Having long accomplished its goal of “a PC on every desk and in every home, running Microsoft software,” the company needed a new goal to attract and inspire its many coders and engineers, and sustain its profitability. With his colleagues, he reoriented the company to “empowering every person and every organization on the planet to achieve more.”
Finding a new goal and a new quest.
This reorientation was accompanied by a strategic shift. Instead of protecting its assets, in a defensive posture, Microsoft went on offense, ceding big investments in existing tech and looking to jump into emerging opportunities. The most noticeable change was external. For decades, the company had resisted partnerships. After all, insisting back in the 1980s on owning DOS and other software platforms had yielded big profits and cash cows. But to fulfill its new existential commitment, Microsoft needed to combine its enormous assets (cash and engineering talent) with those of other companies, by opening up to other platforms and by investing in partnerships.
Doing the work.
This took two notable forms. First, Microsoft embraced rival operating systems such as Linux and iOS, and supported other companies’ virtual reality devices. Second, recognizing the entrepreneurial agility of startups, the company began investing in a series of small firms at the forefront of tech. Nadella also had the gall to elevate talented people from a series of acquisitions, including Kevin Scott.
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Another one of the biggest transformation stories of the past decade belongs to PayPal. In 2015, following its separation from eBay Inc., the payments platform used the moment to re-evaluate its mission, vision, and values as an independent company. In the ensuing years, PayPal saw demand for its services soar, with its customer base climbing from about 160 million to more than 400 million, and its market cap increasing by more than 600%, to $320+ billion in August 2021.
Employees are customers too.
To fulfill their goals of improving the financial health of customers and communities around the world, company leaders recognized that they also needed to support the financial wellness of their nearly 30,000 employees. In 2019, after reviewing a survey of hourly and entry-level employees that showed a significant portion of its staff was experiencing financial insecurity despite being paid at or above market rates, PayPal launched a comprehensive and multi-pronged employee financial health program. “If the market is not working, companies need to step up and do more for their employees,” said Franz Paasche, senior vice president and chief corporate affairs officer at PayPal. “And that’s part of serving your shareholders and serving your stakeholders.”
Being clear about the metrics of change.
The company developed a measurement approach — Net Disposable Income (NDI) — to estimate employees’ financial health and track progress. At the outset, the PayPal-defined NDI for some U.S.-based hourly and entry-level employees was as low as 4–6%. To improve this, PayPal granted every employee company stock and offered a financial planning system and tools to help employees manage their assets effectively. It also reduced the cost of health care by around 60% for a third of its employees in the U.S. and adjusted salaries where appropriate. As part of the company’s ongoing commitment to employee financial wellness, PayPal partnered with Even, a company that allows employees to access their wages as they earn them. Since the rollout of the initiative, the company has helped lift the minimum PayPal-defined NDI for hourly and entry-level U.S. employees to at least 18%, making significant progress toward the company’s goal of at least 20% for all employees globally.
The unintended benefits of taking care of employees.
The organization’s holistic approach to invest in and improve employee financial health hasn’t only made a difference on the balance sheet: The effort has also contributed to high employee satisfaction, resilience and retention, and earned PayPal positions on rankings like Glassdoor’s Best Places to Work, and in the top three of Fortune’s Change the World list.
There is no magic in Magic, IT'S all in the details.
Walt Disney
Identification of a specific quest that will generate value is key to increasing the odds of successful change. Digital transformation, as commonly spoken of, amidst the wave of ongoing digital revolution is only a means to an end, and not the end in and of itself. Digital transformation offers an opportunity to shift where value is created, and change the way the business model is structured. Executives still have to do the work of re-defining the playing field and re-shaping the value proposition. Because value creation is increasingly coming from outside a firm and not inside, and from external partners rather than internal employees, this new business model has given birth to the “inverted firm.” This change in organizational structure affects the technology and the managerial governance that attends to it. Executives have to understand and undertake a whole range of responsibilities relating to '‘partnering’ - partner relationship management, partner data management, partner product management, platform governance, and platform strategy. Studies and analysis conducted show that most organizational transformation efforts to shift to this new model are a derivative of or a combination of any of the five prototypical quests listed below. Each quest has its own focus, enablers, and derailers that require the company to do something more or different to create value, disrupt working and employ digital digital to aid both:
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Expanding market reach and becoming more national/international in terms of leadership, innovation, talent flows, capabilities, and best practices.
How well does the company…
pursue expansion with a strategic national/global perspective?
share local learning about business practices globally?
use digital technology to bring together key populations?
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Understanding customers’ needs and providing enhanced insights, experiences, or outcomes (integrated solutions) rather than just products or services.
How well does the company…
create offerings with meaningful value to customers?
recognize team-based efforts in developing and selling solutions?
use analytics to identify which solutions customers need most?
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Accelerating processes or simplifying how work gets done to become more strategically, operationally, and culturally agile.
How well does the company …
sense changes in the environment?
act on those changes in a timely way?
share information across the organization?
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Incorporating ideas and approaches from fresh sources, both internal and external, to expand the organization’s options for exploiting new opportunities.
How well does the company…
cooperate with external partners to create new technologies and offerings?
create an environment of trust for effective collaboration?
leverage digital platforms for innovation?
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Becoming greener and more socially responsible in positioning and execution.
How well does the company…
integrate our sustainability strategy into the overall corporate vision and strategy?
implement sustainability in decision making, processes, and systems throughout the organization?
use digital technology to catalog and evaluate sustainability initiatives?
“Every company needs an “enterprise leader” — someone who is primarily concerned with mobilizing the resources of the entire company as a system of many moving and interconnected parts.”
The Work
Where there is no struggle there is no progress.
Oprah Winfrey
The work of clarifying the purpose, identifying the quest, and figuring out the specific actions that will enable and block the change are collectively a game-changer. However, the choice of the quest is difficult. The diagnosis often reveals multiple challenges and the debate centers on which ones are the most important—or which ones are to be tackled immediately, given the current leadership capabilities. Should the company expand into new geographies, build greater intimacy with customers, explore new ideas and approaches with more partners, focus on speed and responsive, or become more sustainable? We do know an enduring truth from 15 years of original McKinsey’s Global Survey research on organizational transformations: the more transformation actions a company takes, the greater its chances for success. Yet success remains the exception, not the rule. That’s because, with multiple organizational challenges jostling for attention, executive teams are likely to disagree on the transformation priority. Executives sometimes say “all of the above,” and really mean it. The fact, however, is that’s too much to handle at once. The right quest is the one that is compelling and an uncontested priority. Companies often straddle quests (focus and agility, for instance, or innovation and sustainability). And that can work as long as the choices come together into one cogent focus. Mapping out opportunities and hazards, a major decision-making trap can be avoided: getting stuck with a false choice between pursuing one strategic option and doing nothing.
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A quest to become more national/international in mindset as well as market reach by reconfiguring the operating model
Enablers
Rewiring systems and networks to leverage capabilities, knowledge, and ideas wherever they are
Preserving corporate principles while remaining flexible on cultural practices
Using diversity as a source of competitive advantage
Blockers
Acquiring weak businesses in haste to develop a global footprint
Honoring the “dominant” culture while paying lip service to the rest
Failing to integrate talent on a global scale
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A quest to provide tailored solutions to user problems by reconfiguring the customer experience
Enablers
Organizing, equipping, training, and rewarding the workforce to better understand and address customers’ needs
Redefining relationships with vendors, intermediaries, and suppliers
Reframing customer relations to learn rather than simply to close deals
Blockers
Failing to reshape an entrenched culture that emphasizes pushing products
Continuing to depend on former sales intermediaries
Not coordinating front- and back-office units to deliver seamless solutions
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A quest to become more strategically, operationally, and culturally agile by reconfiguring business processes
Enablers
Developing the capability to detect and respond to major changes in the environment
Leveraging diversity to exploit opportunities
Learning to prototype rapidly and institutionalizing what works
Blockers
Allowing blind spots to produce an incomplete picture
Responding too slowly because of red tape
Taking too long to cut your losses when something doesn’t work
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A quest to tap multiple sources of ideas and approaches by reconfiguring R&D partners
Enablers
Navigating the full innovation spectrum, from value chain partners to competitors to lead users and crowdsourcing
Collaborating to convert new ideas into tangible innovation
Articulating innovation needs clearly and creating win-win outcomes with partners
Blockers
Relying too much on one or two parts of the innovation spectrum
Resorting to rigid contracts with innovation partners
Lacking oversight that ensures frugal investment
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A quest to become greener and more socially responsible by reconfiguring resources
Enablers
Engaging all stakeholders to become sustainable
Leveraging sustainability as a source of strategic advantage3
Communicating top-team commitment to the sustainability agenda
Blockers
Under-measuring or -reporting progress toward sustainability
Broadcasting shallow PR victories (“greenwashing”)
Failing to balance efficiency and sustainability goals
The Bias
Bias thrives in silence.
Maya Angelou
Articulating pressures and challenges of change is key to facilitating a debate and evaluating the relative merits of various responses. Reconciling perspectives or priorities and developing a shared understanding of the cause of the current state of affairs is painful. And sidestepping that discomfort only reduces the chances of selecting a viable transformation objective. Team members, with a more deeper and hands-on understanding of the pros and cons, often make convincing assessments of the strategic course of action to be taken. The truth however is that biases invariably find their way into the team’s reasoning—and often dangerously distort thinking. That’s why a careful review of the content of recommendations and also of the recommendation process is critical. Unearthing and neutralizing defects in teams’ thinking through advocacy and inquiry is critical to ensuring that members have explored alternatives appropriately, gathered all the right information, and used well-grounded numbers to support its recommendations. Furthermore, highlighting considerations such as whether the team may be unduly influenced by self-interest, overconfidence, or attachment to past decisions enables executives to build decision processes over time that reduce the effects of biases and upgrade the quality of decisions their organizations make. Executive teams need to realize that the judgment of even highly experienced, superbly competent managers can be fallible—in other words, the cognitive biases of the teams will drive the recommendations. Daniel Kahneman, Nobel Prize winner in economics for his work on cognitive biases; Dan Lovallo of the University of Sydney; and Olivier Sibony of McKinsey identified specific heuristics and biases that creep into a teams’ thinking. The questions fall into three categories: questions the decision makers must explore with themselves, with their team members proposing a course of action, and with the proposal. A disciplined decision-making process, not individual genius, is critical to the work of defining a compelling path to value generation:
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Self-interest Biases - how might we be making the recommendation of errors motivated by self-interest?
Affect Heuristic - how is the team’s love for its proposal influencing its attention to detail?
Groupthink - what is level of dissent within the team? were the dissenting opinions explored adequately?
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Saliency Bias - how is the diagnosis being influenced by an analogy to a memorable success?
Confirmation Bias - have credible alternatives been included along with the recommendation?
Availability Bias - what information would be required, in case we had to make this decision again in a year’s time, and can we get secure more of that information now?
Anchoring Bias - where did the numbers come from? could there be…unsubstantiated numbers?…extrapolation from history?…a motivation to use a certain anchor?
Halo Effect - what assumptions are being made about a person, organization, or approach that is successful in one area, and their success in another?
Sunk-Cost Fallacy, Endowment Effect - to what extent are we overly attached to a history of past decisions?
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Overconfidence, Planning Fallacy, Optimistic Biases, Competitor Neglect - how overly optimistic is the base case? what about a outside-in view?
Disaster Neglect - how bad is the worst case?
Loss Aversion - how overly cautious is the team?
“Disruptive change poses existential challenges to leadership teams, raising foundational questions about aspirations, identity, and the very soul of a company. ”
