The CEO of the Post-Lean Institute talks to Governance and Compliance about shareholder value, digital myopia and technological transformation
Frode Odegard began his career in theoretical computer science and founded his first software start-up in the late 1980s. After immigrating to Silicon Valley from Norway in 1990, he founded a small R&D lab, but gradually began helping organisations accelerate innovation and product development. "I discovered that as important as engineering was, there were deeper causes for why firms evolved so slowly" he said.
Odegard researched Toyota's 'Lean' philosophy, which had revolutionised manufacturing by engaging employees as problems solvers. In 2004 he founded the Lean Systems Institute (LSI), modernising Lean for knowledge work to help leaders redesign their organisations for breakthrough performance. Odegard eventually concluded this was insufficient. "Technologies like artificial intelligence, robotics, distributed ledgers, and nanotechnology go beyond economic efficiency, they will profoundly change how we live and work. I realised this meant change on an anthropological scale, the coming of post-industrial civilization". In 2014 he founded the Post-Lean Institute with a mission to develop a new post-industrial management science.
In the 'Corporate Governance in the Post-Industrial Transition' white paper, you discuss digital myopia. How can organisations attract young innovators?
This is an urgent problem. By next year millennials will make up half of the workforce in the US and the UK, and there are large services ﬁrms who already have more than 50% millennials employed. Millennials and post-millennials (a.k.a. Generation Z) take new technology and rapid change for granted. They have grown up with instant access to any information they wanted 24/7 and, because of social media, they are able to discuss it with other people.
Employers need to reshape their brands and their missions to be more appealing to the next generation. This means taking on more diffcult challenges and bigger opportunities. The world is full of boring services ﬁrms with generic-sounding mission statements that essentially amount to helping clients succeed with whatever they are doing, and manufacturers whose output ﬁlls a modest role in a vast supply chain. This is not attractive to young people who ﬁnd it increasingly tempting to create their own start-ups. My suggestion is to look for the deeper 'why' behind what the company does, and reframe the mission in a way where you think bigger. This will make the company more meaningful for young innovators.
You also will want to recruit people that young innovators actually want to follow. One large energy company we spoke to had an average employee age at headquarters of 48, and a very traditional and risk-averse culture as well. This is not going to resonate with young innovators. You need to deliberately recruit the sort of people Steve Jobs referred to as "the crazy ones, the misﬁts, the rebels, the troublemakers". If you have no room for such people, you really have no room for innovators, young or old.
Finally, young innovators will also be looking for more autonomy at an earlier point in their careers. If you are going to work with them to create new businesses, use them to help ﬁgure out what ventures hold the most promise.
What can boards can do to safeguard against loss of shareholder value due to technology disruption?
Boards in traditional industries need to become much more proactive. They have to prioritise education for directors and most probably need to add one or two new directors with a technology background. If you can convince the founder of a successful technology start-up to join your board as a NED, this can be very helpful. If your board does not have any millennial directors, you also risk being out of touch on a generational basis.
In recent years, boards have become increasingly focused on regulatory compliance and risk mitigation. It can be argued that value creation amidst rapid technological change has suffered because boards only have so much time and attentional energy. A friend of mine who sat on a board of a major European bank told me that she had tried to get disruptive innovation on the meeting agenda for the last three years, but her efforts had been blocked by the chairman. From his perspective, everything was going well.
To ensure that the board pays attention to broader issues, boards can establish a standing committee speciﬁcally focused on disruptive innovation and organisational renewal. Boards also need to upgrade the knowledge level of their directors. This can be done through education, sending them to conferences, going to forums that connect them with new thinking, and organising study trips.
We do see a lot of board members from overseas companies visiting Silicon Valley, which is positive, though we often refer to these trips as 'innovation tourism' because they go back and then nothing really happens as a result of what they learn. Boards need to have a real agenda for independently learning about risks and opportunities, and then holding management accountable to make sure that the company's strategy is more forward-leaning.
Boards that are weak on technology and innovation are in no position to hold management accountable. This is risky for the ﬁrm. It can even be considered a breach of ﬁduciary responsibility.
How has the rapid progress of technology impacted policymakers?
Policymakers tend to focus on preventing undesirable outcomes. In my view, a government's chief role is to ensure that people can live peaceful lives where their rights are respected and where they can voluntarily and peacefully collaborate with others for mutual value. This means they must deal with domestic crime as well as potential foreign adversaries. On the safety front, there are plenty of threats, from the use of disruptive technology to commit crimes to technology-enabled terrorist attacks, and the use of technology by foreign powers to steal intellectual property, inﬂuence public opinion and develop ever-more-formidable weapons.
Governments themselves utilise technology as they try to fulﬁll their responsibilities, and here policymakers increasingly must confront the tension between the good that technology can do and the potential for violating people's individual rights whilst attempting to protect them. I think we can all see the beneﬁts of using artiﬁcial intelligence to detect a mugging on camera while it is happening. On the other hand, mass surveillance and tracking our individual movements makes people justiﬁably uneasy.
There is also a lot of interest in preventative policing – AI could be used to recognise someone who is walking in an odd manner, and sending out an order to detain him just to make sure he is not carrying a weapon. In China, not known for its political freedom, the government has gone even further. It has been implementing a social credit system where behavior that is not necessarily criminal, but viewed as 'socially undesirable', will result in a lower score. Below a certain threshold, an individual may not be able to use public transport and could be denied other public services as well.
Since governments all to a greater or lesser degree tend to interfere in the economy, policymakers are also held to account for the degree to which their policies impede or enable prosperity for their citizens. Key to economic growth is of course innovation, but in countries where traditional industries are disrupted by foreign tech companies that operate over the internet, it is tempting to enact policies which amount to digital protectionism.
While policymakers can easily put in place obstacles to innovation, making it happen is not something they can really control or lead. What they can do, however, is aggressively remove obstacles to innovation and listen more to entrepreneurs and investors building the businesses of the future.
This can be diffcult in jurisdictions where policymakers are steeped in traditional thinking, where leaders of traditional ﬁrms are politically connected, and where most of the voters are sceptical of disruptive innovation as well. Policy thinking in most countries will probably only change in response to gradually changing attitudes among voters, but, policymakers who invest in educating themselves about disruptive technologies will have an upper hand and their countries will beneﬁt from it.
Do you ﬁnd that corporate leaders are hesitant in adopting new technology? Why do you think this is and how can they embrace this shift in thinking?
There is a lot of talk about transformation, but most corporates have thus far been more engaged in digital modernisation. There is no genuine transformation – they still largely have the same structure, culture, and lines of business. The focus has been on upgrading the businesses they have in order to improve operational effciency and increase customer satisfaction.
For example, for consumer-facing businesses, millennials and post-millennials want to interact digitally via their smartphones. GoForward, the Silicon Valley health care start-up that provides my GP, was founded by digital natives. I do come in for my yearly checkup, but for everything else they provide an app through which I can get an immediate chat response 24/7. The last time I got the ﬂu they shipped the ﬂu medicine I needed to my house. The GoForward offices look very much like Star Trek, with big screens embedded into the walls. Everything is 100% digital, there is no paper anywhere. Implementing that level of customer interaction and doing it well has been a tall order for large, traditional ﬁrms.
Industry incumbents have historically hesitated to disrupt their own industry in order to protect near-term proﬁts. One reason this happens is that managers in large ﬁrms are usually incentivised to meet near-term goals.
The path to career success is one of making and keeping promises. This discourages risk-taking and encourages silo behavior. In contrast, start-ups have fewer layers of management and managers are encouraged to make the company more valuable as a whole. A larger portion of their remuneration is in the form of options and stock grants. People are therefore encouraged to work together, and building the company is the only way to succeed.
We also see that leaders with a technology background can look at industries differently than what we see in traditional ﬁrms. Amazon is a good example of this. With a computer science background you may intuitively see industries as networks of nodes (ﬁrms) with inputs. It is easier to see that networks are very similar in different industries, and prototyping new ideas is already a way of life.
In contrast, leaders in traditional businesses may be more emotionally tied to the industries they have 'grown up' in. It is harder for them to look at an industry from the perspective of an outsider, and their thinking will be more based on taking what they know and then seeing what (small) changes they can make. This results in a slower pace of organisational evolution.
Aside from recruiting senior leaders who have hands-on experience with disruptive technologies, established ﬁrms need to more strongly emphasize the development of new businesses.
This needs to be managed separately from the modernisation of existing lines of business where the rules for success will be different.
At the Data Governance Summit on 11 November, we will look at how organisations can make that shift and explore the strategic advantage of their data holdings. We will also look at the vital role data can play in facilitating better decision-making at board level, and consider the challenge of learning to "talk digital" at all levels of the business. And we reflect upon what poor data governance can mean in the real world.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.