The Lattice That Has Replaced The Corporate Ladder

Sometimes reality stares you in the face and it's still hard to believe. The collapse of the one-size-fits-all image of a corporate ladder is an example. But the corporate ladder is vanishing, and it's getting more and more difficult to deny the changing world of work. 

The enduring model for how companies have managed their work and their people since the beginning of the industrial revolution, the ladder represented an efficient though inflexible paradigm in which prestige, rewards, access to information, influence, power and so on, tied directly to the rung you occupied. The problem is that we no longer live in an industrial age--nor is the workforce the uniform group it once was.

Organizational structures are flatter. Technological advances and economic trends mean that work is increasingly virtual, globally dispersed and team-based. As a result, productivity and performance increasingly depend on a workforce that is more diverse than ever before, from gender and generation to culture, background and experience. 

Taking the ladder's place is a corporate lattice, in which ideas, development and recognition flow where they need to, along horizontal, vertical and diagonal paths. The lattice makes possible more collaborative and customized ways to structure work, build careers and foster participation. 

The ladder arose in a world that presumed work must be done in an office. Organizations adopting a lattice mindset realize that providing more options for when, where and even how work gets done is smart and encourages greater productivity and engagement. At the telecommunications provider Frontier Communications, 30% of the call center agents now work remotely, often from home. They are 25% more productive and have double the retention rate of agents who work in the company's traditional call centers. 

Not only can lattice structures contribute significantly to the bottom line--by increasing productivity while reducing real estate costs and turnover, for example--they also can improve engagement, by providing more options for fitting life into work and work into life. Ladder careers have one direction for growth, development and status: up. The lattice career pursues continued growth, development and organizational influence by creating and valuing career paths that move laterally, diagonally and down, as well as up. 

Cisco , for example, builds versatile leaders by moving high-potential executives around the company. Ana Corrales, Cisco's vice president of global business operations, has made career moves to manufacturing, materials procurement, finance and customer service. "As a result of these experiences, when Ana talks about our business, she really understands how all the pieces work together," says Randy Pond, Cisco's executive vice president of operations, systems and processes. "This is the model for our future leaders." 

In the ladder's heyday communication flowed from the top down in an orderly and controlled manner. In today's lattice world, information flows more collaboratively and transparently, every which way. The lattice fosters an inclusive culture unconstrained by top-down hierarchy, where everyone can--and indeed, is expected to--contribute. That's what AT&T's chief technology officer, John Donovan, was after when he created a social media website that invites every employee to contribute ideas, become a collaborator, provide encouragement, offer feedback and even invest Monopoly-style venture dollars. "This is meritocracy at its best, a highly diverse set of people, in every sense of the word, crowd-sourcing and crowd-storming," Donovan says. The site has more than 57,000 members and has generated more than 2,000 ideas. The first season's winning suggestions have been funded and moved from PowerPoint to prototype.

The full power of the lattice emerges when its various strengths--in ways of working, building careers and collaborating--are connected to each other, mutually reinforcing a new formula for high performance. Thomson Reuters, an information services enterprise with $12.9 billion in revenue, illustrates such integration. Its chief financial officer, Bob Daleo, transformed the decentralized finance functions of more than 40 portfolio companies into a more lattice-like, collaborative structure with service bureaus located around the globe. He adopted lattice ways to work, including telecommuting and other flexibility options, to meet the demands of 24/7 global operations. Employee surveys show that 80% of employees rate the company's flexibility efforts favorably, far more than at other high-performing firms. 

Lattice ways to build careers moved the company from its narrow focus on upward progression to a multidimensional career model. "Now someone can go from a business unit to a new geography to a corporate center to a division center, which provides a lot more variety, a lot more challenge and a lot more learning," says David Turner, executive vice president and chief financial officer of Thomson Reuters Markets. 

With employees working in geographically dispersed teams, the old ways of communicating no longer served. Lattice ways to participate moved the organization toward more interactive, transparent communication. In one instance, the finance division gave a role traditionally reserved for management--identifying improvement priorities--to employees, by launching a "pain points" portal where they can voice their views of current challenges for everyone to see. The company appoints teams to address the highest priorities. 

Thomson Reuters' finance department's effort has so far yielded approximately $50 million in annual savings. It also has helped business leaders make better decisions with improved forecasting and planning, and employee engagement is up. From performance and productivity to adaptability, the lattice model is outperforming the ladder one. 

At Deloitte our annual employee survey shows that 90% of workers who experience all three lattice ways are engaged. Contrast that with the results of a major global workforce study by Towers Perrin in 2007-'08 that found just over 60% of employees in surveyed companies were engaged. Engagement is critical: Studies show that companies with high levels of engagement have higher revenue growth and better returns on assets and are more profitable and productive than companies with low levels of engagement. 

Continuing to invest in the future using yesteryear's industrial blueprint is futile. The lattice redefines workplace suppositions, providing a framework for organizing and advancing a company's existing incremental efforts into a comprehensive, strategic response to the changing world of work. 

Efforts to advance a company in any one of these lattice ways are beneficial, but the power of the lattice is amplified by the compounding effect that occurs when these new ways of thinking and acting reinforce one another to improve productivity, innovation and a business' ability to develop, retain and engage the right kinds of talent. Companies that act now to adopt lattice organization will craft a bold new script for confronting the changing world of work. These forward-looking companies are consigning the corporate ladder reality to where it belongs, in the history books.

Cathleen Benko is vice chairman and chief talent officer, Deloitte LLP, and Molly Anderson is director of talent, Deloitte Services LP. They are co-authors of The Corporate Lattice: Achieving High Performance in the Changing World of Work, published by Harvard Business Review Press.

In Focus: Driving Performance & Productivity

About this report

For over 15 years, Towards Maturity has been investigating how learning innovation can deliver business impact.  Our recent research, The Transformation Curve, reveals that high-performing learning organisations, on average, are seeing a 24% increase in productivity and performance as a result of learning done well. 

These Top Deck Organisations (the top 10% of organisations in the Towards Maturity Index)  are showing transformation by being twice as likely to report achieving benefits to help them respond faster to change (39% vs 18%) and build the capability of the organisation to solve problems (47% vs 19%). 

High-performing learning organisations are achieving greater growth, productivity, profitability and are better enabling business transformation.

Covered in this report

Setting goals
To sustain high performance and productivity, learning organisations embed a vision and release the capability of their people to achieve it.

Getting there smarter
High performing learning organisations are ten times more likely than low performing companies to use learning analytics to improve the delivery of their services. 

Building ownership
To ensure that learning is successfully applied, high performing and productive organisations understand, involve and facilitate.

Empowering people
To empower their learners, high performing learning organisations to support, give permission and encourage by creating a holistic people experience.

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The European Management model and its future

To my readers:

I could really not do justice to my subject with a list of bullet points and quick-fix recommendations, so this article is longer than some of you may want to read -- especially on a smart phone screen. To jump to the essentials, I suggest that you scroll down to my description of the European management model and the five changes needed to sustain it in the twenty-first century. You may be a bit fuzzy on what makes the European model different from the American one, so the section on five essential differences between the two models may interest you, right before the description of the European model itself.

You can find descriptions of the American, Chinese and Indian management models in previous posts. In my next post I'll tackle the ASEAN management model.

My view: why European management shows the way forward

As I write this, a trade war is brewing between the USA and China. Nationalism, protectionism and populism are stronger than a few years back. As for Europe the scare of Grexit gave way to the shock of Brexit as the EU's moment of truth. If anything, the EU model came out of it stronger than before and sets and example for other regional models.

In business we are in economically connected and interdependent, which is why the national models of the USA or China are insufficient for global management. Europe learned the limitations of nationalism with the devastation in two world wars and during the past 60 years has evolved a new model.

A word, if you don't mind, about my personal experience. I lived in the USA for the first 24 years of my life and went to Europe as a young man full of good and bad attitudes that came from being an American. The 30 years that I lived in Europe were exciting times for a consultant with the creation of the European Union. I took my European experience with me when I moved to Asia fifteen years ago, first to China and then to Singpaore. So my perspective on Europe here comes from being a born American and observing it from Asia

My search for the European management model

I started my search for the European management model 3 years ago. The trigger was a white paper that I was writing for the European Chamber of Commerce in Singapore, in partnership with the European Foundation of Management Development on the human development challenges for ASEAN. 

I began looking for publications on the European management model and couldn't find a single book or article that attempted to describe it in simple and practical way. This seemed strange to me, especially as descriptions of the American model were classics, starting with the social and political model described by Alexis de Toqueville in Democracy in America published in 1835. More relevant for management is Max Weber's classic, The Protestant Ethic and the Spirit of Capitalismpublished in 1905.

As Senior Advisor to the EFMD I was able to go through the files of speeches and debates over the years. But I didn't find what I was looking for in writing.

Then I hit upon the idea of asking a management guru about the European model -- someone who had lived through the genesis of European management during the years of the Common Market and the Maastricht Treaty. I especially wanted to know two things: first, why European management had not been modeled and, second, if any mistakes had been made that could have made it better.

Charles Handy was just that person. We had met more than twenty years ago but I had lost touch with him after moving to Asia. Then I was fortunate enough to see him again at an EFMD event. I asked if I could go see him at his home in London for a chat about European management.

Charles was 82 years old when I saw him but was as witty and lucid as ever. His influence on the development of European management was well known: he had been the very first professor of management development at the London Business School and later was the academic advisor and principal author of the first Open University course in management. His writing about European management had no equal, starting with the 1987 report on management education and training for the British government entitled "The Making of Managers" often referred to as “the Handy report", which described and compared the management systems of the USA, West Germany, France, Japan and Britain. It is still worth reading. Today Charles continues to be one of Europe’s most important management thinkers: he has written 20 books on management and social philosophy and I love the latest one, The Second Curve (2015).

When I asked Charles why Europe, with more than two thousand years of philosophy and education, with the experience of empires from Alexander and Rome to the recent British empire, creator of the university system, the scientific method and the industrial revolution-- why with all this, has Europe not formulated a management theory to serve as a model for the twenty-first century? His answer startled me:

Our great missed opportunity in Europe was that we didn’t really teach managers to think creatively and to develop their own sense of being a leader in life and for society. We concentrated instead on equipping them with a toolkit of knowledge and skills to help them in their current jobs.   

When European integration started to become a major influence on management in Europe, there were hardly any business schools in Europe, Handy explained. Besides, he added, European companies didn’t believe it was necessary to educate future leaders specifically in management; it was considered an American product. London Business School, where he taught, was one of the early pioneers but management education in business schools wasn’t fashionable in Europe until about 1986. Handy pointed out that while European business schools made management a respectable occupation, they didn’t provide significant innovation in learning outside the classroom, nor did they link business education to the wider needs of society. European business schools were too enraptured by the American model and became too dependent on the MBA as a cash cow. Handy thought that was a regrettable mistake. It meant that European management schools missed the chance to teach managers to think creatively and to develop their own sense of being a leader in life and for society. Europe failed, he concluded, to produce its own international gurus and thinkers to balance what the Americans were producing and never lived up to what Europe was creating in other areas such as science, culture and social innovation.

Five essential differences between the European and American management models

For most people, European management, especially as viewed from Asia, is lumped together with the American management and called “Western management”. But in fact European management as a regional model differs significantly from the American model in five essential ways.

First, European companies have a multinational and regional perspective when it comes to organisation, culture and leadership.

This has historical roots in Europe's history of empire-building but as a management concept it is a direct result of the creation of a European Union. In terms of management it means that a company must understand of the perspective of others and adopt a cooperative approach to decision-making rather simply forcing others to adopt their national values and culture.

Second, European countries educate business leaders who are capable of working in different cultures and promote multi-cultural leaders.

Again, this is a direct result of European Union initiatives where students can study and do internships in any member country.

Third, because of the traumatic experience of destruction in two World Wars, Europe saw that it was imperative to move beyond autocratic and nationalist leadership.

European companies promote participative leadership and avoid autocratic behaviours based on authority and hierarchical power. Management is seen as a two way street: top-down and bottom-up decision making with middle managers and workers.

Fourth, the European management model values “responsible stakeholder capitalism”, meaning that the purpose of a company is not only to maximise shareholder value.

This has traditionally been the philosophy of continental European companies while the British model was more aligned with American shareholder capitalism. The recent experience of Brexit and increasing inequality in America has reinforced this distinction. In the European management model, business leaders do not see capital and markets as adequate to ensure social responsibility and protection of individual rights. Recent European positions in the data protection of citizens and condemnation of invasive information gathering by American companies are examples.

Fifth, the European model promotes access of workers to a "good life" or decent lifestyle.

Not only does Europe value a cultural heritage over two thousand years old but in the twentieth century the European model improved access to the Good Life for workers with powerful social tools: minimum wage protection, a safety net of subsidised healthcare and retirement benefits, affordable public school and university tuition as well as guaranteed access to training in the workplace.

This social model has been criticised for its high cost, inflexibility and low productivity. The model of full-time salaried jobs with generous benefits has its downside especially with high youth unemployment rates in many countries. How Europe evolves faced with these issues is challenging, but it is clearly taking a different human development path from the American model.

Description of the European Management Model

Now what does the European model actually look like? Remember that management models answer the question of how to build a good and successful company -- the word "good" being as important as "successful"in how a business is managed.

1.Managing purpose

This answers the question of the goal of a business. In the European model, business is seen on a global scale and companies strive for global leadership. This is true for midsize European companies as well as the large multinationals because cross-border competition has forced them to adapt to multinational markets. European managers are regarded as being well prepared for global leadership, and this is particularly true of the millennial generation which is better equipped for mastery of the English language and has travelled more. Stakeholder capitalism is even more pronounced than in the past as its management model after Brexit and the American withdrawal from international agreements. Multiculturalismhas been the most visible consequence of the European model not only for companies but in many aspects of society: education, law, the arts and politics.

2. Managing people

Europe changed its model of leadership considerably with the experience of two world wars. In Germany and other countries participative leadership is not just a management practice but is imbedded in the corporate legal structure in such a way that no individual can hold all the power and make all the decisions. Consultation of different parties is seen as necessary and natural for business leaders who must make decisions in cooperation with stakeholders from inside and from outside with governments, NGOs and initiatives for corporate social responsibility. European management has typically invested in promoting people from within and training for long term career development. In some European countries companies must follow mandated investment in training budgets. Europe has a long history of internship where companies and the education system cooperate to develop skills and exposure to the workplace.

3. Managing relationships

European business changed significantly with the necessity to operate across borders. No longer could the elite of one country dominate a multinational business nor could the culturally determined ways of building relationships be as simple as in a business based on national foundations. Inclusive management and social equality are management principles for companies operating outside national borders. Contracts and administrationacross borders are a necessary part of European management, particularly with the free movement of labour across European member countries. No company can manage a multinational workforce without a commitment to diversity, which in Europe means primarily cultural diversity.

4. Managing change

This quadrant of the model is where the weakness lies, not only because of European rules and policies but also because other parts of the world, particularly Asia, are changing faster than Europe. The preference for planned, incremental change is challenged by disruptive business models as well as by the need to adapt to faster growth. Stakeholders can block change from the inside which is the downside of the European participative management model. European concern that technology must benefit society slows the application of technological changes, as evidenced by laws and rules for protecting society. However this social requirement has its advantages and some experts underline that Europe is more advanced than other parts of the world when it comes to genetic engineering, data protection and social safety nets.

Five changes needed for the European model to sustain leadership in the 21st century

In the 19th century, management was dominated by Europe which based its power on science, military superiority, vast empires for raw materials and mercantilist policies designed to maximise favourable trade balances. By the end of the 19th century the seeds of change were already germinating with the rise of American industrial power that ended up as the source of modern management following two world wars and the loss of European empires. However Europe again innovated by building the first successful multinational management model in a free economy as the Soviet model imploded.

Today the European model is confronted by challenges of rising national models in India and especially China. If the European model is to thrive and serve as an example for other regions in the twenty-first century, five changes must be made to the current model.

1. Invest in global thought leadership on management and work

As we have seen, European management has not been described as a working model. I have chaired debates in Asia where some some leaders of European multinationals declared that there is no European model at all! Europe will continue to be seen as a confusing mosaic without thought leaders and management gurus who formulate and promote European management as distinct from American management, who have new and compelling ideas for management of universal applicability and who work with business leaders to establish policies, practices and tools.

2. Update the European model for 21st century realities

Europe has been described a "community of values" that start with the universals: respect for human dignity, freedom, democracy, equality, rule of law and respect for human rights. Then there are the famous four freedoms: the free movement of persons, goods, services and capital. In the future, however, European leaders will need to rethink assumptions of European values, practices of work and employment, the organisation of education and training. Europe-based organisations will have to change in order to function globally with spheres outside Europe for decision-making, innovation, cultural adaptation and the localisation of expertise and technology.

To take an example, the British-based CIPD is the oldest organisation of HR professionals in the world and the second largest after the American based SHRM. With Brexit, the CIPD was faced with the challenge of being cut off from Europe. However the CIPD has set up offices in Europe and other parts of the world and has begun to explore different HR models. It has adopted a position as being an innovator and a thought leader for the HR function, even to the point of reinventing HR. Here is a short clip of CIPD's CEO Peter Cheese talking about how work is changing and what this means for professionals managing people in companies.

3. Integrate non-Western leadership and management concepts

Both the European and American management models shared a set of common values that define "the West". These include the primacy of the individual over the group, the predominance of Christianity, secularism in government and business, a commitment to democratic government, a shared heritage of civilisation and a common identification of the great exemplars of thought, the arts and leadership. This combined with a sense of superiority over other civilisations in stronger or more diluted versions. In the twenty-first century the challenges to the Euro-American consensus are very different civilisations.

The rise of Asia presents a specific challenge not only in terms of the hard power of military and economic leadership but also for many of the soft power elements of management in companies. And remember, there is not one Asian model but three fundamentally different ones -- China, India and ASEAN. These models do not consider the relationship of the individual and the community in the same way; they do not have the same divides for the secular and religious; the do not see the relationship of government and companies in the same way. And the certainly do not have the same philosophical, religious and artistic heritage -- they have their own exemplars of great thinkers, artists and leaders.

The European model must be more inclusive and seriously undertake a mix of European and non-European mindsets, values, behaviours and goals. To take an example, an Indonesian CEO of a Western company told this story to young leaders embarking on a leadership programme in an Indonesian company. He said

I was told that I was not fit to be an engineer in Company X because I didn't know how to get people to do things - I didn't kick ass and raise my voice. Later I became the first Asian CEO of Company X and I thought it was time to tell them that if Company X wanted to have a future, its leaders must learn how to get things done without raising their voices and kicking people in the ass. 

4. Support top level European research and technology, startups and business schools

While I have underlined the lack of a description of the European model, there is no doubt that European management capability is world class. But to maintain global leadership governments and businesses will need to invest and pool resources for regional sustainability. Initiatives to create Europe-wide research centres, European technology projects, European "Silicon Valleys" and European business schools need political will and financial resources.

The undisputed success story for European business education is INSEAD. Founded in 1957 by the Paris Chamber of Commerce with money from enlightened donors the school was set up as a truly European business school. It soon created a European-style MBA which differed from the American one by being a year shorter and admitting only students who already had business experience. At the turn of the century INSEAD opened a new campus in Singapore which departed from the model of American business schools in two ways: first by creating a fully functioning campus with equal importance to its European base. Second by changing its identity from the framework of European management to take on the motto of "the business school for the world". Michel Pich, until recently Dean of Executive Education, was part of the task force in reinventing the school's identity and moving to Singapore. Before retiring he told me about INSEAD's transformation:"We went through years of soul-searching before we were ready to give up our previous identity." None of the top American business schools have gone through this reinvention.

5. Adopt English as the European language of business

After Brexit, there are no native English speaking countries in the European Union. Yet the language of business and science in Europe is clearly English.

A look at the map of five regions where English is the official language suggests that it will grow in usage rather than retreat to its native roots for the rest of the century. Much of the developing world uses English -- India, Southeast Asia and half of Africa. It is the official language of ASEAN although the region has 600 native languages. In India there are 22 scheduled languages but English is the language of the Constitution and for its law courts.

In many countries of Europe, children are taught English at an early age with sufficient teaching time throughout their education to master the language. But many other countries have deficiencies in English language education which limits mastery to elites while the general population gets along with a few words and phrases. For the future of European companies and workers, not to mention scientists, medical workers, lawyers and artists, the mastery of English will need to become standard in order to sustain European leadership in the world.

These five imperatives make up a short list of necessary, but not sufficient, conditions for European management to lead, to innovate and to thrive in the twenty-first century.

How To Develop An Organic Culture Within A Blockchain Company

There are a lot of companies within the blockchain space experimenting with new organizational structures. These include hybrid hierarchical models, holocracies, or even free-market-driven mesh-style networks like CONE out of the Brooklyn-based Ethereum venture production studio, ConsenSys. 

Blockchain is a decentralized technology, and at first glance, it makes sense to embrace a similar ethos when it comes to organizational structure. 

The vision of CONE, and other structures like it, is to create a somewhat utopian, market-driven venture where everyone does work they enjoy and excel at. It’s meant to build micro-economies within the larger organization that allow employees to advocate for themselves, similarly to how an entrepreneur pitches a VC for seed funding. 

But nothing is utopian in practice.

To add some context, in the late 1960s—particularly among French, British, and American youth—there was a rhetorical shift in the utopian impulse, from total transformation to personal change, from revolution to desire. This kind of self-reflexivity toward the closures of the utopian imagination was necessitated in the early 1970s by the totalitarian tendencies of the twentieth century. Nazi Germany, Stalin’s Soviet Union, Mao’s China, and corporate America proclaimed their utopian credentials—but with little of the personal happiness and liberty that was supposed to accompany utopia’s realization. 

People needed to clear ‘utopia’ from the charge that it was somehow responsible for these totalitarian regimes, thus prompting a renovation of the utopian concept.

Sound familiar? Today, the utopian impulse is still alive but in need of revision. The practical execution of utopian ideals is where the challenges lie in organizational culture.

Organizations, regardless of their structures, don’t exist in a vacuum. Outside cultural challenges and micro-biases, issues of race, gender, sexuality and socioeconomic background, still assert themselves. And most flat organizations end up catering to white, heteronormative male culture. 

That’s why companies looking for decentralized organizational structure need to do things differently. They cannot buy completely and indiscriminately into the utopian ideals. Companies must choose to be a little more pragmatic to end up with a culture that's organically diverse and self-selecting.

If you’re looking to develop this type of culture, here’s what to keep in mind:

Aim for a hybrid culture.

Employees in hybrid cultures strive to find consensus and work together, but there definitely is a structure in place. They don’t use the traditional roles and hierarchies generally found in a corporate environment. 

Think of a holacracy like Zappos. Hybrid cultures are flatter and more decentralized than a traditional organization, but they are not a flat organization. It’s more consensus-based. People focus on the things they know need to get done, but lines blur when people help with different functions. This back and forth should feel very fluid and organic. 

Each organization has to find that balance for themselves. You probably don’t want the traditional, hierarchical structure that most corporations have. But you also have to recognize that when people say they’re a truly flat organization, they’re usually stretching the truth a little. 

Understand real equity. 

As a founder, the more people you add to your team, the more you might dilute yourself. But thinking solely about your cap table is not what’s going to get you to your end goal, whatever that might be. You need a team to get there, and that team needs to be aligned and empowered. 

By being inclusive and generous, you can create a culture of collective ownership and inclusivity. A lot of companies talk about their flat structures and how everyone is “equal.” It’s up to you whether or not you’re going to walk the walk when it comes to equity. 

Let employees self-select.

The idea of a flat organization always runs up against one challenge—who’s going to take out the trash? If everyone’s self-selecting, who’s going to do the job no one wants to do?

This is accomplished by reaching a stage where everyone is so committed to the outcome that people take it upon themselves to do things that are less than ideal. Responsibility is distributed in a way that allows people to work on tasks they’re genuinely happy with. 

Most of the team members should be self-selected. By giving people choice, you create a more diverse and inclusive team. But it also creates an environment where you don’t have to worry as much about who’s taking out the trash. Everyone’s ready and willing to do their part.

Find a place for process.

Whether you choose a standard hierarchy or go with a flat organization, the key to success is to be process-oriented. 

Start by creating processes from day one. How are you going to develop your software? How are you going to roll out a product successfully? How are you going to align everyone around your goals?

Focusing on your processes allows you to feel safe enough about your progress that you can experiment in different ways. You don’t need a true hierarchy because everyone is operating under a common set of assumptions. 

Adjust to growing pains.

As a whole, organizational culture is going through a transformation. 

Today, teams include remote workers and networks of independent contractors. And many companies are transitioning to distributed teams. They’re using networks of specialists—people who may be working on multiple projects with multiple other companies at the same time. 

And that comes with a host of questions. How do you make sure your IT specialist is there when you need her? How does she know she can rely on you when she needs work? Is there a way to align people with several different companies so they can still get benefits and a sense of security? 

The answers to those questions are complex. A new network and organizational models are going to develop as people attempt to answer them. Each company will have to make their own decisions, but as the idea of organic culture develops and matures, the result will be more naturally-structured, fluid organizations.

Eight shifts that will take your strategy into high gear

Developing a great strategy starts with changing the dynamics in your strategy room. Here’s how.

Many strategy planning processes begin with a memo like the one below. Such missives lead managers to spend months gathering inputs, mining data, scanning the marketplace for opportunities and threats, and formulating responses. In the strategy meetings that follow, the CEO leads discussions, executives jockey for resources, and a strategy emerges that confidently projects future growth. The budget is set—and then nothing much happens.

So much activity, so little to show for it. Our book, Strategy Beyond the Hockey Stick (Wiley, February 2018), explores in depth the social dynamics that undermine strategic dialogue and breed incrementalism. It also underscores the real, and very challenging, odds of crafting strategies that will lead to dramatic performance improvement. For example, over a decade, only 8 percent of companies manage to jump from the middle of the pack—the roughly 60 percent of the world’s largest corporations that barely eke out any economic profit—to the top quintile, where almost all the economic profit accrues. Underpinning many of those successful strategies, our research shows, are big moves such as dramatic resource reallocation, disciplined M&A, and radical productivity improvement.

We summarized many of those core findings in a recent McKinsey Quarterlyarticle. What we did not explore in depth there were the practical steps executive teams can take to catalyze big, trajectory-bending moves while mitigating the social side of strategy arising from corporate politics, individual incentives, and human biases. Our research and experience suggest that eight specific shifts can dramatically improve the quality of your strategic dialogue, the choices you make, and the business outcomes you experience. These are moves that you can start implementing Monday morning. Together, the eight shifts will enable you to change what is happening in your strategy room—and eradicate memos like the one above.

1. From annual planning to strategy as a journey

Messy, fast-changing strategic uncertainties abound in today’s business environment. The yearly planning cycle and the linear world of three- to five-year plans are a poor fit with these dynamic realities.1Instead, you need a rolling plan that you can update as needed.

In our experience, the best way to create such a plan is to hold regular strategy conversations with your top team, perhaps as a fixed part of your monthly management meeting. To make those check-ins productive, you should maintain a “live” list of the most important strategic issues, a roster of planned big moves, and a pipeline of initiatives for executing them. At each meeting, executives can update one another on the state of the market, the expected impact on the business of major initiatives underway, and whether it appears that the company’s planned actions remain sufficient to move the performance needle. In this way, the strategy process becomes a journey of regularly checking assumptions, verifying whether the strategy needs refreshment, and exploring whether the context has changed so much that an entirely new strategy is necessary.

To grasp what this process looks like in action, consider the experience of a global bank whose competitive context dramatically changed following the financial crisis. The CEO realized that both the bank’s strategy and its approach to refining the strategy over time as conditions changed needed revamping. He instituted biweekly meetings with the heads of the three major lines of business to identify new sources of growth. After making a set of “no regrets” moves (such as exiting some noncore businesses and focusing on balance-sheet optimization), the bank’s strategy council devoted subsequent meetings to confronting decisions whose timing and sequencing demanded close evaluation of market conditions. The top team defined these choices as “issues to be resolved,” regularly reviewed them, and developed a process for surfacing, framing, and prioritizing the most time-sensitive strategic challenges. In doing so, the team not only jump-started its new strategy but launched an ongoing journey to refine it continually.

2. From getting to ‘yes’ to debating real alternatives

The goal of most strategy discussions is to approve or reject a single proposal brought into the room. Suggesting different options, or questioning the plan’s premise and therefore whether it should even be under consideration, is often unwelcome. Without such deeper reflection, though, you are less likely to make hard-to-reverse choices about how to win—which is problematic, because those choices are the essence of real strategy, and the planning process should be geared to shining a spotlight on them.

The conversation changes if you reframe it as a choice-making rather than a plan-making exercise. To enable such discussion, build a strategy decision grid encompassing the major axes of hard-to-reverse choices. Think of them as the things the next management team will have to take as givens. Then, for each dimension, describe three to five possible alternatives. The overall strategic options will be a few coherent bundles of these choices. Focus your debate—and your analysis—on the most difficult choices. One company we know recently brought two very different plans into its strategy discussion: the first plan assumed the present, low level of resourcing, and the second one represented a “full potential” growth scenario, which necessitated dramatically higher investment levels. The latter option was a new possibility resulting from a positive demand shock. Alongside one another, the two plans stimulated vigorous debate about the company’s road ahead and what its posture toward the business should be.

If you want real debate, you also need to calibrate your strategy. As we show in our book, the odds of a strategy leading to dramatic performance improvement are knowable based on analysis of your company’s starting endowment, the trends it is riding, and the moves you are planning. If your odds are poor, you should consider alternatives, which often will require making bigger moves than you made in the past. Forcing discussion about real strategic alternatives—such as different combinations of moves and scenarios with different levels of resources and risk—help you move away from all-or-nothing choices, as well as from those 150-page decks designed to numb the audience into saying “yes” to the proposal.

Even a simple calibration can stimulate debate about whether a strategy has a realistic chance of getting you where you want to go. Consider the experience of a consumer-goods client with $18 billion in revenue and the aspiration of achieving double-digit growth. The company did a great deal of planning, and the aspiration, which rested on a bottom-up aggregation of each business unit’s plans, looked reasonable. However, publicly available information showed that among industry peers within the same revenue range, only 10 percent generated sustained, double-digit growth over ten years. The questions became: Is our strategy better than 90 percent of our peers? Really? What makes us stand out, even though we have performed like an average company over the prior five years? These questions were uncomfortable but important, and they contributed to a strategic reset for the company.

3. From ‘peanut butter’ to one-in-ten wins

It is nearly impossible to make the big moves that successful strategies require if resources are thinly spread across all businesses and operations. Our data show that you are far more likely to achieve a major performance improvement when one or two businesses break out than when every business improves in lockstep. You have to identify those breakout opportunities as early as possible and feed them all the resources they need.

Identifying those winners is easier than you might think. If you were to ask your management team to pick them, they would probably agree strongly on number one and maybe number two—much less so on, say, numbers seven and eight. The difficulty starts when discussion shifts to resource allocation. In fashion, movies, oil exploration, and venture capital, people understand that it’s the one-in-ten win that matters, but most other businesses do not have this “hit mentality.”

To stop spreading resources too thinly, you and your management team need to focus on achieving a few breakout wins and then work to identify those potential hits at a granular level. Excessive aggregation and averaging into big profit centers can prevent you from seeing the true variance of opportunity. One CEO we know had traditionally framed strategy discussions around growth of 4 to 6 percent and accordingly meted out resources to divisions. One year, he did a much more granular analysis and realized that one geography—Russia—was growing at 30 percent. He swamped the Russian operations with resources, created a more favorable environment, and subsequently enjoyed even faster growth from that unit.

We’ve seen many senior teams move away from “peanut buttering” by using some form of voting to pick priorities. In some cases, that’s a secret ballot in envelopes. In others, CEOs set up a matrix showing all the opportunity cells and let executives allocate points to various initiatives by applying stickers to the matrix. Such a matrix can help you look at the market in ways that are different from how your organization is structured—which boosts the odds of achieving radical resource shifts. One company, for example, recently decided to examine plans one level down from the business unit and created a detailed curve of 50 or so specific, investible opportunities. The result was a much bigger shift in resources to the best opportunities.

4. From approving budgets to making big moves

The social side of strategy often makes the three-year plan a cover for the real game: negotiating year one, which becomes the budget. Managers tend to be interested in years two and three but absolutely fascinated by year one, because that is where they live and die. You need to put an end to the strategy conversation being little more than the opening act to the budget.

One of the worst culprits in these budget-driven discussions is the “base case”: some version of a planned business case anchored in various (largely opaque) assumptions about the context and the company strategy. The base case might obscure the view of where the business actually stands, which could make it hard to see which aspirations are realistic and, certainly, which strategic moves could deliver on those aspirations.

A practical way to avoid this trap is to build a proper “momentum case.” This is a simple version of the future that presumes the business’s current performance will continue on the same trajectory—the highly probable outcome absent any new actions. In this way, you get a sense of how much impact your moves need to deliver to change that trajectory.

It is also critical to understand explicitly why your business is making money today. At a retail bank in Australasia, for instance, the leaders wanted to expand into overseas markets. The logic was, we are very successful, so we must be better operators than our competitors. We will move into other markets, where the operations are not nearly as efficient as in our home markets, and we will clean up. When the team looked at how the bank really made money, however, the operating metrics were unimpressive. The company’s success was largely due to its product strategy: the bank had a big exposure to residential mortgages, for which demand was very strong in Australia at the time. Another big source of profit was the bank’s excellent record of picking branch locations. But those choices were made by two people at the head office, so there was no reason to suspect that they would be as successful in Indonesia or other new countries.

The bank gained these insights by doing a “tear down” of its results. This is a crucial part of sharpening the dialogue around big moves, and it is not that hard to do. Simply take the business’s past performance and build a “bridge,” isolating the different contributions that explain the changes. Most CFOs regularly do this for factors such as foreign-exchange changes and inflation. The bridge we are talking about considers a broader array of factors, such as average industry performance and growth, the impact of submarket selection, and the effect of M&A.

Armed with a thorough, unbiased understanding of where your business stands and what has been driving performance, you can focus on what it would take to change your trajectory. Instead of asking for a target or a budget in the strategy meeting, ask for the 20 things each of your business leaders wants to do to produce a series of big moves over the coming period. Then debate the moves rather than the numbers expected to result from them. Why should we do this big move? Why shouldn’t we? How different does the company look depending on what risk and resource thresholds we set for it? Above all, talk about moves first, budgets second. Over time, your managers will come to recognize that if they do not have any ideas for big moves or cannot inspire confidence about their ability to pull off big moves, they will lose resources accordingly.

5. From budget inertia to liquid resources

The handover between strategy and execution happens when the resources are made available to follow through on the big moves you identify. Execution can then begin, and managers can be held accountable.

To mobilize resources and budgets, a company needs a certain level of resource liquidity. And you have to start early—the date your fiscal year begins. That is when serious productivity-improvement initiatives should be under way to free resources by the time allocations are decided later in the year. Then you must hold onto those freed resources so they will be available for reallocation, which requires determination. As soon as an engineer has time, your R&D organization will have creative new product ideas; the sales organization will identify attractive new business opportunities as soon as a productivity program has freed up part of the sales force. You need to be incredibly clear about separating the initiatives that free up resources from the opportunities to reinvest them if you hope to make big moves.

Another way to enable resource reallocation is to create an “80 percent–based” budget: a variant on zero-based budgets in which you make a certain sliver (say, 20 percent) of the budget contestable every year, so money is forced into a pot that is available for reallocation when the time comes. Yet another option is to place an opportunity cost on resources that seem free but are not. You identify scarce resources, such as shelf space for retailers, and make sure they are measured and managed with the same rigor as conventional financial metrics, such as the sales and gross margins for which many retail managers are held accountable. This can be as simple as shifting to ratios (such as sales per square foot and returns on inventory for a retailer) that encourage managers to cut back on lower-value uses for those resources, thereby freeing them up for other opportunities.

US conglomerate Danaher strongly emphasizes resource liquidity and reallocation. Originally a real-estate investment trust, the company now manages a portfolio of science, technology, and manufacturing companies across the life sciences, diagnostics, environmental and applied solutions, and dental industries. To avoid budget inertia, senior management at the company spends half its time reviewing and recutting the portfolio—much like private-equity firms do. The company even has a name for its approach: the “Danaher Business System.” Under this approach, which is based on the kaizen philosophy of continuous improvement, Danaher has institutionalized the resource liquidity required to chase the best opportunities at any point in time. It systematically identifies investment opportunities, makes operational improvements to free up resources, and builds new capabilities in the businesses it acquires. Over the past decade, the company has dynamically pursued a range of M&A opportunities, organic investments, and divestments—big moves that have helped the company increase economic profits and total returns to shareholders.

6. From sandbagging to open risk portfolios

When business units develop strategic plans, they often set targets that they can be sure of reaching or exceeding. As you aggregate these plans on a corporate level, the buffers add up to a pretty big sandbag. The mechanism of aggregating business-unit strategies also explains why we see so few big moves proposed at the corporate level: individual unit heads tend to view M&A initiatives and other bold programs as too risky, so these moves never make the final list they bring into the strategy room.

To make strides against sandbagging, you need to manage risks and investments at the corporate level. In our experience, a key to doing this effectively is replacing one integrated strategy review with three sequential conversations that focus on the core aspects of strategy: first, an improvement plan that frees up resources; second, a growth plan that consumes resources; and third, a risk-management plan that governs the portfolio.

This approach triggers a number of shifts. People can lay out their growth plans without always having to add caveats about eventualities that could hamper them. You could ask everyone for growth or improvement plans, possibly insisting on certain levels to make sure everyone is appropriately imaginative and aggressive. Only after executives put their best ideas on the table do you even begin to discuss risk. By letting business leaders make risk an explicit part of the discussion, you change their perception that their heads alone will be on the block if the strategic risk cannot be mitigated. They will share what they know of their risks rather than hiding them in their plans—or not showing you an initiative at all because they deem the personal risk to be too high.

Consider the experience of a retailer whose traditional strategy approach was to roll up the plans of each of its different brands. One year, the company instead racked up the full set of about 60 investible opportunities and assessed them against one another, regardless of the brand or business unit with which they were connected. The dispersion between opportunities was striking. A portfolio-level view also led to a different answer about the right risk/return threshold than had emerged from assessments made earlier by individual divisional leaders. It turned out, perhaps counterintuitively, that there was too much capital going to the smaller businesses, while the biggest business had major, underfunded opportunities.

7. From ‘you are your numbers’ to a holistic performance view

Whatever shifts you make, you cannot make them alone; you need to bring your team along. We often see managers being pushed to accept “stretch targets”—with perhaps a 50 percent chance of being achieved, what we would call a “P50” plan—only to have these low, up-front probabilities ignored when it comes to the performance review at year end. People know that they “are their numbers,” and they react accordingly to attempts to set aggressive targets.

Bringing probabilities to the fore can reset these dynamics. You need to have a sense of whether you are looking at a P30, a P50, or a P95 plan if you hope to have a reasonable, ex post conversation about whether the result was a “noble failure” or a performance failure. You also need to dig down on what drove the outcomes. Although you don’t want to punish noble failures, you don’t want to reward dumb luck, either. Rather, you want to motivate true high quality of effort. At W. L. Gore, maker of Gore-Tex, teams get data on performance and vote on whether the team and its leader “did the right thing.” This vote is often closer to the truth of what happened than the data itself.

Ultimately, you also need a sense of shared ownership in the company’s fortunes and a clear alignment of incentives to get the full commitment of your team to the big moves you need to make. To deliver the message that people will not be punished simply because a high-risk plan did not pan out, we suggest developing an “unbalanced scorecard” for incentive plans that has two distinct halves. On the left is a common set of rolling financials with a focus on two or three (such as growth and return on investment) that connect to the economic-profit goals of the division and enterprise. On the right is a set of strategic initiatives that underpin the plan. The hard numbers on the left help establish a range for incentives and rewards, and the strategic initiatives on the right can be a “knockout” factor, with P50 plans getting treated more softly on failure than P90 moves. In other words, the way you get the results matters as much as the results themselves.

Playing as a team counts here, too. The right thing to do at a portfolio level does not always mean every individual “scoring the goal.” For example, it’s a good idea to have fire stations strategically located throughout your city, but you don’t heap rewards on the one fire station that happened to be near the big conflagration. You look at the performance of the system as a whole. The urge to push individual accountability can actually be counterproductive when it comes to strategy, which is really a team sport.

8. From long-range planning to forcing the first step

We see it all the time: big plans that excite leaders with grand visions of outcomes and industry leadership. The problem is that there is no link to the actual big moves required to achieve the vision—and, in particular, no link to the first step to get the strategy under way. Most managers will listen to the visions, then develop incremental plans that they deem doable. Often, those plans get the company onto a path—but not one that reaches the vision or exploits the full potential of the business.

That is why the first step is crucial. After identifying your big moves, you must break them down into what strategy professor Richard Rumelt calls “proximate goals”2: missions that are realistically achievable within a meaningful time frame—say, 6 to 12 months. Work back from the destination and set the milestone markers at 6-month increments. Then test the plan: Is what you need to do in the first 6 months actually possible? If the first step isn’t doable, the rest of the plan is bunk. One insurance CEO worked on a vision with his team that concluded there would be no paper in the insurance business in ten years. But when he asked for the plan for the upcoming year, paper consumption was set to increase. So, he asked, “To connect to our vision, would it be viable to be flat in paper next year and go down in the next?” Of course, the team had to say yes. By framing a first-step question, the CEO forced the strategy.

Pursuing these shifts should increase your chances of making big, strategic moves, which, in turn, increases your likelihood of jumping from the middle tier into the elite ranks of corporate performance. In fact, our research shows that making one or two big moves more than doubles your odds (to 17 percent, from 8 percent) of achieving such a performance leap. Making three moves boosts these odds to 47 percent.

But keep in mind that the eight shifts are a package deal—if you don’t pursue all of them together, you open the field to new social games—and that it takes a genuine intervention to jolt your team into this new way of thinking. How? Here’s an idea: Create a new strategy process that reserves ten days per year for top-team conversations and introduce the shifts one meeting at a time. If things go wrong in a meeting, they go wrong only in one place, and you can “course correct” for the next conversation. And if you discover at the end of the ten days that you have not been able to free up all the resources you feel are needed, that’s OK. Take the resources you were able to free up by the end of this first planning cycle and allocate them to the highest priorities that emerged from it. You will have made progress, and, more importantly, your team will now understand what this new process is all about. That is a first step in its own right, and if you want to boost the odds of creating a market-beating strategy, it’s probably the most valuable one you can take.