Introduction
Digital technology has become a defining force within the context of the corporation of the future. In too many cases, however, shortcuts arising from the race to digitalise have interfered with implementation and resulted in outcomes less than optimal. These poor results were identified by BCG Management Consultants who found that only 35 per cent of companies are achieving their digital transformation objectives (1). This is consistent with findings by our research division - the Strategic Management Institute (SMI) - that technology is being used to automate and obliterate business processes rather than to transform and evolve the whole company through the introduction of new, dynamic, and disruptive ways of doing business. The writing is on the wall for many. While Canva, Airwallex, Culture Amp, Judo Bank, and numerous other emerging organisations are thriving, traditional corporations are failing to adapt and will find it difficult to survive the next decade. The imperative for these corporations is to seek more strategic and imaginative strategies for the future.
Evolving to Corporation 2040 – overcoming entrenched ways of structuring and thinking
Dealing with the reality of the ‘fog of uncertainty’ often surrounding strategic decision-making is something CEOs have learnt to accept, but not overcome. It has become the responsibility of corporate leaders to embrace uncertainty and take leaps of faith into the murky waters of the future. This unenviable situation has resulted from the difficulty of finding appropriate tools and techniques that can add more certainty and support for effective decision making. Many rely on recollections and experience-based roadmaps of the past coupled with often ambitious inspiration for the future. Fundamental to this approach is hindsight or, more simply, experience. As a primary source of knowledge, hindsight informs decisions made with the here and now – using insight. Ultimately, hindsight and insight are transformed into an envisioned future, taking the form of foresight. Such perceptions of the future are aggregations of many different experiences obtained over the years, combined with various forms of forecasting. Unfortunately, none of these are particularly reliable, because:
Hindsight is frequently hindered by poor memory: Golden (2) found that 58% of Chief Executives surveyed could not accurately recount strategic postures adopted only two years prior.
Insight is also hindered by natural bias in decision making: Common biases include excessive optimism, inappropriate attachments to reality and misinterpretation of past experiences (3).
Foresight is the least likely to be correct as it is about the future, but there is no history of the future upon which informed decisions can be made.,
Leaders naturally attempt to shore up their decision-making by invoking even less reliable sources of knowledge that take the form of assumptions, gut feel, and instinct. This works to a degree according to Gilbert and Wilson (4), who found that, unlike other animals, humans possess ‘prospection’. This is the capability to re-experience the past and use this to ‘pre-experience’ the future, in the form of a simulations. Although a capability strategy practitioners rely on consistently, Gilbert and Wilson also point out that basing simulations of the future on memories of the past is also erroneous. Memories don’t provide accurate recollections of history, they are nothing more exaggerated versions of the two extremes of good and bad, but – mostly the bad. Cautious CEO’s therefore are to balance judgements based on prospection with heavy doses of intuition. When viewed in the context of business decision-making intuition was originally identified by Kenichi Ohmae (5) who examined the causes of Japanese CEOs’ success in business in the 1970s and 80s; an era when formal business education in Japan was not common. Ohmae explained in his book “The Mind of the Strategist” that Japanese CEOs “intuitively possess a basic grasp of the fundamental elements of strategy”. Ohmae observed, however, that to be effective, instinct and intuition need context, structure, and visibility.
The activities of prospection and intuition cause leaders to seek as many alternative sources of substantive information as possible, to support their cognitively-derived observations. This information is gained through scenario analysis, environmental scanning/PESTEL analysis, AI-driven predictive analytics, and so on. All these approaches have limited reliability as they are historical, rather than being based on future conditions. The most recent methodology to join this pool of techniques is Blue Ocean Strategy (6), which was published some 18 years ago. Future position support tools that reflect the current nature of business are badly needed.
Reframing: Thinking differently about the future
The one other approach to strategic thinking that is highly and widely recommended, but rarely applied to practice, is systems thinking. Whilst systems thinking is another cognitive tool, it is also readily supported by analytical evidence in the form of systems mapping. Taking strategic management as an example, a systems perspective provides an articulation and illustration of connectedness, structure, and boundaries to the strategic decision-making process. The value in adopting a systems approach to thinking according to Peter Senge (7) is that it allows decision makers to “gain meaningful insight into things that are local to us in space and time”. The value of this attribute is that instead of trying to piece together ad hoc components of a topic of mastery such as strategic management, a clear appreciation of systems boundaries allows practitioners to picture that system in its entirety. This, in turn, enables decision-makers to identify and assess limitations and constraints against which system effectiveness can be evaluated, challenged, and in some cases, as we explore next, exploited, and expanded. It is proposed that such an attribute is a solution that fills the divide between cognitive-based decision-making and expressions of the future, illustrated in physical models. In short, it is a methodology that contributes to overcoming the constriction associated with entrenched ways of structuring and thinking discussed above. The application of systems thinking to practice is explored next. It is articulated in the context of complex strategic thinking and decision-making, a key criterion for the design of Corporation 2040.
Application of systems thinking as a tool enabling future-focused strategic decision-making in formulating Corporation 2040
Despite the apparent value associated with the use of systems thinking proposed by Senge, the promise has too often been just that; a promise rather than a practice. Wide-scale acceptance of the idea of systems thinking as an integral component of strategic decision-making in particular has, however, been elusive. One reason for this is that its enactment rarely occurs in any format other than that of conceptual thinking. This not only carries with it all of the limitations of cognitive insight discussed previously, but the underlying design is hard to recall, difficult to communicate, and hard to implement. An example of this can be found in the application of the notion of a corporation as a living, organic system. It’s easy to liken an organisation to a lake that plays host to a natural ecosystem made up of birds, swans, fish, and the occasional rat. It’s not so easy to illustrate it in a diagram. The alternative however, a top down, bottom-up hierarchy of boxes filled with names and titles, is quite readily understood, communicated, and implemented. There is of course little value in the latter construct as there is no indication of relatedness beyond that of power and authority. This is, in turn, a relatively unfertile ground for dynamic, disruptive strategic decision-making where an intense focus on the corporation of the future, as opposed to career paths, is required. The idea of creating a corporation to a living system such as a lake does however have merit. It introduces notions of survival, adaptation, and renewal to say the least.
To drastically enhance the application of digital technology to a dynamic and progressive Corporation 2040, it has been shown that corporations can mimic living, organic, system-based constructs as viable alternatives to mechanistic bureaucracies. The methodology for this is described as biomimicry and is gaining acceptance in practice. There is, in fact, an institution that promotes it and explains exactly what it is and how it works. Known as The Institute of Biomimicry, it describes the practice as “emulating natural processes in technological and industrial design” (8).
An example is the copying of the natural ability of termites to design and build their mud mounds. Inspired by the strength of this natural structure, architects designed and built an office complex on the same principles in Harare, Zimbabwe. As with the earlier reference to the lake, an organisation can be seen as a living, interactive host to a broad range of stakeholders. A lake however can only adapt to its environment, organisations must also invent and create their own environment. Perhaps the more astute reader can already recognise this conundrum and relate it to the challenges faced by those seeking to define an increasingly challenging future corporate environment. This is the same challenge that must be addressed by those leading an organisation through a transformation to Corporation 2040.
This is an exercise that requires corporate leaders to adopt a holistic, systemic perspective to their understanding of the interactions between the corporation and the external environment. Whilst this type of organisational development task is front and centre for many corporations, it is rarely applied to matters concerned with the broader external environment beyond the immediacy of markets and the invisible constraints of industry boundaries. The SMI has identified three levels of environmental forces capable of exerting positive or negative influences on an organisation (Hunter, 2020) (9). Each are illustrated in Figure 1.
Level 1: Outside In external forces, uncontrollable indirect environment: Universal focus and a key element of long-term strategy.
Level 2: Outside In external forces, influenceable direct environment: Differentiation in industries/markets. A focus of short to medium-term time frames.
Level 3: Inside Out internal forces, controllable direct environment: Capabilities, resources and core competence focusing on long and short-term dimensions of time.
Convention dictates that the three corporations illustrated in Figure 1 are free to expand or shrink within a Level 2 external environment, however each are subject to forces emitted from the Level 1 environment in equal measure. No corporation is likely to exert a greater influence on the Level 1 environment than any other participant in that environment.
Figure 1: Three levels of influence as forces of
organisational change
At Level 2, expansion and contraction of the industry and market environment remains constant until any or all corporations introduce incentives to change that environment or their position in that environment. The most common measure of dominance in a Level 2 environment is market share. Simply competing in this environment can influence the shape and size of that environment, however, competitive pressure and by definition, corporate performance, is subject to measures adopted by one corporation against other corporations. The scale of the three corporations shown in Figure 1 will expand and contract as they: explore and exploit the vagaries of Level 1 forces; interact with each other, and; seek to control the more familiar forces relentlessly at work in the Level 2 environment. Any external forces at work in Level 2 will impact each firm differently and independently, even though they are all subject to similar external forces at Level 1. Just as a lake survives in a static state of being, so do corporations survive in static industries and markets. To break out of this mould, however, a systemic perspective of the corporate environment provides insight.
The situation illustrated in Figure 1 holds true when each firm remains an independent player within that self-contained environment. The adoption of a systems perspective assessed within the context of a dynamic, organic system, however, shines a different light on this environment altogether. Such an application could result in corporations collaborating to form an organic system within a system – or as the SMI defines it, a Corporate Collaborative System. Competing for the future in the form of a Corporate Collaborative System is a viable proposition even though it has not yet been consciously explored in that format to-date. The realisation of such a proposition is justifiably emerging as an alternative to conventional hierarchies. Digital technology is increasingly capable of providing the scope and agility required to seriously entertain such an idea. Moreover, the technology made available via the Meta (Web 3.0) platform is expected to add considerable weight to the proposition of forming Corporate Collaborative Systems. An illustration (Figure 2) and explanation of the ensuing business environment follows.
There is no clear definition of the structure of a Corporate Collaborative System. An example of a generic version appears as Figure 2. The SMI has defined the concept as “a collaboration of transaction processing entities that deploy platform-based services capable of hosting many and large commercial networks”. (10) Corporate identities are likely to change as a result of engaging in such a collaborative system, however, the value of the system will be greater than the sum of its components, and so provide a greater advantage to all members. Value realised by quasi–Corporate Collaborative Systems is reflected in iconic corporations that include Apple, Amazon, and Tesla.
The effect of forming a collaborative is twofold. First is the benefit of increasing the resource base of the corporations themselves. This brings benefits in the form of efficiencies of scale and scope as there are many shared resources and marketing costs. Investments in technology, which can be significant, are also shared across the collaborative platform. Second is the natural expansion of the Level 2 external environment which provides the benefit of greater opportunities for a shared investment.
Figure 2: Redefined impact of external and internal
forces in a Corporate Collaborative System
As demonstrated, it is expected that Level 2 markets would expand as a natural outcome from the added service levels and product offerings made available to it via an expanded corporate resource base. The SMI has identified two extreme formats for Corporate Collaborative Systems. Apple Inc. is a pioneer of the form of structuring representative of the first extreme. It operates in the form of a single, independent micro-system that retains control of a number of independent, but integrated business systems. Apple Inc., the controlling entity of Apple, is made up of a number of product-based goods and services that work in harmony as an organic, integrated system. Along with Amazon, Google, and Facebook customers, Apple customers are enticed into their customer network through various formats. Once there, however, it is very difficult to leave. Customer loyalty is highly rewarded and highly targeted and thereby becomes a very effective method of customer attraction and retention. It is also a small investment compared to the randomness of mass advertising and the hidden costs that arise from poor quality and reliability offered by many of the less resourced independent and less integrated corporate entities. Potentially, an added benefit is an ability to obtain a greater influence over Level 1 forces, although a cautionary tale is offered by Disney who stand to lose substantial state tax benefits due to publicly expressing political preferences (11).
At the other extreme, independent corporations act as investors in portfolios of Corporate Collaborative Systems. Each operate globally across industry groups, up and down the value chain, and ultimately within their own chosen market spaces. Airlines are examples of this format, although they have a long way to go before they can be recognised as corporate collaborative systems. Airlines collaborate in many instances; they share international routes, participate in international loyalty programs, partner with, rather than buy from jet engine suppliers and lease aeroplanes rather than buy them. Healthcare systems are more mature examples, although the system members are yet to recognise the true value of formalising their relationships. While hospitals, for example, play host to several independent microsystems such as interrelated, but independent parts that include pathology, emergency, and pharmacy to name a few, they are not yet truly integrated. A comprehensive, collaborative health system would have far fewer boundaries and far greater integration than is typically the case today.
Most participants in the automotive industry are embarking on transformation programs enabling them to become Corporate Collaborative Systems. Their ambition is to become controllers of interactive mobility systems. The introduction of electric power units and other digital technologies has been the driver and enabler of their transformation. Tesla is the standout in this space although the full extent of their integrated solution is yet to be determined. Already, traditional car manufacturers are collaborating to develop technologies for the future. General Motors in the US has teamed with Honda in Japan to share the development of new car designs and platforms. Similarly, Toyota has announced it has expanded ties with Mazda and Subaru, while Ford has announced ties with Volkswagen to jointly develop electric and commercial vehicles and autonomous driving technology.
Conclusion
Many alternatives to traditional strategic thinking approaches exist which overcome some of the limitations of traditional approaches based on historical perspectives. One of the most effective approaches, described in this paper, is a systems view of the corporation and connects with the concept of Corporate Collaborative Systems. These systems provide a number of advantages, as well as enabling corporations to avoid the consequences of static and mechanistic corporate decision-making systems that do not respond adequately to dynamic and unpredictable futures. One of the most inherent advantages of Corporate Collaborative Systems, apart from the ability to share resources and information, is the way in which they enable the use of systems thinking to effectively solve wicked strategic problems, especially those relating to the future of the corporation. The associated concept of biomimicry presented is also important in allowing the corporation to consider new and alternative ways of structuring and designing its operations. Combining these concepts can lead to both innovative and successful outcomes for the corporation of the future.
Endnotes
1. Thomson., J., Your big tech project probably won’t work, The Australian Financial Review, 21 Dec, 2021. https://www.afr.com/chanticleer/your-big-tech-project-probably-won-t-work-20211221-p59jc8 Accessed 19 Feb, 2022. 2. Golden, B. R. Research notes. The past is the past—or is it? The use of retrospective accounts as indicators of past strategy. Academy of Management Journal, 35(4), 1992 pp 848-860. 3. Lovallo, D., Sibony, O., (2010) The Case for Behavioural Strategy, The McKInsey Quarterly https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-case-for-behavioral-strategy. Accessed 22 Apr, 2022. 4. Gilbert, D., Wilson, T., Prospection: Experiencing the Future, Science , Vol. 317, no. 5843, pp. 1351-1354, 2007 5. Ohmae, K., The Mind of the Strategist, Harmondsworth: Penguin, London, UK., 1983 6. Kim, C., Mauborgne, Blue Ocean Strategy, Harvard Business School Press, Boston, Ill USA., 2005 7. Senge, P.M., The Fifth Discipline: The Art And Practice of the Learning Organisation, Doubleday/Currency, New York, 1990 8. The Biomimicry Institute, https://biomimicry.org/biomimicry-examples/ 9. Hunter P., Corporate Strategy (Remastered), Routledge, Oxford, UK, 2020 (p 54) 10. Orr, S. Hunter, P., (Eds), The Corporation of the Future, Routledge, Singapore, 2022 11.Grimes, C., Florida passes bill to strip Disney’s special tax status, Financial Times, London, UK, 22 Apr, 2022 https://www.ft.com/content/b50f2f2e-591a-49bb-a4f3-ae2709c62440 Accessed 22 Apr., 2022