Executive talent

Global Magazine from AESC

How Legacy Businesses Can Take On The Best of Startup Culture

Adapt or Die

"Joining (or founding) a startup is an act of faith—the conviction that an idea eventually can become a sustained commercial success. To translate that belief into reality, startup participants pitch in wherever it’s needed, put in long hours, and forego financial security. In effect, they are rolling the dice in the hope of hitting the jackpot—but willing to take the slim odds because of their strong belief in the new venture, the adrenaline rush of living on the edge, or the potential size of the prize." - 'Can a Big Company Innovate Like a Start-Up?', Harvard Business Review, January 25, 2011

To thrive, organizations need to be nimble, innovative, and disruptive— not words often associated with large, established corporations. How do such legacy companies adapt, and what features of startup culture can (and should) large, established organizations appropriate, in order to adapt and stay competitive?

AESC asked several experts how organizations need to adapt to survive, and thrive.

The Best (and worst) of both worlds

To date, startups have largely been the disruptors and legacy companies and industries have been disrupted. There is a public fascination about startups, and venture capitalists search the globe for unicorns while digitally savvy consumers have an insatiable appetite for new apps, objects and ideas.

Light on excitement but substantive and secure, legacy companies and industries are, for now, foundational: deep market penetration, industry knowledge, and established brands. People (used to) retire here. For consumers, if some new fad is a disappointment, these are the companies and products we come back to.

Legacy companies are strong on stature. Puneet Kalra leads Russell Reynold’s technology practice in Asia and co-leads IT/ITES globally. He says, “The good thing about legacy companies is really their footprint—they have a large client base, access to a diverse set of business situations, and they can provide the best canvas to apply new skills.”

Kalra also says, “Many legacy companies are very risk averse, their processes are sacrosanct, everyone seems to have the same performance metrics, everyone is supposed to behave the same way, and the career path is linear.” Organizationally, many legacy companies work in silos. Kalra explains, “In this linear world you have a very clear path around either selling or delivering the product, and nothing in between.”

Established companies also deal with the consequences of traditional, longestablished systems and structures. Stefan Spang is a Senior Partner with McKinsey & Company in Düsseldorf and serves on the AESC Global Board of Directors. From his perspective, in legacy companies “there is still too little tolerance for failure.” He says, “It is not only a matter of the operating environment of a specific company, it’s about today’s managerial class. Their role has not been to enable people, but to control people."

Large corporate environments can also stifle innovation. Melissa Swift is a senior client partner for digital solutions at Korn Ferry in New York. She describes how many organizations “have a culture of consensus that stifles the momentum of ideas: you need too many people to sign off for any given initiative to progress. What that means is you get reversion to the mean, where the spikiest, most interesting ideas don’t make it out of that process.”

Swift is quick to add another advantage of corporate versus startup culture. “When it comes to startup culture we have to be very, very thoughtful about taking on the good and not taking on the bad. You’ve got startups who are doing an incredible job of caring for their people, and you have others where things go on that are actually in defiance of laws and regulations.” She asks, “Are they achieving those results because they are burning through people or treating employees in ways that are actually not okay? Because treating employees fairly is one of the things corporate culture focuses on to a greater degree. There is a lot more scrutiny around topics like bias, and you don’t want to lose that,” Swift says.

Startups are, in many ways, another world. Enife Atobiloye, Managing Partner of TRANSEARCH, Lagos says, “Today, beyond the entrepreneurial elements, successful startups are nimble, agile and easily adaptable, and aligned with the continuously changing business realities.”

By definition, startups are innovators. According to the European Commission’s 2016 European Startup Monitor, “most startups (89.5%) consider their products to be novel in the market. More than half say their products represent an international market innovation, and more than half of all startups generate revenue outside their domestic markets.” The same research shows that “90% of all startups offer their employees opportunities for an informal exchange of ideas.”

Where large corporations are often riskaverse and shareholders not likely to react well to unsuccessful product launches or botched business model changes, Swift says, “There’s such a flow of capital into the startup environment, that they can afford to be unprofitable.” Startups, she says “can take all these risks in ways that we often hear a corporate client saying ‘well I can’t, my stock would get so beat up, the street won’t let us do that.’”

Companies just starting today also have the benefit of a potential customer base as broad as the internet. “No more do new businesses need to show long track records to get noticed in the business world,” Atobiloye says.

“Previously, upcoming organizations would wait for years to get noticed, but with the internet so many African startups are accessing opportunities that were once only available to companies with well-organized supply-chains and strong brands. What this simply means is that the multinationals now have a wide array of significant competition that may not be easily deflected,” she says.

Established companies often face disruption from unexpected directions, and while those disruptors provide models and motivation to adapt, Swift offers a sobering reminder: “We look at just the handful of highly successful startups, and we forget that the field is littered with examples of startups that didn’t work.”

(Business)Climate Change

For many years the global business environment was more forgiving than it is today. ”We had a constant surge in demand, lower interest rates, and very favorable economic conditions, so a number of competitive weaknesses were covered up,” Spang observes. As a legacy company “you were embedded in a system of suppliers and customers, and as long as you didn’t totally screw up there was a bit of a space where maybe you could persist at a lower level of profitability than the industry leaders, but you had a place. That has changed.”

Atobiloye says, “The value of agility was previously trumped by products & services that had stood the test of time, but the need for continuously changing services is redefining the taste buds of customers.”

She adds, “Adaptability is replacing the old model of depth and traction, as the new customer demand.

Digital transformation is the new status quo. Rather than a temporary upheaval, evolving technology precludes any organization or industry from hoping to survive by standing still. “Given the current market realities and the fact that they will keep changing, every organization will invariably have to face disruptions of one sort or the other. Several factors will catalyze these changes but one major driver has been and continues to be technology,” Atobiloye says.

Technology has accelerated the pace of change and upended what clients and customers have come to expect. For example, Spang says, “Today, you can insert changes in a system that become globally available in the same day. That was completely unthinkable a few years back, and has influenced many of the ways classic companies have been reorganized.”

Technology is also the source of many companies’ vulnerability. "As a result of technology it is easier to spot those weaknesses, and much less expensive to go after additional revenues and marginal business.”

According to Swift the urgent need for business to adapt and compete with disruptors is “key to what’s going on in the current environment.”

“We’re seeing a lot of large, complex, legacy businesses get disrupted by smaller, nimbler competitors. And I always analogize it to trying to turn a big cruise ship, with little speed boats navigating around you. That’s the struggle.”

Turning the Boat

Legacy organizations for the most part recognize that change is necessary. Digital tools are available, case studies and sample business models are a Google search away, and even the transformative power of artificial intelligence is available in the cloud. Established companies can adapt (and are adapting) elements of startup culture and practices to make themselves more successful and less vulnerable to disruption.

“For multinationals to compete,” Atobiloye says, “they have to adopt deliberate, self-disruptive strategies that will enable them to ride the change as it rolls—and this requires structures that will facilitate speed of anticipating and responding to market realities.”

“The average large firm reorganizes every two to three years, and the average reorganization takes more than 18 months to implement. Wait and see is not an option; it’s a death sentence.”

- McKinsey Quarterly, January, 2018

Adapt for agility

A corporation can model some of a startup’s agility by adapting its structure. Spang explains that even large companies can introduce new, much more flexible ways of working. “So that smaller teams are able to develop a value proposition; they develop a product for a specific set of customers; they adapt it to meet the changing need of their customers. What that requires is to overcome the traditional, Tayloristic organization, where you have the sales team, the product people, the engineering people, the IT folks, the logistic folks, etcetera. These teams get help from others and are embedded to work in an ecosystem, but each team is an autonomous unit.”

He says, “If those teams can act independently with full accountability, that is a way of making even large organizations a lot more flexible.”

Swift adds, “Instead of thinking about either individual employees, positions or functions, there’s a huge amount of light and heat being trained on the team level, and what does it take to make teams effective? A few organizations are putting a lot of thought into what are the behaviors that drive teaming, and a lot of leadership development work right now is not getting people to be great individual leaders but getting them to team. And that I think is a really productive influence from the startup world.”

Atobiloye agrees. “Multinationals need to review the way they are structured to ensure that they are able to respond to market realities on time. More importantly, multinationals could become conglomerations with several small, nimble and adaptable entities, just like startups.”

She adds, “This is a good time to explore holocracy and how it could be adapted.”

One powerful outcome of teaming is diffuse decision-making that is closer to the customer. “Devolving more authority to the regions will enable healthy speed in decision making, and real time responses to the market demands,” Atobiloye says.

Teaming is not about atmospherics. Global banking company ING adapted what they observed at technology companies and completely changed their operations to agile, moving from silos to teams, minimizing bureaucracy and empowering people. “Agile companies have established multidisciplinary teams that work in a very independent manner,” Spang explains. “They are achieving great success in the market because the improvements are not only on the margins, they are fundamental. We are talking about product innovations that can happen in a matter of weeks rather than months, and customer response and satisfaction upticks by tens of percentage points.”

Change how work gets done

“The way that work gets done at a startup is we often see a much higher element of what we call “job crafting.” So people’s jobs aren’t perfectly crystalized down to 100% of every specific responsibility. It’s much more fluid—‘I think this thing should get done, I’m just going to do it,’ Swift says. “Job crafting is where your job is not heavily codified, and we observe that it generally gets done in a more efficient, more customer-centric way. Job crafting is something organizations absolutely can emulate: in the way that they shape and frame jobs, in the way that they shape and frame how work gets done. "

According to the EC’s 2016 European Startup Monitor, “The majority of startups have clearly defined responsibilities and structures but do not write them down in job descriptions or organigrams.

Kalra describes a client that “created a different organizational model, with a range of ‘subject matter experts,’ and performance targets that are more subjective.” He says, “The company still needs to grow, they still need to be competent, but they’ve created this new mechanism for measuring performance. They are measuring overall performance, not just direct but indirect contributions.” The change had a profound impact on performance, company-wide.

“It was a huge change, because you can imagine people in the previous model now see others being recognized for teamwork, collaboration, and contributions that are not so obvious.” Kalra adds, “Those people with the old mindset need to know it is no longer a world where you do it alone.”

Encourage innovation

“…celebrating failure and encouraging innovation at companies can aid employee engagement, because it contributes to the feeling of psychological safety and availability. What is really going on is courage enhancement. By creating an atmosphere of safety and reducing the pressure to succeed, employees feel confident to share their ideas. Employees who once felt inhibited suddenly feel free to express their thoughts, frequently contributing to the innovations that drive the company.”

- CB Bhattacharya, Joanna Radeke, and Ernesto Ciorra. "Tolerating Failure: A Key to Creating Sustainable Business" The European Business Review, January 17, 2018

Kalra speaks of an executive “who allows people to spend up to 20 percent of their time in a year, working on anything that they might be interested in, the only limitation being whatever they do has to, at some level, be meaningful to the business. Should these people end up creating an idea that has potential, they are venture funded and should the project be successful and scale up, they’ll be rewarded. They’ve managed to create a hybrid model. It’s a legacy company, but you feel like you’re working at a startup. No one is telling you what to do, as long as you’re doing the right thing.”

Swift adds, “What large organizations need to do is figure out a way to structurally bake-in certain kinds of experimentation in a way that’s going to be palatable to their investors. So we see people doing things like setting up venture arms and other vehicles for creative exploration. It’s all about creating a space for innovation and experimentation, that you’re not going to get killed for.”

For Kalra, fear of failure stops innovation before it starts. “The alignment of culture and metrics to allow for failure is really the key starting point for these legacy companies,” he says. “De-stigmatizing failure for both management and employees can help create a culture of creativity and innovation.”

“Fast failure” is a prominent feature of startup culture. By many accounts, embracing failure encourages innovation and allows for multiple ideas to be tested in quick succession, in search of the idea that works.

Focus on talent.

Top talent looks very different, from the legacy and startup perspectives. Swift says “What’s interesting about the folks who gravitated into some of these startup environments is they have a very different psychological profile to the people who have historically been successful in corporate environments.” For example, Swift explains, “We talk a lot about this idea of ‘the right people look wrong.’ So to someone from a traditional corporate environment, one company might say ‘we don’t want this person, they seem unfocused, they have a jumpy resume,’ but a startup might look at that person and say ‘wow they’ve done a lot of different things and they’re curious and their adaptable and they’re exactly the kind of person we want.’”

Swift adds, “Changing the lens on talent is something large organizations can do. It’s really ridding yourself of your preconceived notions and your unconscious biases, and looking to hire, promote, and develop different kinds of people.”

Companies also need to consider where they hire their talent, especially if they are trying to stay close to their customers. Atobiloye argues “such organizations need to get native with the geographies that they operate in. Gone are the days where proxy suffices. In Africa, the new competitor is not only the typical next multinational but the passionate, laser-focused entrepreneur who would take any risk to offer that service and take one-on-one interest in customer engagement. Some large organizations seem to have caught up with this understanding, and so the likes of Google and a host of others are strategically engaging Africa and partnering via interesting models."

In the fight for talent, there could be big rewards for transitioning to agile. Corporations are realizing that adapting to startup culture and incorporating new models provides a chance for them to better compete for top talent. Spang explains, “Many people who would have shied away from a career in a big corporation with its inflexibility and massive hierarchies start to understand there are alternatives to startups which may provide a bit more stability and robustness.”

“A startup may be a great place to work, but you just can’t be sure it will still be around next week. If corporations now start offering work environments that do not feel all that different from a startup, it makes a huge difference,” he says.

Talent for the digital age remains scarce, and Swift urges organizations “to be really thoughtful about going to war with the army they have.” She says, “We believe that there is a neglected group of middle managers within these organizations who have terrific mindsets for change, adaptability, curiosity and all the things that our research proves these companies need. If they don’t have some of the technical skills or the digital experiences, they get ignored, and that’s just a massive waste of value.”

The human resource conversation must also evolve to include non-traditional workers. Atobiloye says, “The emphasis needs to be more on ‘access to’ talent rather than ‘ownership of’ talent. As much as possible organizations should look for creative ways to have access to talent via the strategic agreements, deciding whether to hire outright, partner, outsource or develop talent from within: ‘buy’, borrow or build.”

Profiles in Leadership

Kalra looks at how leaders approach transformation in traditional corporate and startup cultures. “We did some research with psychometric assessments of people who are in these roles. In the balance between being disruptive and being pragmatic, startup leaders are on the side of disruptive—what that means is that they don’t need proof before trying something. In legacy organizations, in many cases leaders need ten levels of approval before an idea is developed.”

He says, “We’ve seen that successful transformative leaders have dialed back on that burden of proof. They spend their energies trying to qualify the project rather than disqualify it.”

Some legacy organizations may require a complete reversal of leadership style in order to adapt. “Successful teams only work in a productive way if the leaders make the best out of the capabilities of every individual,” Spang says. “And that certainly does not happen by command and control. That happens by empowering teams and individuals to do what they feel is right, by providing coaching and guidance, by mobilizing the team and its capabilities, not telling them what to do.”

The recommendation is for the leaders of large, established businesses to adopt softer skills to encourage agility and innovation in their organizations. Swift explains, “We have this belief that great leaders of the startup ecosystem are iconoclastic, hardcharging and a little brash, and they break things. We actually did some research on what great digital transformation leaders look like and it’s not that at all.”

Swift says transformational leaders “are good at engaging people, they’re good at cultivating innovation in others, they have a lot of what we would call ‘conventional EQ.’ She advises “not falling prey to the stereotype that it’s okay if your leader is a little bit of a jerk because that’s what works in the startup world.’”

Change the Point of View

Author and consultant Peter Hinssen writes in Forbes, “One of the most efficient manners to keep in touch with increasingly complex markets is to use co-creation with customers. This is a great way of looking ahead at a company’s “day after tomorrow” through the lens of their customers instead of through one’s own lens. Ideas coming from outside the organization tend to meet less resistance than when they are originated by employees with similar ideas. It’s a strange form of bias, but it’s the reason that valuable suggestions are too often ignored.”

One legacy company that has excelled in leveraging customer partnerships is global payments company MasterCard, which partners with digital payment upstarts Flipkart and PayPal, and collaborates with customers to provide secure digital alternatives to cash transactions. For example, in partnership with Whirlpool, MasterCard developed an app that allows customers to pay at Laundromats with their phones, and even alerts users when their laundry is done.

Why can’t more legacy organizations make the change? “Some corporations are currently stuck,” Spang explains. “On the one side they recognize need for change, but on the other side they are concerned about the amount of change required and the amount of change that doesn’t fit in their conventional paradigms. Right now, they are in a difficult spot, but more and more of them realize that there is no alternative and they simply have to move forward.”

Not Optional, Essential

Is “adapt or die” a false choice? For Swift, the category of risk that isn’t addressed nearly enough is the risk of continuing the status quo. “This is the fundamental misperception by a number of organizations: I do exactly what I did yesterday, that’s the less risky option. And that’s actually today the more risky option in many ways. If you’re sort of not pressure-testing and trying to disrupt yourself, you’re just incredibly vulnerable— if you don’t appropriately assess your own vulnerabilities, you’re much more exposed than you think.

Spang explains, “You can see that there are tremendous threats coming, and to find the right point in time when you should start embarking on such a change journey is a critical question.”

Atobiloye is unequivocal. “Most businesses will find themselves irrelevant if they do not smell the coffee in time.”

So why does it seem few large organizations are making the transformation? Kalra says, “If it was easy, everyone would have done it already. Uncertainty gives some companies the opportunity to grow rapidly; other companies stagnate and die.”

He adds, “It might be uncertain times for everyone, but uncertainty actually creates a new set of opportunities.”

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