Sunday, January 29, 2023

A permacrisis, a fluid future & a new breed of leadership

Date:

The pandemic and other incidents in the recent past have changed a lot around us. Leadership in sailing through the crisis was one lesson the events have taught us.

It was the winter of 2019, the last first week of the last month of the year, when a technology summit in Kolkata, themed around VUCA; an acronym that unwrapped stands for volatile, uncertain, complex, & ambiguous. Speakers presented their prescriptions about surviving in a VUCA world. A few months later, the world came to a grinding halt as the World Health Organization announced a global pandemic on March 11, 2020.

A little after midnight on December 30, 2019, a Canadian artificial intelligence platform BlueDot picked up on a cluster of “unusual pneumonia” cases (by analyzing social media chatter and air traffic movement) happening around a market in Wuhan, China, and flagged it. The company had spotted what would come to be known as COVID-19. Corporate clients that subscribed to BlueDot services had been forewarned with enough time to respond.

In March 2021, satellite imagery from Maxar Technologies, a US-based space technology company, detected massing thousands of Russian personnel and military equipment near Russia’s border with Ukraine and Crimea. Nearly 11 months later, Russia attacked Ukraine on February 24, 2022. There were enough indications that something was amiss in the region. Cyberattacks from Russian groups started in 2021, the most damaging one being on SolarWinds, a US digital supply chain organization. Nevertheless, companies continued their business-as-usual operations in Russia. As of this month, over 1000 multinational corporations have exited the country.

What changed now

While it seems that we are living in a chaotic world without precedence, the fact is that new tools and technologies have cautioned us about the coming storms. It is also a fact that uncertainties have been a constant factor in our lives. So, what changed now? Perhaps for the first time in history, we are witnessing the coalescing of a series of interlocked crisis that is feeding on each other to create a state of Permacrisis or, as some economists have labelled it, Polycrisis.

The two events described at the beginning of my presentation were the trigger points that sparked the Permacrisis. While Covid19 halted and changed our lives, the Ukraine war has restarted a new Cold War, techno-nationalism, an energy crisis, inflation, and caused a recession. Global economic growth forecasts are being slashed every month.

Globalization reversed

If you look at the last 50 years and say that globalization, as we’ve known it, has been fueled by three things: cheap capital, cheap energy, and cheap labour. They’re all ending: Interest rates are rising, energy is more expensive, and wages in Asia are rising. Economic pendulums always shift, and ours is shifting right now from unfettered globalization to more regionalization and localization.

On the business front, de-globalization, supply chain crisis, semiconductor shortages, and massive layoffs are making headlines every day. Once again, satellite images from portals like Marine Traffic had alerted us about blockages outside Chinese ports, which were under the government’s Zero-Covid lockdowns.

Reading the signal; embracing the volatility

There are lessons to be learnt from these catastrophic events that have reshaped our known world beyond recognition. There is a greater need to use the intelligence that new technologies and tools bring – from big data analytics and satellite imagery to geopolitical risk monitoring. Nevertheless, permacrisis is also creating a paradigm shift in the very nature of Leadership. The new breed of leaders will be those with the skills to read the signals of disruption and prepare for a fluid future, creating agile organizations to navigate through the dense fog of uncertainty. And above all, they must be comfortable with the idea of being continuously uncomfortable to embrace extreme volatility.

There are enough instances of companies demonstrating their strength in leading the change rather than being overwhelmed by it. Organizations like Ericsson understood during the initial days of the pandemic, work would be hybrid. Communication would continue to be the lifeline of economies, despite a retreat from the global community in favour of national interests.

This trend sees countries seeking greater ‘digital sovereignty’ or creating ‘splinternets’ of national internets and digital trading environments. It could start to challenge the approach to the global standards that have shaped mobile connectivity in the past and possibly require a new model for global network collaboration. It consciously undertook the decision to reduce its real estate footprint, redesign workspaces into more human-centric places, which allowed hybrid work, and worked with the political systems to continue to serve its customers.

Change leaders

As a relentless tsunami of crisis hits us, organizations have shown the agility to transform their processes when disruptions occur. For example, Toyota, the originator of lean concepts, fared better than most of its competitors and passed General Motors to become the top seller in North America in 2021. People concluded that it must have turned its back on its principles of minimal inventories.

Toyota takes a strategic approach to inventory planning which stands on three legs: strategically sized inventories in the right locations to act as a buffer to meet changing demands, safety stock that factors in the risk of disruption, and a nuanced view of lead times. It has been pointed out that the company learned a great deal from the Tōhoku earthquake and tsunami of 2011, after which it identified parts vulnerable to disruption and, as a result, were candidates to be stockpiled.

Many firms view dual sourcing primarily as a way to drive down costs by making suppliers compete. But for Toyota having two suppliers means it can enjoy resilient capabilities. Trust and supplier support are core principles of supplier relations. This means relationships should be built around long-term partnerships and should not be transactional in nature. When a supplier encounters problems, Toyota offers to help them address those.

Maersk, the global shipping giant, created an innovation centre in 2021 to help it address supply disruptions and long-term challenges, such as the need to decarbonize and further digitize its operations, deploy and leverage AI capabilities, and address endemic staffing and retention issues.

Its ports, terminals, warehouses, and distribution centres became global chokepoints, and labour shortages worsened the situation. Maersk responded by redeploying ships from less-travelled routes to transpacific trade lanes, expanding the hours of operation in its facilities, upgrading its tracking systems, and opening new warehousing and distribution locations. The company earned record profits from the sheer volume of pent-up demand, not to mention the premiums companies were paying to expedite their deliveries. It was an unprecedented opportunity to fund solutions that addressed not only the immediate crisis but also long-cycle trends, building resilience into its operations.

The shipping company also used the crisis to solve chronic problems like inventory leakage with an outside-in perspective from partners. Leakages — unaccounted for or misplaced pallets in warehouses, amounting to 6% of the goods on hand. The solution it chose used autonomous drones flying through warehouses collecting images, videos, and 3D scans. These are then processed via video analytics and AI to locate the missing pallets. The drones and their software were fully developed, tested, and deployed in warehouses in less than four months. Leakage was reduced to close to 0%, and the system is now being scaled up.

Navigating a future without a past

One of the most interesting leadership challenges is that this future has no past. A pandemic is a once-in-a-century event, permacrisis is also a first-of-its-kind convergence of several crisis, each feeding the other. There is no template from the past to follow to navigate the future. The data analytics field faces a complicated problem: how to use past data and predict future behaviour in the face of uncertainty.

This led to forward-thinking companies working with small or good enough data from yesterday to make shorter-term predictions. They sidelined predictive analytics programs and pivoted toward simple descriptive analytics — good data about the present and recent past that is quickly available. They also started using external data from firms like BlueDot and satellite image analysis from Maxar and Marine Traffic. It is important to find out what’s happening with suppliers and their suppliers, and so on.

The financial services sector turned to alternative or non-traditional data sets to guide investment strategy. Alternative data sets include credit card transaction data, mobile device data, IoT sensor data, satellite imagery, social media sentiment, product reviews, weather data, web traffic, app usage and ESG (environmental, social, and corporate governance) data. Some alternative data providers also track corporate jet flights and government contracts.

RS Metrics, a company specializing in geospatial ESG analytics, used three years’ worth of satellite data to validate Walmart founder Sam Walton’s long-held belief that the number of cars in stores’ parking lots correlated to overall revenue. Car companies have been looking at smog levels in certain cities as an indicator of how much driving is taking place, with more smog meaning more driving and a hint that activity is returning to normal, and people might be buying cars again.

Empowering teams; speeding up decisions

Piloting through a fluid future will mean organizations to speed up decision-making and empower teams closer to the customer to make the call. For big-bet decisions, it may be useful for companies to establish a nerve centre or a decision-making body comprising a subset of senior leaders or key stakeholders who can respond to events in real-time, using real-world data. This team would report back to the CEO and others in senior management frequently to ensure alignment, but it would be empowered to act quickly on daily decisions.

The actual work of the organization should be carried out by teams that, when faced with new and imperfect information, feel motivated and empowered to act. To cultivate organizational resilience and to ensure adaptability, companies must think differently about how teams are structured and managed, as well as how they’re connected across the organization. What’s more, companies will need to provide support systems that allow employees to engage in creative collisions and debates, give and share feedback honestly, and continually incorporate that feedback into their routines so they will be better able to adapt to any future challenges.

Riding the next S-curve

What kind of a world are we going to face in the future? New and exciting technologies, such as applied AI, bioengineering, and immersive-reality technologies, are attracting tens and hundreds of billions of dollars of annual investment. These technologies may counteract the slowdown forecast. For example, developments in quantum computing may spur the next big S-curve of development.

AI innovation, as measured by AI-based patent applications, grew at a rate of more than 75 per cent a year between 2015 and 2022. Accelerating the preexisting trend, the pandemic propelled even faster adoption of AI and automation. These are other new tools available to forecast the future – from geospatial, satellite, or small data analytics will aid the Changer Makers to navigate a future in constant and often violent motion.

The tool-kit for leaders navigating the fog of uncertainty: Create an agile & adaptable organization through:

  1. Data-driven-decision making culture to make good-enough decisions; using small data when there is no historical past to the present.
  2. Delegate to empower teams to drive operations. n build self-sufficient teams that, when held accountable and given ownership of outcomes, feel empowered to carry out strategic plans and stay close to customers
  3. Find and promote adaptable leaders who don’t just react but are proactive and self-motivated
  4. Provide support systems that allow employees to engage in creative collisions and debates, give and share feedback honestly, and continually incorporate that feedback into their work
  5. Cultivate a resilience response that emphasizes psychological safety (or the idea that taking some risks can be OK) and continuous learning.

Lessons to Win in a Permacrisis:

  • Look for new opportunities: There is always an opportunity hidden in a crisis. If the recession is located in one specific country or geographic area, consider expanding to new territory. If your target audience is suffering, change your offers or find a new audience. If there’s something wrong with your company model, don’t be afraid to reinvent yourself.
  • Help those in need: Both consumers and businesses struggle in an economic recession, so find a way to serve those sufferers specifically, with lower prices or new opportunities they can leverage to make it through.
  • Present an alternative: In a recession, people will make hard choices about what to cut out of their lives. If you can give them a more cost-efficient alternative to what they’re cutting out, you’ll stand to win big!

Also Read: Riding a permacrisis – delegate, empower, support risk takers

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