When Alfred Sloan created the modern corporation at General Motors, he based it on the military. The company was split into divisions, each with its own leadership. Information flowed up, orders went down and your rank determined your responsibility.
The model was designed to implement strategy from the top and move men and materiel efficiently. It assumed that leaders had better understanding than those on the lower rungs. Managers made plans and foot soldiers carried them out.
Strategy in the 21st century has become less directed and more emergent. Even the military relies less on plans and more on commander’s intent. Corporate chieftains are following suit, experimenting with management structures such as holocracy. Yet we need to do more than simply change policies and practices, leadership itself must be redefined.
The Hobbesian Paradox
In 2005, John Antioco knew he had to make some important changes in his organization. He saw that technology was altering the economics of his industry and new competitors like Netflix were gaining traction. While his company, Blockbuster, dominated the video rental market, it had become clear to him that if it was to survive, it had to adapt.
So Antioco sold his board on an innovative new strategy. He would discontinue late fees and invest heavily in a digital platform that could compete in the new world of video streaming that was fast approaching. The plan would put pressure on profits—forgoing revenues while increasing costs—but as CEO he was given broad latitude to implement it.
Unfortunately, although the logic of the new strategy was sound, there was no internal constituency for it. Blockbuster executives had built their careers honing its well-oiled and successful business model and weren’t enthusiastic about abandoning it. Before long, Antioco lost support and was fired. The company went bankrupt in 2010.
It is a Hobbesian paradox that we cannot enforce change unless change has already occurred. Managers today no longer command armies, we must learn to lead movements.
When Lynda Chin set out to revolutionize medicine at MD Anderson Cancer Center, she had considerably less authority than John Antioco at Blockbuster. Although she believed that IBM’s Watson system could be a real game changer for health care, she couldn’t just order some of the world’s top cancer experts to fall in line and go along with her plan.
To make the program work, the doctors would need to make considerable changes to how they operated. They would not only have to put their faith in a new, untested technology, but also actively share their data without any immediate benefit to themselves or their work. For high status professionals, these were tough sells.
So she didn’t try to convince anybody. Instead, she started with a clinical group whose leader was already enthusiastic about the idea. From there, she began a pilot project and raised funds dedicated to it so that resources weren’t being siphoned off from elsewhere. As results came in, her case strengthened and more doctors joined her cause.
Today, the Watson program at MD Anderson is still gaining steam. As it continues to succeed, it’s winning new converts and the momentum behind it is growing.
We tend to see organizations as made up of particular objects, such as divisions, departments, and product groups. Yet in reality, they are more like a collection of communities, each with their own culture, beliefs and practices. How these networks are structured has an enormous impact on how they perform.
In a study of Broadway plays, researchers found that the structure of social networks had a greater effect on financial performance and critical acclaim than more conventional factors, such as marketing and production budgets or the track record of the director. Other studies in Silicon Valley and the automobile industry confirm the findings.
MIT’s Sandy Pentland calls this new science of organizations Social Physics. By using advanced technology to monitor and track relationships, we can improve how our organizations function. For example, by changing the way breaks were scheduled at a call center, productivity improved by as much as 20%, saving the company $15 million.
If we are to manage effectively in the digital age, we need to change the operational software in our organizations. As Pentland put it in an interview, “We teach people that everything that matters happens between your ears, when in fact it actually happens between people.”
Managing Networks of Unseen Connections
In many ways, John Antioco was a stellar executive. He ran a tight operation that executed effectively. He saw danger coming early and formulated a sensible plan to meet the challenges that Blockbuster faced. Yet he still failed miserably because he didn’t manage the networks of unseen connections within his organization.
Strategy is no longer a game of chess. We can’t think only in terms of planning and execution, but need to understand how information flows and cascades self-organize around strategic intent. Hierarchy fails in the digital age not because it is illegitimate, but because it is slow and the world has become fast.
Today, you gain power and capability not by increasing scale, but by deepening and widening connections. Brands have become open platforms. Proprietary research must now compete with open innovation. Control has become an illusion and a dangerous one at that.
And so, the role of leadership has changed. It is no longer enough to merely plan and direct action, today we must inspire and empower belief.