Seven recommendations for boards to recalibrate their strategies and skill sets.

The old assumption that the past informs the future no longer holds true in an era marked by unparalleled speed and deep-rooted uncertainty. Corporations today face an environment that require boards to recalibrate their governance approach.

Research has identified significant challenges in long-term strategic planning. For example, while directors generally recognise trends and potential shifts in areas like sustainability, only 10 percent believe it will impact medium- to long-term financial results. We see a general tendency to underestimate the influence of external trends on the future of organisations. Such trends include generative artificial intelligence (GenAI), factors linked to trade, geopolitical disruptions as well as climate and sustainability.

Each of these issues presents its own set of challenges and complexities, and the business implications of these external trends cannot be considered in isolation, particularly over the long term. Furthermore, it’s reasonable to anticipate this list will keep changing. Echoing this sentiment, the chair of a Fortune 100 company told us: “This is definitely one of the most challenging times companies have ever faced – and it’s not likely to change any time soon.”

Boards are now called to weave major global trends into the very fabric of their strategic decision-making. In practice, this means boards must adopt a more forward-looking mindset. The nature of boardroom discussions must evolve, encompassing a broader array of issues than ever before. The problem is that board members often feel ill-prepared, both in terms of their skill set and the traditional board agenda. 

The forthcoming 2024 BCG and INSEAD global directors survey is designed to explore how boards are governing in this uncertain world. We look forward to sharing these insights. Meanwhile, here are seven recommendations for boards to recalibrate their governance strategies and skill sets to navigate at unparalleled speed amid deep uncertainty. 

1. Don’t delay getting your bearings

While observing competitors and waiting for more clarity may appear wise, it can heighten risks and result in lost opportunities when it comes to securing new advantages and industry leadership. The clearest danger lies in inaction.

We advise boards to refine two critical lists. The first should detail the most significant external uncertainty factors as well as the strategic and operational questions that come with them. The second should capture the relevant areas where the board feels its actions, knowledge or understanding are lacking. 

2. Update and upskill your board’s expertise 

Once the board has documented the gaps in its actions and knowledge, a skills matrix exercise can identify the discrepancies between the board’s existing skill set and its ideal composition. This matrix aids in pinpointing areas for the upskilling of current directors, or in recruiting directors who bring a different expertise. Advisory boards might be an effective way to bolster the board’s competencies.

3. Recognise that disruption is an ongoing strategy reality 

Just as climate change and sustainability gradually became mainstays on the board’s agenda, the potential of GenAI as well as trade and geopolitical tensions are starting to dominate the discussion. The speed and impacts of these trends will undoubtedly disrupt business models, corporate portfolios and ways of working. 

The board should start by stress-testing management’s approach to speed and uncertainty. How is the firm intending to capitalise on disruption to improve its competitive advantage and value creation?

4. Go deep on sustainability and GenAI regulatory requirements 

There is no shortage of new regulations poised to impact companies. Among these are the European Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), the European Sustainability Reporting Standards (ESRS) and anticipated regulations from the US Securities and Exchange Commission.

These regulations present direct risks for boards as well. For instance, boards must sign-off on transition plans for aligning corporate strategy with the goal of limiting global warming to 1.5°C. They must also disclose comprehensive details about their governance processes, such as how (and how often) the board is informed about sustainability issues. 

Instead of perceiving these requirements as burdensome or troublesome, boards should view them as a chance to surpass mere compliance and standard box-ticking routines. Since many of these new legislative mandates are also driven by future risks and opportunities, boards can build on the resulting insights to guide long-term strategy. Similar requirements may crop up around GenAI as the technology progresses.

5. Employ dynamic strategic scenarios planning (DSSP)

Companies can’t afford to prepare for a singular future. In addition, the typical three-to-five-year strategic review cycles may be too short.

We recommend comprehensive and imaginative dynamic scenario planning. This involves exploring a range of possible outcomes and their specific challenges and opportunities. Boards can thus better grasp how long-term trends could affect the future value and operations of the business. Only 34 percent of board members believe their companies have a full understanding of these dynamics. Even fewer are confident that their company is prepared for transformative changes or able to identify where business shocks might arise. 

6. Go hard on driving innovation

Disruptive times challenge a company’s innovation capacity, and that capacity, next to a strong balance sheet, can be the difference between seizing advantage and being competitively displaced. 

The board has a critical role to play in probing the extent and quality of the company’s innovation capacity. It must assess where and how innovation initiatives are influencing the company’s products, business models and ways of working.   

7. Revamp the board agenda and pace

Given the pace of developments, it is smart to fully review the board agenda, the roles of committees and the frequency of board meetings. 

The board agenda must be dynamic and agile, regularly incorporating new trends and risks. Frequent scenario planning sessions (as described above) should be added to the board’s routine activities. New trends may involve adapting existing committee roles or creating new ones. Lastly, meetings might need to be held more frequently.

In this era of disruption, boards must adopt a more forward-thinking mindset. By revising their governance strategies and acquiring relevant expertise in key external factors, boards can aptly steer their companies through these turbulent times. 

This content was originally published here.

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Most large corporations have annual processes to allocate capital and other resources across business units and for strategic initiatives enterprise-wide. The typical practice is to begin with a strategy or “strategic refresh,” develop a long-term (three- to seven-year) financial plan, and lay out a highly detailed budget for the first year of the plan. Unfortunately, the processes are often both muddled and rigid; they typically take months to iterate, generate reams of distracting detail—and then fail to allow for sufficient flexibility to adjust resource allocation over the year. The result: a failure to align resources with strategy.

Every company faces unique challenges. Not all of the measures we describe in this article will be appropriate in every situation, and there’s no one-size-fits-all list of process improvements. However, we find that in most cases, senior leaders should do the following:

• As part of the strategy or strategic refresh, identify the role of each business in realizing the company’s strategy (for example, to accelerate growth, improve ROIC, or to divest) and the company’s ten to 30 most important initiatives.
• Use a streamlined approach to develop the company’s long-term financial plan by employing a value driver model, with only a few line items for each individual business unit or product line.
• Ensure that the long-term financial plan allocates resources to the company’s ten to 30 most important initiatives.
• Match next year’s budget to the first year of the long-term financial plan.
• Keep to a compact planning schedule.
• Design in-year flexibility, at a regular cadence, to allocate more (or less) resources to existing or new initiatives.

In this article, which is part of our ongoing “Strategy to action” to help companies improve resource allocation, we explain each of these six critical process improvements.

1. Identify each business unit’s role and the most important enterprise initiatives

Every strategic refresh should address two fundamental questions: first, what is the role of each business in realizing company strategy (such as to accelerate growth, improve ROIC, or divest), and second, which specific initiatives are the highest priority for the company, within that business and across the enterprise. In our experience, we have found that the sweet spot for companies is ten to 30 essential initiatives. If the list is longer than that, it can diffuse attention and become impractical to manage. If it’s shorter, it probably misses some important initiatives that top management should be involved with.

For example, a company may announce that its strategy is to grow in Latin America. That may be a terrific idea, but without more detail it isn’t actionable. Resources can’t be allocated to catchphrases. What would a practical Latin America growth strategy look like? To start, the company should identify the specific countries it will focus on. Next, it should spell out the major considerations, such as whether the company intends to enter a country on its own (perhaps using a team in a country relatively near where it already has a presence), partner with an existing player in that market, or make an acquisition. The company should also allocate the capital needed for whichever of those options (or others) it intends to pursue. Nor is money enough. The company should identify which business or team will be accountable, name a full-time team leader, be clear about which steps are needed (for example, identifying targets and building relationships), and make sure that the initiative is not starved of money or senior-management attention.

2. Focus on a small number of key value drivers for the long-term financial plan

Most companies’ long-term financial plans include too many line items. This kind of detail slows down the process, makes iteration difficult, and can obscure the true drivers of value.

To be effective, a long-term financial plan needs to be concise. For example, there is no need for ten or more items under general and administrative (G&A) expenses; the G&A line can stand alone. In most cases, income statements for each business should include only revenues, cost of goods sold, sales and marketing, R&D, and overhead costs—without disaggregating detail. An enterprise runs on value drivers, not accounting items. An effective financial plan clearly lays out the most important value drivers for each business unit, surfacing the few key elements that are most important for profitable growth, return on capital, and other company imperatives.

What do key value drivers look like? Consider a filmmaking company: there is a lot that goes into creating successful movies over a multiyear period. But cut to the chase (as they say in Hollywood), and its model can be simplified to producing three blockbusters and five smaller films. Its most impactful value drivers are the average budgets for large and small films, marketing costs, and overhead expenses. A music subscription business, for its part, would have similarly compact but completely different key drivers: the number of subscribers, revenue per customer, and customer churn.

Many senior leaders push back on “keep it simple,” saying that it is impossible to distill their businesses into just a few drivers. But these leaders are mistaking the forest for the trees—and underestimating the costs of examining too many trees.

In our experience, many senior leaders push back on “keep it simple,” saying that it is impossible to distill their businesses into just a few drivers. But these leaders are mistaking the forest for the trees—and underestimating the costs of examining too many trees. It isn’t possible to achieve 100 percent certainty in a complex business; regardless of industry, a competitive landscape is constantly shifting and usually can’t be predicted to a few percentage points. Parsing excessive line items, meanwhile, takes away time that could be better spent managing issues that have more of an impact, and yields diminishing returns. Often, the extra detail delivers no benefits at all.

While the number of line items should be kept to a minimum, the number of business units or product lines should be sufficiently granular to aid the allocation of resources based on the roles, objectives, and needs of each business unit. For example, a division with a fast-growing business unit and a mature or shrinking business should be divided into two businesses, so that top management can ensure that each has the right goals and resources (even if the division leader remains responsible for execution). In practice, a large corporation’s long-range financial plan should typically cover 20 to 50 product lines or business units.

3. Ensure that resources are allocated to the most important priorities

We’ve been surveying senior leaders for years, and a majority of them report that their organizations are underinvesting. Digging deeper, this usually means that companies don’t allocate the proper resources to the most important strategic initiatives, especially growth initiatives. Often, the long-range financial plan simply states the targets and financial projections for each business unit.

A better approach is to be clear on targets and have the long-range financial plan highlight the specific resources that are allocated to the highest-priority initiatives, whether they are enterprise-wide or within a particular business unit, to make sure those targets are met. This typically requires the company to allocate resources among its business units differently from how it had in prior years, regardless of legacy spending or “fairness.”

For example, one major consumer-packaged-goods company took away the “base” level of spending for some of its legacy European operations because of their lack of growth and relatively low returns on capital. Instead, the company allocated those resources to three specific initiatives in Latin America. And at one leading retailer, the CEO personally ensures the full funding and management of the company’s top six enterprise initiatives, in addition to spending almost one day per week on those initiatives.

4. Base this year’s budget on the first year of the long-term financial plan

Remarkably, the prolonged financial-planning process usually ends with a year one budget that does not tie to the long-range financial plan; instead, the year one budget is often closer to the last year’s budget. In a McKinsey survey of over 1,200 executives, less than one-third of participants reported that their company’s budgets were similar or very similar to their most recent strategic plans.¹ Another study revealed a striking 90 percent correlation in investment spending from year to year.² While some degree of year-to-year correlation is to be expected, it’s clearly impossible for a company to boldly reallocate capital (an approach that our research shows creates the most value for companies on the whole) when it keeps allocating capital to essentially the exact same things.

While the year one budget should be more detailed than the long-term financial plan, the top-line revenues, profits, and cash flows for each unit should always match year one of the long-term plan. Two techniques are useful for making this happen. First, start building the budget based on the initial year of the financial plan, rather than on last year’s budget or current year’s results. Second, require that only the CEO and CFO have authority to approve deviations from the long-range plan. Without that rigor, resource allocation tends to dissipate in a fog of war.

5. Compress the time frame for the entire planning process

Financial planning can be a never-ending story. A senior team starts with a strategic refresh in the first quarter, followed by a long-term financial plan that kicks off in the second quarter, and finishes toward the end of the third quarter. Meanwhile, the budget for the next year begins in the third quarter and wraps up at the turn of the year—or even later. This prolonged timeline invites unnecessary draft turning and complexity, and diminishes the forcing-mechanism value of having to make a decision on the most important initiatives and value drivers.

The resource allocation process should be synchronized and as short as possible, with each step taking a maximum of two months. These steps should be scheduled as late in the year as possible, while still allowing ample time for rigorous analysis and meaningful debate. The entire process should also be contiguous.

One consumer retail company’s process serves as an example of an inefficient resource allocation timeline. The company conducts its annual strategic refresh in April or May, followed by long-term financial planning in September and October. Finally, after about two more months of hiatus, the budgeting process takes place from December until March for the calendar year that has already begun. Each step in the process is excessively time-consuming and remarkably disconnected from one another. A consumer-packaged-goods company, by contrast, demonstrates a more effective resource allocation timeline. The company initiates its annual strategic refresh in May, which drives the long-term strategic financial plan and resource allocation process conducted from June until September. The long-term strategic financial plan flows into the annual budgeting process, which starts in October and ends in November.

A process that runs from May to November is better than one that runs all year long and into the next, but it can still be significantly improved. First, any gaps in the processes should be eliminated; the longer plans sit, the more stale and less urgent they become. Second, decision makers should realize that multiple iterations are a tax on their time—they should receive one or two bites of the apple, and put in the work up front to make sure there aren’t excessive numbers of drafts. Finally, the second quarter is simply too soon to start; it provides an unnecessary cushion, at the expense of harder deadlines and greater focus.

Nothing so concentrates the mind as 24 weeks to finish a strategic refresh, a long-term financial plan, and year one of next year’s budget.

Precise timelines will vary depending on the enterprise—which in turn depends on its industry (technology companies, for example, move much faster). But to borrow from the old saying, nothing so concentrates the mind as 24 weeks to finish a strategic refresh, a long-term financial plan, and year one of next year’s budget. In most cases, a company should begin its strategic refresh shortly after midyear and complete the refresh before the end of the third quarter; immediately commence its long-term strategic financial plan once the refresh is completed; and then, when the long-term strategic plan is done, immediately turn to its budget for the upcoming year. For a company whose fiscal year matches the calendar year, the process would begin after midyear and finish in mid-December (exhibit). Across industries, CFOs of companies that have more compact timelines report that they outperform their peers on numerous dimensions.³

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6. Build in year-round resource allocation

Budgets are never perfect—which is exactly what one would expect, since circumstances change over the course of the year. For many companies, the approach to in-year flexibility is to allocate the resources to each division or unit leader and give them the decision rights to reallocate among lines they control, as they see fit. This, however, creates a perverse incentive for divisions or business units to hoard resources they don’t need, spend it on lower-priority items or, even worse, underinvest in strategic initiatives to meet short-term targets.

To prepare for inevitable changes in the number of resources needed and available during the year, the authority for meaningful flexibility in resource allocation should belong only to senior leaders, at the enterprise level. An investment committee, including the CEO and CFO (and ideally only one to three additional voting members, with the CEO making the deciding call) should meet monthly to make important in-year investment decisions.⁴ These monthly meetings should be for decisions, not for progress updates or general reviews. The agenda should address only those matters that require a decision—and the result should never be “deciding to decide.” Key decisions that the committee may make during these meetings can involve allocating funds for stage-gated projects or projects that were provisionally approved during the annual planning process, discontinuing projects that aren’t likely to meet their objectives, and approving new projects that arose after the annual planning cycle.

Flexibility usually requires setting a reserve of unallocated funds that can be used during the year for new initiatives that were not anticipated during the planning process. Withdrawals from the reserve should be authorized only by the CEO or investment committee and must align with well-defined criteria, such as affirming that the release is for a strategically vital initiative or covering essential external costs, such as dealing with natural disasters. While there is no universally applicable percentage for the “right” amount to reserve, a general guideline is to set aside 5 to 20 percent of the corporation’s budget. For businesses operating in sectors with longer project lead times and minimal market volatility, such as utilities, a strategic reserve of about 5 percent of the budget may be sufficient. Conversely, industries characterized by rapid market changes and fluid resource allocation, like software, may find a reserve of approximately 20 percent more appropriate. Consumer-packaged-goods companies, for example, may encounter a newly launched campaign that fails to meet its targets or a competitor that launches a new product that senior leaders did not anticipate. As situations arise, the investment committee should reallocate resources quickly, opening up opportunities for other businesses and initiatives throughout the year.

Certain projects are easier to stage-gate during the formal planning cycle, such as pharmaceutical companies preparing to make significant investments in marketing once regulatory approvals are obtained. Other allocations of capital may be approved only provisionally because they require further analysis (for example, proof of concept for a new technology, or decisions to drill to a gas or petroleum deposit); in those cases, the investment committee should withhold that capital for in-year allocation. The key is to build in flexibility. An effective resource allocation process anticipates change and maintains at least a monthly cadence—and ideally, one that is more frequent than that.

The processes for turning strategy into action should be radically simple. The most effective processes clearly spell out the strategy and the role of each business in achieving that strategy, identify the most important value drivers, ensure that the most important initiatives have the resources they need, insist that the budget matches the first year of the long-term financial plan, keep to a compact planning schedule, and design and demonstrate in-year flexibility. After all, managing a large corporation is already complicated enough.

This content was originally published here.

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The popular conception of entrepreneurship is that it comes in two sizes. Venture-scale startups aim for billion-dollar valuations within a decade by targeting large markets disruptively through innovative technologies or business models. Such aspiring “unicorns” capture the attention of many venture capitalists and angels and include success stories such as Google, Meta, and Airbnb. On the other end of the spectrum, small business entrepreneurship encompasses ventures that start small and often remain so, competing in mature markets using established templates, such as local restaurants, retailers, and service firms.

But in between these poles lies what we term “the mighty middle,” the often overlooked segment of startups with the potential to scale meaningfully and rapidly, though not necessarily to extreme valuations. These businesses, which we have studied extensively, offer great opportunities for entrepreneurs and their employees, and can be successful by employing different strategies for funding, hiring, and competing. The mighty middle deserves closer consideration as it may often offer a lower-risk, higher-return path for founder value capture, as well as more numerous opportunities than venture-scale startups.

The Mighty Middle of Entrepreneurship

In our research, we define the mighty middle as startups that have a feasible path to reaching valuations in the high single-digit millions to high tens of millions within 5-10 years. These companies often target midsize niches, akin to “blue lakes,” in contrast to venture-scale startups aiming for “blue oceans” and small businesses competing in “blue ponds.” An example of mighty-middle entrepreneurship is Supply, founded by Patrick and Jennifer Coddou in Fort Worth, Texas, in 2015. The company produces men’s grooming products, sold directly to consumers online. Leveraging community-building, Kickstarter campaigns, social media ads, and an appearance on Shark Tank, Supply grew to millions in annual sales with only a handful of employees before being acquired in September 2022. Though the details are private, acquisitions of such businesses are often at 4-6X EBITDA multiples, indicating an attractive payoff for the founders.

While mid-size companies have long existed, changes over the last twenty years mean mighty-middle businesses can now be built cheaper and faster across many sectors. The rise of the internet allows these businesses to target a national or global audience from the outset in a cost-efficient manner. Global, targeted advertising platforms like Meta, the ability of third-parties to sell on major ecommerce portals like Amazon and wholesale platforms like Faire can accelerate customer acquisition. Rich tech stacks, open source software, and online platforms like Shopify reduce the cost of software development. Global supply chains and computer-aided manufacturing make it easier for entrepreneurs to produce innovative designs in small batches and at affordable price points. All of this means that there are now more mighty-middle opportunities that can be profitably pursued with limited resources, which also opens up this form of entrepreneurship to a more diverse set of entrepreneurs.

The Mighty Middle Playbook

Recognizing the distinctiveness of mighty-middle startups has important implications for entrepreneurs, investors (including angels, VCs, and corporations), and policy makers.

For entrepreneurs, one key implication is that mighty-middle startups need to be built differently. Because so many VCs and angels focus exclusively on venture-scale startups, mighty-middle startups generally need to be bootstrapped, started as a side hustle, or funded with savings. An example is Little Stocking Company, a maker of girls apparel, founded by two friends and former nannies in Portland Oregon. To get started, they put $300 of materials on a credit card and then used revenue from initial Instagram orders to fund the business — and continued working other jobs while building up sales. Grants may also be feasible, though primarily for startups with deep technical innovations (e.g., SBIR grants in the U.S.) or social impact aims.

Different approaches are also likely to be needed for building capabilities, hiring and competing. Skilled employees may understandably be less willing to work for equity compensation for unfunded startups, necessitating a slower pace of hiring, more use of contractors, or founders undertaking more tasks themselves early on. For example, Sahra Nguyen was a journalist and filmmaker before founding the fast-growing Vietnamese-coffee brand Nguyen Coffee Supply. In launching the business, she faced critical tasks outside of her expertise including figuring out how to import raw beans and navigate customs, roast their unique robusta beans, and attract customers via online ads. While a VC-backed startup might have hired early employees to gain this knowledge, she initially took a DIY approach and learned new skills through searching the internet, her network, and taking online courses before progressing to hiring online contractors and then eventually full-time employees. They are now found in over 2,000 locations nationwide. Also illustrating this DIY approach is, Mike Perham, solo founder of Sidekiq who describes his current revenues as “being closer to $10 million than $1 million.” With occasional contracted support from a graphic designer and lawyer, he leveraged his software development background to create a Ruby task scheduler used by enterprise customers like KickStarter, Netflix, Comcast, and Conde Naste.

Yet counterbalancing these challenges are several advantages of the mighty middle for entrepreneurs. Most obviously, they offer greater potential upside compared to most small business opportunities. For many entrepreneurs, mighty-middle opportunities may also offer a more desirable risk-reward tradeoff compared to venture scale start-ups. Entrepreneurs who reach a certain level of scale in the mighty middle typically do so without outside professional investors, retaining more control and equity. This allows them to start paying themselves from firm profits, without having to wait for an acquisition or IPO. The absence of professional investors also reduces pressure to take high risks for aggressive growth. Additionally, with more opportunities in this range, entrepreneurs have a better chance of finding a life-changingly profitable mighty-middle opportunity than a venture-scale one.

For venture capitalists, angels, and other investors, we believe the mighty middle is valuable as language for distinguishing between a startup that may not fit their investment aims but which may still be a “good business” for the entrepreneurs. At the same time, the mighty middle provides a framework for working with entrepreneurs to “upscale” ideas by targeting broader markets. The mighty middle can also be a good fit for private equity-style investing once startups reach a degree of scale and profitability. Here we have seen funds that provide either minority investments (so-called “growth” investors) as well as holding companies like Tiny and Constellation Software, which acquire portfolios of mighty-middle software startups (though this aggregator playbook has been challenging for some in e-commerce).

For corporations, the mighty middle offer a promising source of innovation, making them attractive suppliers or acquisition targets (and which may chip away at their established offerings if ignored). In the food CPG space, established corporations and private equity firms look for mighty-middle businesses that are achieving some early traction (generally several million dollars in annual sales) as acquisition targets around whom they could “scale up” and leverage their economies of scale in distribution and manufacturing. National retailers are also increasingly working with consumer-oriented mighty-middle businesses that achieved their early traction online, bringing their innovative products and brands to a broader audience. For instance, the men’s soap brand Dr. Squatch is sold in major retailers including Target and Walmart (and now majority owned by Summit Partners after an investment in 2021), and food startup Recipe 33 sells their flavor-infused almonds nationally in retailers like Whole Foods, Sprouts, and HyVee.

Finally, many university, regional development and government programs aimed at enhancing entrepreneurship can also benefit from more explicit recognition of how the mighty middle are different. While stories of venture-scale outcomes can offer important lessons and be inspiring, aspiring entrepreneurs may be more likely to identify mighty-middle opportunities and these opportunities may offer a preferable risk-reward balance for many entrepreneurs. So more examples need to be shared of the “hero journeys” of successful mighty-middle businesses. Care should also be taken to highlight that most startups, even those that grow, are unlikely to receive much external equity investment. This also suggests an opportunity for accelerator-like programs emphasizing mentor feedback but not necessarily future investment. We also believe it can be helpful to point entrepreneurs in the mighty middle to sector-specific communities like E-Commerce Fuel (e-commerce), Indie Hackers and MicroConf (internet), and Zebra Startups (solving societal problems).

Overall, the mighty middle spotlights a segment of the entrepreneurial spectrum that bridges the binary of the behemoths and the boutiques. By understanding the distinctiveness of this segment, entrepreneurs and those who support them can be better prepared to build startups that embody significant growth potential even if they are unlikely to ever achieve the extraordinary scale highlighted in many entrepreneurial narratives.

This content was originally published here.

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Transformation programs have become ubiquitous, with more than one-third of large organizations engaged in some form of transformation at any given time. But the conventional model that most companies rely on for transformation has faltered in the wake of today’s rapidly changing business environment. Leaders need a fresh approach — one better suited to the continuously evolving nature of our world.

Typical transformation efforts are organized as programs with a defined beginning and end, often overseen by a program management office. Rooted in a change model popularized by German American psychologist Kurt Lewin in the 1950s, this approach involves three stages: “unfreeze, change, and refreeze.” While effective for discrete projects like implementing a new payroll system, this model falls short in today’s dynamic business environment. The continuous evolution of the external landscape demands ongoing business transformation, with no room for pausing, refreezing, and stepping away.

In this article, we draw on our research and experience to describe the three key drivers of continuous transformation:

1. Adopt an Agile Mindset

Unlike the conventional “unfreeze, change, refreeze” approach, which implies change represents only a temporary disruption, an agile orientation embraces the philosophy of “rethink, reshape, repeat” — an ongoing quest for excellence. Under this paradigm, transformation becomes a perpetual journey involving assessing the company’s strategy, prioritizing critical issues, carefully considering potential alternatives for addressing each issue, choosing the best course of action, adapting the organization accordingly, and then moving to the next critical issue. Much like agile software development, where tasks progress from “to do” to “doing” to “done,” business transformation should involve a similar continuous process of issue identification and resolution.

By embracing an agile mindset, organizations unlock the potential for sustained innovation and adaptation, thereby making continuous change a core capability. The transformation of State Farm, a company we worked with, serves as a compelling example. As a leading provider of various insurance services including auto, home, life, health, and business coverage, State Farm had long been a trusted name in the industry. However, in 2019, the company’s leadership recognized a shift in the fundamentals of their business. The insurance landscape was evolving beyond merely offering coverage; it was now about delivering personalized experiences, swift service, and seamless claims processing within an intensifying pricing environment. Customers increasingly demanded convenience, efficiency, and tailored solutions. In response, State Farm recognized the need to rethink its operations, processes, and technology infrastructure to remain competitive in this swiftly changing market.

A pivotal factor in State Farm’s successful transformation was the adoption of an agile mindset by its leadership. While previous change efforts at the company had been treated as episodic, the pace of change in the insurance industry now necessitated continuous transformation. Accordingly, State Farm built a “persistent change capability,” essentially a suite of tools empowering executives to continually reassess and reshape the company’s strategy and operations. In addition, in working with State Farm, we saw how the company’s newly established “Change Center of Excellence (CoE)” provided support and coaching to leaders throughout the organization in driving transformative change and helping the impacted workforce adapt. This group also served as a central repository for best practices, approaches, and tools utilized at State Farm to strengthen ongoing change initiatives.

State Farm’s transformation journey has already yielded significant benefits for both the company and its customers. By embracing digital technologies and modernizing processes, State Farm improved customer experience, enhanced operational efficiency, and achieved substantial cost savings. Notably, between 2018 and 2023, State Farm Mutual’s net worth — a critical measure of financial strength in the insurance sector — grew from $100 billion to nearly $135 billion, and the growth across its primary lines of business surpassed the average growth rate for each sector. 

2. Use aspirations to continuously challenge and stretch the organization.

Relying solely on top-down targets, even those based on external benchmarks and industry best practices, often falls short of fostering sustained performance improvement. While these targets may initially inspire efficiency enhancements, they often lead to complacency once achieved, perpetuating the rigid “unfreeze, change, refreeze” model of transformation.

Instead, organizations should cultivate aspirations that challenge and motivate at every level. Unlike static targets, aspirations serve as dynamic catalysts for ongoing improvement. They represent goals currently beyond the reach of the company’s existing plans, but not so distant as to be perceived as unattainable. Unlike fixed targets that stagnate progress once achieved, aspirations evolve with the organization and its strategy. They continuously push the organization to adapt to changing market conditions, technological advancements, evolving customer needs, and even growing environmental concerns.

Consider the example of Ørsted, a multinational energy company based in Denmark formerly known as DONG Energy. In 2008, its leadership embarked on a journey to transition the company from a traditional power provider reliant on fossil fuels to a pioneering force in renewable energy.

At the heart of Ørsted’s transformation was a singular, audacious goal encapsulated in a simple number: 85%. Historically, the company derived 85% of its energy from fossil fuels, with only a meager 15% from sustainable sources. The leadership resolved to flip this ratio entirely, aiming for 85% of its energy to come from renewables like wind and solar.

Initially, Ørsted lacked a concrete plan to achieve this ambitious objective. There were no existing benchmarks to study, nor industry best practices to emulate — Ørsted ‘s goal surpassed anything seen in the sector before. This bold ambition compelled everyone within the company to confront harsh realities about its business model, including the urgent need to address climate change and the finite nature of fossil fuel resources, and reshape its business portfolio.

Henrik Poulsen, who served as Ørsted ‘s CEO from 2012 to 2020, leveraged this bold ambition to rally a workforce initially skeptical of such monumental change, inspiring them to embrace creative solutions. The company sold off its oil and gas business, phased-out the use of coal for power generation, and acquired Deepwater Wind and other assets to expand its position in offshore wind.  Ørsted set a timeline of 30 years to achieve its goal, yet remarkably accomplished it in just a decade.

3. Build transformation into the company’s operating rhythm.

To thrive in today’s fast-paced environment, leaders must seamlessly integrate transformation into the company’s operating rhythm. This involves incorporating change initiatives into existing governance processes and forums, ensuring that evolution becomes a natural part of running the business.

By embedding transformation initiatives into the operating rhythm, leadership can ensure alignment between strategic goals and day-to-day activities. This integration fosters a holistic approach to the change effort, enabling organizations to respond swiftly to evolving market trends, customer demands, and competitive pressures. When transformation becomes part of the company’s operating rhythm, accountability for driving change is distributed across all levels of the organization.

Take the remarkable evolution of Dell Technologies. When Michael Dell, in collaboration with Silver Lake Partners, took his company private in 2013, he recognized the imperative for broad-based transformation. This decision came at a time when many were predicting the “death of the PC.” Proving these skeptics wrong necessitated the transformation of Dell Computer into an enterprise technology powerhouse, known today as Dell Technologies.

As we describe in our recent HBR article, Michael Dell has embedded transformation into his company’s operating rhythm. Following the privatization, the executive leadership team (ELT) instituted the Dell Management Model (DMM), supplanting the existing strategic planning, resource allocation, and business performance review processes.  At the heart of the DMM lay the Dell Agenda — a backlog of strategic imperatives essential to the company’s transformation. Addressing items on the Dell Agenda became a primary focus of ELT meetings and other leadership sessions. The Dell Agenda remained dynamic; as issues were resolved and integrated into the company’s strategy, new issues were added, ensuring the transformation remained an ongoing process. As the DMM became ingrained in the company’s operating rhythm, transformation became an integral part of daily leadership practices at every level of the company.

The results speak volumes. By the close of 2023, the ongoing transformation at Dell had yielded a 10-fold return on Michael Dell’s initial investment in 2013. Our analysis of total shareholder returns for large companies reveals that this number surpasses the performance of any other public company with revenues exceeding $30 billion.

In today’s fast-paced world, business transformation can no longer be treated as a one-time project. Continuous change necessitates ongoing transformation. The traditional approach of “unfreeze, change, refreeze” must give way to a new mindset: “rethink, reshape, repeat.” It’s through this continuous process of transformation that companies can truly realize their full potential.

This content was originally published here.

The post A New Model for Continuous Transformation… appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

Our relationship with work is becoming increasingly unhealthy. Levels of burnout and stress are at all-time highs. Even before the pandemic, the World Health Organization called stress the “health epidemic of the 21st century.” What is a major source of that stress? Our jobs. Microsoft has conducted several studies analyzing keystroke data and the use of its collaboration software Teams chat feature. Results reveal two disturbing trends: compared with pre-pandemic, during Covid, we were much more likely to work in the evenings, typically in the hours before bedtime, and the number of work messages sent and received on the weekends increased by 200%. Now, three years later, the patterns that emerged in a crisis have been normalized.

When work shifted to home, the boundary lines were blurred, and we’ve grown used to this new, casual surplus of work in the same way anyone gets stuck in a bad habit. What’s even worse is that this increased workload, connectivity to work, and altered communication patterns have been tacked on to our existing schedules, meaning we are working longer and staying more tethered to work than ever before. The harsh reality is this: Overwork is at an all-time high, and the new world of work is only making it worse.

In industrial psychology we use the inelegant term “workaholism” to describe this phenomenon. Workaholism is not someone who works a lot of hours necessarily — in fact there’s only a weak correlation between number of hours worked and problematic “overwork” or workaholism. Instead, the term refers to a deleterious inability to disconnect from work. When work dominates your thoughts and your activities, to the detriment of other aspects of your life, relationships, and health, you are displaying workaholic tendencies. Note this is not a clinical diagnosis — it’s not in the DSM — but the literature on it is deep and convincing. Workaholism is detrimental to both people who may experience it and the organizations they work for, organizations which often unwittingly are fostering it.

When talking to organizations about workaholism — and how they may be enabling it — I’ve heard every excuse you can imagine, multiple times. In an organization with an overwork culture, it’s natural and not all that surprising. For one, the company has succeeded using this approach. Why change it? For another, what I’m suggesting is that it doesn’t work as well as one might think, and the organization ought to change. Given everything we know about organizational culture and how difficult it is to change it, resistance is natural — expected even.

If you don’t want to be one of these organizations, something needs to change. And despite the default responses you have about why change won’t work for you or how your people can sustain the pace, it’s not true — and the alternative to your current modus operandi is not as bad as you think.

Once you’ve acknowledged that change is needed, you’ll need to create a plan for how you’ll overcome a culture of workaholism. Below is a three-step process to start.

Step 1: Assess Your Company’s Baseline Level of Overwork and Its Origins

Figure out where your starting point is by assessing the level of your organization’s overwork culture and who is perpetuating it. What you do next will depend on where your baseline is. Borrowing a concept from training and organizational change literatures, I recommend starting with a needs assessment. This helps to identify areas in need of change, assesses how much support (or resistance) there is to the change initiative, and allows for a comprehensive understanding of training needs at multiple levels of analysis.

There are many frameworks for needs assessments you could adopt. In general, they attempt to answer two key questions:

• What are the areas in need of change?
• What kind of support is there for making this change happen?

The assessment should be handled by people with experience doing them — for example, professionals who have been trained in change management. Relationships with top-level managers in the organization need to be established. Some of these managers will react with fear or resistance, so the better the relationship, the higher the likelihood that the results of the assessment will be received.

If people feel threatened by the change and aren’t reassured that they are protected from retribution, the initiative is destined to fail. The overwork culture assessment should target three levels: the organizational level, the job level, and the personal level.  This assessment will reveal what is driving the culture of overwork, how the structure of jobs is driving workaholism, what are the characteristics of individuals who get recognized and rewarded, if those qualities reinforce an overwork culture, and how people feel about their work and the company.

At the end of the assessment, you’ll know just how deeply overwork is entrenched in your culture and, crucially, where some of the key drivers are coming from. In some organizations, it may be almost exclusively driven by leadership. Others may have let technology foster an always-on workforce. Others will focus on job design and HR structures. Surveys and interviews are likely to expose physical and mental health issues and team dysfunctions, driven by workaholism, that you simply weren’t aware were present in the organization.

Step 2: Plan for Incremental Change by Targeting Places Where Change Will Be Most Effective Soonest

At this point, the worst thing you could do as an organization is to say, “We’re going to get rid of our overwork culture and eliminate workaholism.” Change doesn’t work that way. It will be a long process of incremental improvements. The key is that the assessment will tell you where to focus first. Where is change going to be both most possible and most effective?

At this stage, the most important things to do are to clearly identify the purpose and goals of the trial, build trust, carefully outline what the trial period will involve, and clearly communicate the plan to all key constituents.

First, identify the purpose and goals of the trial. Your purpose will be shaped by the data you have gathered and analyzed as part of your assessment. When examining your organization’s baseline levels of overwork culture, it may become clear that pursuing goals such as a four-day workweek is not possible. In these cases, the goal may need to be something smaller — what researchers Leslie Perlow and her team call “micro adjustments to the work practices” — such as changing guidelines around email communication during nonwork time or on weekends.

Trust can come only if culture change efforts involve input from all employees—it cannot come from the top down. I To help build this trust, Harvard Business School professor John Kotter recommends building a “guiding coalition” — a group of individuals from all levels of the organization who are passionate about the change initiative and are respected by their peers.

Second, carefully outline the trial experiment. In my conversations with leaders designing experiments, a couple of things stand out. The first is to resist overthinking to the point that the plan becomes too complex to carry out. Approach the process with an experimental mindset, knowing that you will adapt as you go. Set a concrete start and end date. Identify the scope of the trial — in other words, which team(s) will be involved in the initial trials and how this will be rolled out over time. And be sure to collect pretrial data on anything you’ll be assessing at the conclusion of the trial.

For example, if your purpose is to decrease employee burnout, then make sure to assess burnout before the employees even catch wind of the trial (so you can conduct more accurate pre-post comparisons). I highly recommend utilizing the help of experts anytime you are gathering employee survey data.

Clearly communicate the plan and keep the conversation going. It’s not enough to simply tell key stakeholders, “Look, we’re going to fix our workaholic culture with a new initiative.” You must communicate specifics of your effort and what you’re hoping to accomplish with each experiment. Communication should also not be top down — frequent two-way communication is essential. Seek input from your employees before, during, and after the trial experiment. Make sure you are listening and responding to their concerns.

Step 3: Execute the Trial Experiment, Learn, and Iterate

With a plan in place, it’s time to execute. Contrary to what you might want to do, you shouldn’t announce major changes; you shouldn’t even suggest that you’ve “figured it out.” Start small and meet people where they are. Limit the number of changes you take on and their scope. You may start with one team or department. Or one geography. And make sure you are constantly taking the temperature of employees about the change initiatives. Avoid being ambiguous in your execution. When people aren’t certain about what is happening, they will become risk avoidant and fall back into old patterns.

Say one of your change experiments is to require email signatures that say, “Don’t feel pressured to respond to this in non-work hours.” That seems good, but it remains ambiguous. It doesn’t say “Don’t respond.” And what if it’s from a boss? It might be interpreted like one of those “voluntary” get-togethers that people informally know is actually mandatory. Perhaps the experiment shows that people kept responding to emails despite this. The next step may be to change the language to something like “Do not respond after work hours,” or to even set up rules that prevent emails from being delivered at certain hours.

I’ve offered many starting points for implementing these changes above. And still, I know there will be resistance at the organizational level, as I laid out at the beginning. Despite evidence to the contrary, some leaders and organizations will not be able to easily escape their work devotion schema to see how counterproductive it is to encourage workaholism. They won’t be able to draw the connections between flagging performance and their focus on a 24-7 culture. They won’t see how the effects of workaholism create turnover costs, health-care costs, and productivity costs. Most of all they won’t believe that they can get the same output— indeed, better output—from fewer hours and less connectivity. It’s just not intuitive.

But it’s true. The research is clear. Work cultures that enable overwork are suboptimal. The Covid-19 pandemic was a major development in our realization that the work devotion schema may need adjusting. The success of four-day workweek trials was another. More and more organizations see the value of changing their workaholic culture. You can, too. No more excuses.

This content was originally published here.

The post How to Fix Your Company’s Culture of Overwork.. appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

Paul, an executive coaching client, reached out distraught, asking for guidance after a painful team meeting. During a routine project review, his employee, Elena, expressed concerns about the team’s heavy workload, exclaiming: “Six months ago we laid off more than half of the team, but you never reduced the workload the way you promised. We’re all working day and night, and you don’t seem to care.”

Paul shared that he was dumbstruck and unsure how to respond. He had asked the team to tell him if they were struggling with the workload, but no one had come to him. But judging from the other scowls in the room, it seemed Elena’s feelings were widely shared. Paul tried to assure her he did care and wanted to make things better and asked if they could continue the conversation offline. The collective eye-rolling made it clear nobody believed him.

We asked Paul how much merit Elena’s complaint had. He told us that since the layoffs, upper management was piling on more work despite promises to the contrary. He said: “I’ve tried to push back, but it falls on deaf ears. And I obviously haven’t done a good job paying attention to how it was impacting my team.”

At some point, regardless of how the circumstances arise, your team will blame you for something that’s making them unhappy, whether you have control over it or not. When things aren’t going well at work, the boss is one of the easiest places to aim dissatisfaction, as they see you as having more control than they do. Paul was fortunate that Elena did it openly. We’ve heard countless stories of passive-aggressive behaviors from employees that signal something is wrong, but when asked, they return a cold shoulder or say everything’s fine.

When your team blames you for something, it’s natural to feel a range of uncomfortable emotions. Paul felt understandably defensive because he wasn’t the one to mandate the layoff. It’s also possible to feel guilty, questioning your own actions and decisions that led to your team’s displeasure. Or you may feel isolated and unsupported, bearing the brunt of difficult decisions and their aftermath alone. We asked Paul what cues he might have missed that preceded the eventual eruption in the meeting. Initially steeped in shame, Paul struggled to look back objectively. But eventually, he connected a number of dots revealing that his team members, and especially Elena, were increasingly distressed.

Human instinct is to assign blame, and research shows that we judge the actions that result in negative consequences as being more deliberate than those leading to positive ones. This tendency is due to the fundamental attribution error, which leads us to blame people for situations beyond their control. Unsurprisingly, leaders attract more blame for failures than people in other positions; however, they do not receive more credit for successes.

The net of these psychological phenomena is that, as a leader, you could find yourself on the receiving end of your team’s blame more than you’d like.

Your Brain on Blame

Being accused by your team of failing them in some way, whether justified or not, induces a threat state in your brain, impairing your ability to think clearly and triggering a variety of cognitive distortions and defensive behaviors. When the proverbial crowd of fingers is pointing at you, it can lead you to irrational perceptions. Unlike other emotionally triggering experiences, where the amygdala runs amok with fight/flight/freeze reactions, blame adds some neural bonus features that make it even harder to navigate.

On top of triggering a sense of threat in the amygdala, blame can affect your ability to regulate your emotions. Further, blame activates the areas of the brain associated with rejection and shame, misreading of social cues, and distorted self-perception. This cocktail of neuro-reactions lights a veritable fuse and can set off self-protective behaviors, including blame-shifting, going on the counterattack, or justifying your actions without listening to your team’s concerns. Alternatively, feeling accused might lead you to downplay others’ feelings of frustration and anger, or avoid the situation altogether. However, these responses will only further degrade the morale and trust of your team.

In the face of blame — warranted or not — here are some ways you can work through the experience while keeping important relationships intact.

Be brutally honest with yourself.

When facing accusations and blame, managing the initial surge of negative emotions is crucial. Start by identifying and naming your feelings, asking yourself, “What are two or three adjectives that describe how I feel right now?” Research shows that briefly labeling your emotions can significantly reduce their intensity by lessening amygdala activity and engaging the prefrontal cortex. This step, along with accepting your emotions as a valid and natural response to the situation, will help you down-regulate your physiological response and shift into a more positive state.

Next, take an honest look at your contributions to the situation. Ask yourself, “What did I do — or not do — that contributed to these circumstances?” Consider how you might have handled things differently. For example, Paul realized that in his own frustration with feeling disempowered by the performance pressures, he’d failed to let his team know how he had advocated for resources and pushed back on the workload challenges. He also realized that he’d allowed his disenfranchisement to get in the way of that advocacy, likely making his appeals to leadership come across as half-hearted.

Replace defensiveness with self-compassion.

In addition to negative feelings like shame (I’ve been caught) and resentment (That’s not fair), your reflexive response to accusation will also be to self-protect. While defensiveness has an immediate appeal — it tamps down some of the emotional discomfort of blame — it has the unfortunate side effect of entrenching that discomfort for a longer period of time.

Before parsing out the truth within the accusation, adopt a posture of grace and self-compassion. Begin exploring whether you have any legitimate culpability. Tell yourself, “This doesn’t feel good, and if I come to see that this accusation has merit, I will forgive myself so that I can ask forgiveness from them.” Remember that the more you hold fast to the goal of establishing partial or total innocence, the more difficult reconciliation will be with your complainant. By beginning with a posture of self-compassion, you can show empathy to your complainants, regardless of your degree of blamelessness or guilt.

Listen, acknowledge, validate.

Schedule a meeting (or a series of meetings, if necessary) to address your team’s concerns. Initiate the conversation clearly and empathetically — for example, “I heard your concerns about workload and feeling unsupported. I want to understand your perspective. Can we discuss this and explore potential solutions together?”

Feeling accused, you may be tempted to defend yourself and counter their accusations, but this will only strain relations further. Instead, focus on listening actively: Give them your undivided attention, ask open-ended questions, mirror back what you hear, and adopt an open and nonjudgmental attitude. Research has shown that high-quality listening increases people’s sense of comfort and connection, facilitates insight, and even narrows the divide in perspectives.

Acknowledge and validate your team’s feelings and experiences, even if they differ from yours. Affirming their experiences will help them feel understood and valued and reduce their negative emotions. You might say, “I hear you and now I better understand how you feel overworked and unsupported.”

Own your part.

Leadership demands accountability, but often, not all aspects of a situation are within your control. Distinguish between what you were and were not able to influence to right-size and appropriately address feelings of guilt or shame. This will help you objectively consider what you might do differently moving forward. For instance, Paul couldn’t avert the layoffs, but he acknowledged that he overlooked his team’s distress signs and didn’t effectively challenge the additional work requests from senior management. And while Paul was responsible for his response to the layoff, he wasn’t responsible for Elena’s outburst.

When you fall short of your team’s expectations and they see you at fault, regardless of how much culpability you actually had, trust is ruptured. They may have lost faith in your abilities as a leader, your motives, or both. To start mending these relationships and rebuilding trust, issue a meaningful apology: Own up to what you did or failed to do, demonstrate that you understand how it impacted them, and share what you will do differently to prevent the same thing from reoccurring. For example, Paul said, “I failed to manage our team’s workload since the layoff, and I realize that has caused a lot of long hours, stress, and strain for you. I am sorry. Going forward, I will let you know when I make appeals on your behalf, and I will do so with more resolve instead of like a victim.” Showing humility by admitting to your shortcomings and mistakes fosters psychological safety and performance.

Build long-term solutions together.

By maintaining reconciliation as your primary focus instead of establishing innocence or guilt, you can work to repair the trust that’s degraded in the process — both your complainant’s trust of you and yours of them. Having taken responsibility, you can now figure out how to resolve things. The key here is not to go away, determine the best fix, and come back and unveil it. If you’re tempted to do that, it’s likely you’re trying to alleviate your guilt and restore their regard for you, not restore their trust and your relationship.

The more productive approach is to create solutions with your complainants. Ask, “So what do you feel is the best way for us to resolve this situation and prevent it from happening again?” Listen attentively to the answers, recognizing that some may be informed by lingering emotions and therefore aren’t realistic. Still, resist the temptation to correct people as they offer their ideas.

Elena suggested that they shelve 30% of their current projects and stop work on them immediately. While that wasn’t realistic, Paul was able to build on her suggestion by working with the whole team to generate criteria to prioritize the project portfolio, which he would then present to management with a recommended list of projects to stop or pause. The team also suggested mitigating some of the immediate backlog with freelancers and contractors to get things back on track. And lastly, they agreed to include personal capacity check-ins as part of their project reviews so Paul could maintain an accurate barometer of people’s emotional well-being.

Being on the receiving end of blame is an emotionally complex and painful experience. Its potential destruction to trust and cohesion in important relationships can’t be overstated. By having a playbook ready for when it happens, you can sidestep some of the ugliness and emotional fallout that often accompanies angry, pointing fingers. Instead, begin with the expectation that every accusation is an invitation to learn more about yourself and deepen trust with people you care about.

This content was originally published here.

The post What to Do When Your Team Blames You appeared first on Matt Dallisson Global Executive Search | Leadership Consulting.

Last March, Meta’s CEO Mark Zuckerberg labeled 2023 the “Year of Efficiency” in a company-wide email, noting that “flatter is faster.” According to Zuckerberg, “It’s well-understood that every layer of a hierarchy adds latency and risk aversion in information flow and decision-making.”

The consulting firm, McKinsey & Company, has echoed these sentiments, describing how unstructuring your organization can unlock massive value through the promise of increased collaboration, agility, and employee empowerment. Research findings lend further support to these ideas — a meta-analysis of 54 published studies involving 13,914 teams found that hierarchy tends to harm performance.

Although experiments with flattening the hierarchy in high-profile companies like Zappos and Google have yielded mixed results — leading some to claim that certain types of flat structures are “hella crazy” and “rarely work” — the fact remains that firms are gradually becoming less centralized. Thus, successfully organizing for the future requires a deep understanding of how to design, implement, and assess flatter organizational structures.

We have reviewed hundreds of internal documents, videos, presentations, and employee surveys provided to us as part of an ongoing collaboration with the third author, Juan Pablo Sánchez Celi, the CEO of Avinsa, a food processing company in Santander, Colombia, with roughly 350 employees. Avinsa is in the midst of a change initiative — referred to internally as Avinsa Viva — aimed at flattening the hierarchy.

This corpus of information, meticulously documented over a three-year span, illustrates the fact that leading this type of organizational change is messy, nuanced, and really hard. The path is riddled with complexities, from managing employee expectations and redefining leadership roles to reconfiguring communication channels and decision-making processes.

By integrating the CEO’s personal experiences leading this change initiative with our review of internal company records, we shed light on some of the challenges, learnings, and strategies that can guide organizations in their quest to flatten hierarchies without compromising on efficiency, growth, and employee well-being. Specifically, we focus on two areas: structural and people dynamics.

Structural Dynamics

These are the dynamics related to the structural and operational challenges facing organizations that are transitioning to a flatter structure. They include:

The persistence of zombie structures.

Old habits are like the undead; they just won’t stay buried. As companies aim to flatten structures, the ghosts of past hierarchies can linger, haunting the change effort. These zombie structures manifest in various ways – a decision-making process that still seeks approval from the top, or a communication flow that remains bottlenecked through specific channels, reminiscent of the before times. This inadvertent reversion can stifle the very essence of flat structures: agility, empowerment, and direct communication.

During the early days of Avinsa’s transformation, for example, teams would unconsciously defer to the historically dominant quality control and internal control departments during process redesigns, spotlighting deep-seated habits and perceptions that the organization needed to unlearn. Furthermore, the former head of the safety and health at work department found herself navigating the complexities of operating alone as a safety coach. Meanwhile her former aides, now part of different “circles” — autonomous work units where members collectively make decisions regarding their specific operational tasks without external supervision — faced difficulties adapting to their new teams. Addressing these challenges required significant effort, including coaching, physical relocation, and role redefinition.

To truly flatten an organization, it’s not enough to build anew; one must also actively dismantle and guard against the resurrection of the old. Regular audits, feedback sessions, and reorientation programs can help eliminate these lingering tendencies.

The integration imperative.

As some work units transition to a flat model, they may need to interface with units still operating under traditional hierarchies, creating potential friction and misalignment. At Avinsa, this dynamic was evident when units with different structures tried to collaborate. While middle managers and senior leaders — who company leaders believed were best positioned to adapt to decentralization with minimal disruption to their day-to-day work — were incorporated into the decentralization initiative, frontline workers, responsible for processing 100,000 chickens and 50 tons of ice per day, continued to work under a hierarchical structure. This dual approach led to palpable disparities: as some employees enjoyed newfound autonomy, frontline workers felt left behind. Such inconsistencies can be taken personally, making it crucial to navigate communication gaps without seeming contradictory.

Avinsa’s journey spotlights the importance of context and adaptability. Although the company’s  leaders aspire to design a completely flat organization, they are unsure when, if ever, they will extend the decentralization initiative to the frontline workers. Similarly, not every organization fits neatly into theoretical molds, and decentralization decisions must be tailored to specific challenges, personnel, and organizational objectives. Company leaders can make progress in this regard by slowly and organically incorporating more decentralized principles into some parts of their organization without expecting these efforts to look the same in other parts of their organization. By pursuing deliberate and incremental change that gives employees the time to make sense of and adjust to their new work environment, company leaders can alleviate, though not entirely eliminate, feelings of disorientation, threat, or anxiety that some employees may have. If executed effectively, organizations can not only prevent potential conflicts but also harness the strengths of both models, fostering a more harmonious and effective collaborative environment.

Uneven progress.

Different departments, with their unique histories, cultures, and operational nuances, may not transition at the same pace. Avinsa experienced this unevenness firsthand. For instance, while stringent regulations regarding processing poultry for human consumption reduced the occupational health and safety department employees’ decision-making latitude that decentralization seeks to expand, maintenance department employees were quick to embrace their newfound autonomy. Before decentralizing, maintenance employees implemented an offsite manager’s decisions without having input. For example, the manager could unilaterally require employees to use a particular brand or style of equipment based on a crude cost analysis without fully understanding how this decision affected the employees who had to use it. After decentralizing, the employees who worked on the plant floor and best understood their area’s needs collectively made those decisions.

Avinsa’s leaders could have avoided some growing pains if they had been more sensitive to these unique departmental factors. More generally, a tailored transition strategy might involve extended training for one department, a phased rollout for another, or even the provision of additional resources where needed. Importantly, these efforts may increase employee engagement and sense of ownership over the transition process.

Juggling multiple change initiatives.

Organizations frequently manage several change initiatives at once. Balancing the shift to a flat structure with other organizational changes can feel like changing the tires on a moving car, leading to potential clashes and misalignments.

After investing considerable time in the decentralization process, a surge in demand from Avinsa’s largest client necessitated other operational adjustments, including transitioning from one 12-hour work shift to two 9-hour shifts. Faced with extended hours and new roles, employees began associating the disruptions from this operational shift with the broader decentralization initiative. As a result, support for the decentralization initiative began to wane among some employees; the fragile groundwork the company had laid was on the verge of collapsing.

In hindsight, assuming that employees would intuitively discern the effects of the two changes was an oversight and underscores the importance of using clear and consistent communication to guide employee perceptions in the face of concurrent change initiatives. More generally, companies can provide clarity to their workforce by delineating the sequence and interrelation of various change initiatives. This might involve phased rollouts, where one change is solidified before introducing another, or designating specific teams to champion each initiative. Prioritization, based on factors like urgency, impact, and feasibility, ensures that resources are optimally allocated. Regular communication about the progress and rationale behind each change can further align employees.

People Dynamics

These dynamics highlight the human aspects of the transition, emphasizing the importance of effective communication, training, and leadership in influencing the organization’s culture and its people. They include:

The razor’s edge of empowering leadership.

In the dynamic landscape of flat, decentralized organizational structures, the role of leadership undergoes a profound transformation. The conventional paradigms of command-and-control give way to a more nuanced, and arguably more challenging, model of leadership. Leadership in such a structure becomes an intricate dance. Leaders are expected to be visionaries, setting the direction and inspiring their teams, yet they must carefully calibrate their influence. Exerting too much control can stifle the empowerment and initiative that flat structures aim to foster. Conversely, being too hands-off can leave teams directionless, craving the clarity and decisiveness that leadership is supposed to provide.

The challenges of this delicate balance were vividly illustrated at Avinsa. Here, leaders continually navigated the tightrope between asserting their views and encouraging independent decision-making among team members. In their enthusiasm to drive progress, leaders inadvertently dominated discussions at times, thereby curtailing the very autonomy they sought to promote. In other situations, their reluctance to intervene led to a lack of clear direction, resulting in confusion and inefficiency.

Such experiences are not unique to Avinsa, but rather are inherent to the nature of decentralized leadership. They underscore the need for leaders to develop a heightened sense of self-awareness and a willingness to adapt their style. Regular feedback from team members and consultants involved in the decentralization process becomes crucial. This feedback loop helps leaders gauge how their actions and decisions are perceived and whether they are successfully maintaining the equilibrium between guidance and empowerment.

At a deeper level, leaders in decentralized organizations must adopt a learning orientation and embrace this complexity. Mistakes and missteps are inevitable. The key lies in being open to feedback, reflecting on one’s leadership style, and continuously fine-tuning the approach to meet the unique demands of a flatter, more empowered organizational structure.

Adapting external ideas to the internal culture.

Determining how to effectively flatten an organization’s structure can be daunting. Enter consultants, who can provide guidance and best practices. To gain initial traction, Avinsa’s leaders partnered with an organization that helps companies and other collectives learn how to organize in a decentralized way. However, it soon became apparent that adopting an established model for decentralization like holacracy, sociocracy, or teal — as the consultants had suggested — would not work at Avinsa.

Likewise, separate communication consultants hired by the company seemed somewhat detached from the nuances of Avinsa’s transformation. While they provided essential technical expertise, their suggestions occasionally misaligned with the company’s culture and overlooked local challenges. As a result, Avinsa’s in-house communications team decided to ignore several of the external team’s recommendations and chose not to renew their contract.

Overall, external consultants’ advice should be assessed in light of the organization’s core values and capabilities, ensuring alignment and authenticity. This can motivate employees when they see familiar values reflected in new practices.

The jargon jungle.

Organizational change often brings with it a wave of new terminologies. While intended to streamline and define the transition, new terminology can sometimes have the opposite effect. Instead of facilitating clarity, these new terms can become barriers, muddying understanding and creating divides among employees. Such disparities in understanding can hinder collaboration and impede the very progress these terms were meant to support.

The architects of Avinsa’s decentralization effort dealt with this challenge by promoting new terms like “circles,” “sub-circles,” and “coordinators,” while steering clear of other relevant, yet potentially confusing terms like “holacracy,” “sociocracy,” and “teal,” opting instead to couch the essence of those terms in more familiar concepts like “power,” “autonomy,” and “decision-making” when communicating with employees. Furthermore, company leaders attempted to embed these concepts in Avinsa’s culture through repetition in the form of animated videos that explained the decentralization effort and its rationale, as well as videos of employee interviews and testimonials featuring the new terminology.

A clear glossary of terms, orientation sessions, and regular workshops can ensure that employees not only understand the terminology but also grasp its relevance and application. Through these measures, organizations can achieve a shared language that enhances collaboration.

The reskilling requirement.

As roles evolve, so too must skills. While potentially empowering, this shift can be challenging for many. For instance, after adopting a flatter management structure, Avinsa’s budget responsibilities shifted from former department heads to sub-circle coordinators, some of whom lacked experience managing budgets. Accordingly, Avinsa grappled with budgetary challenges for several months until the “Financial Club” was born. Led by the finance team, this initiative provided tailored coaching on budget management, empowering the new financial stewards with essential knowledge related to P&L, cash flow, and profitability.

The company also administered formal assessments across the company more broadly, which identified other gaps between current technical and interpersonal skills and desired competencies. They followed these up with training modules related to topics such as communication, financial analysis, negotiation, and customer service that employees were incentivized to complete.

More generally, organizations may offer a mix of workshops, mentorship initiatives, and hands-on projects, aimed to equip employees with the tools they need to thrive in a less structured setting.

Setting the right pace.

As companies adopt flatter structures, an excessive emphasis on collective agreement can slow down decision-making processes, diverting employees from their main duties and negatively impacting essential business functions.

Two insights were crucial to improving Avinsa’s decision-making process, which relied on collective consent. First, it was essential for employees to understand the scope of their responsibilities and decision-making authority. When role boundaries were clearly defined and collectively understood, employees felt empowered to swiftly execute tasks without seeking approval. Second, when a large or particularly profound issue (e.g., an ethical decision) demanded group input, it was helpful to break down the subject into digestible pieces, examine each, and secure collective agreement step-by-step.

Staying patient and committed to the broader goal was also key. At Avinsa, external facilitators  from other areas of the company play a crucial role, not only in guiding the discussions but also in emphasizing the rationale and benefits of the company’s chosen approach. Facilitators assist in ensuring that commitments are recorded and that these commitments are reviewed and followed up on in future meetings. For example, individuals from corporate communications, finance, or accounting have served as facilitators in circles related to operations. The idea is that these employees merely facilitate conversations, but do not participate with comments and judgment.

Demonstrating short-term agility while maintaining a long-term vision.

Adopting a flat structure can bring enhanced collaboration, empowerment, and adaptability, but recognizing these benefits requires participants to adopt a long-term view, especially when immediate results are elusive. At the same time, organizations must be equipped to pivot, adapt, and recalibrate their strategies in real-time.

Avinsa discovered that providing employees with structured opportunities to reflect on and share the ways in which Avinsa Viva impacted their roles, perceptions, and job satisfaction helped them connect their experiences in the present with their desired future — both individually and collectively.

For example, what began as informal reflections on the structure and impact of Avinsa Viva during routine circle and sub-circle meetings evolved into a structured forum for employees to share their reactions and ideas related to the decentralization effort. Company leaders also administered surveys every three months to assess employee attitudes related to the change at the sub-circle level, and facilitated a one-time reflection exercise for all employees aimed at uncovering employees’ sources of motivation and purpose at work and outside of work, the results of which company leaders sought to align with the anticipated benefits of the ongoing decentralization effort.

When employees see the bigger picture, understand the nuances, and believe in the transformative potential of a flat structure, they become more than just participants — they become co-owners. This sense of psychological ownership increases commitment, fosters resilience, and ensures that every step taken is imbued with collective purpose and conviction.

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Overcoming the Hubris Syndrome Requires a Dose of Reality, Humility, and Humour

Throughout history, leaders have been seduced by success, leading them down a path of hubris. This ancient Greek term, literally translating to “excess”, describes a state of exaggerated self-belief and arrogance. An extreme example is Xerxes, king of the Persian Empire. Feeling invincible from past triumphs, Xerxes sought to conquer Greece. However, when a storm destroyed his bridge across the Hellespont, derailing his plans, he reacted outlandishly. Xerxes had the engineers who built the bridge beheaded and ordered his soldiers to whip the sea with chains and poke it with red hot irons. It’s evident that Xerxes, blinded by overconfidence, couldn’t fathom the possibility of setbacks. In essence, he was intoxicated by hubris.

People suffering from hubris imagine that the way they view the world is the way the world is supposed to be. They overestimate their capabilities, often to an extreme degree, and see themselves as limitless. Even in the face of failure, they cling to the illusion of their own rightness. Naturally, such an attitude contributes to irresponsible behaviour, a sense of recklessness, and even immoral actions. Unchecked self-absorption drives many leaders on a path of self-destruction, dragging their organisations or countries down with them.

Why Hubris is More Dangerous Than Narcissism

While hubris often accompanies narcissism, the two have notable and important differences. Narcissists have an inflated self-image and crave the approval and admiration of others. However, unlike hubristic individuals, narcissists are not so drunk on power that they completely lose touch with reality. Narcissism is a personality trait formed in early life, while hubris is a change in a person’s character that occurs when they attain significant power. Hubris is therefore more of a temporary condition specific to leadership positions rather than a fundamental personality flaw.

Even if narcissistic leaders enjoy being the centre of attention, as long as they maintain a grasp on reality and make decisions aimed at improving their positive self-image, their narcissism remains “bounded”. In the case of hubris, however, we encounter a form of narcissism that’s unbound. Hubristic leaders do not need a stage to shine. Unlike bounded narcissists, they test the limits of acceptable behaviour, believing that they are far superior to anyone else. Over time, their exaggerated self-belief, verging on a sense of omnipotence, results in reckless and impulsive behaviour, ultimately leading to their downfall.

Although both narcissistic and hubristic individuals dabble in the darker side of leadership, narcissistic leaders often exude charisma and can influence and rouse others. Their confidence, energy, willingness to take risks and oratory skills While narcissistic behaviour has both dark and bright sides, hubris is typically characterised by dysfunctional excess . Hubristic leaders use their power in maladaptive, unproductive and unrestricted ways, resulting in extremely toxic behaviour. They push for ambitious goals, both personal and organisational.

Although the roots may vary, a narcissistic personality can lead to the emergence of hubristic behaviour. Hubris might fade away, though, when individuals are no longer in positions of power.

Combatting Hubris

As leaders are more susceptible to the allure of power, they must take proactive measures to prevent the emergence of hubris. To achieve this, they need to understand their driving forces and have a strong sense of self-knowledge. They must also be open to feedback and criticism, know how to laugh at themselves and lead with humility.

Sharpen Self-Understanding

Those in powerful positions need to gain a realistic understanding of their strengths and weaknesses, as well as the intricacies of their personality. It helps if they have a healthy dose of self-criticism. A willingness to assess oneself objectively can serve as an effective countermeasure to hubris.

Unmask Blind Spots Through Feedback

Since hubris often leads individuals away from self-knowledge and self-awareness, it’s beneficial for them to be constantly reminded of their strengths and shortcomings. If an individual is open to regular feedback, this can help them identify areas of success and areas needing improvement. Essentially, regular and constructive feedback instils a sense of accountability in their actions.

Transform Criticism into Growth

To avoid slipping into hubristic behaviour, individuals should embrace a consultative approach. In other words, they need to be willing to listen to those in a position to provide advice or criticise their actions. Being open to admitting mistakes and learning from them is an important quality to prevent heading down a problematic path.

Lean into Humour and Irony

Another effective remedy for hubris is irony. It highlights the contrast or incongruity between appearances and reality, often serving as a subtle form of criticism. Qualities like humour and cynicism can indeed shield against hubristic behaviour. A leader’s capacity to laugh at themselves can be quite liberating.

Lead with Humility

Modesty is another important characteristic for leaders to cultivate as a way to prevent hubris. It’s important to handle power without arrogance and excessive pride. While power can be thrilling, it should be tempered with realism and humility. Thoughtful leaders strive to preserve their previous way of life and, in fact, choose to avoid the trappings of power.

Indeed, power can swell the head and shatter the crown. Figures like Xerxes, who view themselves as gods, tend to fall the farthest and hardest. Unfortunately, Xerxes is not an isolated case. Many before and after him have suffered similar fates. Hubris has been a recurring theme in numerous tales – some rooted in mythology, others in legend, and some reflecting real-life events.

For contemporary business leaders plagued by hubris, consequences often extend beyond their personal downfall. The hubris-driven scandals initiated by figures like Adam Neumann of WeWork, Sam Bankman-Fried of FTX, and Elizabeth Holmes of Theranos also affected those who believed in them, resulting in the destruction of their fortunes. However, the suffering caused by these hubristic business leaders is overshadowed by the impact of political figures such as Kim Jong-Un of North Korea, Bashar al-Assad of Syria or Vladimir Putin of Russia. The harm they inflict isn’t just financial; it has resulted in the loss of countless lives.

This prompts us to question whether we should ever trust people to control others when they are unable to control themselves.

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How governance must pivot in the face of accelerating change. Boards are left with no option but to evolve. The confluence of macro-economic uncertainties, geopolitical tensions, climate change and digital disruption has led to unpredictable risks, a polarising society and more activist stakeholders. At the recent  INSEAD Directors Forum , experts discussed how governance must transform to meet these persistent challenges head-on. In his keynote address, Gilbert Ghostine, Chairman of Sandoz, envisioned a future marked by “more” – more green initiatives, more digital transformation, more local and responsible consumption and more stringent regulations. This “world of more” will fundamentally change the way companies are run. Boards can’t effectively guide this change by simply reacting; they must be forward-thinking, flexible and proactive. They need to step up their game. 

Here are ten vital insights from the forum – key factors every board should consider. 

1. Get comfortable with uncertainty. Navigating uncertainty is not about coping with the unknown it’s about actively seeking opportunities within it. As highlighted by INSEAD Professor of Strategy Nathan Furr, it is imperative for leaders to actively cultivate what he terms their “uncertainty ability” – the capacity to deal with and thrive in ambiguity. Boards should encourage this capability within their organisations, sending a clear message to management that uncertainty is not only a threat, but also a gateway to unexplored possibilities. 

2. Pay more attention to obsolescence risk.   Boards frequently miss the signs of a company’s vulnerabilities, especially in volatile environments. They fail to understand when obsolescence risks emerge, how they grow and what they truly consist of. In their book, , Massimo Massa, Kai Taraporevala and Ludo Van der Heyden argue that obsolescence risks need to be brought to the forefront of strategic discussions. Making these risks more visible is essential to effectively address this “silent killer” of companies. Value Creation for Owners and Directors 

3. Redefine value creation and balance stakeholder interests. Boards need to find a new balance between the focus on shareholder returns and a stakeholder-oriented approach, considering the interests and concerns of employees, customers, suppliers, communities and the environment. The key is to align owners, board and management around a clear mission which takes into account the various interests of these stakeholders and strikes a balance between their needs. According to Ghostine, our obligation as leaders and boards is to prove that sustainability and profitability are compatible. 

4. Rethink incentive structures and KPIs. Remuneration committees must review and possibly revise how management is incentivised and which metrics are used to measure their performance. A much more critical view is needed on how a remuneration policy truly leads to long-term value creation. The selection of KPIs is not a technical task for a remuneration committee, but a strategic exercise for the whole board. 

5. Appoint ‘holistic’ board members.  Building a truly effective board requires a holistic perspective on the whole team in view of future challenges. During the forum, Jens-Thomas Pietralla explained that boards need to consider leadership experience and ethical mindset – not just skills – when appointing board members. According to Pietralla, good ingredients don’t guarantee a good meal, but you can’t even begin to make a good meal with bad ingredients. 

6. Invest in capabilities and diverse thinking. Boards need to invest in their own capabilities to oversee risk and anticipate the changing landscape. Relying solely on the information provided by the company is insufficient. Boards must actively seek perspectives and insights from experts and from people who think differently in order to challenge and stimulate management thinking. 

7. Sharpen role clarity. There is going to be an even greater need to distinguish between the role of the owner, the directors and the executive team. In our discussion at the forum, Chaired Professor of Corporate Governance Ludo Van der Heyden . In the world of listed companies, this process is more complex. Ensuring alignment among these three levels is pivotal for effective value creation. 

8. Balance the broadening role of the board. The board’s function is becoming much more nuanced, requiring a delicate balance between traditional oversight and expanded roles such as guiding management, sharing expertise and acting as a sounding board. It’s crucial for board members to remain objective and keep each other sharp. 

9. Prioritise versatility and reflection. Boards must be able to adapt and change their way of working as circumstances demand. This requires constant reflection on what is working and what isn’t. In his keynote address, Tim Rowley , INSEAD Corporate Governance Centre Distinguished Fellow, underscored the importance of agility. He stressed that boards need to consciously switch between different roles depending on the specific decisions they face. They should constantly question the diverse roles they should assume to remain effective and relevant. 

10. Ensure healthy, trust-based debates. Healthy, inclusive and constructive debates are essential in any decision-making context, but especially so in a fast-changing, complex environment. Embracing the principles of fair process leadership , which include active engagement, transparency and objective evaluation, is a powerful tool to address and overcome inherent biases. This approach enhances the quality of decision-making processes, ensuring fairness and effectiveness. By embracing these ten key insights, boards can cultivate strong, forward-thinking governance that stands resilient in the face of any challenge.

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Developing professional relationships starts with adding value to others’ lives. Networking can feel a bit scary for many people. For human social relations, small is often beautiful. After all, for a lot longer than modern civilisation has existed, humans lived in small, close-knit hunter-gatherer groups of  about 150 individuals . In these groups, we felt safer. We had the capacity to know those around us reasonably well, and to be aware of how they knew each other (which helped us navigate socially). This explains why venturing beyond the familiar can be fraught with some anxiety. In the modern world, however, networking is essential. Research tells us that extending our network helps us find new jobs,  be more creative and do well as a  leader (through the performance of our subordinates). The late entertainment industry legend Clarence Avant constructed a network in his lifetime that bridged many talents such as Bill Withers and Grammy Award-winning producers Jimmy Jam and Terry Lewis. If he didn’t navigate the unfamiliar, many of these bridges would never have been formed, and many talented artists perhaps never discovered. Martin Scorsese’s impressive  body of work included connections with several gifted actors who could be called upon for multiple productions over the years (Robert De Niro, Leonardo DiCaprio and Harvey Keitel, among others). While leveraging this familiarity, he further discovered and worked with a multitude of different actors across his career.  Unfortunately, many of us prefer the familiar. So powerful is this tendency to seek people who are  “similar” to ourselves that it has a name – homophily – and forms a substantial research subfield. Indeed, despite all of the popular attention on networking, the reality is that many of us find it shallow and overly  transactional . This shuts us off from discovering meaningful, inspiring and productive connections. Our dependence on others No matter how capable and independent we may be, much of our ability to do anything in this world depends upon others. It’s remarkable how incredibly dependent we ultimately are on other “experts” (for food, clothing, shelter, technology, information, etc.). Product-market ideas of all sorts depend upon the recombination of ideas from so many fields and experiences that it becomes less probable that it can be accumulated in the mind of solitary individuals. Robinson Crusoe-like development is unlikely to cut it in this day and age. How can we reach out and make new connections given our human nature? At the risk of over-simplifying things, let’s consider three do’s and three don’ts: Do’s Have something to give One of the reasons people loathe networking is because of the way it can be framed. Typically, it’s an “ask” and can be seen as a mostly selfish act. The caricature is that of a schmoozy networker who goes into it focused on getting something but giving as little as possible in return. Non-hierarchical relationships need to go in both directions. Starting with a  mindset of give (first)-and-take instead of take-take-take can help create value around you and form relationships based on trust. Ask yourself: “How can I use my knowledge, experiences and resources to add value to (new) people around me?” Yes, reciprocation is a very powerful human instinct, and so repayments in kind are likely. However, the idea is not some ostentatious “gift” that makes people suspicious of our intentions. Rather, simply consider, “Am I being as useful as I might, and reaching out to people further afield that I normally do?” Diversify One of the things that can make you more creative and innovative is the diversity of your network. This is because innovation is fundamentally about  combining pieces of knowledge that already exist. One of the ways you do this is by developing a network that bridges different pockets of knowledge. Uncorrelated, independent ideas are crucial for us to make better, more creative decisions. The benefits networking brings to innovation are apparent at diverse organisations like INSEAD. There are around 70 nationalities in any MBA cohort. The 159 faculty members come from 42 countries, while the 67,000-strong alumni are spread across 179 countries. Such a diverse network is perhaps one of the factors why INSEAD placed fourth in  Pitchbook’s latest annual ranking of MBA programmes by its track record of producing entrepreneurs and start-ups. Build relationships, not just networks LinkedIn contacts are not necessarily relationships. My guess is that, for most people, the vast majority of our LinkedIn networks are a kilometre wide but a centimetre deep. While this may be fine for simple information exchange (about valuable  job opportunities , for example), these ties are unlikely to lead to big co-created projects or help you with thorny problems you are trying to solve.  Someone I don’t know very well might just send a short response to my email question, but my closer acquaintances and budding friends are more likely to spend a few hours talking and sharing their thoughts. This doesn’t mean you must convert all contacts into “BFFs”, but developing real connections from some casual “contacts” may be worthwhile. Don’ts Don’t wait until you hit a crisis to network The worst time to develop your network is probably when you’re in big trouble. People can smell the lack of authentic interest in them. They are simply a means to an end, and no one likes to feel that way. Any help you receive can also amount to a substantial social debt. Again, look to build a network when you’re in a position of strength, when you have something to give. Don’t wait until crisis hits. Don’t be held captive by your ego As we move up in power and authority in our careers, there is the danger that we become complacent in reaching out to new people and exaggerate our importance. We start to let status get in the way, and we see networking as a weakness. Rather, we expect people to come to us, to seek us out as prized connections. We want to be the celebrity that everyone chases. The problem is that this may happen to us at precisely the moment, such as middle age, when we may need to transition and expand our thinking. Reaching out to others may become even more important as we progress from senior managers to executive leadership. Retaining humility is important: Never stop being curious and engaging with new people, no matter how many titles you have accumulated. Don’t overindulge in cliques The flip side of seeking diversity is avoiding an overindulgence in cliques. Don’t misunderstand: We all need a super-trusted inner core of best friends. That can be a wonderful gift in life, and, as noted, is very natural. But cliques can emerge. These are smallish, but substantial, closed groups of friends (everyone knows everyone else) with whom we spend much of our time. We crave them because they are easy to get along with and well-aligned to ourselves. The trouble is that they can become echo chambers – we hear similar ideas bounce around, and so these ideas appear more “obviously correct”. Cliques can also take us away from developing new and challenging relationships. How companies could help reluctant networkers Companies can play a role in fostering networks, especially among employees who find relationship-building arduous. In a  study of dozens of recently promoted professionals in auditing, consulting and law, my colleague Ben Bensaou ,  Claudia Jonczyk Sédès of Université de Neuchâtel and I found that there were three basic networking strategies. A few people put effort into networking, making connections beyond their usual work; some did it but not as actively; a third group, whom we call purists, simply refused to partake in a practice they found manipulative.  Purists tend to be dedicated to their work and feel self-sufficient in their expertise. Their relational energy is focused on their team. They tend to let connections fade. During the 12 to 16 months our research lasted, the purists’ networks shrank. They also expressed the least organisational commitment and the least integration with peers at the end of our study. But companies that lose purists might miss out on valuable employees. There are ways at various levels of the company to avoid this. Managers can use purists’ professionalism to build bigger networks by promoting networking that focuses on assisting others. Human Resources can help by organising task-based networking opportunities, such as cross-department seminars. Firms should also scan their performance management systems for bias. Internal performance review systems that encourage contact-making without looking at the value created risk disadvantaging purists. Balanced networks Our relationships can vary on many dimensions, and the choice is mostly ours. We have very close relationships, we have distant ones, and everything in between. Some people are a lot like us, while others are quite different. Some share our knowledge, and some bring entirely new and different ideas. Ideally, we should be neither hedgehogs (keeping our heads buried in the same social clique) nor coyotes (sly opportunists scanning the landscape for gain). Rather, we can think about our social relationships and find the balance that our lifestyles and careers require. This article is adapted from a commentary published in The Straits Times. Edited by: Lee Seok Hwai View Comments Leave a Comment

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