Identifying the critical challenges global business leaders and their organizations will face remains important and complex. How are organizations reinventing themselves for the digital age and how are leaders managing digital transformation? For 18 years, The Conference Board (TCB) has surveyed CEOs from around the world to better understand the challenges executives face and the strategies used to address them.
This highly-anticipated annual research report has been expanded this year, to include the full C-Suite in TCB’s “C-Suite Challenge™ 2018: Reinventing the Organization for the Digital Age.”
The findings in this study reflect a general atmosphere of confidence in the global economy. Businesses are focused on competing in the digital world and reinventing themselves through digital transformation, new strategies, organizational culture, and attracting and retaining talent.
”The results of our C-Suite Challenge™ 2018 survey show that to meet the digital transformation challenge, our CEO respondents are focused on building leadership teams of strategic thinkers who are adaptable, entrepreneurial, and capable of inspiring employees. They are dedicated to the creation of innovative, customer centric and inclusive workplace environments within their organizations. Meanwhile, executives slightly down the ladder in the C-Suite are embracing the highly tactical strategy side of organization-building to support this bigger vision.”
from “C-Suite ChallengeTM 2018” – The Conference Board
To meet the digital transformation challenge, our CEO respondents are focused on building leadership teams of strategic thinkers who are adaptable, entrepreneurial, and capable of inspiring employees.
Rebecca L. Ray, Ph.D. is Executive Vice President, Knowledge Organization; Human Capital Practice Lead; and Director of The Engagement Institute™ at The Conference Board, and a co-author of the report. “The good news here is that there’s not a wrenching difference between what the CEOs viewed and the rest of the C-suite. There are times when the CHRO role is more focused on human capital strategies around leadership, people, and culture, but these all ranked high. People are on the same page about what to do, or what’s important.”
Among the report’s key insights, organizations cite the need for radical change and reinvention. And for many organizations, reinvention begins with digital transformation. But just what does that mean, exactly? For Ray, “digital transformation is less about the technology itself, and more about how you need to transform your organization to leverage that technology: to have better data insights, better delivery, to have that introspection.” Speaking of the survey, she says, “One of the questions we asked was around what leadership qualities do you need for this digital transformation. ‘Technology savvy’ ranked only number twelve.”
Ray and other researchers have observed that many studies in the digital leadership space lead to similar conclusions, including the idea that effective leadership in the digital age centers “around being an inspiring, engaging leader, being entrepreneurial, a strategic thinker, and effective at change management.” For Ray, “I think part of that is because the technology moves so fast, is so complicated, and is so interconnected that you cannot know everything you need to know. Then the question becomes how can you lead people through a process that may or may not be a clear definitive path?” She adds, “There’s no final destination—where you think you’re headed is not necessarily where you need to go, and you may not know that for awhile, so how agile can you be, and how can you create an organization that’s agile?”
The answer depends on who companies have in their organizations, and the “who” is at the top of C-Suite leaders’ concerns in 2018.
Attracting and Retaining Talent
umber one among the C-Suite’s “Hot Button Issues” is “the failure to attract and retain top talent.” Considering the current climate for recruiting, Ray observes that compensation is not the only motivator for candidates. “There are some lines of thought and quite a bit of research that would articulate that money is table stakes,” she says. So beyond compensation, “the other question is which culture do you want, what kinds of projects are more ideal?” Speaking of her work at The Conference Board, Ray says “We did some research on what kinds of things attract talent, and it depends on where you are in your life stage. It’s not going to be your boss, because when you met during the interview stage, everyone was on their best behavior. So it’s about location, it’s about the job, and it’s about the brand reputation of the company.”
Brand management plays an increasingly important role in recruiting and retaining talent. “Technology cuts both ways,” Ray says. “You can go to Glassdoor [worldwide database of company reviews] and suddenly have all this inside information on what it’s like somewhere, the environment, and whether it’s worth it to work there.” Also, when people consider joining an organization they are looking at the top of the house. “Do I see people who are beginning to look like me, or have an appreciation for who I am or what I bring to the table?”
Sought-after employees have choices and they will exercise them, especially in tight markets. For example, Ray says, “It’s worse in China—think of the people who accept an offer on Friday and don’t show up on Monday because they got a better offer over the weekend.” She explains that some Chinese workers in a corporate setting may turn down an offer for advancement if they don’t like the location. “I don’t think so,” they’ll say. “I like living in Shanghai and have no interest in moving to a lower tier city.” Ray says, “They’re certain of where they want to live. In the old days, you went where the company told you to go.”
After landing the interesting work for a reputable company in a desirable location, Ray says, “Later on, coworkers, the manager and opportunities for growth become as important as the work you do and the connection to the mission.”
In the current market for talent, skills and those who possess them are portable. Speaking of the top end of the Millennial generation, Ray says “these are really smart young people moving into increasingly more complex leadership roles. They know that all they really have is a portfolio of portable skills and if they don’t feel they’re moving fast enough, or they don’t like the direction the company is moving in, they are going to take their skill set down the road.” She adds, “We’ve helped that happen because they no longer have to give up their pension, so there’s really not a lot that’s going to keep them there.”
So how can an organization retain top talent? “We know that trust and integrity among senior leadership is always key; nothing destroys trust faster than leaders who say one thing and do another, and trust has a significant impact on retention and engagement,” Ray says. “But continual development is usually the second or third most desired element in every piece of research. The desire for continued development is very strong, particularly among Millennials.”
The responsibility for professional development has evolved over the last generation or two. “In years past when companies were a little more paternalistic, they put you on a track, and your career was mapped out for you,” Ray explains. “Now, the world doesn’t support that kind of model.”
Opportunities for development must be available in order for a workplace to remain attractive, but it is often up to the employee to seek out those opportunities. “So for those folks who understand that their professional development is their own responsibility, they will take advantage of the organization to help them understand the core competencies they need to move from job A to job B,” Ray says.
Retaining top talent is going to require tuning in to the characteristics of a rising generation of leaders. “They think faster, they process differently,” Ray observes. “They have options in a way that perhaps others did not. They are very portable, they are very vocal, and they are not afraid to go, when other generations would have just said, ‘I’ve got to put my time in.’” She adds, “I think they will force organizations to be more competitive to keep them. In that way, they will create a lot of change.”
“Technology is redefining the market for everyone. As industry boundaries blur, competition is approaching from all quarters: from start-ups with new ideas and disruptive business models to established companies in unrelated sectors. This rapid pace of change is demonstrated by … estimates that four in 10 companies could be displaced by digital rivals by 2020.”
EY: Global Review 2017.
There’s an Uber for everything. Every company can be disrupted—no one is safe. How cognizant are you of your industry, of where you’re vulnerable?
Rebecca Ray, The Conference Board
Second on the list of “Hot Button Issues” is responding to disruptive technologies. Disruption is inescapable, and according to the report, “the disruption caused by emerging technologies associated with the New Digital Economy are casting a shadow over the feel-good global growth party.” There was a time when executives could spot a threat from a predictable direction, but now competition can emerge unexpectedly, and from anywhere.
“There’s an Uber for everything.” Ray expresses what is quickly becoming irrefutable truth: “Every company can be disrupted—no one is safe.” Letting that sink in, she asks, “How cognizant are you of your industry, of where you’re vulnerable? Some things are just black swans—you can’t plan for them. But some things you can, so how is your scenario planning? How rigorous is that process at your organization, and how well do your people think that way?”
Some organizations even have to disrupt themselves. Ray says, “There are a lot of examples where companies have decided they need to look radically different.” For example, Norwegian publisher Schibsted spun off a digital classifieds brand to compete with it’s print classifieds, with tremendous success across several new markets. And it’s hard for legacy companies. “Organizations are really the sum total of the people in the legacy,” Ray explains. “That takes a lot of guts, because people are naturally proud of where they work and things they built.”
Fundamental to any business is the customer, and the customer experience is where disruptive technologies hit home. According to a 2013 Deloitte report “The Digital Transformation of Customer Service,” footwear disruptor Zappos judges a customer service agent’s performance “by assessing if the agent made a personal emotional connection with the customer and addressed unstated needs. This unorthodox approach has delivered impressive results with gaining repeat orders and they rapidly grew to a $1bn business just 10 years after being founded.”
Schibsted has never been afraid of disrupting itself.
Rian Liebenberg, Chief Technology Officer, Schibsted
For Ray, “the customer focus is huge in all of this,” and that presents organizations some challenging questions. “How attuned are you? How smart are you about your customers and what can you anticipate? Can you make sense out of the data?” She says, “A lot of these companies don’t have the ability to glean insights, they don’t understand trends or shifts in their customer base, or they don’t understand customer preferences well.” And even for some who do, “They’re not able to get to market because they don’t have a process that will allow them to be agile on the shop floor.”
Building organizations that are agile and can adapt, according to the report, “requires organizations to rethink how they recruit and develop talent and to embrace new ways of working.”
Development at all levels of the organization is a focus of global business leaders, and strong development opportunities are essential both for retaining ambitious employees and making sure that companies have people with the skillset they need to remain competitive. But training and development isn’t the only option for employers seeking special skills.
According to Ray, “Companies know they need a certain talent, so it’s now a build-or-buy situation. And if you need the skills very quickly, you’ve got to go out and buy them in the marketplace, whatever that looks like.”
While the CEOs surveyed have a focus on performance management, training and development, leaders are also considering a new employment model. According to the report, only 41% of CHROs agreed that their workforce would be “predominantly comprised of traditional, full-time employees” and more than 79% agreed that the “percentage of directly hired contingent workers and freelancers will increase.”
What does this mean for contingent and freelance workers? Certainly they are likely to be in greater demand, but Ray is torn. “Contingent workers may thrive on the excitement of new projects and stimulating thought leaders….it can be a great opportunity. But there is a dark side to this that can be a problem for them and for society. Often, they do not have benefits and do not contribute to social safely nets. They may have the best of intentions when it comes to setting aside income to pay taxes or fund their own retirement accounts—human nature being what it is, that is not a winning recipe for most people.”
According to the report, both CEOs and CHROs are also thinking about the possible impact on engagement for both traditional and non-traditional employees, as well. Ray explains, “Let’s assume for a moment that half of your employees are full time employees. Traditionally, they’ve got skin in the game, they’ve been in it a long time. Then you have these contractors who come in, sitting right next to them, some similarly badged, but not always invited to the office parties, and certainly not tapped for the employee engagement survey. They’re not getting any of the benefits that are still resident in the organization, but they are important to the mission and the project deadline, and they know full-well they can walk fairly easily. So what does that do to the work environment? And how do you make that contractor feel included? It doesn’t help you if that person simply leaves. The cost of getting someone up to speed and getting that project back on track is huge.” Ray adds, “You probably went into the open market to get that skill set because you didn’t have it in house, and now it’s gone.”
”Probably no signal is stronger than the desire for a culture of innovation, which is the number one innovation strategy in every region (Asia the one exception, where it is third), every industry, every size company, and with CEOs and C-Suite executives alike.”
“C-Suite Challenge™ 2018” – The Conference Board
”It’s about helping employees with more out of the box thinking, more exposure to things, and helping them be more entrepreneurial in spirit […] That creates the innovation”
Rebecca Ray, The Conference Board
The top innovation strategy in 2018 is to “create a culture that encourages cooperation across functions and business units and promotes risk taking.” As Ray describes the change, “over the years we’ve watched the strategies for innovation shift. It used to be that towards the top of the rankings you would have ‘develop innovation skills for select workers,’ and way down at the bottom was ‘innovation skills for all employees.’ We have watched that move all the way up to a top ranking; it really is about creating a culture of innovation.”
The report suggests that organizations feel competitive pressure to improve their innovation capabilities and create a culture of innovation. What does that really mean? Ray says, “It’s about helping employees with more out of the box thinking, more exposure to things, and helping them be more entrepreneurial in spirit, more tech savvy or more aware of the intersections between what they do and others. That creates the innovation.”
A lot of companies are also looking at the link between inclusion and innovation. For example, Ray says, “We had recently conducted research that determined that more inclusive organizations tended to also be more innovative. So it’s partly about culture and it’s partly about the mix of people that we tap, and it’s partly about the commitment to make these teams more inclusive.”
Other strategic approaches include engaging in strategic relationships with business partners including customers and suppliers, developing a deeper understanding of customer needs, and emphasizing creativity or innovation as a long-term corporate value. So essential is the need for innovation that the CHROs surveyed would, as their second most important innovation strategy “hold leaders accountable for behaviors that foster a culture of innovation.”
”Culture eats strategy for breakfast.”
Building a high performance culture to achieve operational excellence requires improving organizational agility, better aligning strategy, objectives, and organizational capabilities, investing in new technologies and raising employee engagement. For CEOs globally, the top strategy for building a high-performance culture is improving organizational agility.
What is organizational agility? According to the report, “it comes down to a cadre of effective and engaged change leaders dealing with resilient employees who adapt to change.”
Those leaders, according to Ray, “are those people who are cognizant that the world is shifting, and they can make sense out of shifting patterns. They can engage people in a vision that perhaps others don’t see. They can marshal the troops together to get done whatever they think they have to, and then lead that change effectively.”
Ray adds, “To get all of those pieces in a single human being is tough.”
And how can an organization be agile? Ray says, “I think those who have a mastery of their own technology are able to leapfrog, because they are strategic thinkers, because they effectively manage change, and because they recognize that the future is going to look different—they’re going to begin to adapt well before they have to.” Ray describes the organizations who don’t develop agility, who aren’t looking ahead. “They’re the ones who don’t make the transition.” Ray says, “Sometimes massive success is your worst enemy.”
Ray observes, “The agility comes when you can be a learning organization; where you can let people make bold choices and fail without it being career-ending, and then you can take those lessons and do something with them.” She adds, “There’s a lot to be said for those organizations that have a preponderance of perpetual learners. They have the ability to listen outside of their own echo chamber, and they have the guts to go do bold things when they realize they have to.”
The concept of “guts” also applies to a speak-up culture, identified by executives surveyed as an important characteristic of an agile organization.
For Ray, a speak-up culture only happens when leadership is committed to it. “It’s about calling out unacceptable behaviors in the workplace. It’s also ‘our products are not selling and here’s why.’ Or, ‘our customers are not resonating with the marketing campaign we just spent $8 million on.’”
Ray explains, “Many times people don’t feel that they have the organizational authority to say something, and when something does come up, they will watch to see what the leaders do. If leaders say one thing and do something else, that’s when trust is gone. That’s when you can say goodbye to engagement.”
Excellence through Engagement
C-Suite leaders identify raising employee engagement as a strategy for operational excellence.
According to Ray, employee engagement is “an emotional connection that results in discretionary effort.” Engaged employees go above and beyond, and that engagement is reflected in recruiting and retention, customer service and employee productivity. Ray adds, “You can force compliance, but engagement is something that is built over time.”
According to Gallup’s new “State of the Global Workplace” report, “just 15% of employees worldwide are engaged in their jobs. Conversely, 85% are functioning below their potential—in terms of both their value to employers and the sense of fulfillment they derive from their work.”
That level of engagement is a missed opportunity. The Gallup Organization research shows “37% higher absenteeism, 49% more accidents, and 60% more errors and defects” among disengaged workers. Also, companies with low employee engagement scores experienced “18% lower productivity, 16% lower profitability, 37% lower job growth, and 65% lower share price over time.”
Ray says, “The good news is, everyone in the C-Suite is on board with how important culture, organizational agility and engagement are.”
Organizations are transforming and will continue to evolve under new generations of engaged change leaders. “I’m watching this latest generation come in, and just like every generation before it, they’ll change the culture, hopefully for the better,” Ray says.
“You could argue that Boomers did a great deal to bring women and people of color closer to parity, and to have a more relaxed atmosphere in the workplace. In benefits and work-life balance, Gen Xers have continued that process. And the Millennials, as they increasingly take on greater leadership positions, are going to continue the evolutionary change that generations before them began.”
“Senior executives responded to the C-Suite Challenge Survey 2018 during September-October 2017. At this time the momentum in the global economy already saw a significant upswing. Global GDP growth for 2017 has ended up at 3.2 percent – compared to original projections of less than 3 percent. The increased optimism from that upswing was clearly reflected in C-Suite executives’ responses to the survey. Concerns like global recession, and economic, financial and political uncertainties had already significantly dropped in ranked importance of “hot button issues” for senior leaders. Instead they put more emphasis on factors that are more “controllable” from a business content, such as issues with regard to attracting and retaining talent, the disruptions from new business models and the challenges from global competition.
When market volatility returned rather suddenly in 2018, one might be concerned that business leaders fall back in a mode of hunkering down, but there are no signs of that. Despite a market adjustment of 10%, which was recovered quickly for about half of the loss, leading economic indicators remained quite strong which implies that the risk of a significant downturn or recession is not likely in the short-term. Nevertheless greater financial market volatility also points at challenges in the ‘real’ economy, including more inflation, rising cost of labor and capital. This makes it all the more important, however, to deal with the challenges of the business environment and make sure the roof is weather-proof once a next storm arrives.”
Bart van Ark, Chief Economist, The Conference Board
President and CEO, AESC