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Josh Bersin, Tim O’Reilly, Roger Magoulas & Mike Loukides This Is Not Business as Usual Future of the Firm... Josh Bersin, Tim O’Reilly, Roger Magoulas,and Mike Loukides Future of the F

Josh Bersin, Tim O’Reilly,

Roger Magoulas & Mike Loukides

This Is Not Business as Usual

Future of the Firm

Josh Bersin, Tim O’Reilly, Roger Magoulas,

and Mike Loukides

Future of the Firm

Boston Farnham Sebastopol TokyoBeijing Boston Farnham Sebastopol Tokyo

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Future of the Firm

by Josh Bersin, Tim O’Reilly, Roger Magoulas, and Mike Loukides

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Table of Contents

Future of the Firm 1

Setting the Context 3

Trust, Responsibility, Credibility, Honesty, and Transparency 4

The Search for Meaning 6

New Leadership Models and Generational Change 8

Big Systemic Thinking 11

New Kinds of Partnerships Between People and Machines 13

From Hierarchies to Networks 14

Free Agency, Personal Brands, and the Evolving Employer/ Employee Relationship 17

Compensation Beyond Pay 19

Diversity, Inclusion, and Fairness at Work 20

Board Governance and Diversity 22

Conclusions 24

iii

Future of the Firm

We’re excited that O’Reilly Radar is partnering with Josh Bersin tocover topics like organizational learning, workforce expectations,adapting to digital transformation, and leveraging technology forhuman resources—all topics related to the future of the firm Bersinhas a long history of providing prescient advice on the human side

of what organizations need to tackle the changing technologicallandscape they face You may know him from the research reports

he developed at Bersin by Deloitte

The “future of the firm” is a big deal As jobs become more automa‐ted, and people more often work in teams, with work increasinglydone on a contingent and contract basis, you have to ask: “Whatdoes a firm really do?” Yes, successful businesses are increasinglydigital and technologically astute But how do they attract and man‐age people in a world where two billion people work part-time?How do they develop their workforce when automation is advanc‐ing at light speed? And how do they attract customers and full-timeemployees when competition is high and trust is at an all-time low?When thinking about the big-picture items affecting the future ofthe firm, we identified several topics that we discuss in detail in thisreport:

Trust, responsibility, credibility, honesty, and transparency.

Customers and employees now look for, and hold accountable,firms whose values reflect their own personal beliefs We’re alsoseeing a “trust shakeout,” where brands that were formerly trus‐ted lose trust, and new companies build their positions based on

1

ethical behavior And companies are facing entirely new “trustrisks” in social media, hacking, and the design of artificial intel‐ligence (AI) and machine learning (ML) algorithms.

The search for meaning.

Employees don’t just want money and security; they want satis‐faction and meaning They want to do something worthwhilewith their lives

New leadership models and generational change.

Firms of the 20th century were based on hierarchical commandand control models Those models no longer work In success‐ful firms, leaders rely on their influence and trustworthiness,not their position

Big systemic thinking.

The firm of the future must be able to adapt to changing envi‐ronments, changing interactions with its customers, and chang‐ing communications patterns within the organization Everyfirm must understand their business is a complex system, andthat it’s impossible to change one aspect of the organizationwithout affecting everything else

New kinds of partnerships between people and machines.

AI and ML are changing almost every job This shift raisesmany questions: Who manages the machines, and how? Whatskills do those new managers need, and how are they acquired?What kinds of compensation are appropriate?

From hierarchies to networks.

Firms of the future are trending toward networked marketpla‐ces where organizations build on their core competencies andoutsource the rest to a network of contractors and free agents.Increasingly, these networks are managed by centralized algo‐rithmic systems

Free agency, personal brands, and the evolving employer/employee relationship.

Employees are free agents, which means hiring and retainingtalent is difficult Firms need to help employees meet theircareer goals, satisfy employees’ ethical concerns, and more

Compensation beyond pay.

The nature of compensation is changing, with firms offeringalternate work relationships, more flexible workplaces, trainingopportunities, additional perks and benefits, and more of asense of “taking care” of workers

Diversity, inclusion, and fairness at work.

It’s well known (but not well practiced) that diverse teams pro‐duce better results But achieving diversity is more than a mat‐ter of filling the pipeline with new hires Diversity requiressolving compensation problems, creating a safe workplace,inclusion, and ensuring everyone knows their opinions will berespected

Board governance and diversity.

Board independence and increased diversity can help improveboard governance Diverse boards provide broader perspectivesand ask better questions, helping improve outcomes and adapt‐ing to rapidly changing business environments

This is only a preliminary map of the territory, with some topicsappearing across multiple regions Our high-level view tries to dis‐tinguish the cities from the fields, mountains, rivers, and oceans thatsurround them

Whatever the future of the firm, rest assured, it won’t be business asusual

Setting the Context

Before diving into the details, let’s look at the factors that have influ‐enced our perspective on the future of the firm

The economist Milton Friedman claimed that “there is one and onlyone social responsibility of business—to use its resources toincrease its profits.” This formula no longer works Today, driven bytechnological, social, and political factors, success requires broadsystemic thinking about all the players the organization affects—employees, customers, society, the environment, fairness, inequality,and purpose The context, the milieu, the incentives, the scale, andthe workforce expectations that organizations operate in have allchanged in a world with increasingly sophisticated automation, withmassive social connectivity, and with issues of inequality and climatechange More and more people are questioning whether the basic

Setting the Context | 3

tenets of capitalism work best for everyone, whether automation willwipe out jobs, what millennial and younger employers want anddemand from the companies they work for.

There’s a lot going on, a lot to digest, and a lot to process For exam‐ple, Seth Klarman, in a recent (and rare) interview with Evan Osnos

at The New Yorker, explains how his focus on value investing helped

him evolve his thinking—that a short-term profit focus is the wrongperspective for organizations, that they need to focus on customers,

on employees Recent reporting from the Davos World EconomicSummit highlights the “clueless” response from billionaire attendeesthat “upskilling” for a digital age is all that’s needed, that wealthinequality is not the problem And for citizens, the situation isworse: the latest research shows that only 20% believe “the system isworking for me.”

These observations and many more help inform this compendium

of topics In the sections that follow, we address what business lead‐ers, tech leaders, and decision-makers can expect; how they can pre‐pare; and what they should learn to shape the future of their ownfirms These are lessons that affect much more than the bottom line

Trust, Responsibility, Credibility, Honesty, and Transparency

From our perspective, we see society undergoing a trust shakeout,with formerly trusted brands losing that trust and new trust inter‐mediaries ascending to positions of trust and influence Organiza‐tions can take advantage of the shakeout to focus on building trustand earning a trust premium that both customers and employeesvalue

As Laura Baldwin, President of O’Reilly Media, likes to say, “Yourcustomer (your user) is your conscience.” Not only do your custom‐ers let you know when you’ve let them down, they let the worldknow And increasingly, there are some with a much bigger mega‐phone than others In particular, there are people who understandwhat Jeremy Heimans and Henry Timms call “New Power” DonaldTrump rode social media power all the way to the White House;Alexandria Ocasio-Cortez has become a congressional powerhouseeven as a freshman because she too knows how to work the levers ofinternet visibility and vitality

Concerns around trust and credibility swirl around many of themajor social media companies—concerns that are amplified by thenewness of the companies and the newness of online social media.For example, it is easy to blame tech companies like Facebook andGoogle for spreading fake news and hate speech, while giving tradi‐tional companies a pass on behavior that is at least as egregious.Facebook’s systems failed to stop fake news from spreading; toooften, traditional media sources spread it intentionally (See YochaiBenkler’s fascinating book on internet propaganda and the role thattraditional media outlets have played in legitimizing and amplifyingcontent that was once shut down by those with journalistic integ‐rity.)

Even within tech, Facebook and Twitter get most of the attentionwhile YouTube and Reddit, doing a far worse job of addressing mis‐information, generally receive little scrutiny Uber uses low-paidtemporary workers with uncertain schedules and incomes—so doWalmart, McDonald’s, and the Gap Why do the tech firms get somuch more heat while traditional companies often get a pass? Anyattempt to come to grips with these problems needs an even-handedanalysis of system-wide problems, not scapegoating of particularfirms or industries

But consider the fate of tech companies as a taste of things to come.The ability to shape or even to manipulate public opinion via socialmedia is reaching a new level, not just in the hands of talentedhuman practitioners but of those wielding new tools of algorithmicmanipulation

We can expect notions of trust to expand to include trust inmachine learning and artificial intelligence algorithms far beyondsocial media When these algorithms go bad—when results arebiased, unfair, inexplicable—the results can shake a firm’s reputationand erode trust Facebook and Google are in the crosshairs because

AI and ML are at the heart of their businesses, but more and morecompanies will be swept up into scrutiny And it can happen fast!Consider the failure of Microsoft’s chatbot experiment Tay, wheretrolls were able to game the application to create a PR disaster ofoffensive remarks on its very first day of operation

Increasingly, organizations planning on public-facing or affecting ML/AI services need to make fairness, accountability, andtransparency primary design objectives, not things to be tacked on

customer-Trust, Responsibility, Credibility, Honesty, and Transparency | 5

at the end of projects (See fatconference.org and fatml.org for moreinformation on research into fairness, accountability, and transpar‐ency [FAT] in ML.)

The Search for Meaning

The increased demand for trust and fairness covered in the previoussection is part of a broader search for meaning—a topic of increas‐ing interest and importance to organizations as they grapple withwhat motivates and inspires their employees, customers, and suppli‐ers The last few years of economic, political, organizational, techno‐logical, and social turmoil that helped fuel the trust shakeout havealso intensified the search for meaning across the culture

As the global economy has recovered from the 2008 meltdown,there has been a frightening increase in income inequality aroundthe world In 2017, eight men owned more wealth than the pooresthalf of the world, and in the US, wages after inflation have barelybudged for 30 years This trend, coupled with the need to deal withissues of global warming and migration and immigration in mostdeveloped economies, has created a crisis in trust

New research by Edelman shows that in developed markets, onlyone-third of citizens believe their family will be better off in the nextfive years Nationalism in the US, Brexit in the UK, and similar pop‐ulist movements in France, Germany, and other countries show thatthe people are “rising up,” forcing political and business leaders tofocus on making their lives better

The impact on corporations has been enormous Research by Gallup

shows that more American millennials have a positive view ofsocialism (51%) than capitalism (45%), and a Shelton Group survey

found that 64% of US consumers believe it is “extremely important”that companies take a stand on current social issues and adjust theirpurchasing behavior based on those commitments There is also a

growing backlash against plutocratic philanthropy: while peopleappreciate wealthy “winners” of the economy for their gifts, theynow want government to step back in and fix problems like infra‐structure, rampant growth in CEOs’ profits, and misbehavior.This has given rise to a search for meaning in the boardroom EvenDavos, the global meeting of business leaders, has lost its sense ofpurpose, as companies now sit around discussing the fourth indus‐

trial revolution but seem to have no consensus about how to regu‐late privacy, data security, ethics, and global warming amongnations.

For CEOs, this has created a dilemma: while they feel beholden tostockholders who want steady increases in short-term profits, theynow realize they must take a position on the value of their compa‐nies’ products and services to society And they are struggling tofind their footing

Companies like Unilever, Patagonia, and Johnson & Johnson havebeen mission-driven from their founding They have always oper‐ated on the premise of “doing well by being good” and have a longtrack record of taking care of their employees, keeping their supplychains clean and sustainable, and making sure they practice ethicalbehavior in their product design, customer service, and operations.They are truly “conscious capitalists” at their core But there is a newclass of winners (Apple, Facebook, Google, Amazon, Alibaba) thatare amassing enormous profits and market share in the digital econ‐omy, and are struggling to understand the consequences of theirattention-driven business models

And for all other firms, trust is now a way to differentiate them‐selves Allbirds, a fast-growing shoe company that has the potential

to threaten Nike or Adidas, builds its shoes entirely from sustainableproducts; it focuses on health and comfort for its young buyers, andits brand has skyrocketed in popularity because of its “good” way ofdoing business

Consumer packaged goods companies like Unilever, P&G, Nestlé,and General Mills have been operating in this world for decades.They face constant criticism over water treatment practices, foodquality, and other social issues, so they are vigilant and have matureways of staying ethical as needs and problems change

Others, like banks, insurance companies, and investment firms, arenot sure what to do Larry Fink, the CEO of BlackRock, the largestinvestment firm in the US, has told his investors two years in a rowthat if they and he don’t focus on responsibility in their strategy, thefirm will cease to thrive CEO after CEO is finding new language tosell purpose and mission, forcing managers and senior leaders tothink the same way

The Search for Meaning | 7

1Data is from the forthcoming 2019 Global Human Capital Trends report from Deloitte.

At the firm level, this is an existential issue with employees Employ‐ees of all ages no longer want to work for companies that “do badthings.” Facebook’s Glassdoor ratings, for example, have dropped

30% in the last six months because of the ethical missteps and con‐troversies that have been exposed, with its ranking in the list of

“Best Places to Work” slipping from #1 to #7 Google employeesstage protests for #MeToo, against defense department contracts andother corporate behavior And it’s not just Facebook and Google:

“The Tech Revolt” documents other manifestations of tech workeractivism While tech workers may have better facility with the toolsfor organizing, that knowledge can spread to others looking foremployers that “do good to do well.” In this tight labor market,nearly every company should focus on its purpose to burnish itsemployment brand

Apple, Microsoft, and IBM are now spending a lot of time talkingabout how to build technologies we can trust Uber has changed itscorporate advertising to talk about quality of life and self-fulfillment This move toward becoming a “trusted player” in theworld, acting like a global citizen, and truly defining one’s business

in the context of its value to society is an enormous new trend thatCEOs, CTOs, and CHROs now face all around the world

New Leadership Models and Generational Change

In a recent study by Deloitte,1 81% of senior leaders said they neednew models of leadership The characteristics most cited are theability to lead during ambiguity (82%), leading through influenceinstead of hierarchy (68%), managing a wide variation in workarrangements (51%), and understanding how to leverage technologyand new jobs created by machines (46%)

The entire concept of leadership has come under question Witnessthe company with the iconic leadership model of the late 20th cen‐tury: GE GE is the subject of many books discussing its leadershipmodel, the strong persona of its former CEO Jack Welch, the drive

to reduce bureaucracy and hold people accountable, and the objec‐tive to be number one or two in a market or get out of the business

Today GE is a fallen giant that failed to leverage digital businessmodels and has now been taken off the Dow Jones Index How didthis happen?

There are a series of changes taking place

First, leaders are everywhere Even the youngest employees are lead‐ing initiatives, teams, and organizations (Mark Zuckerberg wasthrust into leadership in his 20s.) The idea that you must “wait yourturn” and experience a wide variety of roles before you lead is nolonger valid Today, leaders learn to lead on the job, so they need to

be coached all the time

Second, leaders now lead through influence, not position In the GEand older hierarchical models, the leader was the boss You did whatthey said, and the boss wielded power over you Today, the pyramid

is inverted: technical and functional experts make decisions onbehalf of the company; leaders are here to coach, align, and helppeople succeed They gain followers because of their reputations,not their job titles or levels

Third, we now lead in diverse, multigenerational organizations.More than 55% of college graduates are women; the fastest-growingsegment of the workforce is now people over the age of 50 If youare not able to lead a team of men and women, people of many cul‐tures, and people of many ages and demographic groups, you willnot succeed Deloitte’s research on highly inclusive teams shows thatgroups that feel “included” perform at about 1.8x the rate of thosethat feel “left out.” This is a model of leadership

Fourth, we need leaders who can iterate, experiment, and learn toquickly solve problems The days of 3- to 4-year product cycles, longdevelopment plans, and years of market study are over Today’shigh-performing companies develop products in an agile way, theyshow them to customers early, they fail fast and repair mistakes, andthey iterate using data and experimentation Today’s leaders must behands-on and they must support this process of continuous,customer-driven improvement

There are some significant challenges for leaders ahead Can yourleadership team adapt to gender equality, pay fairness, and a trulyglobal culture? Can your leadership team attract and assemblesmart, empowered people and keep them aligned and performingtoward your goal? Can your leadership team reorganize and revital‐

New Leadership Models and Generational Change | 9

ize the business as it changes, without being tied to old models thathave fallen out of date? And can your leadership team adopt agrowth mindset, designed to help everyone in the organizationlearn?

Beyond Perks: New Leaders Model Work-Life Balance

The following is a nice example of how embracing a modern benefit works to set cultural norms in an organization, and also gets noticed, becoming part of the story the organization can use to attract and retain the workforce it needs.

Note: The comments come from Bill Higgins’s personal Twitter account and represent his own views, not the views of his employer.

I’d like to give a public kudos to April Underwood (@aunder) forteaching me about the importance of intentionally modeling good,ethical behavior to reinforce the right cultural norms in your areas

of influence

Here’s the story, which I don’t think April will mind me sharing

In a previous job at IBM, I was responsible for deploying Slack forthe company, which made us the largest and possibly the mosticonic enterprise adopter of Slack Through this job, I had the privi‐lege of getting to know April and other excellent leaders at

@SlackHQ

At the first Slack Frontiers conference closing party, I walked up toApril to congratulate her on the successful conference and her thensoon-to-be-born first child I asked her how long she planned totake off work and, while I don’t recall the exact duration, it waslonger than I would have expected for such a critical leader I toldher that I thought it was personally awesome that she was going totake such a leave and how I thought she’d always be glad that shedid, later in life

She told me that she was also doing it because she wanted to modelthe right cultural norms for Slack (i.e., people watch what you do,not what you say) And she wanted to use her position of influence

to make it safe and even encouraged other Slack folks to takeadvantage of Slack’s generous and humane policy to allow newmothers and fathers to take a significant leave of absence after thebirth of a new child