Think at London Business School: fresh ideas and opinions from LBS faculty and other experts direct to your inbox
What developments will we see in the business landscape over the next 12 months? We asked some of our faculty to look ahead and, well, there’s good news and bad... On the plus side: exciting new opportunities to do things differently and get results. Better stop reading now, though, if you’re hoping for quick fixes.
1. Companies will own less
Tammy Erickson, Adjunct Professor of Organisational Behaviour
2019 will be the year in which we’ll begin to see companies step up to the “own less” reality: identifying resources (functions, facilities, people) it makes sense to “own” and embracing a variety of flexible arrangements for others (rent, contract, share).
Notice the rapid growth of companies that rent ever-changing wardrobes, allowing customers to have exactly the clothing they need for this week’s activities. Or the number of teens and twenty somethings who are not learning to drive, content to rely on just-as-needed transport options. Watch how young people arrange to meet – not through pre-established commitments, but rather through real-time coordination, based on immediate need and convenient availability.
These behaviours make sense. Economists, beginning with Ronald Coase in the 1930s, predicted that as communication costs fell, we would own less. Today it’s easy – and virtually free – to get what you want, when and where you need it.
Smart companies will continue to own or employ full-time certain categories of resources: those that are extremely scarce, to ensure availability; those that are highly strategic, to prevent availability to others. I would also argue in favour of holding tight to the humans who perform roles that will be least likely to be taken on by technology: those who form relationships and make tacit, values-based judgements.
But there are other categories of resources, both physical and human, that companies should begin to access in new and creative ways, leveraging today’s technology: fungible resources – particularly if demand fluctuates and if qualifications are easy to verify and, most importantly, resources for which future demand is difficult to predict and where greater optionality would have high value.
Just as the 1980s was the decade of process redesign as businesses leveraged the power of computers, the 2020s will be the decade of enterprise or business model reconstruction, leveraging the power of digital and related technologies. Smart companies will get a head start in 2019.
2. Performance management will give way to performance leadership
Dan Cable, Professor of Organisational Behaviour
In 2019, leaders will start thinking more about performance leadership systems instead of performance management systems.
The goal of management is to relieve uncertainty by making processes more predictable and efficient. Performance management systems focus on hitting quarterly targets and following known processes, so that promises and regulations are met. Achieving these results is really good, until you end up efficiently producing what customers don’t want any more. Think Kodak, Blackberry, Nokia, Sears, Borders. The goal of a leader is to help an organisation stay effective and competitive. Leaders need to balance something that doesn’t want to be balanced. Efficiently meeting promises to customers and regulators makes it hard to experiment and learn. But short-term results are in vain if they can’t help keep the organisation relevant to the future. As one leader told me: “We need to be able to work on the plane while it is flying.”
There are two good reasons why leaders will become increasingly wary of performance management systems in 2019. First, they are usually focused on the past, not the future. Focusing on high-quality cellphone reception might work until competitors offer internet access and music capabilities on cellphones. Aiming for more and more efficient performance today is a great way to go out of business in five years. Second, measuring results means that you are not rewarding learning. When you focus on outcomes and achievement, what you lose is experimenting with new approaches. If we want people to innovate, stop rewarding good results based on bad processes and start rewarding experimentation even if the results are bad.
“In 2019, organisations will continue to experience greater complexity and ambiguity, fuelled by the growth of nationalism, divisive politics and reverse globalisation.”
Performance leadership is when each employee understands and feels responsible for working on the airplane while flying it. Helping to meet current promises while helping the organisation adapt and learn about the future. Performance leadership encourages teams to work together to solve problems and stay market competitive, rather than individual employees trying to look good and compete with each other. Performance leadership is when an employee understands that her job is to find ways to do her job even better, and brings her unique talents, passions and interests to the work.
3. AI will remain top-of-mind
Julian Birkinshaw, Professor of Strategy and Entrepreneurship, Deputy Dean
Every year brings another tech trend. 2016 was all about big data, 2017 was blockchain, and 2018 was the year AI hit the mainstream management press.
So what comes after AI? My hunch is it will continue to stay top-of-mind among businesspeople for another few years yet. But rather than focusing on the potential benefits of artificial intelligence, we will see a complementary narrative take shape about the unique qualities of human intelligence.
John Naisbitt and Patricia Aburdene, authors of the 1982 guide Megatrends: Ten New Directions Transforming Our Lives, said: “Whenever a new technology is introduced into society, there must be a counterbalancing human response… We must learn to balance the material wonders of technology with the spiritual demands of our human nature.”
The AI debate is already turning to these questions. What is left for humans to do when the computers take on more of our traditional jobs? What is the point of having firms for coordinating activities when technology can make coordination happen seamlessly and instantaneously? And what are the risks we create – for society – when we use algorithms rather than human judgment to make business decisions? These are important questions, but we have incomplete answers to them. Expect the debate in these areas to intensify in the next year or two.
4. Data science will be democratised
Nicos Savva, Associate Professor of Management Science and Operations
Few pundits would disagree that data science, machine learning, and artificial intelligence offer a paradigm shift from reactive, approximate and slow decision making to proactive, precise, and fast decisions. With few exceptions, these tools have been the prerogative of technology firms born in the digital era (Google, Facebook, Amazon, Uber) or incumbents with substantial scale (Walmart, P&G, Marriott). 2019 is going to be the year where data science will revolutionise non digital SMEs (manufacturers, hospitals, traditional media and more).
“This coming year is likely to be full of uncertainty – due to events ranging from Brexit to the US-China trade tensions to EU reforms.”
Three factors are converging to make this happen. First, cloud computing is delivering substantial amounts of computational power to anyone that needs it — power that was only available at a huge upfront cost is now available at a small variable cost. Second, new tools have made it easier to collect, analyse and use data — you no longer need a PhD in data science to be able to meet the data science needs of an SME. Third, human capital is becoming more sophisticated. The emergence of data science masters and data-science-focused MBA programmes is producing analysts and managers who have the skill sets and the imagination to make data science work at smaller scale.
What are the implications of the new wave of data science? In the short term, more customer choice, better products/service customisation and lower costs. In the longer term, new and highly successful business models that would not have been possible without data science (e.g. AI-driven medical consultations or self-driving fleets of taxis). But as more decisions are delegated to automated data-driven systems, we need to worry about social implications — white-collar employment, data security and privacy, and algorithmic bias/discrimination will come to the forefront of public debate, as they should. With every new technology, there will be risks, and data science is no different.
5. Political and economic uncertainty will continue
Linda Yueh, Adjunct Professor of Economics
This coming year is likely to be full of uncertainty – due to events ranging from Brexit to the US-China trade tensions to EU reforms. And it’s coming at a vulnerable stage in the business cycle where half of US Chief Financial Officers are expecting a recession in 2019 and over 80% of CFOs expect it by 2020. Starting in the UK, there is considerable uncertainty about whether Parliament will pass the Prime Minister’s Brexit withdrawal agreement, now scheduled for a vote during the week of January 14th.
The EU has indicated that they would be open to extending the departure date by three months, but that hasn’t precluded the Cabinet from stepping up “no deal” preparations to ensure the UK can trade on WTO terms at the end of the first quarter of 2019.
As if that wasn’t enough uncertainty, the first quarter of the year will also see the US and China aim to agree a trade deal or see 25% tariffs on all Chinese imports into the US and likely retaliation by China. The stakes are high. Can the US and China negotiate a trade agreement in three months? In one sense, a deal can be done fairly quickly if China opens up its market, particularly for services, as that should increase American exports since the US is the world’s largest exporter of services.
And there is uncertainty in the EU as well. Italy seems to have softened its stance around its budget deficit while France looks to be running afoul of EU budget rules after granting concessions to defuse the “yellow vest” protests. In addition, President Macron’s proposed EU reforms to create a central fiscal authority have stalled. So, where EU reforms are headed looks uncertain.
All of this uncertainty is coming at a time when the business cycle looks to have passed its peak. That’s the consensus for the US where economic growth likely peaked in the middle of 2018. And we tend to fall within the same business cycle. So, if the above uncertain geo-economic events affect the economy, it may worsen the cyclical slowdown.
Therefore, brace for uncertainty in 2019. It’s likely to be a volatile start to the year.
6. Complexity will throw up new opportunities
Richard Jolly, Adjunct Professor of Organisational Behaviour
In 2019, organisations will continue to experience greater complexity and ambiguity, fuelled by the growth of nationalism, divisive politics and reverse globalisation. My current work with CEOs shows that they are less clear about what to do than ever before. We will continue to see firms with a track record of success struggling if they are unable to evolve.
Themes such as agility, the emergence of millennials into managerial positions and the rise of artificial intelligence (AI) and blockchain will make traditional command-and-control styles of management increasingly problematic. But, while things will get more challenging, the opportunities are going to be greater – whilst there will be losers, there will be winners.
So what will differentiate these winners? Less and less is it having the right strategy. Many organisations that fail have the right strategy – they just can’t get it to happen. The role of leaders is increasingly to create an empowering context.
When things are so complicated, one of the toughest challenges is building and retaining confidence. Some organisations bounce between over- and under-confidence. The great ones, whether mature or early stage, are able to retain the middle ground of the confidence spectrum.
What does this middle ground look like? Confident organisations have a well-articulated, compelling purpose; senior managers who role-model the behaviours they want from others; effective communication about what specific behaviours are needed to achieve the firm’s ambitions; a culture of psychological safety where people support each other, balanced with healthy challenge and feedback. They have a resilient attitude where “what doesn’t kill us makes us stronger”; people spend their time on their key priorities, rather than being lost in emails and inefficient meetings; and an environment where everyone feels that they can contribute.