Changing corporate leadership to respond to disruption and innovation

Repeatedly, over the last year studying with INSEAD Executive Education , my #INSEADLeadTheFuture classmates and I have been reminded about the setting: Many organizations are cutting operations in the face of uneven financial results and growing global instability. Some of this cutting is overly cautious, leading to a slower, uneven, and more unjust recovery. We need investment. However, in the face of persistent inflation (notably in food and energy prices), debt distress, 'deglobalization', declining trust, and geopolitical instability, it's hard to know how to focus.

The final morning of Lead the Future, Insead's marquee hybrid program, was spent with Professor Lo?c Sadoulet , a 美国普林斯顿大学 Ph.D. and former economist at 世界银行 , who is now researching the impact of innovation on organizational performance. He's especially interested in ESG as a source of innovation in the developing world as companies move away from products and services and towards assets and competencies that provide solutions.

Globalization has led to more disruption than we expected. While value is created through offshoring to cheaper locations, cheaper options are constantly coming into the market (as shown by the textile market). Clothing production costs have generally fallen, but the impact of that could have unfolded in different ways. The consumer benefits if the savings are passed directly into lower retail prices. However, that leads to enormous dislocations, such as growing unemployment of workers whose jobs have been offshored. If firms can increase their value capture, they open up some options. If they can use offshoring to create a soft landing (retraining employees, developing innovation) then that is both social and value creating at a higher level.

This broader, win-win result of globalization is rare. Daniel Buhr and Thomas Stehnken 's work on innovation policy explores a contradiction. Much innovation is narrow and focuses on supply-side competitiveness. However, broader innovation could create inclusive growth, aid the demand side, and support a more sustainable public policy. Perhaps it's easier to see 'Black Mirror' examples of technology used to create new dangers and risks, such as the social credit experiments in China's "model cities."

Education is critical to ensuring inclusive outcomes. There will be winners and losers in terms of the actors and subjects. Furthermore, exponential growth means that both good and bad innovations might grow in places where current leaders don't notice them - and then suddenly become unstoppable and eventually ubiquitous. A key challenge is value creation. Value is the difference between the delivery cost and willingness to pay. Organizations can't give customers what they want; they must deliver what the customers are prepared to pay for. In that sense, pricing is a zero-sum game. The more clients pay, the more costs can increase, so more utility can be delivered to clients.

If we look back at the last few years, our perspective can be confused by inflation. If inflation results from a demand pull, this is good news for profitability and creates space for enhanced utility. Energy companies benefit from the more complex sourcing of oil and gas resulting from Russia's invasion of Ukraine. Building supplies are more costly because the pandemic triggers a spike in house improvements.

Discontinuous economic times also create moral hazards with social implications: there are many examples, from the credit crunch to today's painful economic times.

Culture is critical in deciding whether companies innovate to maximize their capabilities' impact or limit themselves. The late Sumantra Ghoshal, an INSEAD and 英国伦敦商学院 professor, spoke about this convincingly: https://youtu.be/EvWL1HcDYSQ?si=8GMeVIcZd4C_2vhj 'The smell of the place' is unmistakable to employees. Is it an organization that stretches or constrains? Is it leading and building a culture of self-discipline, support, and trust?

Organizations can take steps that lead them forward. Increase the capacity and desire to learn, kill disincentive mechanisms, and build exemplary, charismatic projects. That requires leaders: what Lo?c calls 'new minds in old bodies'.