Nitin Seth

Speech to Birla Sunlife AMC Leadership Team, Mumbai, June 30, 2017

Many enterprises are struggling with how they should go Digital and face up to the Digital disruption happening in their industries. However, the challenge is not just about Digital. There are a variety of forces that have come together in what I think is well described as a VUCA (Volatile, Uncertain, Complex and Ambiguous) world. VUCA world is a huge challenge, most enterprises are struggling to come to terms with it and it is difficult to predict winners. Precisely for this reason, VUCA world is also a huge opportunity. Enterprises that are able to figure out the new rules of the game and transform themselves, stand to win big.

I have had unique set of opportunities to experience and learn about the VUCA world in two very different situations – in Fidelity, which is a long-standing global major and then Flipkart, a poster child of the Ecommerce revolution in India. Based on my experiences I have developed  some key principles and transformation priorities for enterprises to win in the VUCA world.
I am sharing my perspectives on 4 topics in this note:

1. 5 key forces of disruption leading to unprecedented velocity of change
2. Complications of operating in a VUCA world
3. Nine principles that are essential to win in a VUCA world
4. Eight transformation priorities for the organization

Section 1: 5 key forces of disruption leading to unprecedented velocity of change

1. Technology disruption. The velocity of technology change and business disruption we are witnessing is perhaps unprecedented in human history. Mobile, Ecommerce, Cloud, Big Data have changed consumer behaviors and business models dramatically and yet these trends are barely 15 years old. We are now into a next phase with Artificial Intelligence, Robotics, Machine Learning, Blockchain and ‘Internet of Things’ dominating mindshare. The velocity of technology change makes it difficult to pivot on any one technology trend. Moreover, technology change is a great equalizer. Big companies don’t have an advantage at leveraging technology change, often they are at a disadvantage. Smart entrepreneurs and young companies are often best placed to experiment and leverage new technology.
2. Changing expectations of customers. Technology disruptions are changing customer preferences dramatically. You are definitely dealing with a significantly more aware and demanding customer. Two specific points to call out:
   1. Different sets of customers can have very different expectations of experience. For example, the expectations of digital experience might be very different across customers segments for a Ecommerce company – from convenience for top tier to value seeking for mid tier segements. Important to understand this and design targeted customer offerings accordingly. It is not just customer segmentation but personalisation is becoming increasingly important.
   2. Digital is leading to customers having greater information transparency. This ranges from composition and manufacturing details in the food industry to pricing in the insurance industry. Pricing transparency is then leading to a downward pressure on pricing in many cases.
3. Shift of wealth from West to East. Purchasing power in developing countries like China, India, Brazil and many others is continuing to grow. Equally, growth in the traditional developed markets is becoming more challenging especially as their population pyramid continues to age. This is creating tremendous opportunities for home-grown companies in the developing markets and challenges for many established majors who are focused on the developed markets. However, this is also forcing MNCs to look East therefore creating tremendous competition (“hypercompetition”) in these markets.
4. Geopolitical uncertainty. Global politics over the past 2-3 years has become bizarre and unpredictable. Till a few years back we were proclaiming that world is flat and we are a global village. Suddenly we see walls of nationalism and protectionism coming up in the most unlikely places. Who could have predicted Brexit and a Trump presidency even 2 years back?!!  These sudden changes have brought in lot of regulatory uncertainty and are disrupting well-established business models and plans.
5. Shortening Product and Business cycles. With rapid technology changes and hypercompetition, the product and business cycles are shrinking dramatically. It does not take much time for the hunter to become the hunted. Take the example of the Indian IT industry. It created the global outsourcing industry and has been a big disruptor over the past 20 years. However, it is now facing severe growth challenges and has to reinvent itself else it is at risk of getting disrupted itself.

Section 2: Complications of operating in a VUCA world

The combination of technology innovation, shortening business cycles, hyper competition and shifting of traditional markets is creating unprecedented uncertainty and high velocity of change. It can be best described as a VUCA world:

• V = Volatility. The nature and dynamics of change, and the nature and speed of change forces and change catalysts.
• U = Uncertainty. The lack of predictability, the prospects for surprise, and the sense of awareness and understanding of issues and events.
• C = Complexity. The multiplex of forces, the confounding of issues, no cause-and-effect chain and confusion that surrounds the organization.
• A = Ambiguity. The haziness of reality, the potential for misreads, and the mixed meanings of conditions; cause-and-effect confusion.

Management rules that were developed for a more structured, stable environment will almost certainly not work in VUCA world. This is a great challenge for managers (especially those of us above the age of 40!!) as we need to unlearn what has made us successful so far.

Organizations are not ready for the VUCA world

The traditional organizations are as expected struggling in the VUCA world. However, it is not that the “new-age” companies are necessarily set up for success:

• Traditional organisations – struggling to adapt to the pace of change
  • “Innovator’s dilemma” (seminal book by Clayton Christensen) – new, disruptive technologies cause great firms to fail. The same practices that lead the businesses to be successful in the first place can also result in their eventual demise.
  • Inertia and “Risk averse” culture – afraid to fail, destroy a legacy
  • Lack of capabilities required to compete in the new business environment esp. Technology DNA. Dramatic demise of the Traditional Retail giants in the US is a good illustration. They were not able to anticipate and then build the technology capabilities required to compete with the Ecommerce onslaught
  • I experienced the challenges faced by a traditional, successful company at Fidelity. Very profitable business and a great company, but industry going through many significant disruptions thus requiring major change in strategy
    • Shift in market structures – rise of Passive/Index funds (vs.actively managed), increasing regulation, aging population and plateauing of growth in core markets
    • Leading to shift of business model from product-centric to customer centric, building own distribution network, and resultant focus on Technology and Operations Efficiencies. This required a very different DNA from “Alpha Generation” and that has taken years to build.
• Newage companies – not mature, few able to scale up, high mortality rate
  • Constant war mode – quick to market but not able to build long-term capabilities
  • Lack of experienced talent – do not always have the resilience to battle through the ups and downs of a business cycle
  • Foundational capabilities and practices not strong (e.g., enabling functions like HR and Finance not kept pace with the business)
  • Many have not built durable values and culture – key factor in lack of org resilience and longevity
  • My role in Flipkart as the Chief People Officer & Head of Strategy and later as the  Chief Operating Officer has given me a ring side view of dynamics of a disruptive industry like Ecommerce and the challenges of building a hi-growth company in such an environment

However, disruption also presents breakthrough opportunities

• It is not all doom and gloom. Companies that master the art of leading in a VUCA world can create breakthrough businesses (and significant value) through disruption.
• For example, growth of Tech driven companies like Facebook, Uber, Airbnb, and Tesla over the past 10 years. Each one of them has offered a new customer proposition, built a new industry (though in the recent weeks Uber has become a suspect name – another illustration of the vagaries of the VUCA world!!) and creating huge shareholder value in the process.
• Closer home, the rise of Flipkart, Paytm and the Ecommerce industry in India is a great example of benefitting from disruption.
  • A topical example of VUCA is the rollout of GST change in India. While many companies might struggle with it, those who are able to master it and adapt their business models quickly also stand to gain a competitive advantage

Section 3: Nine principles that are essential to win in a VUCA world

Sharing 9 principles on how to lead and succeed in the VUCA world based on my experiences. Most of these involve significant changes in current mindsets and practices prevalent in enterprises and leaders:

1. Innovate and shape the future=
   • Steve Jobs famously said, “people who are crazy enough to believe they can change the world are the ones who do so”
   • It is very difficult to predict market evolution in the VUCA world. Instead of being on the defensive, play on the front foot and shape the market through innovations
   • A fundamental view that Flipkart has had – When Ecommerce penetration in India is still 2% of retail market, market growth rates do not mean anything. They can be shaped by our actions
   • For example, growth of Ecommerce in India has been driven by innovations that Flipkart introduced in its early years – Cash on Delivery, BBD, Mobile Exclusives. Each of these innovations shaped the market and shifted the baseline
2. Speed is King
   • One of the stark insights from an Agile training I went through while in Fidelity was that a typical business requirement now has a life of 6 months. This makes any long-drawn plans and execution cycles totally irrelevant!!  Therefore need to focus on short delivery sprints rather than a comprehensive and perfect output.
   • You need to apply the concept of “fail fast” – try something, get fast feedback, and then adapt or terminate before more money is spent.
   • It also reinforces the virtues of 80/20 thinking, something all of us know but don’t always practice!! Clearly, speed vs. perfection trade-offs need to be applied thoughtfully.
3. Stay close to the customer
   • Given the combination of uncertainty and the need for speed, to achieve success it is paramount to be very close to the customer. You do not have the luxury of long feedback cycles in an ever-changing VUCA world. You have to get the customer requirements/pain points spot-on and be very connected to understand real-time any changes.
   • This requires significant change in mindsets and operating models from a “contract fulfilling” mindset to always putting customers first and building strong trust, from delivering over a period of time to real-time customer collaboration, and from a single deliverable to frequent deliverables where you get feedback in a spirit of co-creation.
   • It is also likely that from a few, well defined touch-points, multiple functions and personnel would need to understand and connect with the customers
4. Every enterprise has to be a Tech company
   • Velocity of technology disruptions is so high and their impact on customer expectations and industry structures is so high that every enterprise has to become a technology company. Technology has to be a core competence irrespective of the industry you are in. It cannot be a capability that is outsourced or seen as a support function.
   • Technology is not just an enabler but has to be at the heart of business proposition and innovation. For that Tech has to become part of the DNA and “secret sauce” for any enterprise whether it is Financial services, Retail or any other industry.
5. Keep it simple
   • Key to meeting the expectations of speed is to have simple solutions. Instead of aim for perfect solutions, which are bound to get irrelevant soon in a VUCA world, have easy to build and easy to change solutions.
   • This means that instead trying to do everything afresh, use standard platforms and re-use where possible. This also means that we should avoid customizing and trying to solve every possible customer need but focus on addressing the most important customer needs for your most important customers.
   • Many managers can identify the comprehensive list of things to be done. True test of a leader is to simplify and generate focus. For example, most managers are good at identifying comprehensive set of priorities and metrics. However, the real requirement is to focus on select metrics that will move the needle for the business rather than tracking scores of metrics just for reporting purposes.
6. Collaboration – nobody can do it alone
   • VUCA world is too complex and fast moving for any one individual or enterprise to have the antennae to absorb all signals and capabilities to compete effectively just by itself.
   • Therefore it requires high levels of collaboration both within the organization and also outside. From individual you have to go to team, from functional you have to go to cross-functional, and from within the enterprise you have to go to a web of external partnerships.
7. Self-organize rather than manage
   • You cannot operate in the VUCA world with a linear, command and control approach. You need far higher levels of self-management so that responses to the many unpredictable situations can be faster
   • This requires a significant shift in our approach to people. Instead of trying to manage teams, we need to empower. We need to break our hierarchical mind-sets and processes. Very importantly we will also need higher tolerance for failures.
8. Learning – keep on evolving
   • To adapt to the constant change, you have to keep on learning. For that it is critical that both individually and as an organization you retain your humility
   • Success breeds Hubris/Arrogance, which can be the death-knell for the individual and the organisation.
     • Humility is key for ensuring learning and long-term success
     • Inculcate “Brutal Honesty” as a cultural value.
9. Resilience – bounce back
   • It is inevitable that you will face some knocks in the VUCA world. Have to strengthen both self and the organisation to take the punches and bounce back
   • One of the key challenges of operating in the VUCA world is managing Duality – seeming contradictions like short-term and long-term, growth and profitability have to be managed at the same time. Both leaders and enterprises need to build the mental agility and resilience to manage seeming contractions at the same time.
   • Personal anchors are critical for managing the ups and downs – For me, it is Family, Sports and Spirituality (Meditation + Bhagavad Gita)

Section 4: Eight Transformation priorities for the organization

Let us now translate the key principles we discussed in the previous section into transformation priorities for the enterprise:

1. Agile approach to Strategy
   • In a VUCA world, carefully laid plans often don’t survive contact with hard reality. Therefore Strategy has to be light & agile. Detailed multi-year strategic plans serve little purpose in the VUCA world – not only are they very difficult to construct given all the variables but they can be limiting as well.
   • Focus should be on execution – get wins on the board, Fail Fast. Successful execution often leads to clarity on strategy (by connecting the dots) rather than the other way around
   • Strategy is not a North Star in a VUCA world as it can change with rapidly changing situation. However, you do need some “North Stars” that will keep you anchored.
   • The following two “North Stars” are an absolute must:
     • Mission/Purpose – clarity on why you exist as a company. For Flipkart, it has been to Transform Commerce in India using Technology. Flipkart Strategy has changed many times but Mission has remained constant
     • Values – which bind the organisation together and provides guidance for decision making especially when faced with trade-offs or confusion.
2. Building deep Tech capabilities
   • With Technology having to become a core competence, you to have to build a Tech DNA. This means building Product-Tech capabilities, where the Technology function is not just an execution arm but is a key partner and ideator in business decisions
   • Move of expectations of Tech from Services/support to Product/IP/Innovation, is a big challenge for companies in India
     • We have large IT workforce in India, but limited deep Product/Tech type talent
     • Therefore, both recruitment and retention is a challenge
   • Expectations of deep Product/Tech talent is different and therefore need a significant change in management approach
     • Hi-quality peer group → Need to hold the talent bar high (very selective recruitment vs. the scale driven models typically seen in India)
     • Creative → Provide flexibility in workplace practices (e.g., difficult to bound creative and temperamental talent into fixed working hours!!)
     • High expectations of growth → Differentiated career development & rewards (e.g., stock options)
     • Emotional → Inspiring leadership & culture, emotional affiliation is very important
     • Fairness & Transparency → Inclusive HR processes (e.g., performance management)
3. Building Customer Insights / leveraging Data
   • Succeeding in the hyper-competitive VUCA world requires you to understand your customer intimately. Equally, Digital allows you to personalize your offerings and target your customer at an individual level. Enterprises can draw great leverage by building Customer Insights capabilities that bring together Analytics, Market Research and Big Data capabilities.
   • Let me illustrate: Digital applications are creating a ‘data exhaust’. This unprecedented growth in data (“big data”) provides opportunities for analytics and generating insights. These can be leveraged to redefine and fine-tune customer journeys to deliver exceptional personalized customer experience. This virtuous feedback loop between digital, “big data” and analytics helps create adaptive, “intelligent” applications, which are perhaps one of the distinguishing service offering opportunities of the Digital Wave.
   • Challenge is that not many companies have been able to effectively connect the business insights, analytics, big data and customer application layers (perhaps as functionally these are different skills and sit in different parts of the organization). There will be a big upside for companies that get such an integrated Customer Insights and Personalization capability right.
4. Simplifying Org Structure and Processes
   • Enterprises tend to accumulate complex org structures over a period of time. Need to simplify and flatten (reduce number of layers) org structures to respond effectively to the uncertainty and pace of change of the VUCA world. Complex structures will not survive for long in a VUCA world – business requirements will keep on changing and therefore the org structures will also change. A simple org structure will be easier to change than a seemingly perfect but complex structure.
   • Processes – should simplify where possible. For example, Performance Management system (PMS) in some organisations end up being very complex – need to make trade-off between comprehensiveness vs. scalable design & speed of decision making
   • Have org structure and processes that encourage interactions across levels and functions. This might mean moving to vertical to horizontal structures to break org silos. Even if you don’t change the org structure, you will need processes that facilitate cross-functional collaboration. This is critical as innovations often happen at the intersection of two org boxes and not within the box.
5. Building a web of Partnerships
   • Enterprises have to recognize that they might not be best placed to build themselves all the capabilities required to compete in the Digital Wave.
   • Digital Wave is creating a host of new players that are disrupting traditional industry structures. For example, in the Financial Services industry new “FinTech” players like PayPal and AliPay have built significant scale. They are less encumbered by regulations and legacy infrastructure and have been able to grow rapidly in many cases. These new players are a challenge for the established majors but also provide opportunities for partnerships to redefine service offering and delivery models.
   • Important for enterprises to draw out the value chain for their industry, map their capabilities and other players, identify their gaps, and basis that explore partnerships/investments etc. For example, many enterprises now have active corporate development functions that are constantly scouting for investment and M&A opportunities.
6. Nurturing talent
   • You will likely need to change your talent mix and profile. For example,
     • Product-Tech, Design and Analytics skills will become more important.
     • In addition, enterprises will need to build not just technical and process knowledge but deeper business knowledge and intimate understanding of end-customers across functions.
     • Might need to upgrade the talent DNA. Will need hi-quality talent with high learnability who can adapt quickly to changing situations.
   • All this change means that expectations from the leaders are increasing significantly; clearly ‘’what got them here will not get them there”. Leaders will need to be more entrepreneurial, take bigger risks (especially moving with speed under uncertainty), be thought leaders not just reliable execution managers.
     • Some leaders might not be able to make the transition and organizations might respond by bringing in new leaders with a new DNA (some have already done so).
     • While bringing in new leaders is a seeming “easy fix”, it can perhaps not be the complete solution. In addition, enterprises will need to invest even more in management development so the desired mind-sets and behaviours are embedded early on and more pervasively across the management layers.
7. Evolving the Culture
   • Enterprises need to make many changes to compete effectively in the VUCA world and for that culture will need to evolve. Culture is a common theme across the 9 change principles I have shared earlier. Culture change is one of the most difficult but necessary changes that an enterprise needs to make.
   • Enterprises will need to make at least 4 key shifts in culture: – from a ‘Command & Control’ culture (current situation in most cases) to a more open culture that is non-hierarchical & empowering, encourages creativity & innovation, risk taking and thought leadership- from “comprehensiveness and perfection” to focus on “speed and agility”. This requires a higher tolerance for chaos and moving away from fear of failures- truly seeing Customers as Partners, and “Customer First” not being just a slogan but embedding it in decision making across the organisation- making the culture changes required to build a Tech DNA
   • These changes are easier said than done. Culture needs to be a concerted change effort as it is embedded over a long period of time. It is important that culture initiatives go beyond the buzzwords and address the key tensions in behaviours. Best way of embedding the new culture is consistent role modelling by leaders. Their actions are especially important (and remembered by the organisation) in times of stress and crisis (“moments of truth”) when you tend to default to old, embedded behaviours.
8. Strengthening the enabling functions
   • Enabling functions like Finance and HR are the foundations of an organisation and they need to also upgrade to support this enterprise transformation. Both these functions have traditionally been control functions, which now need to become business enabling. Consequently, they need to develop far deeper understanding of the customers and business dynamics.
   • In particular, the HR function role and skills need to evolve significantly from being “order taker/execution role” to becoming a “counsellor and change agent”
     • Play the culture ambassador role – helping define and then upholding the culture
       Design and drive changes in organisation structures and processes required to support the business strategy
     • Facilitate Change management and bring a steadying influence to the business leaders and the organisation

Transforming the enterprise to win in the VUCA world is a deep surgery that requires an extensive change in both organisational and individual principles and priorities. It might seem like a daunting journey but the rewards for success are high.

I have talked about 9 change principles and 8 transformation priorities in this note. If there is one I recommend that enterprises focus on first, it would be building a Deep Tech DNA and capabilities. Tech disruption is the most fundamental of the disruptive forces at work in the VUCA world. Tech disruption is not a one-off but a fundamental feature of the times we are in. Therefore, enterprises have no option but to build a strong Tech DNA to future-proof themselves. It is a difficult transformation but an absolute essential one. To build and sustain a Tech DNA, the org culture will need to evolve significantly. This clearly is not a “quick fix” but a comprehensive effort that has to be blessed from the top and sustained over a period of time.

I hope ideas in this note are helpful to both enterprises and individuals and help in a small way in their transformation journey.

All the best!!