How HR needs to transform itself to lead in the VUCA world

Speech at AIMA’s HR Leadership Retreat, May 19, 2017, Goa

The last 14 months that I have been part of Flipkart, India’s largest Ecommerce company and taken leadership of the HR function have been a tremendous learning opportunity. I have gained an intimate understanding of the volatile and turbulent business environment we are in today, the powerful role HR can play in the current scenario, but equally the significant challenges HR faces today.

I want to share my insights on three topics today with you:

VUCA (Volatile, Uncertain, Complex and Ambiguous) business environment and the opportunities and challenges it presents for organisations
7 paradigms necessary to lead and realise breakthrough opportunities in the VUCA world
How HR needs to transform itself to be relevant in the VUCA world

1. VUCA business environment – challenges and opportunities

We are living in interesting times. We are in a crazy VUCA world where the velocity of change is unprecedented. This poses significant challenges but also creates the potential for breakthrough opportunities.

Velocity of change is unprecedented

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 and ‘Internet of Things’ dominating. 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.
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 in these markets.
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.
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.

Complication – Organizations are not ready

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
Newage companies – not mature, few able to scale up, high mortality rate
- Constant war mode – 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 longevity

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 and Tesla over the past 10 years
Closer home, the rise of Flipkart and the Ecommerce industry in India. And, this is just the tip of the iceberg.

2. Seven paradigms that are essential to lead in a VUCA world and realise breakthrough opportunities

Sharing 7 paradigms on how to lead and succeed in the VUCA world based on my experiences.

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”
- 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 – Cash on Delivery, BBD, Mobile Exclusives. Each of these innovations shaped the market and shifted the baseline

Execution speed & Agility
- In a VUCA world, carefully laid plans often don’t survive contact with hard reality. Therefore Strategy has to be light & agile
- 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
- To ensure speed and agility,
  - Stay close to the customer
  - Build org with hi-quality talent – who can adapt quickly
Anchors – North Stars
- 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 three “North Stars” are an absolute must:
  - Mission/Purpose – For Flipkart, it is to Transform Commerce in India using Technology. Our Strategy has changed but Mission has remained constant
  - Values – which bind the organisation together and provide guidance for decision making
  - Core Team – while personnel might change because of changing business needs and fast speed, it is important to have a core team at the center that stays constant through the journey
Simplicity – to counter complexity
- Many managers can identify the comprehensive list of things to be done. True test of a leader is to simplify and generate focus. Three areas to simplify:
  - Org Structure – simple, flat, easy to change. Complex structures will not survive for long in a VUCA world
  - Processes – e.g., Performance Management system (PMS) – trade-off between comprehensiveness vs. scalable design
  - Key metrics – focus on select few that will move the needle for the business
Collaboration – nobody can do it alone
- Empowerment – death of top-down management; foster non-hierarchical and open culture
- Encourage interactions across levels and functions – breaking org silos
- Communication – over invest on communication, make it personal to the extent possible
- Leverage external Ecosystem – build partnerships, M&A
Learning – keep on evolving
- Hubris Vs. 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
- Encourage Experimentation & Innovation. Reward failure
- Build peer networks – both within and outside the organisation
Resilience – bounce back
- It is inevitable that you will face some knocks. Have to strengthen both self and the organisation to take the punches and bounce back
- Awareness of Duality – seeming contradictions like short-term and long-term, growth and profitability have to be managed at the same time in a VUCA world
- Change management – key role for HR + need experienced talent to bring a steadying influence
- Personal anchors are critical – For me, it is Family, Sports and Spirituality (meditation + Bhagavad Gita)

3. How HR needs to transform itself to be relevant in the VUCA world

HR has a historic opportunity to pIay a lead role for organisations in the VUCA world. This is because the nature of challenges organisations face in the VUCA world are such that many solutions have to come from HR. However, HR is currently often not able to keep pace and would require a significant step up. Failure to transform would relegate HR to even a less relevant support cast role than today.

Historic opportunity for HR to lead

HR has a key role to play across each of the 7 paradigms I mentioned earlier:

Innovate and shape the future → culture that encourages innovation & entrepreneurship
Execution speed & agility → hiring hi-quality talent, facilitating quick decision making
Anchors → building and reinforcing org purpose, culture and values + building and sustaining the core team
Simplicity → org structure and processes
Collaboration → org structure, culture and communication
Learning → making it relevant for business, smart platform
Resilience → change management

Complication – HR is not able to keep pace
As things stand, I feel HR is not well placed to step up. In fact it is on a backfoot in many cases. There is a negative cycle of Mindsets/Processes/Capabilities falling short, leading to perception issues, which further makes it difficult to attract top notch talent.

Mindsets – traditional orientation is to exercise control & focus on compliance which might not work in knowledge worker based organisations; org needs are now for autonomy and flexibility
Heavy processes and systems e.g., Performance Management Systems (PMS), HR Systems, which become limiting in fast-moving organisations
Limited leverage of analytics and technology – unable to provide deep, fact-based insights
HR talent DNA and capabilities falling short – not able to connect with business leaders as peers. Relationship often regress to being an order taker. There are 3 key gaps in capabilities:
- Follower Vs Change agent oreintation
- Lack deep business and customer understanding
- Speed and bias for action not keeping pace
Perception issue – Often the HR function is taken for granted and lot of good work done by the function is not fully appreciated. Even if there is a ‘seat on the table’ treated as a support function. This lead to lack of motivation and furthermore makes it difficult to attract top-notch talent to the function.

HR needs to step up in the following 5 areas

Significant transformation is required in mindsets and capabilities across areas for HR to realise the opportunities in front of it.

HR talent profile
- HR leaders have the opportunity to be a coach, sounding board and change guide for CXOs
- For this to happen, need to evolve from HR functional skills to deep business understanding and agility
- Significant skill gap today
- Need a new generation of business-oriented CHROs.
  - Encourage movement of line leaders into CHRO role. Step up importance of role – on par with CFO and stepping stone to CEO/other CXO roles
  - Strengthen business understanding of next line HR leaders – stretch projects in business, co-owning business results, cross pollinating talent between HR & Business

Use of data and technology
- In line with movement on the business side to customer segmentation and now to individual level personalisation, I believe similar opportunity exists on the employee side
- New mantra for employee engagement – EVP to IVP (Employee Value Proposition to Individual Value Proposition)!!
- Analytics and Technology can facilitate an individual level understanding of employee needs and customizing interventions accordingly e.g., flexible rewards mix, learning & development
- Analytics can also play a crucial role in talent retention e.g., pulse tracking, predictive models, Early Warning Systems
- Technology focus has to move from back-end systems to omni-channel employee engagement

Learning & Development
- Key challenge – how to make L&D relevant to the business especially when it is moving very fast
- Focus on key needs:
  - Enable rapid re-skilling to adapt to changing business needs
  - Developing leaders internally – focus on soft skills
- How to leverage the rapid change in education delivery into internal L&D – external networks, Content Curation – MOOC, Internal Wikis/ Leader Blogs

Managing Deep Tech talent / hi-end knowledge workers
- HR processes in India typically designed to manage scale
- With move from Services/FTE to Product/IP models, biggest challenge in HR today is managing Deep Tech talent
  - 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 HR would need to change approach significantly
  - Hi-quality peer group → Holding the talent bar
  - Creative → Flexibility
  - High expectations → Differentiated career development & rewards
  - Emotional → Inspiring leadership & culture
  - Fairness & Transparency → Inclusive HR processes

Building a distinctive culture
- Distinctive culture is key to building a sustainable organisation in the VUCA world – culture is a common theme across the 7 paradigms I have shared earlier
- HR has to play the culture ambassador role – helping define and then upholding the culture
- It is important that culture initiatives go beyond the buzzwords and address the key tensions in behaviours
- Upholding the culture can bring HR into conflict with business functions. Alignment with CEO is very necessary

There is a historic opportunity for HR to step up and play a critical leadership role in helping organisations transform and succeed in the VUCA world. The nature of challenges organisations (both old and new) face in the VUCA world are such that significant proportion of solutions have to come from HR. If HR can step up and provide these solutions, it would be a great service to the organisations and also help lift the stature and impact of the HR function. I hope the insights I have shared provide some helpful pointers and help spark some constructive debates for Boards and Executive teams, and eventually help step up the capabilities and impact of the HR function.

All the best!!

Nitin Seth