Reinventing the firm: Frode Odegard

Frode Odegard

Frode Odegard is a thought leader in disruptive innovation and organizational design. He led LSI’s decade-long effort of reinventing Lean for modern knowledge work, resulting in the Lean Systems Framework. For this contribution Frode was made a Fellow of the Lean Systems Society.

Frode’s second major contribution goes beyond Lean Thinking to the heart of the dramatic disruption by exponential technologies that we see today. Researching 12,000 years of human organizations, he concluded that we are transitioning to a post-industrial civilization and economy. This means that a fundamentally different set of ideas and principles must now be used as we innovate, develop organizations, design jobs and pursue careers. The result of this work is Post-Lean Thinking — management science for the post-industrial transition.

You are the founder of the Post-Lean Institute and, more recently, launched the Post- Industrial Forum. What characterises your vision of the Post-Lean era?

Modern management thinking originated to solve problems encountered as a result of the Second Industrial Revolution. A greater number of employees, more complex products, and more process complexity meant that managers had to do a better job of organizing the administration of the firm’s activities. Initially, the focus was on standardisation of work and improving efficiency. Only a small percentage of workers had a high school education at the end of the 19th century, and management was expected to do all the thinking while workers performed work instructions.

After World War II, a professional management class had emerged, and there was more emphasis on training and empowering workers as problem-solvers. Toyota, in particular, combined Western ideas of quality management with its on innovative techniques for just-in- time scheduling and continuous improvement. They developed a culture in which leaders on all levels were expected to develop subordinates as problem-solvers, and organisational goals were linked to problems that needed to be solved. Toyota’s approach gained popularity in the West in the 1990s, where it became known as “Lean Thinking”.

Organisational Change in the Post-War Era

In the post-war era, organisations gradually began to deploy IT to manage records and business processes. This improved the productivity of managers, they could keep track of more people, processes, projects, and resource. As a consequence, firms could grow larger without increasing coordination costs as much. Suppliers and customers were able to link their back-office computer systems together with dedicated lines.

In the 1980s personal computers made inroads and new software improved the productivity of knowledge workers. People were able to communicate via internal email systems, which improved collaboration, but communication between workers in different firms was still by letters, facsimile, and telephone. IT had enhanced what organizations and their managers were trying to accomplished do, but it not upend industries the way we see today.

In the mid-1990s the Internet became available for consumers. Coupled with the birth of the smartphone a decade later, this set us on a new course. While technological progress in the past (the invention of agriculture, the first cities in the Bronze Age, the Industrial Revolutions) had always been coupled with increasing centralization. Technology now became an enabler for decentralization. As demonstrated by Uber and Airbnb, it had become feasible for firms to engage people and manage assets globally without employing them or owning the assets. The emergence of additive manufacturing technology and progress in machine learning is enabling production closer and closer to the site of purchase and consumption, moving us away from centralized production. Digital products and services are designed and delivered worldwide already, in a distributed fashion.

Along comes decentralisation

The combination of rapid technological progress with decentralisation is a new phenomenon in the history of the human species. It means change on an anthropological level, a transition to a post-industrial civilisation. The new landscape of jobs, firms, industries, and entire economies will be changing very rapidly.

The way we think about business and society must be updated for this new set of circumstances. Post-Lean is a new school of management science that addresses these changes. Developing that science is the mission of the Post-Lean Institute. We are developing new solutions for organizational design, leadership, governance, management, innovation, and strategy.

How do blockchain and other frontier technologies fit into that vision?

While still in the early stages of evolution and adoption, Distributed Ledger Technology (DLT) is a very important enabling technology for decentralization. It can be viewed as the continuation of a development that began in the 1960s when large corporations began linking their mainframes together. This was the beginning of machine-to-machine interfaces between firms. When the Internet became available for commercial use, it mostly replaced dedicated lines, and a greater emphasis was placed on standardising the interfaces. More recently the idea developed that one could create markets of digital services using standard interfaces. This has been referred to as “the API Economy”.

DLTs take this further by replacing the client-server paradigm with a decentralised peer- to-peer structure in which multiple parties participate. The participants maintain a shared ledger of transactions, the blockchain, using cryptography to ensure the ledger’s integrity. The business rules governing transactions between the parties can be captured in the form of Smart Contracts (sets of rules which automatically execute as a result of a certain set of conditions being met).

Technologies Converge

Tremendous progress in machine learning has given rise to the first “intelligent agents” able to help us choose products and services. Alexa is one example of this. When agents become connection points for supply chains, they can be reconfigured on a just- time basis to meet demand. With more standardised interfaces between firms, switching costs will go down. This represents a challenge for firms not directly connected with customers. Consumer-facing brands will face competition from agent brands face being relegated to ingredient brands.

Manufacturing technology will give us just-in-time micro-factories closer and closer to where we live and work. Instead of designing manufactured products based on standard parts, more product designs will be manufactured from scratch, which will also help compress supply chains. Autonomous land and air vehicles will help us evolve more efficient transportation systems, but they will also streamline the delivery of physical goods to our homes and offices. Amazon is already in the process of rolling out its drone delivery system for commercial use.

Within a couple of decades, we may be able to manipulate organic and inorganic matter on an atomic level and manufacture (grow!) products on a just-in-time basis in a decentralised fashion. This will compress supply chains to the point where it’s just you and the matter compiler producing what you need, based on a description in a standardized digital format, much like what you would send to a 3D printer. There are already startups working on growing artificial meat for commercial use.

You spend a lot of time speaking to senior corporate executives and investors about these types of issues, do you think this structural shift is well-understood yet and, if so, by whom?

The corporate world and private equity investors are slowly learning about new technologies and engaging in corporate venturing to get insider access. They are also

doing their best to leverage inherent advantages such as the power of established brands, access to markets, and cash reserves built from existing revenue streams. In many ways, however, they are still playing catch-up.

Big consumer tech companies like Amazon, Google, and Facebook, as well as the entrepreneurial community in innovation hubs like Silicon Valley have a big advantage over traditional businesses. Managers in these companies tend to be digital natives, and they think about business more the way a computer scientist would. They have also outpaced most traditional firms in growth and profitability because of their business models. The situation is more serious for traditional firms than it was five or ten years ago. At the same time it is easier than ever for founders to organizer and raise capital to disrupt established industries.

Executives in traditional firms usually lack a technology background and depend on others to translate for them. This has added to the organizational learning curve. The same is true in private equity firms; we just released a new white paper last month on disruption in PE. What we see is a lot of discussion about digital transformation, but traditional firms are mostly focused on digital modernisation — simply infusing new technologies into what they are already doing. The responsibility for this effort is often given to a Chief Digital Officer.

Real transformation requires more — both of technology executives and leaders in traditional businesses. The former need to learn about “the real world” outside the Silicon Valley bubble, and the latter need to become more tech-savvy. Both will need to learn about post-industrial management thinking.

What implications does the new structure of the firm and industrial organisation have on society more broadly?

Consumers are accepting of technologies that bring entertainment or increased productivity, but innovation that changes the economic structure in society is more controversial. The decoupling of people and assets from firms is not only challenging for traditional corporations, it is also threatening for labor unions. Unions have depended on an industrial era mindset where work is uniform and neatly divided into job categories. The world is not like that anymore. Furthermore, any job that is repetitive is increasingly a candidate for automation. Minimum wage legislation, where enacted, has simply served to give employers another incentive to accelerate automation efforts.

Taxi companies and their drivers protest against Uber and hospitality giants lobby against Airbnb because such companies have more efficient ways of marshaling people and resources to create customer value. This structural change feels deeply unfair to people who have assumed the world was going to work a certain way.

Uber drivers are well aware that the landscape will change again soon, when autonomous vehicles become commonplace. One driver I spoke with in London foresaw investing in autonomous vehicles that could rent out in a digital marketplace so they could generate passive income. This is indeed a likely scenario, assuming policymakers will not block it.

The pace of technology evolution will create a new sort of divide in society, between those with the mindset and mental ability to continue developing themselves, and those who do not. I call this divide the engaged versus the disengaged. It is not so much a matter of financial resources as it is acquiring a growth mindset. Technology will be used to deliver more and more education and training virtually. You can already go online and get free or near-free courses and tutorials on almost every conceivable topic. This will present a challenge to traditional universities, of course, but there will be a lot of new job opportunities related to installing and servicing new technologies, jobs that may not require a lengthy university education.

The same divide applies on the leadership level; leaders must engage, they must develop their own first-hand understanding of what is going on. While it is certainly possible to engage consulting firms and hire domain experts, this is no substitute. Leaders have no choice, they have to grow and evolve, in order to stay relevant. Not all of them will, not enough.

As humans have developed technologically, we have spent less and less time worrying about how to feed ourselves. The greatest ongoing need going forward is going to be human capability development (including education). People with greater intelligence and more education will have a tremendous advantage in society, but everyone will want to enjoy those advantages, so we can expect to see a lot of innovation focused on making people smarter, increasing the speed of learning, augmenting brain functioning in daily life, and so on.

Much of our daily interaction will be augmented and orchestrated by intelligent agents, just like we today spend a lot of time with our smartphones. These agents will help us stay on track and pursue our goals, collaborate with others, and take care of our ongoing needs.

Within the next few decades, we may well reach “escape velocity” for anti-aging remedies — new technology is able to rejuvenate us as quickly as we age. We are going to see much longer human lifespans and people will be able to engage in greater, more long-term projects, the scope and scale of which will be difficult for us to even imagine today.

How can we get regulators and policymakers to embrace this shift in thinking?

Regulators and policymakers are by nature risk-averse. In most countries, their first instinct will be to increase controls to guard against trouble rather than pursuing new possibilities. Education about the huge importunities that this shift brings is going to be important. I don’t think political leaders are likely to be early adopters of novel ideas; their thinking is more the consequence of the dominant mindsets in their respective countries and the advice they get from their advisors. The short game is probably to educate and influence policy advisors. The long game is simply to contribute to changing attitudes in the population.

The shift we are experiencing is also a generational one. By 2020, millennials will make up half the workforce in the US and UK. As older politicians retire, the next generation will have a more tech-positive generation of voters nudging them in the right direction.

Do you see a moment where the technology moves so fast and so far ahead of policymakers’ abilities to keep up that these discussions will become irrelevant?

It is already upon us! Political leaders are confronted by many challenging aspects of rapid technology development, including technology being used to manipulate elections and coordinate acts of terrorism. In response, we also see governments use technology in ways that should make us concerned, e.g mass surveillance and autonomous weapon systems. The thought of untraceable financial transactions is deeply worrying for governments, as well. A digital grey market would threaten their ability to collect taxes to finance operations, and there is also the use of cryptocurrency to finance criminal activities and terrorism.

Governments will continue to fight these fires, with difficulty, as we move into the future. The danger is, of course, that they will become more oppressive and restrictive as part of this process. This will hurt innovation and human flourishing, for which political and economic freedom is essential. Some of the regulatory battles will no doubt be abandoned because regulations thought up will either be ridiculously impractical or increasingly unpopular as the population’s mindset modernizes.

It is my hope that at some point nations will become much less important than they are today, and that we will instead see leagues of city-states with peaceful relations. Whatever awaits us, the transition will be messy, because the world is so misaligned in terms of cultural and economic development. Technology is giving us all the building blocks to continue decentralizing, but mistrust, nationalism, oppressive politics are also erecting new walls. We are still standing with one foot in an industrial civilization and the other (perhaps a toe?) in a post-industrial one.

What are the actions we can all take to help us shift to a post-industrial way of thinking?

What has worked well for me personally is to continuously broaden my horizons. Learning about history helps us understand how we got to where we are. Speaking with people in different industries and different domains is also always helpful. Pioneers are making great progress in so many areas, and we can all learn from each other’s successes and struggles. I should also mention that I have also always encouraged investors, leaders and policymakers to read science fiction — to get curious and consider scenarios about how technology is impacting society and our culture. In short, engage or be left behind.

To systematise all this learning and translate it to action, we are now launching a new global community, the Post-Industrial Forum. It is intended for corporate leaders, investors, entrepreneurs, and policymakers/advisors who are shaping the post-industrial transition. We will learn together online and off-line, and build a knowledge base for members who want to make smarter decisions about the future.

What are the next steps for the Post-Industrial Forum and how can people get involved?

We already held our first launch event in June in London. We have one coming up in Silicon Valley very soon as well, and then we should be back in London again in October or November. The forum website is now online and the members-only online platform is also up. Anyone who would like additional information can drop me a line at frode.odegard@postlean.com and someone will get in touch right away.

You can find out more about Frode by following him on Twitter or find him on Linked In.

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