In 2023, don't disrupt yourselves
Summary
Doing what we’ve always done and seeking iterative changes to it, can lead to disruption. Companies that see their businesses linked to an office-centric model, may risk being victims of disruption.
Most data shows that employees want to work remotely, and executives are deciding return-to-office (RTO) policies without heeding data or their employees’ opinions.
In the tech industry, people matter most, since they’re the primary assets. Inflexible work policies could alienate employers from their talent pools and this could disrupt their businesses.
Instead of taking an adversarial stance with their people, employers must give voice to their people and challenge the past of the office-centric work model.
Employers that can retain their best people and find ways to effectively deploy their “attention capital” will carry a disruptive advantage through the recession and beyond.
Disruption as a phenomenon has many cautionary tales. The late Clay Christensen, creator of the jobs-to-be-done framework and author of “The innovator’s dilemma”, would often mention the networking giants, Nortel and Lucent. As incumbents, Nortel and Lucent saw Cisco, a manufacturer of cheap routers, as just an annoying upstart. In the early days, routers were good enough for data but they were quite useless for voice. For these established companies the sensible strategy was twofold.
Keep building on their strength, i.e. circuit switching tech.
Listen to what their customers said; i.e. “we want you to support our voice traffic”.
As the new kid on the block, Cisco had none of this baggage. They kept improving their inexpensive router tech and before long it was good enough to do voice. In fact, routers got so good that they made circuit switches obsolete. Today, Cisco is a global networking giant. Nortel and Lucent don’t exist.
The other story that younger people may have read is the one about Netflix and Blockbuster. Blockbuster was the big daddy of the cassette rental business. They had 9000 shops worldwide. Netflix was an upstart sending DVDs in the mail as a subscription service. The big advantage - no late fees. All you, as a subscriber needed to do, was send your current DVD back in the mail and get a new one in return.
As it usually happens, the incumbent in this case, Blockbuster, dismissed the threat from Netflix. In fact, in 2000, Reed Hastings (head of Netflix) proposed a partnership with Blockbuster. It could have been a win-win. Netflix would have run Blockbuster’s services on the internet, while Blockbuster would have promoted Netflix in their stores. Blockbuster turned Hastings down. 10 years later, Blockbuster also filed for bankruptcy. And you know about Netflix.
Of course Netflix itself won’t be immune to disruption. In August 2022, they lost over 200,000 subscribers. They’re now the incumbent so they are looking for iterative ways to improve their standing - for example, the ad supported plan for the US.
Why did I share these stories?
As I mentioned at the start, disruption has several cautionary tales for us to learn from. I’m simplifying, of course, but if we read the history of these companies, it’ll be clear that Nortel, Lucent and Blockbuster shot themselves in the foot. And yet, if you examine their decisions, they did what most people would have said was the right thing to do. No exec signed off on the decision to make their companies defunct.
And that’s the paradox of innovation.
Incumbents have a legacy to live up to. They have a set of methods that work for them, and it makes sense for them to build on their strengths.
Upstarts have no such baggage. They can start from scratch, pivot more easily and do what works for their market conditions.
All innovation isn’t equal
The late majority and laggards trail the innovation curve and don’t benefit from it.
There’s a cost to being an innovator. The early days have very little payoff. In fact, the early bird may not get the worm. The second mouse, i.e. the early adopters get the cheese. Often the early majority gets the most benefit. You wait for everyone to struggle and you can build on their experiences.
All this said, there's something we know from history. You don’t want to trail the innovation curve. The late majority and the laggards always have too much catching up to do. And yet, being amongst the late majority or being a laggard won’t kill you.
Disruptive innovation is an arrow to the heart
If you look at the disruptions I mentioned at the start of this post; the upstarts hit the incumbents where it hurt the most. Their core business - their raison d'être. What would Blockbuster be without movie rentals? What would Nortel and Lucent be without circuit switching? Disruption usually happens when upstarts find a novel, often cheaper and less sophisticated way to do what the incumbents have always done.
When an upstart hurts your key assets and the way you deploy capital or the most important way, you bring value to your customers, you’re at risk of disruption. You ignore upstarts and disruptive forces at your peril. And upstarts are everywhere. Running a company is a bit like steering the Titanic through a sea of icebergs. Somewhere, an iceberg has your number.
Software is a people business
Many of us believe that the tech industry is all about software assets and intellectual property. To some extent that may be true, if your frame of reference is FAANG, Microsoft or Tesla. But that’s just seven companies right there. Software services, particularly product engineering services are an enormous industry - set to be over $2000 billion in 2028. A fancy term such as “product engineering services” obscures a home truth. Software development is a people business. It works like this.
There are some firms that just build software as their core business.
They know how to hire (and keep) technologists who can build software.
These firms then sell the time of their technologists to other firms who need custom software, but don’t have the in-house capacity to build it at the speed, quality and scale that their market demands.
Peel away the layers and you’ll realise that in software development people matter most. Martin Fowler said so.
If you don’t have the right people, then the speed, quality and scalability of the software you build suffers.
Growing your business means attracting new talent, so you can serve new clients.
To offer services consistently, you must be able to keep your best people, otherwise your organisation has the memory of a goldfish. No amount of documentation can substitute for real world experience and skills.
And yet, as the recession has unfolded, I see many IT services firms behave in a passive-aggressive manner with their only asset - people. How, might you ask? Well, through the great hybrid kerfuffle.
Workers work, executives decide
Look at any data source for this question. Take Future Forum’s pulse survey for example. Non executives are 3x as likely as their bosses to want to work fully remotely. Guess who’s deciding about “returning to the office”? The bosses! 60% of the executives who responded to Future Forum are designing their companies’ work policies with little or no input from employees.
Most people want to work remotely, most of the time. Period.
Yet, in their minds, executives believe that there’s something special about their companies, that the office must be an integral part of their business model. Never mind what the science or the data says.
Group brainstorming is inferior to individual brainstorming with the quality and the number of ideas.
Remote work is more productive than office-bound work. Commuting and its associated stress are drains on productivity.
Concerns around degrading connection and culture in flexible environments are overblown.
Working more is not the same thing as productivity. A four-day work week is better than a five-day work week.
Never mind also, that many problems executives speak of, need modern solutions.
Serendipity and knowledge sharing needs an investment in systems.
Management by walking around and looking is obsolete. A results-oriented work environment, supported by the right tools at work and people management skills are essential to a modern workforce.
Coaching and mentorship don’t happen by chance. They were always intentional, and in a modern workplace, they must be more intentional than ever. And we must fund them by giving people the right tools and time.
Disrupt your talent equation, disrupt your business
From my perspective, many return-to-office (RTO) decisions ignore employee sentiments, recent research and modern solutions. This is where incumbents become victims of their own success. If a firm’s leadership has changed little in the last two years, then it’s likely that the leaders have not been hands on in recent times. This means that they can’t empathise with the hands on workers anymore. It also means that their mental image of a productive, successful business, is from a pre-pandemic era. After all, what worked then, must surely work now. What made us all successful pre-pandemic, should also make us successful post pandemic. Right? Maybe not.
Most people want to work remotely, most of the time. Period.
As we saw earlier in this article, the software business is a people business. Many companies build their business plans hoping that demand (for people and their time) will continue to rise in the coming years. Recession or not. If that indeed happens, the war for talent will only get hotter. The best people will seek more flexible workplaces and companies that believe in an office utopia will find themselves with only a mediocre workforce.
This is where I predict that the laggards and the late majority to remote work, will become victims of disruption. I already see movement in the remote-first direction from progressive firms.
Thoughtworks Spain recently declared a work-from-anywhere policy.
Accenture is advocating that businesses reduce office space.
McKinsey is advising businesses that compete for top performers and digital innovators to understand how much flexibility their talent pool is accustomed to and expects.
Companies like Slalom, EqualExperts, EPAM, Nagarro and Globant are actively pitching a “work from anywhere” message to their candidates.
Companies like Clevertech, A.Team and X-team are the disruptors. They started as remote-natives. Modern ways of work are part of their DNA.
I’ve been wrong before, and it’s possible I could be wrong here too. But my biases and the data I see, make me feel that there are companies stuck in a time-warp. As we saw from the examples of Nortel, Lucent and Blockbuster, that’s a recipe for disaster. Time’s most unforgiving to those of us who live in the past.
What got us here, won’t get us there
The trouble is - being an incumbent comes with unintentional myopia and hubris. In theory, you want to plan for the future, but all your incentives force you to focus on the present. Think about this in a different context. It's easier to spend money today than to save for retirement. And it's also easier to dismiss the scrappy new kid on the block, than to think about how they'll hurt you in the long run.
The incumbents of the IT consulting industry must not forget that people are their primary assets. Deploying capital was the secret that every industrial revolution company had to crack. In the era of knowledge work, we must figure out dramatically better ways of deploying our “attention capital” - the inherent value of our assets. Your and my inherent value.
The way to deploy attention capital in 2023, leading up to 2030, will differ greatly from how we did it till today. If we think the way Nortel, Lucent and Blockbuster did (which by the way is natural), we may want to do “more of the same”. The upstarts aren’t thinking iteratively though. They’re being dramatically different.
I hope 2023 makes leaders challenge themselves. I hope we all can think outside our traditional boxes. Recession or not, the world of work is due for change. The employer-employee relationship needn’t be a power struggle.
Let’s not speak of it in dehumanising terms such as supply and demand equations.
Let’s challenge the past.
Let’s give voice to our people.
Let’s protect our assets and our attention capital.
I wish you a happy, people-centric 2023!