Review & Rethink

and the newly promoted financial analyst was lost. He’d been told in the midst of a global pandemic that he’d have to oversee a 10-person procurement team. Only he hadn’t met them—or couldn’t, in the fast emergence of the remote-work era. As he tried to get to know them and assess their skills, he assumed it all would have been a lot easier in the pre-COVID days.

It was early 2020

Except his company hadn’t given him any training on the supply chain procedure that he was supposed to manage his team around. It also hadn’t, for that matter, given him any training in managing people. Then, in April, the analyst had to lay off one of his direct reports. No one had trained him how to do that—or whom to pick. Finally, in November, two of his direct reports quit, taking vendors with them because the company hadn’t prepared for such a scenario. The analyst thought he could restructure the team, giving his direct reports more autonomy and making the group more efficient. But the firm had a rigid organization chart that didn’t leave room for this. And so it goes. Without a doubt, the pandemic of the 21st century unleashed a series of challenges. But experts say it has been convenient to assume that almost all of them were the result of this once-in-a-lifetime event. Now, with vaccines on the way and time to reassess, leaders from the corner suite to boardrooms to academic hallways have started to reevaluate this assumption. It isn’t looking particularly pretty. The supply chain issues that made for bare grocery store shelves early on in the lockdown, for example, were as much COVID’s fault as the long-accepted concept that you could winnow down your supplies through one country—in this case, China. Then, not long after the world moved past the spring and into the summer, surveys reported serious employee burnout. In recent years, long before COVID, surveys were already citing this problem. (It was such an issue that the World Health Organization recognized it for the first time as an occupational phenomenon—in May 2019.) Meanwhile, a shocking number of some of the world’s most iconic brands found themselves in bankruptcy court in 2020, blaming world conditions. But it wasn’t a pandemic that had led some of those firms to rely on debt—not customers—to expand. In the 10 years before COVID, corporate debt grew by more than $20 trillion. Indeed, as Bob Sutton, a professor of management science and engineering at Stanford University, sees it, the effects on business from the tragedies of COVID aren’t too surprising. “Many of the problems were already there,” he says. “You just see them in ways you didn’t use to.” That’s partly because an unprecedented period of mostly uninterrupted business booms over a half-century made it easy to ignore them, experts say. In 1980, the world’s gross domestic product was about $11.3 trillion. In 2019, it was about $87.7 trillion. “It was easier to hide some things and harder to hide other things,” says Sutton, author of Scaling Up Excellence and Good Boss, Bad Boss.

In fairness, of course, anyone can use hindsight and rely on sweeping brushstrokes to criticize business operations. In truth, the corporate world and its leaders deserve credit for responding—sometimes heroically—to the challenges of COVID and an economy on life support, with the list of deeds including establishing remote work for millions, pivoting to an e-commerce world, and triggering a host of innovations. But as wider vaccine availability draws closer and closer, many experts are worried that leaders are wrongly assuming that their “new normal” won’t require a rethinking of all fundamentals. Few CEOs, in fact, have ordered sweeping reviews of systems that have lasted for decades. “Organizations must remedy the vulnerabilities the virus exposed,” says Joe Kristan, a partner with the accounting firm Eide Bailly, which has seen clients struggle with taxes, cash flow, and myriad other issues during the pandemic. “It may be in your capital structure. It may be in your systems. You have to look across your entire organization.”

here are five issues to look at with some solutions to consider...

Not knowing your customer

Not knowing how to use customer data

growing pains

Business gets defined.

launch

Sometimes internal politics get in the way; focusing on customers’ changing needs isn’t as important as cutting costs to post strong quarterly results, for example. Experts say it often boils down to being, in effect, bad listeners. “Companies don’t talk to people they actually want as customers,” says Sutton at Stanford. Throwing money at technology won’t solve the problem, either. “The leadership team has to pivot and rethink customer relationships and intimacy,” says Jamen Graves, a Korn Ferry senior client partner who specializes in technology. Being out of touch proved incredibly costly during the pandemic. Many organizations assumed that everyone would cut back on discretionary spending. And tens of millions of people were forced to. But a sizable number of millionaires and billionaires didn’t—they just started buying more baubles online. Indeed, the market for new luxury goods fell by as much as 20 percent in the second quarter of 2020, but it had cut that loss in half three months later. At the same time, there has been a surge in online luxury sales, and the market for used luxury goods in particular has skyrocketed. Answers to a problem as basic as this are never easy. Experts say it begins with an assessment in the C-suite of how far the firm has come in reading its customers and where it wants to go. In the case of understanding luxury goods, at least one company, the famed auction house Christie’s, apparently figured out the reality. In the final two months of 2020, it took many by surprise by holding 12 online auctions, double the usual. The result: online-only sales for single lots soared.

Of all the business fundamentals, perhaps none is more essential than knowing what your customer wants. Many businesses start with one brilliant idea that will satisfy one consumer need (comfortable dress shoes, fast-delivered pizza, superpowered microprocessors). But those organizations often can’t keep up as consumer demand changes.

In theory, organizations could use that data to customize offers and products. Yet critics have long pointed out that most companies today are still filling people’s inboxes with generic sales pitches or offers of free trips. Most agree that firms still struggle with trying to find good uses for all that data. “Who needs more data? Nobody,” says Chris Cantarella, a Korn Ferry senior client partner who specializes in technology. “What they need are insights to outcomes.”The best answer to all this, many believe, is dedicating enough resources to the human side of the data equation. In most firms, more people, primarily data scientists and other math-oriented employees, are needed to do the main interpreting. Only then can those insights be distributed to others in the firm who can act on them. Experts say many leaders also balk at data that suggest new products or services, because they don’t want the risks. “It’s great to say, ‘Use more data! Use data in smarter ways!’ But most organizations’ org structures fight against basic data management,” says Melissa Swift, a Korn Ferry senior client partner and the firm’s global leader for workforce transformation.

As we all know, organizations capture such a huge amount of customer data, it’s often said that many companies know you better than you do—from your preferences to your fashion sense to your mother’s birthday. And perhaps they should: they spent $15 billion on marketing data alone in 2019.

Not unlike people, companies are faced with more and different problems as they move through the various stages of development. Here are some of the typical issues during a business “life cycle.”

During the pandemic, people had little choice but to break down organizational boundaries to get things done. At the start of the pandemic, Johnson & Johnson realized quickly that there would be a shortage of personal protective equipment, or PPE. But the fact that leaders in procurement and legal had previously created new master service agreements that didn't require new contracts for individual purchase orders helped the company procure PPE faster than others, cutting the average order time from 10 days to three. Experts wonder, however, if that type of innovative redrawing of the org chart will stick. If organization structures stay fundamentally the same, then people will snap back all too easily into their old ways of doing things. “So many organizations are filled with well-meaning people who keep adding little bits of complexity and friction,” Sutton recently wrote. Experts say one of the best ways to start remodeling an organization is to build so-called smart teams. These small groups are formed to solve a specific problem, and the team members themselves not only have a mix of skills and viewpoints but also come from diverse backgrounds. The team solves the problem and dissolves. That fluidity is a big advantage, says Evelyn Orr, chief operating officer of the Korn Ferry Institute. “They retain the agility to respond to rapidly fluctuating situations,” she says.

When companies are small, it’s easy to collaborate, innovate, and make decisions fast. But by the time organizations get big, there can be seven layers or more of management calling more meetings, adding new rules, requiring extra paperwork and making other productivity-sapping moves. On top of that, big organizations wind up with thousands of employees isolated with people who do exactly what they do—there’s no collaboration.

The problem is that the theory can lead to some bad outcomes. Focusing people on the reward, experts say, forces them to make decisions based on the reward and not matters such as morals, interests, and values. It’s how you end up with banks creating fake accounts, manufacturers skipping safety checks, and car dealers overcharging customers. This focus also ignores certain issues, including lower pay levels for women and people of color. During the pandemic, many companies—wisely—realized that the sales and profit targets they had set for 2020 were now irrelevant. They also instituted a variety of tools to raise pay (bonuses for frontline workers) and reduce costs (pay cuts). It was smart short-term management, but they still overlooked some foundational problems. For instance, hundreds of thousands of people had to miss work because they became infected with COVID-19, but 70 percent of all hourly workers in the United States do not receive sick-time compensation, says Don Lowman, Korn Ferry’s global leader for rewards and benefits. Organizations shouldn’t just go back to paying people the way they did in the past. “This isn’t any ordinary change. We’ve all had the opportunity to reexamine what’s important to us,” Lowman says. Salaries are important, of course, but bonuses and variable pay should be tied to more than just backward-looking sales and profit goals. Firms also need to research which types of rewards and benefits their employees actually want. Nonfinancial rewards can play a larger role. Employees are increasingly valuing career development, the chance to tackle meaningful projects, a positive work climate, and recognition at work.

It’s been the prevailing theory in business for more than a century: reward behaviors that improve performance and punish behaviors that don’t. It’s baked into compensation systems at companies worldwide, and “performance” usually refers to sales and profits.

Pay and benefits need rethinking

Org structures don’t make sense

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Consumer behavior changed because of the pandemic, but that doesn’t mean it won’t change again. Listen to customer questions and collect the information they give you.

FILLING THE CRACKS

Experts say there are several steps leaders can take now, in anticipation of the pandemic receding, to address some of their organizations' long-term problems.

Leaders can't manage

There are libraries full of research that show how bad managers depress innovation, increase employee turnover, and otherwise stifle organizations. indeed, bad bosses cost American firms $360 billion in lost productivity each year, according to a pre-pandemic study by CPP, the firm behind the famous Myers-Briggs type indicator personality assessment. Some experts had hoped that the disruption caused by the pandemic might make managers adapt, delegate more decision-making, become more collaborative, or even become more empathetic toward their direct reports. Apparently, that hasn’t happened. According to a Korn Ferry analysis of more than 10,000 managers across 750 organizations worldwide, managers were acting exactly the same way in spring 2020 as they had in spring 2019. As the world started going into lockdown, the good managers stayed good and the bad ones stayed bad. “The data sets showed a shocking level of stability,” says Paula Kerr, a Korn Ferry Institute research scientist who conducted the analysis. And at least in one case, leadership styles still hadn’t changed months later. In December, Sutton sat in on a videoconference between a software executive and his 18 direct reports. The executive, Sutton says, talked more than anyone else combined and consistently cut off people mid-sentence. “It’s exactly how he is face-to-face, but on Zoom the bad behavior is more glaring,” Sutton says. Experts say organizations must do a better job of developing their leaders. Unfortunately, the pandemic may have focused too many organizations exclusively on short-term problems. “If organizations lagged in training and development before the pandemic, they are behind even more so now,” says Wayne Baker, a management professor at the University of Michigan’s Ross School of Business.

“Managers are pretty lousy and have always been lousy,” says Stanford’s Sutton. Before the pandemic, too, many leaders just ordered people to do work, didn’t seek out other perspectives, and displayed zero empathy.

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Reconsider how you interact with customers

Attention centers on turning revenue into profit.

growth

Focus shifts to innovating new and additional products and services.

Expansion

Sales and revenue stabilize, resulting in emphasis on cost controls.

MATURITY

Sales and revenue begin a gradual but irreversible decline.

DECLINE

Give regular feedback to employees about meeting goals, and bake in chances to change goals if business conditions change.

Rethink performance-management programs

Too many organizations reward people for just talking about data. Give individual and team awards for turning data into products that consumers want.

Incentivize good use of data

Today’s bosses need to recognize that they must constantly adapt and embrace uncertain environments while inspiring their people to do the same.

Train self-disruptive leaders

Instead of relying on “mastermind” leaders who dictate tasks, form small squads of nine to 12 full-time employees with different skill sets and perspectives to analyze and solve problems.

Create smart teams

As they eagerly await a vaccine to improve business, leaders may be wrongly blaming their firm’s lagging results on the pandemic alone.

The Problem

Many businesses are approaching the rest of 2021 with the same strategies and operations they had before COVID.

WHY IT MATTERS

A new post-pandemic era could be an ideal time to erase years of fundamental flaws.

THE SOLUTION

WHY IT MATTERS

The Problem

By Russell Pearlman, Meghan Walsh and Peter Lauria.

hover to explore

As they eagerly await a vaccine to improve business, leaders may be wrongly blaming their firm’s lagging results on the pandemic alone.

The Problem

Many businesses are approaching the rest of 2021 with the same strategies and operations they had before COVID.

WHY IT MATTERS

A new post-pandemic era could be an ideal time to erase years of fundamental flaws.

THE SOLUTION

Workforce needs are identified.

Focus is on sales and revenue growth via the marketing of products or services.

Management infrastructure starts to be put into place and functional teams are built.

Human resources policies are implemented.

Training and performance-management processes are elevated to maintain productivity and identify leadership talent.

Organizational structure becomes more complicated.

Pressure mounts to reposition via new markets or technologies.

Reorganizations lead to layoffs, potentially impacting engagement and culture.

Focus moves to exiting via sale or merger to avoid bankruptcy.

Change or transition management becomes a focal point of human resources.