Close
    Share
    Facebook Facebook icon Twitter Twitter icon LinkedIn LinkedIn icon Email

    Leading in Turbulent Times

    PlayPlay Video

    In times of transformation, social capital matters more than ever

    October 11, 2024 • by Patrick Reinmoeller in Leading in Turbulent Times

    IMD Professor of Strategy and Innovation Patrick Reinmoeller shares his strategies for leaders to preserve vital social capital connections during times of change....

    Business transformation often focuses on technology and efficiency, but the importance of social capital – the relationships and connections within an organization – is often overlooked, says IMD Professor of Strategy and Innovation Patrick Reinmoeller, who shares his strategies for leaders to preserve these vital connections during times of change.

    It is no secret that change does not come easy. Oftentimes when companies and organizations embark on a large-scale transformation, there is a lot of misreading, misjudging, and inaction. Transformations are often not remarkably effective. And yet, if leaders heed a key component within their organizations they can drive transformation success – individuals (or those we like to call knowledge brokers) whose strong social connections across the business help to encourage teams into collaborating towards one end goal.

    These knowledge brokers are people with social capital across your company. They connect across silos, learning the so-called languages of the different tribes that exist, and cross-pollinating the insights they receive from one side or another to ultimately benefit the business. They are trusted by different people in the organization, and others trust them because they can understand what matters for the varying tribes and make better decisions, leveraging the power of diversity and a broader cognitive range.

    Yet, in times of transformation, companies often overlook these individuals in favor of others, who can be so singularly focused on the business of change that they fail to realize that the social capital that knowledge brokers have is key to a company’s long-term success. This is why, during times of change, organizations should work to preserve these vital connections.

    The act of transformation is hard 

    There is no doubt that we live in turbulent times. With climate change, ongoing geopolitical tensions and the uncertainty over artificial intelligence and its future in the workplace, companies have a lot to think about when it comes to how they adapt their businesses for the future. 

    But a common mistake that is often made by leaders is misreading the situation. After all, the best strategy in the world will not lead to a successful transformation if it does not fit with global signals. So, if there is a lack of diagnosis of what reality presents, what happens is that the situation is misread completely, resulting in a transformation that is delivered ineffectively. 

    Likewise, if you misjudge what kind of transformation you need, the best execution in the world will not lead to a successful transformation if your organization pursues the wrong change. Particularly if you are running in the wrong direction. And finally, no action is taken, then obviously there is no transformation.  

    If we return to the three global challenges mentioned above, is the solution to embark on three different transformations solely focused on sustainability, digitalization, and geopolitics? Or to deal with three transformations as they come together in a more blended approach?  

    In a study of 150 companies in a range of industries by Marco Iansiti, Professor of Business Administration at Harvard Business School, and Satya Nadella, the Chairman and CEO of Microsoft, digital transformations were shown to be very productive. From 2016-2019, the revenue growth (9.1%) and compound annual growth rate (14.9%) among the leaders in the tech industry were more than double that of the laggards.  

    However, a survey conducted by Bain of 300 large companies worldwide that had attempted transformations, found that most transformations are perceived to be mediocre. In 2023, only 12% voted that their transformations met or exceeded expectations. Whereas 75% voted that they saw mediocre results, which begs the question, was it worth the effort of embarking on a transformation if 75% of the companies surveyed were met with mediocre results? 

    One size fits one

    When the word ‘transformation’ is mentioned, it is assumed that this will lead to excellence, which in my view is often too simplistic. We misjudge because we assume that we need to do fast what everyone else is doing now. So, there is this mad rush to imitate everyone else, while everyone is doing the same? But what we need is to be more effective in understanding what situation we are in, and what is the appropriate approach in dealing with that situation. It is important to recognize that what one organization is doing to address sustainability may only work for them and not yours. One size fits one.

    We need to come to grips with the fact that for every single organization, the transformation that it needs to accomplish is a very specific animal. It is a transformation that deals with and responds to the world that it is in, and it does not necessarily share this world with its peers and the industry. Each organization needs to figure out what kind of blended transformation it needs and that needs to be executed.

    Blended transformations

    Take Apple, which over the past 10 years has worked to pursue growth in a different product market – the automobile industry. Apple addresses a new customer segment with its Apple Car Play. A third of car buyers say the absence of their preferred software like Apple CarPlay or Android Auto would be a deal-breaker, according to a survey by McKinsey.

    What is fascinating is that over the years, Apple evaluated this opportunity, diagnosed the situation, and realized that for them. The transformation did not include manufacturing cars, it was only in serving its existing customers when they use their cars. Apple’s challenge was to demonstrate to its potential B2B clients – the car companies – how valuable an Apple-designed display would be also in the car.

    Likewise with John Deere. In 1990, John Deere established a digital team that has gone from strength to strength. It developed a service for its customers that allows its customers to save about 60% of what needs to be paid on chemicals that help plants to grow and that protect the plants from harmful influences. They created a machine that targeted seeds with an exact shot of fertilizer on the seed, saving farmers an enormous amount of money. Here is a blended transformation focused on digital and sustainability that changes a product-focused company into one that focuses on farmers’ productivity.

    Leaders must recognize that while technology and operational efficiency often dominate the transformation agenda, social capital is a critical, often overlooked asset.

    Social capital

    The key to the success of these transformations discussed above is how these organizations valued their social capital, which I believe is essential in making blended transformations successful.

    In a normal organization, what you often find is parts of the business that are siloed. Whether those silos be finance, accounting, supply chain, operations, marketing or finance, each component of a company has its own tribes. We have silos wherever we go. The challenge is making those silos work together when needed, so that companies can leverage the power of the whole organization.

    But these connections across an organization are dependent on knowledge brokers. Those who have the ability and willingness to learn different mindsets and the different languages of those silos and adjust them to bring the organization together.

    In contrast, when a company submits too singular a vision, and with that implements a total reorganization without considering the impact of social capital, transformation is at risk. A single-minded pursuit of faster, better, or cheaper with a reorganization mixes everything up to deliver on narrow new process KPIs. Ripped out of their tribes, people lose their colleagues, their friends and their identity. They feel lost and very often choose to take a package or leave the organization.

    The detrimental impact of that is that it drives out the best people who can get attractive positions elsewhere, even faster. The second negative effect that single-minded transformation can have is eroding the social capital and the links between the different silos that have been established by knowledge brokers.

    In conclusion, leaders must recognize that while technology and operational efficiency often dominate the transformation agenda, social capital is a critical, often overlooked asset.

    To harness this, leaders should actively identify and support the opportunity for social capital to flourish in their organizations, ensuring social networks remain intact during periods of change. This can be done by promoting collaboration between departments, offering opportunities for cross-functional projects, and encouraging open communication. Ignoring these connections risks losing the cohesion needed for transformation, which leads to weakened collaboration, negative team dynamics and talent loss.

    Moreover, leaders should avoid a one-size-fits-all approach to transformation. Instead, they must take the time to assess their unique challenges and devise blended strategies that address their specific context—whether it is navigating sustainability, digitalization, or geopolitical shifts.

    Transformation is not just about adopting the latest trends but aligning change efforts with the organization’s needs and culture. Leaders should regularly review and adapt their strategies to ensure they are leveraging social capital, creating a transformation journey that not only achieves short-term goals but also strengthens the organization’s long-term capabilities.

    Authors

    Patrick Reinmoeller - IMD Professor

    Patrick Reinmoeller

    Patrick Reinmoeller has led public programs on breakthrough strategic thinking and strategic leadership for senior executives, and custom programs for leading multinationals in fast moving consumer goods, telecommunications, pharmaceuticals, healthcare, and energy on developing strategic priorities, implementing strategic initiatives, and managing change. More recently, his work has focused on helping senior executives and company leaders to build capabilities to set and drive strategic priorities.

    More to explore

    Log in or register to enjoy the full experience

    Explore first person business intelligence from top minds curated for a global executive audience

    Get trial accessRegister NowSign in