When our latest Think. live-interview event, hosted by Kirsten Galliott, Editor-in-Chief of Qantas magazine and Travel Insider, was held at Melbourne restaurant Alfred Place in early March, the coronavirus pandemic was only just on the radar in Australia. In retrospect, asking our guest panel how business leaders navigate in a time of uncertainty and disruption was prescient. Our three speakers offered insights and learnings that have direct application for corporate leaders now plotting the course through this year of unpredictability.
Tony Johnson is chief executive officer for EY Oceania. He’s been at EY, one of the largest professional services firms in the world, for 32 years – 22 as partner – and remains passionate about creating a business where his staff can achieve their full potential as purpose-driven leaders. His work has been primarily focused on the financial services sector locally and internationally, delivering strategic, operational, transaction, governance, assurance, risk, due diligence and regulatory reviews and services. He’s also a member of the Male Champions of Change and the Leadership Council on Cultural Diversity.
Chairman of boutique advisory firm Alchemy Growth, which specialises in strategy in turbulent environments, Mehrdad Baghai is also an author and a partner with a number of Silicon Valley tech ventures. He is co-founder of High Resolves – along with his wife, Roya – which aims to teach high school students what it means to be a global citizen, engaging more than 350,000 young people in Australia, the United States, Canada and Latin America. Baghai co-led the worldwide growth practice at McKinsey in the 1990s before moving to run a Californian technology company.
The founder and CEO of Flamingo AI, a machine-learning company with headquarters in New York and Sydney, Dr Catriona Wallace has a PhD in organisational behaviour, is a published author and analyst, and is a renowned expert in the future of automation, customer experience and artificial intelligence. She is also one of the world’s most cited experts on ethics and human rights in technology and women in leadership. Listed on the Australian stock exchange, Flamingo AI operates at the cutting-edge of AI technology, providing cognitive virtual assistants for employees and customers.
Tonight, we’re talking about how leaders can best prepare for and navigate uncertain times. Tony, how do you strategise for the future? Do you have a one-year plan, a two-year plan, a five-year plan – or are those timelines really having to shrink now?
TONY JOHNSON The timeframes are definitely shrinking. When interviewing people to join EY, I’ll ask the traditional question: “What would you like to achieve over the next three, five or 10 years?” Ten years ago, people would quite comfortably outline their aspirations for 10 years’ time. Now if you mention 10 years, they start to go pale and fall off the chair. Even at five years, they break out in hives. Three years seems to be the period that people can get their mind around. My planning has actually been every six months for the past 30-odd years.
How quickly do you have to make big decisions about the direction of the company?
TJ More and more. Whether it be technological disruption, geopolitical risks, coronaviruses or bushfires, the volatility and the uncertainty is unseen in previous periods. Every day you’re making the kinds of decisions that 20 years ago you may have made one of in a whole year. There are more and more of those decisions and they’re required to be made faster.
Mehrdad, you work with a lot of CEOs across ASX 200 companies. Is the 10-year strategy dead?
MEHRDAD BAGHAI A lot of things happen in 10 years and if you don’t think about the disruptive changes and act on them, then you have the Kodak-moment risk [the film company failed to capitalise on its own invention of the digital camera and then went bankrupt as digital photography disrupted its core business]. Let’s say you’re an energy company CEO. Interesting things around energy are going to happen in 10 to 20 years. Is there going to be electrification? Is there going to be hydrogen? All of these things will affect the assets you own and the company you want to build. When I was a young consultant, about 30 years old and I’m now in my mid-50s, I worked with a pulp and paper company. They had more newsprint assets than anybody in 1993, which was the beginning of the internet. While you would never have sold those newsprint assets in a year or two years or even three years, if they had held onto them for 10 years, they would have been worth very little. They sold every single one of those assets and instead bought uncoated freesheet, which is the paper you put in the printer. And that grew. Leaders must escape that pressure to stay in the short term and be able to act on things that will happen in a 10-year horizon – and to start acting on it now because if you wait until year nine, it’s too late.
Are many CEOs equipped to be able to do both because they’re different skills, aren’t they?
MB The challenge is if you’ve got 10,000 people, you can’t distract them with what’s going to happen in 10 years because they’ve got to focus on what they’ve got to do today. You need the right part of the organisation thinking about how the world’s going to change in 10 years but not distract everyone else who’s making stuff happen now. We call it the three horizons of growth: the core business; emerging opportunities; and ideas, research projects and pilot programs for future growth. Having a mechanism for thinking about the way you act on the future, while you also deliver the core, is the magic.
Is this resonating with you, Catriona? Your strategy is based around an entrepreneurial mindset.
CATRIONA WALLACE The traditional definition of strategy is to move from point A to point B and the configuration of resources to get there. In the startup community, we don’t think about anything in straight lines. We envisage a desired outcome in the future, typically no longer than two years away in early-stage companies. And then it’s a matter of configuring resources in order to test and learn and pivot until you find yourself there – and you could go in all sorts of directions until you get there. It’s quite a different mindset to corporates. It would benefit corporates greatly to start to have more entrepreneurs doing the strategic planning for them. Entrepreneurs can pivot very quickly but corporates cannot. Corporates have scale and size and process and operations but perhaps lack the creativity and the entrepreneurial mindset. If we could put the two things together, that’s the ideal scenario, but it’s quite difficult to do.
How do you respond to that, Tony?
TJ It makes a lot of sense. The challenge is how to create an ecosystem for innovation within the business. We are pretty good at business-as-usual innovation, which I also call “adjacent innovation”. But in terms of transformational innovation, we really struggle. Do you buy it in or do you set up a separate part of the business and then integrate it back into the business? We’ve probably gone more down that latter path. The ideal world is innovation at speed, technology at scale, but still be human-centred.
Have you got better at embracing uncertainty yourself? And when you talk to other CEOs, is that something that everyone’s trying to get comfortable with?
TJ To survive and thrive, you’ve got to embrace ambiguity, uncertainty, volatility. Whether it’s nature or nurture, I think I’ve had the ability to see that the answer lies somewhere in between. And I’ll recite that to people: the answer’s generally somewhere in between when you’ve got two opposing views. If you allow the uncertainty and the ambiguity to get to you, it will paralyse you so you must make a decision, you must move on. I’m not aware of any crystal ball and the worst thing you can do is paralyse the organisation. In our game, I suspect in all our businesses, rarely are there black-and-white answers. Unless you’re comfortable working in the grey, you’ll struggle.
Catriona, you’re quite happy to work in the grey.
CW In the startup community, all we do is work in the grey. An entrepreneur works with massive uncertainty and high levels of ambiguity. We have to find our way through that by being very willing to test and fail and pick ourselves up and go again. That’s our world.
Is change going to be a permanent thing now?
MB It’s just getting warmed up. If you look at the unbelievable amount of change that’s coming from technology and digitisation, add to it the massive changes in energy generation, in the way we work, there will be massive economic changes over the next five to 10 years. Now is just the beginning.
Would you concur with that, Tony?
TJ Absolutely. There are many studies out there that say the speed exponential is only going to go faster and faster. One stat from a couple of years ago: the amount of data produced in just two years was equivalent to 90 per cent of the data ever produced and that’s growing at a rapid rate. Our ability to absorb, analyse and create information and insights from data is going to continue to grow. We are on this treadmill and it’s going faster and faster every day.
Is it only the toughest will survive?
TJ I’m a glass-half-full person. I know hope isn’t a strategy but I do think that we’ve proven over hundreds and hundreds of years to adapt as we go forward. I still see such an important role for being human-centred, notwithstanding the rise of robots. We don’t know exactly what the future of work will look like but there will still be jobs for people. The tasks will be different. If I think about our organisation, traditionally we have recruited accounting and finance-type people. Now every one of our service lines – audit, tax, deals, consulting – has to have digital and data capability within it. So our recruitment now is 25 per cent STEM graduates and that will continue to increase. Accounting, finance and tax skills are still important but alone they don’t cut the mustard. You’ve got to have the digital capability wrapped around that core competency.
The leaders were asked to recommend how people can best take charge of their future in this fast-changing world.
There is so much uncertainty in life and business today and organisations are in a constant state of change. The next generation of leaders will be those who lean in and embrace the change, see the possibilities in the challenges and thrive in the grey. Looking for similarities not differences across skills, industries, operating models and products will enable them to swiftly and effectively adapt to ever-changing paradigms and come out in front. If you can embrace change you will open yourself up to a world of possibilities that are liberating and enlightening. Stay curious and committed to learning new things.
Look in your past to see something that occurred to you that you really care about. Think about all the things you’ve learned through your education, career and experience and how they might be deployed to make a difference. I grew up in Iran and was a Bahá’í, which meant I was considered untouchable. How is it that a society thinks some people are untouchable? It took me a lot of university education, many years at McKinsey and running companies to learn and launch a not-for-profit, High Resolves, which is trying to inoculate young people against bigotry. There’s something powerful about dedicating your skills to something that affected your life at the start.
Learn about AI and emerging technology: renewable energy, the Internet of Things, blockchain, 5G, quantum computing, nanotechnology. These are big things that are going to affect all our lives and jobs. You don’t have to do a university course. Listen to podcasts, read books and then experiment in your businesses. Listen, learn and explore.
Tony Johnson on adding skills
“When I started at EY, I was 21 and my first senior manager was very, very old – about 30 [laughs]. He said to me, ‘Tony, you need to do your CV every six months. If you can’t add something to your CV from the previous six months and you can’t foresee that you’ll add anything to your CV in the next six months, you should make a change.’ I have stuck to that discipline, not necessarily writing out the CV, but asking myself, ‘Have I put something on my CV in the past six months and can I for the next six months?’ I suspect that’s even more important now.”
Catriona Wallace on bias in tech
“We need women and girls to really start looking at the STEM subjects: science, technology, engineering and maths. One of the great challenges with AI is that there are very few women building it – globally, for every 10 people working in AI, only one is a woman, which means 90 per cent of AI is coded by males. This leads to there being either conscious or unconscious bias built into the machines that will run our lives and our world. The data that’s being used to train the algorithms is also full of bias because it’s historical data – a reflection of the world as it’s been up until today. The train has already left the station with this. If we don’t quickly address the bias – in the data, the coders who are coding and the jobs that are going to be affected – it all puts women and minority groups way back beyond where we are today. And it’s not okay.”
Mehrdad Baghai on risk, opportunity and short-termism
When you’re the CEO of a large corporate, uncertainty can kill your business: it’s risk on one side, it’s opportunity on the other and for many organisations, it’s both. If you’re a large company, how do you figure out whether your core business is going to hit a wall and die, and how quickly do you need to build something else in its place? An entrepreneurial skill set becomes really helpful. It doesn’t help figure out what to do when every call you get is from institutional investors about dividends this month. It is very difficult for large companies to evaluate what they’re going to do with their core in a way that doesn’t destroy massive amounts of shareholder value.
On the AI revolution
The three leaders discuss their hopes, fears and ideas around the rise of automation.
Every CEO of a large company in Australia has a collective responsibility to do this reskilling. If you just look at the top 50 companies and you see the numbers, you’re talking about something like a couple of hundred thousand people out of work. It’s not like they’re fired by one bank and another bank will hire them: it’s a structural problem. So where will they go? The challenge we have on the corporate side is not, “Let’s teach them blockchain.” They’re not [all] going to become data-security analysts. But they might have an idea. A woman sitting in a bank knows that she’s going to be out of work in two to three years, so she starts a business on the side. It grows so much so that she hires someone to run the business while she’s still at the bank waiting for the redundancy cheque. So if you’re the bank and you want to be a solid corporate citizen, you train this woman with marketing, e-commerce and the other things you need to run a small business. I think some of the reskilling necessities are not some of the things being talked about: “Let’s train everyone on data and blockchain.” Those skills will be great for hiring people out of university, but not for all of the people we’re talking about.
The Fourth Industrial Revolution is being powered predominantly by artificial intelligence. AI has been around for 70 years, finding its place in the past five years because of growing computational power and big data. It’s going to change everything, not even just at work, but at home, how we live, our health, our bodies, everything. Combine that with the coming of quantum computing, which is only a small horizon away. Robots or machines that are either AI or machine-learning based – machine learning simply means software that can learn on its own account – will automate probably 40 per cent of service, admin and low-level technical jobs within the next five years. By 2025, we expect 40 per cent of jobs to bedone by machines or robots. New jobs are going to be created: in the next 12 months we’re looking at 1.8 million jobs replaced by robots and machines and 2.3 million jobs created. Unfortunately, [most of] those 1.8 million removed won’t move into the 2.3 million jobs and the really distressing thing is that 90 per cent of the jobs that will be removed will be the jobs of women and minority groups. We’re facing a massive challenge around diversity, inclusion and bias in tech at the moment. These machines will provide great productivity and we’re looking at around $1.2 trillion of value in the next 12 months going from those companies without AI to those companies with AI. But there is great risk [to those jobs] and the fallout could be quite disastrous for a lot of people.
I’ve worked closely with the government on the AI Ethics Framework. We’re at this incredible time where automation will improve productivity and decision making, but as a business community we’ve not yet thought through how we’re going to manage this ethically and to make sure it does good. There are some big questions there.
The fact is Australians are still very insular people. I’m generalising, but we like to engage, relate and invest in an Australian way. I don’t think we fully understand the power and importance of technology. The example I would use is we’re number 64 in the world for fixed broadband speed at the moment. Australians like to say, “OK, we’re not the biggest in the world, but we should be in the top 10 on everything.” That’s what we do with the Olympics. But with internet speeds, we’ve gradually gone down. Now, if data is king in a globalised world, how is Australia going to compete if we slide to 100? And yet we’re not seeing protesting on the streets that this is unacceptable. It’s not about watching our movie quicker, this is going to limit our growth significantly. It is a big issue for us and I don’t think we have an awareness of the infrastructure we need to build to be competitive.