In designing our 25th CEO Retreat, we sought to illuminate the tension between two fundamental and deeply interconnected forces: the unprecedented evolutionary pressure on existing institutions and leadership models on the one hand, and – on the other – the accelerating proliferation of new, technology-enabled instruments of power and influence. As our dialogue in Cartagena unfolded, it became increasingly clear that these forces may indeed be shaping the global business environment more than any others. Alexis de Tocqueville, with characteristic prescience, anticipated the present dynamics perfectly: “The world that is rising is still half buried beneath the debris of the world that has fallen, and amid the immense confusion of human affairs, no one can say what will remain of old institutions and mores and what will eventually disappear.”
The Changing Sources of Evolutionary Pressure: We are living in a time of intense evolutionary (or, in Darwin’s terms, selective) pressure on institutions, their leaders, and on leadership itself. These pressures are disrupting, and in many cases, making irrelevant existing operating models, organizational structures and decision-making processes. Their destructive power derives to a large extent from the mismatch between the forms of uncertainty for which legacy institutions were originally designed and the changing domains of uncertainty they must now address. For example, it is increasingly clear that nation states are fundamentally ill-suited to addressing the vital transnational challenges we are facing – from climate change to cyber security. Perhaps most significantly, institutions and leaders are struggling to adapt to technology’s radical empowerment of individuals—as consumers, employees and citizens, and their soaring expectations for service and transparency. They are also increasingly facing asymmetric challenges from the profusion of small, networked micro-powers across all political, social, and economic domains – from Anonymous and ISIS to Zipcar and Airbnb. While long dominant corporations must compete with this burgeoning new generation of lean startups disrupting even the most traditional markets, governments built on 19 century management principles must respond to the rising political awareness and networked empowerment of large populations that were once passive, repressed, or unconnected.
For brittle public and private institutions, whose adaptive capacity is choked by nearly geological layers of unpruned bureaucracy, these selective pressures represent truly existential threats. They are simply unable to make decisions rapidly enough or from a sufficiently long-term perspective to keep up with strategic change. In the private sector, this is particularly true for incumbent firms in previously stable markets. In the public sector, nation states in general and democratic political institutions in particular are prime examples of institutions struggling to adapt and survive in this environment – as continuously declining public trust and rising levels of social unrest make painfully clear.
The Unprecedented Proliferation of New Levers of Power: We are also witnessing in the present age a Cambrian explosion of new instruments of leadership, new tools of engagement, and new levers of power and influence – many of them the corollaries of the evolutionary pressures outlined above. We are moving from a world disrupted by mobile computing to one transformed by ubiquitous computing. Social technology increasingly enables the unparalleled engagement of ever-more-empowered employees, customers, and citizens. New connective technologies and processes are enabling collaborative innovation across even very large, multi-stakeholder networks; crowdsourcing makes it increasingly possible to tap the collective intelligence of an entire organization and beyond. The tools of digital democracy are giving new convening power and concentrated scale to grassroots political movements, and big data and predictive analytics powered by the accelerating advance of supercomputing make it possible for leaders to anticipate individual needs and preferences, leading to new forms of both proactive governance and social control. Despite this intrinsic ambivalence, these tools represent in potentia, the building blocks of entirely new, more agile, responsive and legitimate public and private institutions. Not surprisingly, their fullest and most transformative realization is in new organizations—many of them emerging from the lean startup culture of Silicon Valley.
The question is, where is this evolutionary dialectic headed? Are we moving toward a new period of institutional failure and malignant global chaos as events in Syria and Iraq would suggest, or a renaissance of institutional innovation and reform, signs of which we see in Mexico’s courageous economic reforms, the EU’s steady institutional evolution and the growing strength and attractive power of the Pacific Alliance? What kinds of organizations will survive and even thrive in this environment? What attributes will define them? And which types of organizations can we safely expect to disappear? Where are we in the movement that de Tocqueville described from the world that is falling to the one that is rising?
For business, this question is anything but an intellectual diversion. It is an issue of profound strategic importance. The stability of markets, the reliability of supply chains, the availability of resources, and the openness of the global trade environment are all, at their root, institutional challenges of governance. Given the evolutionary intensity of the global operating environment, all of these fundamental business domains are increasingly subject to deep and sudden disruption. For national governments, the challenge is even greater given the massive scale of their bureaucratic baggage. For example, in the case of the United States, many Retreat participants agreed that, given the apparently entrenched dysfunction of the political system, it may take a crisis even more significant than the Great Recession to jolt the country out of its institutional stupor.
While the outcome is unclear, the decision for leaders is not. For large established corporations and government institutions, the fundamental choice is increasingly stark: intentional innovation and reform or reactive retrenchment and the crises that will inevitably follow it.
Given the array of tools emerging everywhere, the choice is a real one; innovation and reform have never been more possible. At the same time, it still requires making hard choices and trade-offs—that is, genuine strategic decisions. It also requires institutionalizing robust adaptive capacity and, in a world of fragmented, diluted power, new forms of connected, engaged leadership.
Perhaps most importantly, true institutional innovation will require no small amount of political courage at the very top.