Organizations have become more flexible about where and when employees work. Now they need to be more intentional about their choices and trade-offs.

Leaders and the teams they manage are experimenting with new ways of working — both in the short term during COVID-19 and longer term for a post-pandemic world. The axes of work are pivoting simultaneously in terms of both place and time, with leaders designing hybrid ways of collaborating that have few precedents. It’s tough and, not surprisingly, causing confusion. How much flexibility around where and when people do their jobs is best? What strategies are most effective? Some CEOs envision that work will happen “anywhere” going forward, while others are asking employees to return to central office spaces. Some are accommodating flexible time commitments, while others are requiring their staffs to be available 9 to 5.

To find the right way forward, leaders must understand the axes of hybrid work — the upsides and downsides of where and when people work — and align them so that they feed the energy, focus, coordination, and cooperation needed to be productive.

In this article, I’ll lay out what I’m seeing in the evolution of hybrid workplaces and describe four emerging principles: Use office space to amplify cooperation, make working from home a source of energy, take advantage of asynchronous time to boost focus, and use synchronized time for tasks that require coordination.

The Axes of Hybrid Work: Place and Time

The place of work for many people has historically been the office. Separate from personal space and outfitted with all the furniture and technology necessary for people to do their jobs efficiently, the office has been a place of congregation, where people gather for one primary goal — to work.

During COVID-19, this has changed dramatically. For many people, work is now located in their personal spaces — their homes — while others are working in coffee shops, local hubs such as smaller satellite offices or flexible shared office space, or various combinations of remote locations.

But place is not the only axis that is pivoting.

There is now much flexibility around time — the periods when people are actively engaged in work. Time is being reassigned as schedules are extending into what was “private” time, with people fitting work into personal schedules that might include caring for family and friends, taking time out to keep healthy and fit, and even doing professional upskilling. At play is chronological time (based on a specific schedule, such as 9 to 5); synchronous vs. asynchronous time (the extent to which colleagues’ schedules coincide); and control of time (the degree of autonomy that can be exercised about work hours).

Cost-trimming initiatives at B2B companies should be guided by an understanding of what customers truly value.

The economic disruptions caused by the ongoing pandemic are forcing myriad decisions on CEOs of B2B companies. Often, the most pressing decisions are whether and how to cut costs.

As in business downturns past, some CEOs are implementing across-the-board salary cuts and widespread furloughs, while others are taking a more piecemeal approach — renegotiating vendor contracts; trimming underperforming products, regions, and divisions; and shifting to lower-cost sales channels. Our research shows that both of these approaches can be misguided.

A more effective costcutting strategy should begin — and end — with customer focus.

Customer focus tends to be overlooked during cost cutting because it is usually seen as a revenue enhancement strategy. This is a mistake: B2B companies that ignore what customers value when they are cutting costs leave a lot of money on the table.

In our benchmark assessment of 626 publicly traded B2B companies and 4,105 of their customers, we found that companies with high levels of cost cutting and low levels of customer value — as measured by customer satisfaction — had the worst gross margins, while companies with high levels of both cost cutting and customer value had the highest margins. In other words, cost cutting that is devoid of customer value sank margins.

B2B companies can pursue cost reduction with a customer focus in three ways: by reducing value-added waste to deliver more compelling customer value, by improving the effectiveness of customer acquisition and retention, and by narrowing focus to those strategic initiatives best aligned with customer value.

Reduce Value-Added Waste

Value-added waste is produced when companies pursue value drivers that do not align with customer priorities. Innovation races that add increasingly sophisticated features (and costs) to offerings but outstrip customer needs and desires are a primary driver of valueadded waste. Investments like these eat up resources but do not increase pricing power; hence, they reduce margins.

Value-added waste is rooted out by identifying and more intentionally pursuing the small set of drivers that are most instrumental in increasing overall customer value and eliminating features that are not aligned with those drivers. When we studied five B2B companies (a manufacturing equipment distributor; a modular office leasing company; an engineering, procurement, and construction company; an aviation equipment manufacturer; and a hospitality service provider), we found that two or three drivers generated at least 80% of the customer value in each company. This is a consistent pattern that we have verified across hundreds of B2B companies.

Why and how you should encourage employees to speak out about issues beyond their own jobs.

In her first week, Beth dug in. She found the project fully funded and staffed by 64 carefully selected people from departments across the company, including engineering, marketing, finance, and quality assurance. Three concurrent work streams — focusing on research, product development, and marketing and sales — had been established and a well-respected leader appointed for each.

Yet, 10 months later, the project was badly behind schedule and bogged down. Everyone with whom Beth spoke was frustrated with the slow pace of progress. They were all pointing fingers, but in different directions. The CEO believed the problem was a failure of leadership in the three work streams. The departing project leader blamed team members for not devoting enough time to the project. One team member said the problem was poor meeting management; another said key decisions weren’t being made in a timely manner.

What should Beth do? Appoint new work stream leaders? Relaunch the project? Restructure the group or the work? Add more people to the project team? Schedule more meetings or provide an online work platform?

It’s too soon to say. At this juncture, all Beth really knows is that the project is a collaborative effort critical to the success of the organization and that the effort is failing.

Collaborative failures can stem from a variety of conditions. Sometimes they are woven into the fabric of groups when they are formed, perhaps because team members’ incentives are misaligned or decision rights haven’t been defined. Sometimes they develop as groups evolve and their members interact, as when a group expands beyond the limits of its structure or gets bombarded with too many priorities.

Such problems are pernicious and prevalent. Work, after all, is increasingly collaborative. Research conducted by the Institute for Corporate Productivity found that 40% of high-performance organizations (that is, those that excel in revenue growth, profitability, and market share compared with their competition over a five-year time horizon) are shifting to a “high or very high degree” from traditional functions to more cross-functional project- and team-based work. In addition, trends that support and drive more collaboration are gaining momentum, including the rising use of Agile methodologies, the de-layering of hierarchies, the adoption of digital tools and technologies, and the dramatic transition to remote work in response to COVID-19.

Many organizations aren’t fully aware of the risks posed by social media or taking enough steps to minimize them.

Social media platforms are invaluable for connecting companies with their customers, the financial community, and the media. Sharing information on social media can reduce the information asymmetry between companies and their stakeholders in a timely manner. However, several factors, including a lack of planning, controls, and training, combined with the unpredictability of online behavior, can expose companies to considerable risk. Our research found that company managers and internal auditors lack sufficient awareness of these risks and should take a more active role in regulating and monitoring social media activity.

Ill-advised social media posts and lax oversight can cause serious damage to a company’s reputation, trigger investigations by regulators, damage long-term relationships, and introduce cybersecurity threats. Of course, companies and individuals can try to be selective about the disclosures they make on social media and avoid tweeting negative information. But even positive and well-meaning posts can lead to negative outcomes. In 2012, for example, the U.S. Securities and Exchange Commission (SEC) came down on Netflix CEO Reed Hastings for posting information on his personal Facebook account about the company’s impressive video streaming numbers. The day after Hastings’s post, Netflix saw a 700% increase in trading volume and a 20% jump in its share price. Although the information Reed posted on Facebook proved accurate, investors who didn’t follow him missed out. In response, the SEC issued new guidelines for social media use: Companies are now required to notify investors in advance about which information channels they plan to use to distribute important information.

Despite increased scrutiny, risky online behavior continues to be a big issue. In 2018, for example, Tesla CEO Elon Musk tweeted that the electric car company (whose stock had been performing poorly) was in talks to go private. The market response was swift: By the next day, Tesla’s share price had shot up 11%. The SEC proceeded to charge Musk withmaking false and misleading statements, which resulted in a 14% drop in the share price. Several shareholders sued Tesla and Musk for intentional stock price manipulation.

Given the inherent risks, companies need to become more disciplined about their social media activities and monitor them more closely. In a survey we conducted through regional chapters of a professional organization for internal auditors in the United States, we found that many organizations aren’t fully cognizant of the risks or adequately prepared to manage them. In this article, we examine the current practices of internal auditing in assessing and monitoring social media risk, paying particular attention to the challenges auditors face in monitoring social media and how they can adapt and take on more responsibility.

Recommendation engines are revolutionizing how customers buy and employees work.

Wikipedia defines recommendation engines (and platforms and systems) as “a subclass of information filtering system that seeks to predict the ‘rating’ or ‘preference’ a user would give to an item.” But as a tool, technology, and digital platform, recommendation engines are far more intriguing and important than this definition suggests.

In data-driven markets, the most effective competitors reliably offer the most effective advice. When predictive analytics are repackaged and repurposed as recommendations, they transform how people perceive, experience, and exercise choice. The most powerful — and empowering — engines of commerce are recommendation engines.

Recommendation engines have been essential to the success of digital platforms Alibaba, Amazon, Netflix, and Spotify, according to their founders and CEOs. For companies such as these, recommendation engines aren’t merely marketing or sales tools but drivers of insight, innovation, and engagement. Superior recommendations measurably build superior loyalty and growth; they amplify customer lifetime value. Computing compelling recommendations profitably reshapes human behavior.

The influence and purpose of recommendation engines are not limited to customers or consumption. Large employers, most notably Google, have adopted and adapted recommendation engines as internal productivity platforms to nudge workers to their best decision options. Indeed, in late 2016, Laszlo Bock, the senior vice president of people operations at Google, left the company to launch Humu, a recommendation-engine startup for advising workforce behavior change.

While data remains the essential advisory ingredient, the global recommendations revolution reflects profound and ongoing algorithmic innovation, enabling machine learning and AI to power improvements in deep learning and generative adversarial networks. Successful recommendation engines learn how to learn. The more people use them, the smarter they become; the smarter they become, the more people use them. Done right, recommendation engines enable virtuous cycles of value creation.

The networked nudges and prompts of recommendation engines increasingly influence people’s choices in clothing, entertainment, food, and medicine; they also influence the texts we send, which friends we contact, the customers and prospects we prioritize, the experts we seek, the job candidates we hire, the investments we choose, the memos we edit, and the schedules we follow.

The authors revisit their landmark research and address how the competitive advantages offered by digital technology have evolved.

Since 2014, when our article “The Nine Elements of Digital Transformation” appeared in these pages, executive awareness of the powerful and ever-evolving ways in which digital technology can create competitive advantage has become pervasive. But acting on that awareness remains a challenging prospect.

It requires that companies become what we call digital masters. Digital masters cultivate two capabilities: digital capability, which enables them to use innovative technologies to improve elements of the business, and leadership capability, which enables them to envision and drive organizational change in systematic and profitable ways. Together, these two capabilities allow a company to transform digital technology into business advantage.

Digital mastery is more important than ever because the risks of falling behind are increasing. In 10 years of research, we have seen digital transformation grow increasingly complex, with a new wave of technological and competitive possibilities arriving before many companies mastered the first. When we began our research, most large traditional enterprises were using digital technologies to incrementally improve parts of their businesses. Since then, this first phase of activity has given way to a new one. Advances in a host of technologies, such as the internet of things, artificial intelligence, virtual and augmented reality, and 5G, have opened new avenues for value creation. More important, leaders now recognize the need for — and the possibility of — truly transforming the fundamentals of how they do business. They understand that they have to move from disconnected technology experiments to a more systematic approach to strategy and execution.

Some companies have successfully graduated from the first phase of digital transformation and are diving into the second. But many are still floundering: In 2018, when we surveyed 1,300 executives in more than 750 global organizations, only 38% of them told us that their companies had the digital capability needed to become digital masters, and only 35% said they had the leadership capability to do so. This has become more worrisome than ever: As COVID-19 accelerates the shift to digital activity, digital masters are widening the gap between their capabilities and those of their competitors.

Workforce ecosystems can help leaders better manage changes driven by technological, social, and economic forces.

Ask leaders today how they define their workforces, and you’ll immediately hear some version of “Well, that has become a very interesting question, and even more so recently.” Today’s workforces include not only employees, but also contractors, gig workers, professional service providers, application developers, crowdsourced contributors, and others.

Effectively managing a workforce comprising internal and external players in a way that is both aligned with an organization’s strategic goals and consistent with its values is now a critical business necessity. However, legacy management practices remain organized around an increasingly outdated employee-focused view of the workforce — that it consists of a group of hired employees performing work along linear career paths to create value for their organization.

More than seventy-five percent of respondents to our 2020 global survey of 5,118 managers now view their workforces in terms of both employees and non-employees. Growth in the variety, number, and importance of different types of work arrangements has become a critical factor in how work gets done in (and for) the enterprise.

We see many companies experimenting with ways to manage all types of workers in an integrated fashion. Several novel management practices have emerged across the business landscape. Even so, few — if any — best practices exist for dealing strategically and operationally with this distributed, diverse workforce that crosses internal and external boundaries. Executives seeking an integrated approach to managing an unintegrated workforce are left wanting.

We contend that the best way to conceptualize and address these shifts and related practices is through the lens of workforce ecosystems. We define workforce ecosystem as a structure that consists of interdependent actors, from within the organization and beyond, working to pursue both individual and collective goals.

Managing a workforce ecosystem goes beyond efforts to MIT SLOAN MANAGEMENT REVIEW Copyright © Massachusetts Institute of Technology, 2021. All rights reserved. • Reprint #62315 • sloanreview.mit.edu unify the dissimilar management practices currently organized around employees and non-employees. It’s a new approach to a new problem that demands a fresh solution. Our view draws upon two years of research that includes two global executive surveys and interviews with leaders and academic experts. This brief article introduces the concept of workforce ecosystems and discusses how they can help managers rethink the way they align their business and workforce strategies.

Leading Purposefully in an Era of Context Collapse

Introduction

Digital transformation — as business ideology and enterprise imperative — has won: Serious business leaders worldwide accept that their markets, customers, and workers have gone digital. In our recent global management survey, 93% of workers across industries and geographies affirm that being digitally savvy is essential to performing well in their role. The idea that effective digital transformation delivers agility, adaptability, and customer centricity is now both managerial mantra and leadership inspiration.

In real life, however, effective digital transformations also deliver unforeseen risks and unanticipated costs. Leaders’ emphasis on greater efficiency and productivity has provoked a backlash, particularly from a digitally savvy workforce. Digital talent now expects more from leadership than greater flexibility, better compensation, and/or productivity-supporting work environments. Our research suggests that digitally savvy workforces expect digital transformation to better reflect and respect their concerns and values, not just ensure superior business capabilities and opportunities.

These expectations disruptively alter how leaders exert power, influence, and control. The new bottom line: Successful digital transformation demands that leaders measurably transform themselves. Efforts to lead digital transformation are unlikely to be effective without a leader’s own affective digital transformation — one that makes purpose, engagement, and fairness as important to workplace success as data-driven agility and productivity.

This affective rewiring puts a new premium on articulating and committing to corporate values. The COVID-19 pandemic and recent social upheavals starkly highlight this profound shift: Leading digitally savvy workers is as much about prioritizing the effectiveness of enterprise values as the value of enterprise efficiency. Digital workers want their values, not just their value, explicitly acknowledged — if not publicly embraced — by top management.

For this report, we interviewed several C-suite leaders, including Starbucks CEO Kevin Johnson, Anheuser-Busch InBev (AB InBev) CEO Carlos Brito, Delta Air Lines CEO Ed Bastian, former Best Buy chairman and CEO Hubert Joly, and Purdue University president Mitch Daniels. These leaders understand and embrace the reality that effective digital transformation can’t work without their own affective digital transformations.

When environments are complex and dynamic, strategy is about adaptability.

Beth was excited when her CEO asked if she would take over a high-profile commercialization project — one expected to double the audiovisual technology company’s revenues in the coming decade and diversify its offerings. She would be replacing a valued leader who was leaving the organization. The project had been struggling, but it was still early days, and the potential upside was amazing. Beth accepted the assignment on the spot.

A fundamental assumption underlying traditional approaches to strategy is that industry boundaries and economics remain broadly stable over time. This assumption is no longer realistic, given that digital technologies and other factors have caused the average age of the companies in the S&P 500 to decline from more than 60 years in 1958 to less than 20 years today. This has reduced the relevance of tools such as the GE/McKinsey matrix and the BCG Growth-Share matrix, the diagnostic power of which relies on relatively stable industry structures.

A second dimension on which strategy development has become more complex is the requirement that companies show that they are actively contributing to the broader society rather than simply serving as financial entities seeking to maximize their return on capital. The current emphasis on corporate purpose and environmental, social, and corporate governance are manifestations of the intense pressure companies are under to demonstrate their social legitimacy.

As a result, business leaders need to evolve how they think about strategy in two important ways to be relevant in today’s dynamic and complex environments:

• First, their focus needs to shift from what is stable to what is changing — and specifically how these changes may neutralize historical sources of advantage and how they may give rise to new opportunities.
• Second, they need to broaden the number of stakeholders whose needs and potential contributions are evaluated during the strategic planning, review, and refinement process.

In our previous article, “Changing How We Think About Change,” we outlined a framework to help business leaders evaluate the relevance and sustainability of their current strategy and identify what form of strategic adaptation is appropriate to their situation:

• Magnitude: “We need to strengthen our execution of the current path.”
• Activity: “We need to adopt new ways of pursuing the current path.”
• Direction: “We need to take a different path.”

The MADStrat framework uses two perspectives to determine what form of change (magnitude, activity, or direction) is appropriate in a given context:

• Fit to purpose evaluates your market context and involves assessing the closeness of fit between your offering and the needs of customers (both now and in the foreseeable future), and how your business model also delivers value for other stakeholders. What are the outcomes that you enable your customers and their stakeholders to achieve? What wider social value does your business generate? This axis considers differentiation fromthe perspective ofWho are you different for?
• Relative advantage involves assessing your capabilities relative to alternatives, not just direct competitors. In which areas can you claim to offer a distinctive advantage to customers and other key stakeholders? This axis considers differentiation from the perspective of How are your offerings valuably different from those of others?