Manager and machine: The new leadership equation

Here is an excerpt from another “classic” article (2014) written by Martin Dewhurst and Paul Willmott for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

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As artificial intelligence takes hold, what will it take to be an effective executive?

In a 1967 McKinsey Quarterly article, “The manager and the moron,” Peter Drucker noted that “the computer makes no decisions; it only carries out orders. It’s a total moron, and therein lies its strength. It forces us to think, to set the criteria. The stupider the tool, the brighter the master has to be—and this is the dumbest tool we have ever had.”How things have changed. After years of promise and hype, machine learning has at last hit the vertical part of the exponential curve. Computers are replacing skilled practitioners in fields such as architecture, aviation, the law, medicine, and petroleum geology—and changing the nature of work in a broad range of other jobs and professions. Deep Knowledge Ventures, a Hong Kong venture-capital firm, has gone so far as to appoint a decision-making algorithm to its board of directors.What would it take for algorithms to take over the C-suite? And what will be senior leaders’ most important contributions if they do? Our answers to these admittedly speculative questions rest on our work with senior leaders in a range of industries, particularly those on the vanguard of the big data and advanced-analytics revolution. We have also worked extensively alongside executives who have been experimenting most actively with opening up their companies and decision-making processes through crowdsourcing and social platforms within and across organizational boundaries.

Our argument is simple: the advances of brilliant machines will astound us, but they will transform the lives of senior executives only if managerial advances enable them to. There’s still a great deal of work to be done to create data sets worthy of the most intelligent machines and their burgeoning decision-making potential. On top of that, there’s a need for senior leaders to “let go” in ways that run counter to a century of organizational development.

If these two things happen—and they’re likely to, for the simple reason that leading-edge organizations will seize competitive advantage and be imitated—the role of the senior leader will evolve. We’d suggest that, ironically enough, executives in the era of brilliant machines will be able to make the biggest difference through the human touch. By this we mean the questions they frame, their vigor in attacking exceptional circumstances highlighted by increasingly intelligent algorithms, and their ability to do things machines can’t. That includes tolerating ambiguity and focusing on the “softer” side of management to engage the organization and build its capacity for self-renewal.

Missing links

The most impressive examples of machine learning substituting for human pattern recognition—such as the IBM supercomputer Watson’s potential to predict oncological outcomes more accurately than physicians by reviewing, storing, and learning from reams of medical-journal articles—result from situations where inputs are of high quality. Contrast that with the state of affairs pervasive in many organizations that have access to big data and are taking a run at advanced analytics. The executives in these companies often find themselves beset by “polluted” or difficult-to-parse data, whose validity is subject to vigorous internal debates.

This isn’t an article about big data per se—in recent Quarterly articles we’ve written extensively on what senior executives must do to address these issues—but we want to stress that “garbage in/garbage out” applies as much to supercomputers as it did 50 years ago to the IBM System/360. This management problem, which transcends CIOs and the IT organization, speaks to the need for a turbocharged data-analytics strategy, a new top-team mind-set, fresh talent approaches, and a concerted effort to break down information silos. These issues also transcend number crunching; as our colleagues have explained elsewhere, “weak signals” from social media and other sources also contain powerful insights and should be part of the data-creation process.

The incentives for getting this right are large—early movers should be able to speed the quality and pace of decision making in a wide range of tactical and strategic areas, as we already see from the promising results of early big data and analytics efforts. Furthermore, early movers will probably gain new insights from their analysis of unstructured data, such as e-mail discussions between sales representatives or discussion threads in social media. Without behavioral shifts by senior leaders, though, their organizations won’t realize the full power of the artificial intelligence at their fingertips. The challenge lies in part with the very notion that machine-learning insights are at the fingertips of senior executives.

That’s certainly an appealing prospect: customized dashboards full of metadata describing and synthesizing deeper and more detailed operational, financial, and marketing information hold enormous power for the senior team. But these dashboards don’t create themselves. Senior executives must find and set the software parameters needed to determine, for instance, which data gets prioritized and which gets flagged for escalation. It’s no overstatement to say that these parameters determine the direction of the company—and the success of executives in guiding it there; for example, a bank can shift the mix between lending and deposit taking by changing prices. Machines may be able to adjust prices in real time, but executives must determine the target. Similarly, machines can monitor risks, but only after executives have determined the level of risk they’re comfortable with.

Consider also the challenge posed by today’s real-time sales data, which can be sliced by location, product, team, and channel. Previous generations of managers would probably have given their eyeteeth for that capability. Today’s unaware executive risks drowning in minutiae, though. Some are already reacting by distancing themselves from technology—for instance, by employing layers of staffers to screen data, which gets turned into more easily digestible Power Point slides. In so doing, however, executives risk getting a “filtered” view of reality that misses the power of the data available to them.

As artificial intelligence grows in power, the odds of sinking under the weight of even quite valuable insights grow as well. The answer isn’t likely to be bureaucratizing information, but rather democratizing it: encouraging and expecting the organization to manage itself without bringing decisions upward. Business units and company-wide functions will of course continue reporting to the top team and CEO. But emboldened by sharper insights and pattern recognition from increasingly powerful computers, business units and functions will be able to make more and better decisions on their own. Reviewing the results of those decisions, and sharing the implications across the management team, will actually give managers lower down in the organization new sources of power vis-à-vis executives at the top. That will happen even as the CEO begins to morph, in part, into a “chief experimentation officer,” who draws from acute observance of early signals to bolster a company’s ability to experiment at scale, particularly in customer-facing industries.

We’ve already seen flashes of this development in companies that open up their strategy-development process to a broader range of internal and external participants. Companies such as 3M, Dutch insurer AEGON, Red Hat (the leading provider of Linux software), and defense contractor Rite-Solutions have found that the advantages include more insightful and actionable strategic plans, as well as greater buy-in from participants, since they helped to craft the plan in the first place.

In a world where artificial intelligence supports all manner of day-to-day management decisions, the need to “let go” will be more significant and the discomfort for senior leaders higher. To some extent, we’re describing a world where top executives’ sources of comparative advantage are eroding because of technology and the manifested “brilliance of crowds.” The contrast with the command-and-control era—when holding information close was a source of power, and information moved in one direction only, up the corporate hierarchy—could not be starker. Uncomfortable as this new world may be, the costs of the status quo are large and growing: information hoarders will slow the pace of their organizations and forsake the power of artificial intelligence while competitors exploit it.

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Here is a direct link to the complete article.

Martin Dewhurst and Paul Willmott are directors in McKinsey’s London office.

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