Webinar Digitalization and competence disruption

Digitalization is spreading worldwide like wild fire. Regardless of where you work - what country, what industry, what kind of company - digitalization is happening. It is gradually changing the way organizations operate, affecting their operational and organizational activities. And much of the work we do today will continue to change in the future. The subject of many conferences and research is the question: how AI is going to change the power dynamics between man and machine as well as how to built the relationship between the machine and the individual?

In order to understand what digitalization is really about from a scientific point of view, how organizations deal with the challenges of the future, and how the work of experts in various industries will change in the future, whether they are to be replaced by Artificial Intelligence or their work is simply supplemented by it, we invited Frida Pemer (Sweden). She is a professor at the Department of Management and Organization and House of Innovation at the Stockholm School of Economics (SSE) and teaches courses related to digitalization, organizational change, and leadership. She also leads an international research project called ‘Digitalization of Expertise’, and is best suited to the role of a speaker on the topics related to digital transformation and competence disruption.

"So in my work, I research at a lot of knowledge intensive companies, large firms, how they implement digital solutions in the daily activities of their employees, and how these employees’ competencies change in this regard. Artificial intelligence helps to automate many processes. I want to look at how people can retain their expertise, some power over knowledge, while still more and more tasks can be performed by AI or be automated," Frida explains.

Before starting with the topic of experts’ competence disruption and response to the consequences of digitalization, Frida brings four basic concepts to the attention of the audience. "Very often these basic principles are misunderstood in organizations, because we're using the same concept to describe different things," the speaker comments.

From the very start here, we have digitization, which is based around the idea of solving tasks during transformation from analogue to digital (digital documents, cloud storage, etc.). Office work is going online more and more. Digitalization, in turn, leads to the possibility of digital automation of processes, and this is what many companies are now working with, regardless of whether it is retail, manufacturing, service industry, etc. The next stage is digital transformation And now we're talking about entire organization, how to use digital technologies to rethink the way you do business. This concept leads to disruption, i.e. to undermining and dramatically changing specific industries due to the development of new technologies. For example, the smartphone industry has undermined the industry of photo and video cameras.

Market disruption

“Very often when we experience disruption we feel like we've been struck by lightning, it takes us by surprise when it happens. But really destruction is a process and can be quite slow, it's incremental, it happens gradually,” the expert says.

The first thing, Frida advises leaders and executives to do, is to keep their ears to the ground to really be listening to what is happening outside of their organizations and also in other industries that might disrupt theirs.

The second important aspect is paying attention to the emergence of small firms on the market. That sort of firms, with fewer resources, cannot constantly bring new products and services, but start to define a market in a new way - they normally start out by taking over the low-end segments in the market that incumbent firms don't like or find appealing. These segments help the small firms to develop the skills, their customer base and also to change the customers’ preferences. These small companies grow and develop new business models, bring new ideas and proposals that capture the hearts of consumers. "Right now some kind of technology, that can change the current view of things in your industry, might be being created by a small startup," Frida notes.

The third thing worth mentioning concerning disruption is the fact that incumbent firms having been successful for many, many years, with a strong, quality brand and a solid trusted client base under their belts, are not prepared to change quickly, initiate digital transformations and invest in innovation. "In such a case, more modern and flexible firms can quickly and easily overtake organizations with sloppy managerial control and remain in a more advantageous position," - comments the speaker.

Creative destruction and competence disruption

The concept of creative destruction was popularized by the Austro-American economist and sociologist Joseph Schumpeter in his book ‘Capitalism, Socialism and Democracy’ (1942). It involves a process of industrial mutation that continuously reconstructs the economic structure from inside, destroying the old structure and creating the new one.

“When you have disruption in an industry, it is destroying existing market dynamics. But can also be creative, because you have all these new creative ideas, all these new types of companies, or services, or products, or business models. It means that a unique situation is created. In other words, it is possible to look at the bright side of any given problem, the creative side. Any destruction process can lead to a creation process," Frida explains.

There has been a lot of scientific research published stating that 30-40% of the workforce in developed countries will need to re-/up-skill and take on new roles or enter new occupations before 2030. This situation is primarily caused by the digitalization.

In order to prepare for the future and avoid the problem of employees’ competence disruption, Frida Pemer recommends executives and leaders to focus primarily on the insides of their organizations. When carefully examining the established knowledge base which an organization is built on, it may turn out that, with future technological breakthroughs, most of the knowledge in the organization may become outdated and no longer worth considering. As a result, a company needs to launch a process of continuous learning to be valuable not only to the public, not only to customers, but also to its own employees.

There are two types of competence disruption: competence enhancement and competence destruction. The former means that competences, built on the existing knowledge base, are simply stored and new competences (advanced training) are added to them. In the latter case, the old knowledge, on which the company was based, no longer has value. This situation can be fatal for a company because small companies entering the market get a great advantage because they just start to build this new competency bank from the start.

"However, even if competences are disrupted, remind yourselves about the Schumpeter's concept and creative accumulation. Think about the expertise already created within the organization. What of it is important to keep, continue to nourish and accumulate, and what new skills can be added on top of the existing ones and as creatively as possible to make outdated skills, if not attractive, at least interesting," Frida explains.

To answer the question of why some industries are suddenly being affected by a competence disruption, Frida presents four types of intelligence. If certain types of intelligence are observed in a company, it will be more or less likely to be disrupted. If there are tasks that are easy to automate and no longer require human resources to perform them, then the company or industry will be undermined.

There are 4 types of intelligence:

  1. We use mechanical intelligence every day: what people used to do once is now done by computers (for example, scanning a QR code of a boarding pass at the airport, instead of manual checking of the paper ticket).
  2. Analytical intelligence. An expert isn't engaged in preliminary analysis of data any more, the technology gives the result of calculations and the person interprets it.
  3. Intuitive intelligence implies that the person has a comprehensive understanding of a specific task, that is, intuitive intelligence says what to do with the results of the analysis, for example, to enter a certain market, begin to reduce staff numbers, increase prices, or the efficiency of their operating activities.
  4. 4) Empathic intelligence allows a person to understand how people they interact with, their clients feel, read emotional signs, interpret gestures, read between the lines and determine for themself the most correct or relevant response to people's behavior.

Many organizations are now facing a competence disruption that is mainly led by digitization. And many organizations face problems because they do not know what competencies they need, how to access them, how to develop them, and how long these skills will remain relevant and valuable. "I would like to give advice to such organizations. Of course it is worth learning new competencies, even if they quickly become obsolete, because learning new is always useful. You may be very skilled in specific areas today and highly desirable in your organization as a result, but that set of skills may not be as desirable one or two years down the line without some shifting and refining, so you need to continue to develop your skills to retain your expertise, sharpen it so you can be the most relevant person tomorrow," Frida says.

The resistance towards re-/up-skilling

A lot of companies today are trying to help their employees to engage in re-skilling or up-skilling or to just learn new things, but there's also a lot of resistance. “There are a number of reasons why this happens. There are mechanisms can lead to resistance to new things in your organizations. So, they should be taken into account," the speaker comments.

The first one is related to professional identity. Professional identity helps us to build a certain career path, guides professional behavior, provides us with certain status in society, not only at work but also in our private lives. Professional identity is formed from the idea of who we are (a number of certain values that unite us within our professional group), and on specific tasks that we perform. "Loss of professional identity is a painful process, and that's why a huge number of people are afraid of it, and that's why people resist the implementation of artificial intelligence and many other modern technologies," the speaker explains.

The second reason for resistance is the paradox of expertise in organizations. Experts keep the knowledge base in the organization, but they do not bring new ideas, new opportunities. It is difficult for an expert to change their way of thinking and attitudes, which technologies bring, so they express maximum resistance to new tools and new opportunities.

Finally, the concept of the competence hierarchy is one of the main reasons why, in general, there is resistance to digitalization and re-/up-skilling in companies, as experts tend to be concerned with the status of the person who everyone turns for advice to.

Challenges and opportunities related to competence disruption

A lot of companies want to work with data, analyze it, understand it and use it correctly. It has led to appearance of new professional areas such as data visualization, for example. Companies claim they need to hire programmers, create robots and do automation. On the other hand, companies are beginning to request other skills, such as visionary leadership skills, and are looking for inspirational leaders, initiative and creative teams that will help the organization to be transformed.

"You see that on both sides of the same coin we have very different needs. But if you were able to find someone who combines both types of skills, then congratulations, you found your star. But there are almost no such people. That's why companies now need to hire "translators" who understand technologies, and can translate technological solutions into the language of business. In modern organizations, completely new role groups and new positions are appearing. And people, who occupy them, are beginning to receive a new status," the speaker explains.

In addition, Frida Pemer advises organizations to constantly analyze those competencies that are not only needed today, but also tomorrow and in the future. Also, many organizations have to rethink recruitment processes and create opportunities for young employees, forming career paths for them. Another key to success is education and training of staff, active work on professional development, re-skilling and up-skilling of employees, i.e. restructuring their roles, positions and functions.

"However, there is a dark side in the continuous learning, which should be taken into account by the leaders as well," the expert says. “This is both the risk of resistance, that I mentioned earlier, and the risk of professional burnout, as employees are stressed by the combination of training, work and their personal lives. In addition, if new hierarchies of competencies appear and the corporate grid changes, there is a risk that people, who worked in the organization for a long time, would begin to resent the newcomers, who would come to everything already there, who would get new interesting tasks and sometimes higher salaries. And of course, there’s time that people need not only to get to know, but also to practice the knowledge gained. And here the task lies on the management's shoulders to organize these initiatives in the right way”.

In conclusion, Frida Pemer underlines that the transformation and creation of a cycle of continuous learning must first and foremost begin with the individual. "It is very important that we accept and embrace change on a personal level and recognize that, as with every major technological shift, the nature of work this current one demands from us is far from stable. We just need to accept the fact that it is good and normal to be learning something new," the expert concludes.

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Фрида Пемер
Фрида Пемер