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IMD. PERSPECTIVES FOR MANAGERS REAL LEARNING. REAL IMPACT www.imd.org/pfm THE POWER OF DIVERGENT THINKING No. 1-19 What does the future hold for a 160-year-old cash who commit limited time to the project work (in handling company when major trends across parallel to their regular responsibilities). Executives the world portend a shift away from cash? The are in a hurry to make decisions and get going- company in question is Nasdaq Stockholm-listed Given the stiff timelines and tough project goals. Loomis. the tendency is to quickly reach solutions that lie within the comfort zone. The assumption here is Loomis has increasingly found itself at the that "we know our industry and our competitors; Intersection of two forces. On the one hand, an we know what our customers want, we just need increase in the acceptance of debit/credit card to improve our operational efficiency and align by merchants, a rise in e-Payment services, the our systems and processes to create value." Thomas Malnight convenience of mobile wallets and many more Rushing to quick answers essentially means IMD Professor of Strategy fintech innovations are challenging the cash doing the same things, just working harder. This is and General Management ecosystem. On the other hand, cash in circulation a "delivery" mindset that is typically employed for has been increasing since 2007 (except in Russia managing today. and Sweden) and it remains the most common payment method in the world in 2018.' Within However, to manage for tomorrow with a "leader" this context, Loomis employs around 25,000 mindset, executives need to expand the areas people carrying out cash in transit (CIT) and of choice and shape the strategic options for cash management services (CMS) through an the company going forward. For this, they must international network of more than 400 branches in adopt a learning attitude and explicitly challenge over 20 countries with annual revenues of SEK 19.2 themselves to step out of their comfort zone. The billion ($2 billion) in 2018. Loomis customers are question is "how"? primarily banks and retailers - two industries that Ivy Buche are being heavily disrupted by evolving customer Our answer - by applying divergent thinking- Associate Director, Business Transformation Initiative behaviors and a new breed of competitors. We define divergent thinking as a process for "The strategies, capabilities, processes and identifying new opportunities, finding multiple mindsets that have led us to where we are today will creative ways to address intractable issues not take us into the future," stated Patrik Andersson or abstract problems and challenging the when he took over as the new CEO of Loomis in organizational status quo. The benefit of divergent 2016. He launched a strategy review process and thinking is that it encourages people to think established dedicated teams comprising people from multiple perspectives to open theoretically from cross-functional areas to explore the future limitless options, followed by sense-making. trajectory of Loomis's businesses - what is working ultimately resulting in more innovative solutions and what is not, what are the untapped opportunities or breakthrough possibilities to address the and which threats could derail its strategy. challenge at hand. Given that there is no right or Victoria Kemanian wrong answer, the process also enables a deeper Director, Business The challenge - slow down! understanding and significant learning for the Transformation Initiative As the projects went underway, Patrik had one individual, team and the organization. concem. How could he ensure that the discussions and options being explored would not become Having worked with scores of executives, we find incremental and internally focused? How could the that divergent thinking does not occur on its own. teams be challenged to see diverse possibilities First, it must be framed in a way that enables before converging on the best way forward? the opening of new vistas but not going off on a tangent. Second, It must be built into the project This is a common issue faced by most project design in terms of time allocation, discussion teams. Typically, they are run by busy executives formats and specific interventions. 2019 IMD - International Institute for Management Development. Not to be used or reproduced without permission.THE POWER OF DIVERGENT THINKING Four lenses to power up divergent Loomis applied the two-directional approach to thinking chart the next steps on its strategy roadmap. As a framework to encourage teams to expand Core-forward thinking propelled it to expand its their thought process, we apply four lenses: strengths in cash management to forex solutions. 1) Two-directional approach, 2) Purpose, 3) Outside Investing in forex solutions helped the company in and 4) Disruption (see Figure 1). o unlock a range of untapped customers such as airlines, hospitality and tourism providers, Each lens makes a distinct contribution to the independent currency exchangers, and so on. overall strategy discussion. A combination of the Loomis also strove to achieve better operating four results in: margins by moving up the customers' value chain through investment in new technologies. At Surfacing options to accelerate growth along the same time, future-back thinking enabled it to the company's existing trajectory "seed" new platforms to handle digital payments Developing breakthrough ideas to change the and to enhance its technical capabilities for future current trajectory of the company payment options. This was a priority for innovation, both internally and for acquisitions. Figure 1: Divergent thinking Understanding and saying ahead of trends lenses pain points and moods 2. Purpose Purpose is not about having lofty words on the Outside In wall" to which companies pay nominal homage when it suits them. Purpose is the reason a Fixing and growing foundation company exists. It signifies what it stands for, business Shaping our future why employees want to work for it and why -Optimizing achition Core Future Forward Back . Purports other stakeholders want to partner with it. We Purwing pockets of growth find that purpose, done right, raises the game of a company - shaping what it does and why it does it - ultimately leading to business growth and profitability. Fundamentally, purpose allows Disruption a company to expand its impact - on multiple stakeholders, across the ecosystem, today and in Source: Authors anibalizing businesses Challenging the rules of the game the future. In the case of Patrik's challenge at Loomis, the four While executives tend to see many risks in lenses framework resulted in a robust divergent pursuing higher order objectives, leaders/ process that delivered better outcomes by allowing organizations who buy into purpose are willing the project teams to take time to slow down first. to take that risk in their stride to seek a bigger Impact. Purpose thus provides the motivation 1. Two-directional approach and a reason to change decisions, actions and A two-directional approach, comprising core- behaviors. forward and future-back thinking, serves to break the Incremental mindset that prevails in many We find that by focusing on purpose, even companies today. "Core-forward" is the typical legacy companies like Loomis can create an approach employed by companies as they focus exciting future. Traditionally, Loomis has been the on securing operational efficiency, achieving guardian of cash. It has come a long way since the short-term KPis, and protecting market share. age of stage coaches to provide the safe transit Core-forward thinking alone is limiting since it of cash via armored vehicles and guards (CIT), focuses purely on the traditional business with an which accounted for 62% of its revenue in 2018. incremental agenda. To build a comprehensive In the last decade it started CMS, which grew picture, core-forward must be coupled with the steadily, accounting for 31%." Patrik stated, "As "future-back" approach. Lewis Carrol's quote "If the specialist at creating efficient cash flow, we you don't know where you are going, any road know better than anyone else where, when and will get you there" is a good illustration of the how much cash is needed in society. Our role has importance of future-back thinking. This requires been evolving tremendously as we aim to lead the leadership team to have a point of view on the transformation of the cash ecosystem." The where the company is headed in the longer term. next frontier for Loom's requires it to participate In payment systems of the future. A curious and Some questions that we ask companies are, What exploratory mindset is needed to understand how are your KPis beyond your budgets? What is your payments will evolve and the opportunities this ambition for the business beyond financials? How might present, and how technology can enable will your business be fundamentally different in greater transparency, efficiency and security. five years' time?" The answers to these questions The big challenge for Loomis now is to apply the often expose the company's lack of a change purpose lens to create greater value for clients, agenda, which holds the whole organization back. partners and society alike. 2 | IMD PERSPECTIVES FOR MANAGERS 2019 IMD - International Institute for Management Development. Not to be used or reproduced without permission.THE POWER OF DIVERGENT THINKING 3. Outside in quarters. "We got to where we are because we As the name implies, the outside-in lens asks, know how to run the business. Someone is "What will the ecosystem of the future look like in always talking about disruption, but I don't see which companies must play - and win?' The focus it in my area," is a common refrain. This lens is on trends shaping markets, customer behaviors looks at disruptive players who challenge existing and the competitive landscape. While leaders businesses by changing the rules of the game. do systematically look at trends, too often they end up relating them to their existing businesses Disruptive threats are normally not on the radar and operating models. Their focus is not only of incumbent firms. As such, companies are not internal but also backward-looking as they define set up to disrupt themselves or even think about the world in terms of how they have operated in cannibalizing themselves. The logic of innovation the past. However, it is critical for executives to within big companies is built upon big budgets, actively understand the big trends (and even big teams and long timeframes to come up with the weak signals) and what they could mean for a proven bet. The fear of failure is so high that their company. They need to ask, "How do these at one company we were told that they prefer external trends threaten or enhance what we do "100% successful entrepreneurs." This is in today? How could they shape what we will be sharp contrast to disruptive innovation whereby doing tomorrow?" the initial minimum viable proposition is targeted at a less-demanding customer base and brought How do these external For Loomis, an in-depth analysis of the to the market at maximum speed. Over time, the trends threaten or implications of the external trends enabled it to product/service is continuously improved upon so enhance what we do tackle the fundamental challenge of leveraging much that mainstream customers make a shift to today? How could they the transition occurring in the overall cash this new offering. shape what we will be ecosystem? Outside-in thinking highlighted the doing tomorrow? single most important trend impacting Loomis - For Loomis, it would be well worth the leadership the increasing willingness of banks and retailers to time to identify potential disruptive players. outsource cash management in order to increase Disruption could come from the proliferation of their cost efficiency and security (depending on new payment methods spearheaded by fintech the maturity of the market). Cash in transit was companies or from potential "one-stop-shops" that usually outsourced first, followed by other aspects could provide integrated back- and front-office of cash management, and finally associated value- digital payment and transaction management adding services to its portfolio. Retail players were solutions. To counter such threats, Loomis made a looking for advanced/integrated POS solutions bold move to bridge the divide between digital and while banks sought to consolidate branches and physical cash by partnering with Sonect, a Swiss ATM networks. company that converts retail shops into "virtual ATMs." Sonect provides a platform for consumers This was an opportunity for Loomis to launch to access digital cash at retail locations and planning and forecasting services. Patrik withdraw it as physical cash. This reduces the explained, "Instead of going to an ATM or retailer cost of cash distribution for banks and simplifies to pick up or hand in cash, we will take care of in-store cash management for merchants via a the entire planning process. When the retailer is location-based on-demand service. stocking up in the morning, we can tell him how much money he needs, and in which currencies Building upon the recommendations of the project and denominations. The bank does not have teams, Loom's' leadership charted a new strategy to tell us when to go to an ATM. We can do that map to 2021 (see Figure 2). Increased growth ourselves. I will be surprised and disappointed if and profitability would be achieved not only by we don't make SEK1 billion from the new services developing the company's core business but also by 2021." Loomis built an aggressive acquisition through new strides up the cash management agenda targeting candidates to add new related value chain and over time through new payment services and technologies. Software and hardware services. In line with the new strategy, Loomis solutions for back/front office and other planning launched several initiatives and committed tools were at the top of the list. investment on priority areas. For example, it opened two Centers of Excellence in 2018 that 4. Disruption would focus on further developing solutions for We find that it is a combination of complacency and retail customers and expanding its offering in CIT arrogance that blindsides leaders and prevents and CMS. Patrik stated, "We have entered a new them from recognizing disruption from different chapter in Loomis's evolution." IMD PERSPECTIVES FOR MANAGERS | 3 6 2019 IMD - International Institute for Management Development. Not to be used or reproduced without permission.THE POWER OF DIVERGENT THINKING Figure 2: Loomis's strategy 2018-2021 Key enablers: A strong sponsor. The leader's role as an Targets: internal sponsor is critical in providing guidance and intellectual stimulation. Beyond that, he/ she connects the dots and provides a compass 24 that enables coherence and relevance. A sponsor's involvement has a powerful impact in building ownership and engagement within the team and the organization. 12-14% A safe space to enable the right discussions: Tapping Into the collective intelligence of the organization requires the involvement of a broad spectrum of people with diverse areas of Source: Loomis annual report 2018 expertise and builds on an iterative process. To fully leverage the diversity of perspectives, it is Designing divergent thinking into the important to embed an open and collaborative mindset that invites contributions, challenges process and experimentation from all involved. People tend to spend a greater proportion of their time taking action rather than discovering, A clear focus on the themes: While divergence discerning and deciding. Embedding divergent explores an issue and options to address it, thinking into the project process requires and the outcome may be open-ended, the process requires adhering to the specific areas Tapping Into the knowledge of the organization: collectively identified as strategic ones. To avoid There are pockets of excellence and rich over-scoping, there must be a clear mandate, perspectives that lie within functional or business defined and agreed on at the start, with a silos. These can be brought to the surface either common understanding of the task ahead. through workshops designed around particular topics with cross-functional groups or via one-on- Periodic checks to stay on track: one conversations with a cross-section of people The exploration effort requires effective across markets, hierarchy, level of experience, coordination within and across the topic etc. Seeking these different points of view enables areas. More importantly, setting up a roadmap divergence even though it is derived from within with milestones and expected outputs the organization. It also informs the project team in line with the overall goal is crucial for about potential success factors/derallers for the effective monitoring and acceleration, where company strategy going forward. necessary. Ideally, teams should appoint an internal resource at the corporate level who Making external visits: This is about experiential supports this effort. earning rather than just reading about best practices and success stories. Project teams should An external provocateur to "hold" the choose to visit companies that span industries, uncertainty. The benefits of an external markets and customer profiles. The visits should challenger who brings an objective and be structured around issues that matter rather than credible voice are numerous; probably the the novelty of the company being visited. They are most relevant is the ability to navigate and not "tourism visits" but should serve to break the take teams through a process that creates, by barriers of complacency and arrogance. design, several uncertainties. Managing the tension between what we know and what we Holding customer/stakeholder conversations: do not know throughout the process is critical These conversations should not focus on selling to generate new ideas and options. but gaining insights into customers' needs and challenges. Additional insights from other The power of divergent thinking lies in expanding stakeholders across the ecosystem are also key the areas of choice beyond what is being done to develop a holistic perspective of the issues at today, and to build concrete options for a company hand. Growth opportunities come from responding to remain relevant and succeed in the future. to unmet needs, not from fighting for market share. References: Engaging subject matter experts: The role of the BIS Quarterly Review, March 2018. topic expert is not just to share insights but to be 21 Loomis Annual report 2018. a provocateur who challenges the teams' thinking. 3) Patrik Andersson. Capital Market Day Presentation, He/she is not there to provide the answers but to 28 September 2017. raise the level of the questions being asked. 4) President's statement, Loomis Annual report 2018. 4 | IMD PERSPECTIVES FOR MANAGERS 2019 IMD - International Institute for Management Development. Not to be used or reproduced without permission