The 75-year-old believes that government aid is the right instrument in the corona crisis and in view of the state-mandated stagnation of the economy. Even if that does not correspond to the market economy ideas. “The state must secure the financing of companies that are in need through no fault of their own,” Malik is convinced. However, the state must restrain itself as far as possible as an entrepreneur and act as a kind of silent partner. “The leadership must lie with the management.”
The consultant sees one of the greatest challenges in the increasing complexity, which would increase even further due to the corona crisis. “Many want to reduce complexity, make things easier,” says Malik. But that is increasingly the wrong reflex.
“Complexity is an important raw material in a world that is constantly changing unpredictably. Complexity is the source of intelligence, creativity, adaptability and flexibility. ”If you deal with complexity correctly, you can best react to the unexpected because you have more room to maneuver. “And in more and more cases, it’s simply impossible to reduce complexity.”
The most positive thing he has heard from a manager in the last few days is “the will and belief expressed with great thought: we can do it!” Many do not yet know how, but have the courage to admit exactly that.
Read the full interview here:
Professor Malik, what is the top concern of Germany’s top managers right now?
The question of how they start up the system – the economy and their own company. A country like Germany has about five percent of its population in terms of organizations; not only companies, but also administration, hospitals, schools. That is around four million organizations.
If only one percent, i.e. 40,000, of them is in a mutual exchange relationship, starting up is a huge challenge that we have never faced before. Maybe after World War II, but not in peacetime.
What is the hardest part?
The complexity. This has little to do with business administration, it goes beyond business administration. We are in a deep transformation and it is likely to be the largest in history. One of the driving forces is digitization. Because it leads to the networking of everything with everything, globally – and thus more and more complexity.
The two great coordinators of humanity become meaningless – namely space and time. You don’t have to travel to China to do business in China. It goes directly from here and at lightning speed – and the feedback is back here just as quickly.
But this is not a new phenomenon. We have been talking about digitization since the 1970s.
But not at the level and with the performance as today. We have to understand the corona crisis as part of this transformation, this change.
You have to explain that!
The “creative destruction” according to Joseph Schumpeter can best be illustrated with two “S” -shaped curves, one red and one green, which overlap. The colors have no political meaning. I take S-curves because nothing grows linear in nature, neither does the economy. The red S curve represents the old system. You can stretch it a bit beyond your time, but eventually it will collapse.
However, the new system, the green S-curve, is not so far that it could completely replace and replace the old system. We are in transition, many processes have not yet adapted. The corona virus is now forcing us to do this.
In what way?
Because of the physical distance that we all have to maintain, we are experiencing an unprecedented surge in decentralized work and in telecommunications. This will accelerate the transformation – and further increase the complexity. If you consider how many conversations are currently being held in video or telephone conferences, then this shows the high degree of complexity.
We have also been talking about complexity for a long time.
Yes, but not to the same extent as it is now in the crisis – and only a few top executives have been able to deal with it in sufficient detail so far. Many want to reduce complexity that make things easier. This is increasingly the wrong reflex, the opposite is correct. Complexity is an important raw material in a world that is constantly changing unpredictably. Complexity is the source of intelligence, creativity, adaptability and flexibility.
The right way to deal with the unpredictable is to deal with the complexity because you have more room for maneuver. And in more and more cases, it is simply impossible to reduce complexity. On the other hand, the solutions for highly complex challenges are often amazingly simple.
The corona crisis will accelerate the transformation – and further increase the complexity.
One can try to regulate a highly complex traffic intersection with a complicated and expensive traffic light solution. But you can also do it with a roundabout – elegant, effective and cheap, with a reduction in accident rates of up to 60 percent.
So the top managers are poorly equipped for this increasing complexity?
About half are struggling. Many confuse complexity with complexity, for example caused by increasing bureaucracy. There are of course many starting points for simplification, for dismantling. But that’s different.
What is the best way to deal with increasing complexity?
I like to use an example: Take a classical symphony by Beethoven. I can play Beethoven in two ways. First, one after the other: first the first violins, then the second and third violins, then the cellos, the flutes and finally the large wind instruments. Every note has been played at the end, every pause has been made – but it is not a symphony. But if we let all 160 musicians play together, it’s a symphony. Simultaneously instead of sequentially. And all that is needed is a conductor.
Let’s move from music to government aid. Some corporations like that Lufthansa are currently negotiating. What does that do with a strong and successful company and its management to date?
It will certainly be very difficult for management, like many other top managers in similar situations. The pressure is enormous, it has never been so great. Nobody sleeps well anymore, everyone is busy day and night with the question of how to proceed.
What do you think of the fact that companies have to be saved by the state? Is this the right tool in the crisis, or do you say: the state is never the better entrepreneur?
The state must secure the financing of companies that are in need through no fault of their own. At the moment we have no choice but that all organizations – including the state – support each other. Even if this does not correspond to our market economy ideas. As long as the situation does not deteriorate – some are already talking about possible second waves, for example in China – we can overcome the crisis.
The group is negotiating state aid. “It will certainly be very difficult for management,” says consultant Malik.
But the state must restrain itself as much as possible as an entrepreneur and act as a kind of silent partner. The leadership must lie with the management. But the state has to determine the rules for dealing with the disease and is faced with a lot of uncertainty. The complexity required for this is only gradually achieved – through “trial and error”.
The state is already indirectly intervening in other areas, with the government expecting companies to participate in the manufacture of protective masks and other tools to contain the crisis.
The protective mask is a relatively banal product, but it cannot be economically produced in this country due to the high wage costs. That would be far too expensive. After the crisis, such goods have to be weighed up, which will be regulated by the state again in future and thus produced here.
You won’t get any further with the rules of business administration. The necessary economies of scale cannot be realized in Europe. The state has to assess this soberly in terms of precautionary measures and then decide that protective masks will no longer be produced only in Asia in the future. And for this, government funds must also be made available.
Does this generally also apply to significantly more complex supply chains? It can be heard from the pharmaceutical industry that the manufacture of medicines is sometimes at risk because raw materials are only produced in China or India. In other words: have we exaggerated globalization?
You can see it like that. Indeed, all dependencies have to be re-evaluated and, depending on the sector, production may have to be relocated. But this cannot happen everywhere because the cost differences are huge. And with that, the competition there will set limits.
I live in Switzerland. Before the corona crisis, a different kind of stockpiling was carried out here. Many simple relief goods are already more readily available here, and against all business logic. This can now be seen as an example in other countries.
Are you indirectly advocating a stronger state? The national airline Swiss did not prevent this from ending its independence years ago. It seemed that Swiss was better off under the Lufthansa roof.
At that time, this decision was made out of necessity to avoid the breakdown. The end of the independent Swiss was actually very difficult for the whole country at the time. That hurt. The heart of the nation bled. But the rescue was only possible at the very high price of a takeover by Lufthansa. After all, it has worked quite well under the Lufthansa group roof.
The fear of takeovers is likely to plague many CEOs again since stock prices plummeted across the board in the corona crisis. What do you advise?
That is a very big challenge and also a threat. The respective CFO is now required. If the worst comes to the worst, he must organize appropriate countermeasures.
The stock price needs to go up again, that’s the best protection. You also have to control this communicatively. The entry of a desired anchor investor can also be helpful. Above all, management must guarantee that the company functions as an organization.
The leadership must lie with the management. However, the state must determine the rules for dealing with the disease.
How do you keep a company going in such a crisis?
This is where cybernetics comes into play, the science of communication, self-regulation, self-regulation and self-organization – in one word: the science of functioning. The management in a company must communicate in such a way that everyone knows what the state of the company is so that they can respond correctly.
Feedback, the most well-known term in cybernetics, is very important here. We always have to send signals where we are. If you didn’t say “yes” over and over again in this interview, nodded in agreement or looked in doubt, I wouldn’t know how the conversation is going. This feedback system works well in an area that most people know.
In air traffic. If the tower pilot instructs the captain in the cockpit to climb from 3,000 to 4,000 meters, what does the pilot do?
Soar to an altitude of 4000 meters?
Most of the managers I ask say the same. No, the pilot first makes sure that he has understood it correctly. He gives a confirmation of the message by repeating it. He says: “New flight altitude 4000 meters, over.” He even says when he’s finished speaking. So what does the pilot do in the tower? He confirms the confirmation. Only then does the pilot climb to an altitude of 4,000 meters, and when he is there, he reports it. And the tower pilot confirms that he has understood it. So we have a double closure of the feedback cycle.
And what do you mean by cybernetics?
It is one of several core elements of cybernetic functioning. There is no functioning without functional feedback. This feedback system works across all countries and airports. In all seasons, in all weather conditions, day and night. And there are almost no accidents with 150,000 to 200,000 flights a day in normal times.
Thanks to digitalization, more and more factories are working, as are driver assistance systems in cars and surgery stations in clinics. In management, on the other hand, it only works in about a third of the companies.
Why does it only work for a fraction?
It is partly because it is not taught systematically. Management training is still too firmly anchored in business administration. And as long as you can look each other in the eye, it works. The feedback comes automatically because I can read the facial expressions.
But if we have to communicate at a distance worldwide and now in this crisis, then feedback is becoming increasingly important for a functioning understanding. The crisis will help here.
Speaking of communication: is it right to be ruthlessly honest, like Volkswagen-Chef Herbert Diess it was when he said on a TV talk show that VW burns two billion euros every week in the shutdown – or does that only stir up more uncertainty?
No, I think in this case the openness is right. The top executives of such a large group in particular have to say what challenges they face; name the dimensions of the problem, even in sums. There are countries like China, so we don’t know if the information is correct.
That is why it is also socially important that our managers create trust through transparency. The question is not whether you talk about it. The key is timing; and tonality – these are important elements of real leadership.
What was the most positive thing you’ve heard from a manager in the past few days?
The will and belief expressed with great thought: We can do it! We don’t yet know how, and we have the courage to admit that, but we can do it.
Professor Malik, thank you very much for the interview.
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