Jan Rotmans Sees a Lack of Transformational Leadership in Boardrooms

During Covid, problems with logistics, raw materials and supply routes were generally seen as temporary issues. Events such as the war in Ukraine and the energy crisis have made it clear that supply chains are actually very vulnerable. Despite this, companies are more concerned about getting their products to consumers before the holidays than dealing with the medium- and long-term changes which need to be made. You foresee conditions worsening. Why is that?
‘Change has become a constant and much of what is happening now cannot be undone. Climate change is not a temporary thing, it is gradually getting worse and will have enormous implications. The gas crisis is a consequence of the geopolitical dependence on Russia and will take at least another five to ten years to resolve. If Putin shuts off the tap completely, which would not surprise me, the situation will become uncontrollable. Alternative resources such as hydrogen and geothermal energy are much more expensive and not yet fully developed. Besides, we can only produce half of the necessary green hydrogen ourselves. For the remainder, we must rely on countries with more sunshine and deserts such as Libya, Tunisia, Morocco, Qatar or Saudi Arabia. That is not an optimal situation.
Our electricity crisis, too, will continue for at least another ten years. Our power grid does not have enough capacity and it will take decades to replace all the cables. Furthermore, we do not have sufficient raw material to proceed with our energy transition. China is the dominant global supplier of critical minerals such as lithium, iridium, neodymium and dysprosium. We are thus dependent on China for our smartphones, solar panels, batteries and windmills. Finally, we do not have sufficient ‘knowledge resources,’ or people. An aging workforce means that this, too, is a structural problem. This is not a case of disruption, a temporary upheaval, but a fundamental transition that will necessitate new ways of thinking, acting and organization. If you do not adapt your supply chain now, you will not be around at all in ten years.’

We predicted many of our current problems years ago. Still, we did not do enough to prepare. Do you have an explanation?
‘When crises follow one after another, the effect can be paralyzing. Also, many people simply do not know how to deal with such things. They may realize what is happening and want to do things differently, but it can be years before they actually act. Monday morning we all return to business as usual. We work to survive, tackling the problems immediately before us, and the urgency of addressing more nebulous future needs subsides. However, you definitely won’t survive if you are always just trying to get through the next day and do not take time to prepare for the future. Countless times, I warned Dutch greenhouse growers of the dangers of excessive reliance on gas.  But, there was an energy tax reduction, not? Three quarters of greenhouse growers’ energy contracts run out this year, and the new rates will be four to five times as high. These growers all face going bankrupt.’

Can you give us a general idea of the systematic changes that will be needed to improve supply chain management?
‘We need to move towards a future of primarily regional economies based around major city hubs such as Rotterdam-The Hague, Eindhoven, Amsterdam-Almere and Groningen. Every region should be trying to circulate as much energy, raw materials, food and knowledge as possible internally; replacing outsourcing with resourcing. Of course, that will not be 100% feasible, but even 50% would be great. It would reduce our reliance on Russia, China and North Africa. To install solar panels now, there is a lead time of five or six months for the chips to be used in the converters, to come from China. At the same time, we are in the process of replacing millions of those panels with more efficient versions in the next few years. The outdated panels end up as landfill or get incinerated, because we do not yet have the technology to recycle them. A similar fate awaits old windmills and smartphones, despite the fact that they contain those precious metals we so desperately need. We will never be truly independent and self-sufficient, of course, but we can reduce the risk.
This would address another problem in the supply chain, namely the fact that ever-lengthening supply chains have made us horribly vulnerable. Surely it is idiotic for us to be transporting cartons of yoghurt thousands of miles across Europe, or for Slazenger to make tennis balls for Wimbledon out of raw materials and semifinished goods from four continents, which travelled 80,000 miles before it even reaches the factory. It may have seemed cost efficient when materials and transport were cheap and we did not consider the cost to the environment, but things are changing. Environmental costs will need to be included from now on, transport costs are rising and commodity prices are rocketing. That makes supply chain collaboration increasingly important. Continuing digitization is also opening up new opportunities to address inefficiencies, through the use of blockchains for example. Due to the above and the emergence of  shorter supply chains, the market for shipping companies, carriers, distributors and similar players will experience a turbulent disruption where many of these companies will disappear.’

You sound a bit overly optimistic about resourcing. Besides our lack of raw materials, we are also struggling to find enough workers at the moment.
‘Companies that have brought their production back to Europe are making more use of automation, digitization and robotization. This means they do not need as many workers and allows them to compete with countries with lower wages, such as China or India. This often concerns high tech work. The same thing is happening in the ports. Nine out of ten workers there are working in front of a screen.
That does mean we will need to commit to continuous learning. I am imagining a future in which people change jobs every five years, each time being retrained. We need to build circular knowledge networks. Basically, we need to copy nature’s cyclical approach in all areas. Organisms in nature adapt continuously in response to environmental changes. We should be following their example. That will require both agility and resilience. This is why social innovation may be even more crucial than technical innovation.’

You yourself have noted that many companies are operating in survival mode. What steps could they still take to be better prepared for the future?
‘To stay in business, they need to keep supplying customers as usual, of course. However, they should also conceptualize a future-focused, shadow approach in parallel, with a different revenue model, different products and a different vision. To still be making money five to ten years from now, you have to start developing products and services today. Doing so requires a thorough knowledge of your customers, which many companies lack. They do often conduct market and customer research, but with a current focus.   That is not enough. To identify customers’ latent preferences, they will need to consider hiring social psychologists.
If companies then wish to design new products or services based on those latent desires, my advice is to start small, learn through experiment and only then roll things out on a larger scale. Ikea is a great example of this approach. By 2030, they want to have moved towards a model where people lease furniture instead of buying it. After a few years, they can return the items for Ikea to turn into new products. Ikea wants to manage the materials. They are now testing this idea on student housing in Utrecht and Amsterdam. I do not know if it is feasible, but it is a wonderful concept. Shell is trying to do something similar, but too late and very slowly. While they rely on being able to supply oil for another 15 to 20 years, they are also working on hydrogen and biofuel solutions. They initially experimented with solar and wind power as well, but abandoned these in 2009 because the yield was too low. Looking back, that was a huge strategic error of judgement. If they had stuck with it, they would have been the world’s dominant renewable energy supplier right now. A lack of vision can have enormous consequences.’

To make a transition, people must be both willing and able to change. That can be difficult in practice.
‘Many companies make the mistake of thinking everyone has to be on board for a transition to succeed, when the actual critical percentage for systematic change is more like 25%. Roughly speaking, there are four types of people in organizations. At the most, five to ten percent are truly both willing and able to change. About a quarter are willing, but incapable. Another quarter are able, but unwilling. The final 40% of those people are neither willing nor able. I call them the passive objectors. Even if they appear enthusiastic, they are actually making things harder. Begin with the 10% who are willing and able, then use them to convince the next quarter, who are willing but hesitant. Once those people are on board, the process accelerates. The remaining three quarters either accept the advantages or join in out of fear of being forced to leave. It is better to have a firm, narrow support base than a broad but shallow one. You can broaden the base gradually. I call it building support organically.’

Many logistics and supply chain managers at companies that are evofenedex members actually see the need for systematic change, but lack senior management’s support. Is this recognizable to you? Also, what could supervisory boards be doing to help win over boards of directors?
‘With a few exceptions, I see a great lack of strategic capabilities and transformational leadership in the boardrooms of large companies. Nearly everywhere, board members are educated, older white men selected mainly for their promise of stability. They are there to keep a steady course. For a long time, this was a reasonable approach, but not anymore. When the storm around you gathers force, you cannot continue on the same course. You can keep it up for a few years, but at some point you will run into trouble. In supervisory boards, too, I see a lack of leadership. In my experience, supervisory board members tend to be very bureaucratic and conservative. They act as caretakers, doing their best to eliminate risk, when risk-taking is exactly what is needed in these times. We need leaders who are willing to brave the storm and explore new routes. It is all too conservative, too masculine, with too few women or people of diverse ethnicities, too much top-down and too little bottom-up… This cannot end well.’

You paint a pessimistic picture. Do you have any hope that we can turn the tide?
‘I am actually optimistic, with reservations. The Industrial Revolution in the 19^th century hit the working classes hardest, and the big transition we are going through now will also affect the middle classes. When they rebelled back then, it resulted in the establishment of trade unions, housing corporations and rules and laws to protect the vulnerable. Once more, I see signs of social unrest and believe we may even be headed for another social revolt. I hope and believe that we will once again emerge from it for the better, but I cannot know for sure. Europe was a hotbed of innovation at the time of the Industrial Revolution. We have a very different situation now. Our current global hubs of innovation are Shanghai, South Korea and Dubai. Their willingness to be decisive and take action are magnitudes greater than ours. I do not support their autocratic regimes, but I wish we were more decisive and bold. We spent half a year debating the use of masks before coming to the conclusion that they are actually beneficial. Striving for consensus can be paralyzing. Let us be faster, more flexible, more agile and decisive. That is the type of leadership I want to see.’

This interview is gepubliceerd in Management Scope 09 2022.