Leadership in Digital Markets – part 2

Leadership in turbulent times

Summary

Leaders are considered a source of innovation, passion, vision, personal development and trust. Leaders enable the other team members to turn technology into a source of value.

Compared to more traditional markets and business models, the digital age favors leaders who score high on emotional intelligence and the ability to translate uncertainty into opportunity.

You can find the first part of this blog on leadership here.


 

The most valuable trait of leaders is their ability to remove the natural tendency of people to resist change. Resistance occurs when people feel they have lost control,  and/or pride, feel insecure about their competency, are confronted with excessive uncertainty, surprises, or new routines (I). However, it is exactly what happens when an analogue business model has to reinvent itself. Leading a team faced by this challenge requires somebody with both a high intelligence quotient (IQ) and emotional intelligence (EQ). The IQ is used to formulate a tantalizing vision and strategy to get there, while people with a high EQ score high on self-awareness, self-regulation, motivation, empathy, and social skill (II).

Traditionally, IT is considered a suitable career path for students with large brains, so the importance of EQ may at first sight seem overrated. But consider the following trends:

  • more emphasis on user experience and habit-forming technologies
  • convergence of business and IT domains
  • automation of increasingly complex standard tasks, and
  • the emphasis of the business on innovation and speed-to-market.

These trends can only be dealt with effectively by business-savvy, assertive, highly skilled, adaptable and creative people. It is the type of employees every company wants and they know it. To lure and retain them, the company needs to inspire and support them in their self-actualization and personal development. Hence, employees who expect a leader who cores high on IQ and EQ. Quoting Angela Ahrendts, senior vice president at Apple,

‘Everyone talks about building a relationship with your customer. I think you build one with your employees first.’

Leadership in a digital world

Before a leader can channel the right inspiration and knowledge to the right person at the right moment, she or he first has to define the future direction and key objectives. Hale mentions two key skills to point the team in the right direction (III):

  • Focus on results. This aspect includes clearly stating the goals and strategy; what the ground rules are to achieve them; what is open for discussion and what is not; the translation of team goals into personal objectives; and defining how benefits and success are measured.
  • Consistency of focus. The communication message of the leader has to be consistent and she or he has to ‘walk the talk’. Too much change leads to distraction, confusion, and frustration while people change their behavior based on observable acts by their leaders. The visible rules have to match the invisible ones.

At the same time, market realities demand a certain level of flexibility. Technology, customer demand and competitor behavior are in a constant flux, affecting both the present and future market position. Microsoft struggled for years to reinvent itself when mobile and consumeration disrupted its traditional business model. With the appointment of Satya Nadella as CEO, defending existing market spaces was replaced by a strategy based on the ‘cloud-first mobile-first’ principle. While Microsoft’s new direction seems to hit the right mark, CEO’s of Yahoo, Acer, BlackBerry, AMD and HTC are still struggling to revitalize their business models, demonstrating the difficulty of such an undertaking.

Besides focus on results and consistency, digitalization also requires a renaissance of charismatic leadership, reversing its decline due to the “routinization of charisma”. The larger and older the company, the more likely

“ charismatic authority is succeeded by a bureaucracy controlled by a rationally established authority or by a combination of traditional and bureaucratic authority” (IV).

Hybrid and digital markets are too dynamic and complex for finely grained and strictly enforced governance and control frameworks. Providing the team with the future direction and key objectives of the company is not the same as dictating their day-to-day activities. It is not the CxO, but the frontline team and their (informal) leader that understand what the customer wants and where the market and competitors are heading.

In their article Is Your Leadership Style Right for the Digital Age?, Libert, Wind and Beck Fenley make a similar observation. Today’s highly educated employees want to take ownership and expect their manager to focus on results instead monitoring whether they clock in at 9. The authors argue that digitalization requires an open and agile organization, instead of an operating model whereby

“all insight and direction comes from the top. In short, the autocratic Commander, whether brilliant or misguided, just won’t cut it anymore.”

That said, how to infuse more ‘digital leadership’ into an company shaped by decades of ‘analogue leadership’? As mentioned in this blog, there is still a lot of value in the Mature and Decline part of the business product lifecycle and subsequently the accompanying underpinning IT solutions. Firing and hiring the whole leadership team is therefore not the answer. Addressing this challenge is the topic of the third part of this blog.

 


Notes and references

(I) Kanter, R. M., Ten Reasons People Resist Change, Harvard Business Review, September 2012.

(II) Goleman, D., Emotional intelligence, why it can matter more than IQ, 1995.

(III) Hale, J., Performance-Based Management:  What Every Manager Should Do to Get Results, 2004

(IV) Kendall, D., Sociology in our times, 1997

Additional reading:

The article How to be a leader in the digital age published by the World Economic Forum covers the impact of digitalization on the society as a whole, citing the following key structural challenges: “(1) rapid and far-reaching technological changes, (2) globalization leading to the dynamic spread of information; (3) a shift from physical attributes toward knowledge and (4) more dispersed, less hierarchical organizational forms of organization.”

The article The Frontline Advantage by Fred Hassan describes the importance of frontline managers, both to motivate and guide the team members and as a feedback loop to the executive leadership team.

Leadership in Digital Markets – part 1

Leadership in turbulent times

Summary

Leaders are considered a source of innovation, passion, vision, personal development and trust. They enable the other team members to turn technology into a source of value.

The topic leadership is part of the first principle: less defensive, more defensive.


 

Technology is abundant, easy to copy and therefore unsuitable as a source of sustainable competitive advantage. It requires creativity, intelligence, perseverance and all those other traits only humans possess to turn technology into a differentiating hybrid or digital value proposition. Brain Solis, principal analyst at Altimeter Group made a similar observation (I):

We already found that companies that lead digital transformation from a more human center actually bring people together in the organization faster and with greater results.”

Transformation is equal to change and only leaders can effectively influence the behavior of the people surrounding them. Managers and bureaucracy cannot.

This statement is as relevant for the business as it is for IT. Throughout the whole value chain, progressively complex manual tasks are automated, driving down cost and improving agility. What remains are high added-value activities like:

  • objective and strategic settings
  • spotting and pursuing (un)foreseen opportunities
  • spotting and pursuing (un)foreseen risks
  • research and development
  • business development, marketing, and
  • customer service

They are activities that business and IT perform in isolation when the company pursues slow moving analogue markets. In fast-moving hybrid and digital markets, the business and IT teams have no choice but to converge or even fuse their human Key Resources (II). Only together they can effectively transform analogue value propositions, channels, customer relations, and business processes.

One only has to look at Silicon Valley to see the impact of people as a key driver of company value. According to AnnaLee Saxenian, professor at the University of California, Berkeley, the success of Silicon Valley is firmly based on people, culture and connections. In her book Regional Advantage: Culture and Competition in Silicon Valley and Route 128, she explains why other regions aspire but were never able to replicate its success. In Silicon Valley job-hopping, peer-networking and sharing were the norm, fostering innovation and consequently value creation.

In Silicon Valley, companies have to compete and collaborate at the same time. They understand that only as part of an porous interdependent network they can turn complexity and uncertainty into a sustainable business model. Individual persons or companies cannot.

 


Notes and references

(I) Kapko, M., Enterprise Collaboration Will Drive Digital Transformation, CIO.com, July 2014.

(II) ‘Key Resources’ is one of the building blocks of the Business Model Canvas from Alex Osterwalder. Covered in the book, it provides the foundation for the IT Business Model, a canvas optimized for IT teams that want to converge their operating model with the business more effectively.

(III) Mastenbroek, W., Verandermanagement, Holland Business Publications, 1997. (Dutch language)

Background information and further reading

In literature, people as a key source of corporate success is part of the ‘resource-based view‘ on strategic planning. From a resource-based view, it is a company-specific combination of resources (e.g. skill sets, technology, intellectual property) that allows the company to differentiate itself from the competition. These differentiating combinations of resources are the ‘core competencies’ of the company and should be retained and nurtured.

The article What is the Difference Between Management and Leadership? describes the important difference between leaders and managers. Both are linked and complementary, but not the same thing.

Beyond Two-Speed IT – Part 3

Two-speed IT capabilities

Summary

This blog is about shifting gears and the ability to offer cars in other colors than T-Ford-black. It is the third and last part of a blog focusing on the importance of translating market and business context into the value proposition offered by IT.

You can find the first part here and the second part here.


 

FedEx and UPS dominate their markets, again using slightly different value propositions. Compared to UPS, FedEx offers its customer more flexibility at a slightly higher price point. More price sensitive customers opt for UPS and the more standardized value proposition that comes with it. More pronounced is the difference between Walmart and Amazon. The first has its roots in physical retail outlets while the second started as a native digital business model.

Differentiation can also be observed at an operational level. Marketeers want to try new things on a daily basis, while the controllers and bookkeepers of the finance and administration (F&A) department prefer stability and predictability. Marketeers enjoy rally and off-road racing, while controllers tend to take the train for its excellent safety record.  When it comes to IT, the marketeers want to be behind the steering wheel with IT as the co-driver, knowing that only as a team they can win. For the controller, a Commercial of the Shelf (COTS) SaaS solution will do just fine.

The higher the technology-density of the market, the more important it becomes for IT to sense and act on the relative importance of co-creation, speed-to-market, flexibility, robustness, efficiency or other sources of contextual value. In hybrid and native digital markets this value can be equal or even surpass the base value represented by the functional requirements

Less uniform, more differentiated represents the ability to deliver context-aware IT solutions.

At company level, think of effectively positioning IT as either a Faithful Servant, Business Partner, John Average or Prima Donna. At operational level, the two key archetypes are Entrepreneurial IT and Foundation IT. The first is also known as ‘Strategic IT’or ‘Enabling IT’, but in hybrid and digital markets it is entrepreneurship that is required from IT. Being an entrepreneur means ‘one who undertakes an endeavor’ or an ‘enterpriser’ (I), a far better term when business and IT are together in pursued of more revenue, profit or less strategic risk.

Foundation IT, also known as ‘Transactional IT’ or ‘Factory IT’, is the traditional sweet spot of the IT department. Even though most consider it less sexy than Entrepreneurial IT, the majority of companies’ revenue and margin is generated by business processes enabled by this part of the IT portfolio. Entrepreneurial IT is in most cases a source of expected future cash flows, funded by current cash flows enabled by Foundation IT. The latter’s portfolio also contains the capabilities required to ‘glue’ IT systems together, like the Enterprise Service Bus, and the platform required by Lean and Business Process Management initiatives. As such, it acts as the solid foundation required by other initiatives to succeed.

To survive, companies need both flavors, differing only in the relative amount.

 


Notes and references

(I) Technically, the term should be intrapreneur as IT would be acting as in entrepreneur within the company. As this term is not widely used, I use the more common term.


Further reading

Enabling IT and Factory IT are introduced in the McKinsey article Reshaping IT management for turbulent times. It explicitly covers the importance to differentiate between ‘fast’ and ‘slow’ change.

The Harvard Business Review article Mastering the three worlds of information technology from 2006 describes three varieties of work-changing IT. The article relates investments in IT to organizational change, but does not differentiate between ‘fast’ and ‘slow’ change.

One of the first articles emphasizing the importance to differentiate is from Peter Weill:  The relationship between investment in information technology and firm performance in the manufacturing sector. Ph. D. dissertation, New York University, New York.