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.

Six Interdependent Principles

Interdependent principles

Summary

The six principles behind the Digital Manifesto are interdependent. They reinforce each other, creating a positive feedback loop.


 

Information technology is not a neatly packaged box with a guaranteed return on investment stamped on it. Information Technology is like a kitchen: spending $25.000 on a new kitchen does not automatically result in a great dining experience. You also need a cook. In this case, the cook is the IT professional, embodied by the principle less defensive, more offensive. The IT team no longer delivers a piece of hardware or software to the business, but a solution or even better: a value proposition. A value proposition fulfills a specific want or need of the business, creating value (e.g. additional benefits, less risk).

While advanced automation and robots are substituting humans in several service-related areas of the value chain, employees remain necessary for truly added value activities like strategy setting, innovation, performance improvement and exception-handling.

Employees serve Customers

For the foreseeable future that is. In 2016, Google launched a research project to see if computers can be truly creative. It is only one of the projects part of a global effort to create machines with artificial intelligence and ‘deep learning’ capabilities.

The constantly evolving technology landscape also has a profound impact on the value propositions offered by the business to its customers. Music lovers used to record their favorite music on tape, replacing them over time with DVRs, hard drives, MP3 players, and more recently, streaming from the cloud.

Customer have (increasingly differentiated and technology-rich) needs

The rate of change is not constant, but increases both in volatility and complexity. The tape recorder was invented around 1930 and enjoyed a stable and predictable lifecycle for almost half a century. No such luck for more recent substitutes.

Customer needs change over time (at an accelerating rate)

More generally, every new product is more capable than its predecessor, but also far more difficult and expensive to design and produce. This translates into a network of hundredths, if not thousands, of specialized companies to deliver one coherent value proposition from a customer perspective (I).

Six interdependent principles of Digital Manifesto
Figure 1: Six interdependent principles (source: book Digital Manifesto ).

Together, these companies form a virtual entity, bundling a broad set of capabilities, skill sets and other assets to realize one or more shared objectives. The larger and more complex the value proposition and network, the more organization (as in “the act or process of planning and arranging the different parts of an event or activity” (II)) is required to achieve the required effectiveness and efficiency. Do this well and the result is wealth for all the stakeholders involved.

Constantly changing needs require organization (e.g. end-to-end approach, leadership, investment in new skill sets)

Done well, organization results in added value (read: improved revenue and margin, reduced risk)

By investing part of that wealth into the quality of the working environment, employee satisfaction is improved, the first step in the so called service-profit chain (III). The service-profit chain establishes relationships between value creation, customer loyalty, and employee satisfaction. Loyal customers buy more and generate referrals, both key drivers of growth and profitability. To become loyal, they need to be consistently satisfied by the value proposition offered by the company.

The larger the service component of the value proposition, the higher the impact of those responsible for designing and delivering the service. Hence, the emphasis on employee satisfaction as content employees are more productive, go that extra mile, and are less likely to look around for other job opportunities.

People are the most important asset a company can invest in

The end-result is a positive feedback loop, from which all stakeholders benefit.

 


Notes and references

(I) Sustainable success requires companies to invest the available resources (e.g. available budget, management attention) its distinctive or core competencies. Other competencies should be sources from external partners. Prahalad and Hamel consider a competency core when it is not easy to copy by competitors, can be used for other products and markets and contributes to the end consumer’s experienced benefits and the value.

(II) Source: Merriam Webster dictionary.

(III) Heskett, J. L. , Jones, T.O., Loveman, G. W., Earl Sasser, W. Jr., Schlesinger, L. A., Putting the Service-Profit Chain to Work, Harvard Business Review, 2008.