Leadership in Digital Markets

 

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 from my book Digital Manifesto: Principles and Practices for Orchestrating an ITValue Chain.

 

 

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. The leaders of these companies understand that only as part of a porous interdependent network they can turn complexity and uncertainty into a sustainable business model. Individual persons or companies cannot. 

But leaders (compared to managers), bring a far more important trait. 

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 (IV). 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 (V).

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 (VI):

•  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” (VII).

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 organisation, 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) 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)

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

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

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

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

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.

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.