Role of Leadership in Digital Age

Business leadership is a complex, nuanced and evolving concept with a rich organizational research history behind it.  Our understanding of leadership is informed by a range of perspectives covering the role of a leader, the context in which leaders lead, and individual and organizational processes that underpin it.  Leaders are generally seen as architects of organizational performance, largely through their choices on strategy, structure and systems.  This perspective became main-stream during the early part of last century, when economies were largely production led and organizations were in sellers’ markets.  The changes in the economic, technological, and political environments in the last two decades have changed the context in which leaders lead and influenced the choices available to them to bring about organizational growth. Leaders now face highly competitive markets in businesses, which are largely service and knowledge driven, and in an economic and political context, which is uncertain and seen as inimical to growth.  This context entails a need for a debate on the role and choices for leaders in an environment, which is largely seen as complex and unpredictable.

The purpose of this article is to share perspectives on the role of leadership in the context of digital age with growth constraints.  To do this, this article first presents our current understanding of leadership role. Second section provides an overview of digital-age and current context in which leaders lead.  This is followed by a discussion of how our “traditional” understanding of leadership may limit leaders’ choices to ensure organizational effectiveness and growth and provides a broader perspective to the leader’s role in current digital age.

Leadership: Strategy-focused Paradigm

Leadership is traditionally understood as comprising of, among other things, articulating the vision and strategy of an organization along with the means (namely, structure and systems) to achieve them in a way that is aligned to organizational values.  To meet this goal, leaders build – and maintain – organizational culture, and make decisions on resource allocation, processes and people.  This narrative of leadership role played an important role in terms of our expectations from leaders, and how we assess them and their impact on organizations.  It is also a useful perspective when the environments are relatively stable and predictable, and characterised by availability of resources, supportive economic policies, reasonable performance horizons, and reasonable stakeholders’ expectations. This was largely the case immediately after World War II when economic expansion took place in US and Europe, and concepts of strategy and structure became part of management lexicon.

The above perspective of leadership, which emphasises optimisation and balancing of various trade-offs as the essence of leadership, also limits its potential, when environments become complex and dynamic.  Environments are complex when they consist of various components (such as technology, competition, economic policies, political uncertainties, regulatory expectations and media scrutiny), which interact with each other in somewhat unpredictable manner. In such environments, organizational strategy (goals, means and resource commitments), structure and systems are continually tested and re-assessed to meet various new and unexpected demands.   These environments make leader’s role more complex and nuanced, as they are increasingly expected to deal with higher number of strategic considerations (variables), which may change at a faster rate often in unpredictable ways sometimes leading to unexpected outcomes.  Such environments limit the potential of organizations under the “strategy focussed” leadership paradigm, which stresses the optimisation of various trade-offs among the “known” decision variables to produce organizational “results”, which are largely based on financial matrices

It is not that our understanding of “strategy focussed” leadership perspective is wrong. The main challenge is that it “focusses” on the relatively easy aspects of leadership function to the exclusion (in practice) of a more difficult –and more relevant – question:

How should leaders prepare their organization, so that it can leverage – and possibly thrive on environmental uncertainty and embrace any changes that come with it? 

Digital Age: An Opportunity to Redefine Leadership Contribution 

The advent of digital age (defined broadly here as time period in which communication, data, and computing technologies upended the processing of data in terms of speed, forms, and methods) impacted the business and economic landscape in significant – sometimes yet to comprehend and unknown – ways.  As the economies became mature, sophisticated, and inter-connected, they also became more information and knowledge based in all sectors.

Digital age initially enhanced the leverage of information and communication, and later of analytics and computing, in creating competitive advantage by reducing communication costs, increasing the speed of communication, enabling faster information processing and allowing a broader and cost-efficient reach to stakeholders including customers.  This has had implications for the various stakeholders, and has, in some ways, re-defined the relationship between the two main actors in an economy, namely, businesses and customers. By facilitating the creation of more efficient information/data and communication tools, digital technologies have enabled businesses to know consumers better through direct access and serve them in a more effective and efficient manner.

Digital technologies have also created more, and better, choices for customers by enabling them to research product and buying options in a more efficient and comprehensive manner.  They have also empowered consumers by providing cheaper and faster access to businesses and enabling them to share key or pivotal experiences to stakeholder groups in an easy and inexpensive manner in effect creating a “reputation market”. The existence of such choices with consumers nudges businesses to be more consumer-centric, and, in a way, balances the “power” equation, or re-calibrates the relationship, between businesses and consumers.

Digital technologies have impacted the nature and structure of markets in significant ways in other respects as well.  The rise of more powerful, cheaper, and faster tools for information/data, communication and computing have led to creation of new and novel services, overlapping industry boundaries, new markets, new occupations, and changes in skill-mix. More advanced digital technologies, such as Artificial Intelligence (AI), Internet of things, Block chain, sensor-based technologies, and Virtual Reality, have potential to cause discontinuities in different industries in shorter time-windows, and accelerate the development of next wave of digital technologies, such as 3D printing and quantum computing.  In addition, more advanced technologies also lead to changes in the skills required and new occupations, sometimes in the process replacing old role types and occupations.

Digital technology upends the leadership context in different ways.  They increase the amount (and pace) of information, complexity and uncertainty that leaders – and their organizations – should deal with to serve customers.  New market threats – possibly discontinuities – can arise in a short time- window requiring re-assessment of strategy and reallocation of resources.  Through the empowerment of consumers and other stakeholders, digital technologies re-define the relationship between leaders and various organization constituencies.

Digital technologies also provide choices –and generate almost an expectation – to encourage change and innovation to serve consumers better. By making information easily accessible and available to customers – and other stakeholders – when they need it, digital technologies also raise the standards of openness and transparency expected of leaders. Digital technologies also facilitate creation or adoption of new business models as well as implementation of complex supply and organizational value chains.

Another defining characteristic of digital technologies is that they can be adopted and scaled up relatively quickly. This makes products and services based on them, as well as organizational value chains and business models that rely on them, vulnerable to new technological challenges creating an additional uncertainty for leaders. A subtle, but important, point about digital age is that its’ impact is not limited to the leadership roles; rather it extends, directly and indirectly, to the whole organization and its employees, as they are exposed to business risks/uncertainty and changes that they bring, sometimes directly and immediately.

Though digital age makes leadership role more complex, it makes it more difficult if leadership role is understood purely in terms of strategic/structural choices and generating results through optimisation of trade-offs (e.g., salaries vs dividends; short term profits vs long term investments) at best, and financial engineering at worst (e.g., business restructuring).  Digital technologies provide know-how and create opportunities for leaders to move beyond making strategic choices based on financial matrices and competitors, and into a space where it is seen as crafting a purposeful experience for all of its stakeholders through innovation, superior value for customers, and transparency and openness.

Leadership in Digital Age

To consider digital age an asset, as opposed to liability, leaders need to take a broader view of their role and address important – and relatively harder – questions, which go beyond financial statements. This is a harder part of a leadership role, because it involves not only coming out of comfort zone of analysis and rational thinking inherent in strategic analysis, but also reflecting on the right questions to ask, finding inspiring and purposeful answers, engaging with stakeholders – including employees – to get a buy in, and developing  processes, which ensure on an ongoing basis, that the organization stays true to its mission, and performs consistently over time.

Digital technologies provide tools for leaders to be customer centric as opposed to competitor centric and navigate uncertainty and complexity by leading the market through innovative products (e.g., Apple and Amazon) as opposed to responding to them in an “efficient” manner.

The above perspective raises interesting questions, such as:

• What is the organization outcome that the purpose-based leadership will or can produce that a “traditional” strategy-based leadership cannot?
• What is new about this emphasis on mission, purpose and values, when nearly all firms have already invested time and organizational energy in them?
• Will shareholders accept that purpose-based leadership approach, given their focus on “returns” and financial results?

These are important questions, and more discussion – and research – is needed to develop a better understanding on their answers. That said, we propose few hypotheses below which could serve as a springboard to develop a broader perspective on these questions.

The concept of purpose-based leadership model is not new ^{1, 2}, and also not competitive to “traditional” strategy-based leadership perspective. Strategy based leadership models also covered organizational mission and values, but in practice emphasised strategy and structure design as the essence of leadership process. Though more research is needed, it is likely that the digital age, because of higher complexity, uncertainty and information overload, could lead to diminishing rate of returns, if leadership only uses strategy and structure as its main performance enhancing levers. Speaking in anecdotal terms, there is already a sense that organizational ability to manage growth and financial performance through managing the numerator (as in cost income ratio) and business restructuring has reached a plateau.

Furthermore, organizational strategy, when it is based solely on product-market and technical analysis, is sensitive to the assumptions made about the environment, which, in a digital age, almost by definition, is unpredictable.  This line of thinking implies that strategy, as is currently understood and practiced, has limited leverage to provide competitive advantage in the digital age. This suggests that to be effective, leaders may now need to extend their attention beyond strategy and structure. This also envisage leaders to dig deep to find something that could act as an organizational anchor, i.e., something which is enduring, in current times of unpredictable change, and which could also act as an organizational heuristic for the leaders and employees alike to make strategic and operational decisions. Unlike organizational strategy, which depends on competitors, product-markets, distribution channels, and standard SWOT analysis, organizational purpose or mission is enduring and provides an anchor around which changes in the environment could be interpreted and mapped to develop future course of action at all levels and functions.

While it is useful, and perhaps theoretically compelling, to position organizational purpose building as one of the key leadership tasks, it raises an important challenge: It is not a new idea, and in-fact practiced in most of the firms already.  This leads to the question as to what additional leverage, if any, to expect from moving leadership focus from strategy to organizational purpose and mission. This is a difficult question, and more research is needed to develop a better understanding about the role of organizational mission in organizational success, or lack of it, in the past.  However, based on anecdotal data and review of strategy literature, it is possible to provide directional answers.

Organizations have indeed embarked on developing purpose/mission statements along with core values to be practiced. However, this has been a one-off activity in most organizations, and, critics will argue, intended in many cases for optics reasons. More importantly, past efforts on organization mission and purpose were mostly de-coupled from on-going strategy and operational decisions, and not used as a reference or benchmark by leaders and stakeholders alike to test their logic and thinking against. This led to not only reduced, if any, benefits from having organizational mission and purpose as a touchstone of decision-making, but also fuelled employees’ scepticism and led to a lost opportunity to use it as a basis of psychological contract with employees.

While it is important for leaders to re-balance the emphasis between purpose and strategy, and position the purpose and mission as a reference point for various strategic and operational decisions, the strategic leverage of organizational purpose/mission lies in encouraging their leaders to look at their role in terms of being an organization builder (as opposed to maximise financial returns) through customer focus (instead of competition driven), sense-making (as opposed to gathering market intelligence) and broad capability-building (as opposed to narrowing the organizational band-width to tactical objectives). This re-purposed leadership role provides a robust framework to navigate – and leverage on – various characteristics of digital age (such as higher uncertainty, complexity, pace of change, and information over-load) towards organizational growth.

The need for a customer focus is effectively communicated by Jeff Bezos, founder CEO of Amazon, one of the most prominent firms of the digital age. While Amazon’s customer focus is relatively well known, its articulation of how it helps is not so common. In an interview, Bezos explained³, “If you have a customer centric culture, that cures a lot of ills…Let’s say you’re the leader in a particular arena, if you’re competitor focussed and you’re already the leader, then where does your energy come from? Whereas, if you’re customer-focussed, and you’re already the leader, customers are never satisfied”. In his 2015 annual letter⁴, he argued that “Most big technology companies are competitor focussed. They see what others are doing, and then work to fast follow” (Pp 5).

Sense-making is an approach to organizational analysis that seeks to shift attention from decision-making to understanding the meaning, interpretations and processes that underpin various events. Karl Weick⁵ identified seven features that play a role in sense-making. He posits sense-making as a matter identity, retrospective in nature, derived from enactment of events, influenced by socialization, ongoing in nature, based on extracted cues, and focuses more on plausibility and sufficiency (as opposed to accuracy). Sense-making is crucial in the digital-context, as constant change, complexity and information over-load makes it highly risky to predict future developments and outcomes; however, leaders can develop interpretations and scenarios based on identity (purpose), extracted cues and plausibility and sufficiency to navigate their organizations.

Capability building is defined here broadly as a meta-skill referring to technical band-width, which enables an organization to innovate as well as and be flexible to develop a range of product and value propositions for the customer.  Digital age, by its very nature, entails information overload and uncertainty, which means that an organizational ability to read the cues correctly and act on them, sometimes in ways that involve self-renewal, is key to enduring organizational success.  While this was an important leadership capability in the past, it is a crucial skill in digital age as organizations now have increasingly shorter time-windows to make sense of new developments (including competitors) and respond to them. This process is facilitated when organization already has capabilities, or needs incremental capabilities, and organizational design and culture favour renewal processes.

An important leadership challenge is how to implement – and embed – capability building and renewal processes in an organization, and to ensure that it is not a one-off initiative. This is a task, which could challenge leaders in multiple ways, such as how to define capabilities in a way it is meaningful and inspiring to employees, how to build an organizational culture where strategy is crafted based on organizational purpose and capabilities, and how to embed flexible organizational design and employee empowerment.  These challenges require leaders to look beyond rational and analytical thinking, and expand the skill-set to include sense-making, dealing with ambiguity, acceptance of short-term failures, maximisation of learning, trust building with stakeholders and long-term thinking as essential leadership skills.

The above narrative on expanded leadership role re-focusses attention on “soft” aspects of organizational building. Perhaps, one of the important leadership tasks is to convince various stakeholders – including shareholders – that defining purpose, capability building, and allowing for organizational self-renewal is now new “strategy” for organizational success in the long run. The lure of considering strategy to the exclusion of other “soft” aspects of organization has been self-perpetuating, because strategy is well suited to rational and analytical thinking, which is easier to assess. Though more research is needed, it seems that a good rationale for purpose-based leadership is that the potential of strategy in and by itself to produce the growth is declining. Perhaps, another compelling argument based on secondary review is that the purpose and capability-based leadership role encourages a more inclusive, wholesome, and quality success for an organization. It could perhaps result in organizational performance that could perhaps be less volatile, may not depend on frequent business restructuring (and layoffs), leads to more employee engagement, and responsible corporate citizenship behaviour.

Summary

Organizations are an important institution in the society not only for their economic contributions and impact, but also for the social values and responsible community behaviour that they reflect and contribute towards. Within our organizations, and indeed society, leadership roles are crucial in many respects.  They impact organizational future, employees’ well-beings and jobs, customer’s need satisfaction, and society’s use of precious resources – including its’ human capital.  An important, but less understood, role of leadership is sense-making and performing the interpretive function in increasingly uncertain and ambiguous environments. Through their interpretations, sense-making, and capability building decisions, leaders enable stakeholders to see meaning and develop confidence in their likely future state and enable organizational success.  It is critical therefore that we debate and understand changing role of leadership in the new context of digital age, so that leaders can make more informed choices towards building organizational resilience and success. This is expected to lead to not only financial success, but also an overall organizational success in terms of employee and stakeholder engagement, organizational longevity, and positioning the organization as a platform, where progressive thinking and socially aspirational values can be successfully practiced with good effects.

References

1. Bartlett, Christopher A., and Ghoshal, Sumantra. 1994. “Changing the Role of Top Management: Beyond Strategy to Purpose.” Harvard Business Review (November – December): 79 – 88. 

2. Ghoshal, Sumantra, and Bartlett, Christopher A. 1995. “Changing the Role of Top Management: Beyond Structure to Processes” Harvard Business Review (January – February): 86-96.

3. Bishop, Todd, “Jeff Bezos explains why Amazon doesn’t really care about its competitors”, 17^th Sept 2013. < https://www.geekwire.com/2013/interview-jeff-bezos-explains-amazon-focus-competitors/ > (accessed 2 August 2018).

4. 2015 Amazon.com, Annual Report, <http://www.annualreports.com/HostedData/AnnualReportArchive/a/NASDAQ_AMZN_2015.pdf > (accessed 2 Aug 2018).
5. Weick, K (1995). Sensemaking in Organizations. London: Sage.