The tradition of top-down executive leadership won’t cut it in the digital economy. Leaders must learn to cede power to employees at every level who are equipped to make decisions in the moment.
Companies that begin life digitally operate differently from the incumbents they threaten and unseat. Employees at digital companies don’t waste time gathering and analyzing information; they use live data to make decisions. They don’t need to wade through organizational hierarchies to get permission to act; their leaders explain business goals and then empower them to use their best judgment.
To compete, incumbent companies have to transform not only decision-making processes and hierarchies that have hardened over decades but also the nature of leadership itself. The leadership strategies and behaviors that drove success in the knowledge economy aren’t sufficient to navigate a successful transition to the digital economy.
Two-thirds of Global 2000 CEOs will center their business strategies on digital transformation by the end of 2017, according to IDC. But few business executives today have the leadership mindset or skills necessary for these strategies to succeed, according to the Leaders 2020 study conducted recently by SAP, Oxford Economics, and McChrystal Group. The study found that only 16% of executives are ready to lead their companies through this transformation.
Leaders must lead differently if their companies are to transition to the digital economy and reap its rewards. In 10 years, for example, 75% of the companies that were listed on the S&P 500 Index in 2012 will have been replaced, according to a study by Innosight. Meanwhile, global competition is heating up. Rising disposable income in emerging economies has sparked the advent of new rivals—and in a survey by consulting firm Accenture, 70% of marketers in those economies expressed confidence in their ability to execute a digital business transformation. In mature economies, the figure was just 38%.
But it’s not too late to learn the essentials of digital leadership.
Communicate the Digital Mission
Fostering an organization whose employees have the skills, tools, authority, and information they need to make decisions in the moment begins with leaders who can formulate and communicate the digital mission. Randall Stephenson, chairman and CEO of AT&T, understands the forces driving digital transformation. Under his guidance, AT&T’s lines of business have expanded—both organically and through acquisitions—to include extensive digital operations, like DirecTV and potentially, as of press time, Time Warner, according to The New York Times. So even as AT&T continues to compete for market share against established and startup telecommunications providers, the company is going head-to-head against digitally based companies like Amazon and Google.
Every business must become digital and work in the cloud, but the change doesn’t merely mean making acquisitions, buying new technology, and rewriting org charts. A new digital workforce is needed as well to meet the transformation challenge. And like the companies they serve, the members of this new workforce will have to develop new abilities and prepare to take on new roles.
That reality is the impetus for Stephenson’s ambitious initiative to transform his company by transforming his team. Through a program launched nearly three years ago, AT&T is underwriting education and professional development opportunities for employees who are willing to pursue the studies on their own time. Those who take advantage of the offer can learn new computing skills that align with the company’s blueprint for digital transformation.
AT&T’s education plan shows the extent to which data is driving a profound change in employees’ daily tasks, functions, and core value to the company. Until recently, businesses sought knowledge workers who were capable of reviewing, assessing, analyzing, and disseminating data in support of decision making. But in the digital economy, companies must be able to respond in the moment to customer, market, and competitive changes. Reviewing masses of data and following traditional hierarchical decision-making processes defeats that goal. To succeed and, in truth, to survive, companies must have that data available when they need it and make a decision in the right moment.
Invest in Understanding How Work Gets Done
With that in mind, digital leaders must invest in understanding how work gets done and then commit to adjusting processes, deploying the right technology to support those processes, and measuring what adds value for customers and, therefore, to the bottom line. Yet only half of the executives surveyed by Oxford Economics rated their companies’ senior leaders as highly proficient in using the technology necessary for transformation.
Digital Leadership in Hard Numbers
Executives who have already established themselves as digital leaders demonstrate the value of their initiatives in hard numbers, according to the Oxford Economics study Leaders 2020. For example, their companies are much more likely to sustain top financial performance in terms of both revenue and profitability. Where leadership has embraced digital, companies:
- Are 38% more likely to report strong revenue and profit growth
- Have more mature strategies and programs for hiring skilled talent
- Report one and a half times more effective collaboration, which contributes to productivity
- Achieve 87% employee satisfaction and significantly higher levels of employee loyalty
- Are better equipped for succession planning
- Listen to Millennial executives, whose advice may provide shortcuts to digital transformation
What’s more, becoming digitally savvy isn’t enough. Leaders’ aptitude for cultivating teams and work environments that can make good use of technology is also essential. Indeed, nearly 80% of the companies considered farthest along in digital maturity make data-driven decisions, according to the Oxford Economics study (see Digital Leadership in Hard Numbers). Meanwhile, 53% of respondents were found to be clinging to old-school decision-making styles and failing to map decisions to strategy. As a result, only 46% qualified as equipped to make decisions in real time.
Lead by Simplifying
Digital leaders make it a priority to continually simplify processes and decision-making procedures to reduce institutionalized complexity and bureaucracy. These impediments take a real toll. A study by the Economist Intelligence Unit found that organizational complexity costs businesses up to 10% of profits. Flattening organizational hierarchies and encouraging transparency and organization-wide inclusivity in the decision-making process can help erase such losses, according to the Oxford Economics study.
Achieving these goals doesn’t require a committee. Empowering people at lower levels to make business-critical decisions based on available data has a natural flattening effect on the hierarchy. And as individuals and the enterprise as a whole become accustomed to having access to real-time data that speeds responsiveness, decision making becomes distributed across the organization.
That doesn’t automatically mean that the organizational pyramid is dead. Rather, it empowers employees, the organization, and leadership by placing responsibility for individual responses and actions in the hands of the people best equipped to carry them out, take ownership of the results, and ensure their success. This key characteristic distinguishes digital workers from knowledge workers: they have access to the data necessary to drive the right decisions at the right time, regardless of where they appear on the organizational chart. This not only empowers people at lower levels but also eases the bureaucratic burden on upper management, which is then freer to focus its time and energy on leading the organization forward instead of directing its day-to-day and even minute-by-minute activities.
Lead by Getting Ahead of the Customer
Creating an organization that’s capable of capturing data and making decisions in the moment can transform customer relationships. Besides responding to immediate customer needs, digitally transformed organizations can also predict emerging requirements, even before the customer is fully conscious of them.
To achieve this, digital leaders must be able to view digital in terms of its ability to support innovation: to make it possible for the business to deliver an array of services and advantages that it wasn’t possible to deliver before.
“The challenge is to not ask the question, ‘How does this affect my business?’ That’s inherently a defensive, firm-centric question,” says David Rogers, author of The Digital Transformation Playbook and a member of the faculty at Columbia Business School. “Instead, firms need to look at every new technology and digital capability and ask, ‘How might this allow us to offer new forms of value to our customers that we could not have done in the past?’ And be continuously looking.”
Being plugged into digital’s power to transform customer relationships thus allows an executive to evolve into a digital leader with the vision and the tools necessary to conceive and implement continuous innovation.
Concentrate on Team Dynamics and Employee Engagement
Millennial leadership is well suited to understand the human side of digital transformation. Digital leaders of older generations must recognize the importance of inviting and acting on input from Millennials, which is essential to inspiring them to perform at their best—and to achieving the overall goals of digital transformation.
Digital leaders must also understand that encouraging diversity in their workforce isn’t simply a matter of fairness; it’s also a source of competitive advantage. Leaders who build diverse organizations have more engaged, productive employees, as well as higher levels of innovation, according to the Oxford Economics study. This in turn leads to better bottom-line results. Companies that reported higher revenue and profitability growth were more likely to cite the positive impact of diversity on their numbers.
Despite this, the study found that only 60% of companies have adequate programs to ensure that they are developing a digital workforce. The shortfall is hurting companies’ ability to hire and retain talent: only 53% say they are successful in attracting qualified applicants.
This problem will only get worse as Baby Boomers exit the workforce. Digital leaders will be increasingly pressured to maintain stability and continuity in their workforces. The challenge will be especially difficult for companies that lag in meeting the expectations of professionals who have entered the workforce in the era of the gig economy. They expect to make numerous career moves and don’t necessarily see length of tenure as a priority.
Thus, companies need processes for bringing new staff members up to speed as quickly as possible while optimizing their productivity, encouraging them to make constructive contributions to the business, and motivating them to deliver their best performance. They must also develop programs for continuous learning and job rotations to engage and retain workers who may not otherwise remain with the company as long as they would have in past generations.
Address the Generation Gap
Millennials and Generation Z have different expectations of what it means to be an employee and how to use technology than other generations do. They expect collaboration across the hierarchy, which is important to keeping them engaged with the organization and with their personal passions. Fostering a sense of meaning within the workplace, then, is another element of digital leadership; leaders must make the company a place where employees feel as engaged and rewarded as they can be and can do their best work.
In this respect and many others, most businesses are contending with a generation gap. The Oxford Economics study found that in comparison to older executives, Millennial executives have a much more pessimistic view of their organization’s ability to perform well in such key areas as using technology to achieve competitive advantage, collaborating internally, inspiring employees, and fostering an organizational culture that promotes feedback and reduces bureaucracy. In addition, the Millennials are more conscious of—and place a premium on—diversity and its benefits. Addressing that generational disconnect is key to digital leadership.
When today’s mid- and late-career executives entered the workforce, it was understood that younger workers invested the early years of their professional lives paying their dues. But that model no longer works in a market in which a company’s future depends on an approach to digital transformation that comes most naturally to younger executives. And those executives will not invest themselves and their expertise in companies that fail to recognize and respect Millennial workplace priorities.
Help Employees Address Future Challenges
Digital transformation isn’t just altering employees’ expectations of their careers. It’s also remaking jobs and what work itself entails. In response to a survey by consulting firm Cap Gemini, 77% of companies reported that they saw digital skill gaps as the chief obstacle to their digital transformation.
Their concerns are well founded. Oxford University examined 702 job descriptions across all job types and found that 47% were likely to be replaced by technology within a decade. Another 19% were moderately likely to be replaced. With that in mind, part of the leadership challenge in digital transformation is anticipating how people will work in this world and how artificial intelligence, robots, and people will be integrated into a new and more efficient workforce. How will people interact with these digital forces in the workplace? What will it mean in human terms?
Digital leaders can’t expect employees to keep up with these changes on their own: things are simply moving too quickly. AT&T’s Stephenson recognizes this. The New York Times reported that the company’s digital transformation is projected to make 30% of current jobs obsolete by 2020. That’s why, to get ahead of that challenge, Stephenson ordered the creation of AT&T’s training program, which includes an extensive curriculum of online and classroom courses.
This approach illustrates a key characteristic of digital leaders: the ability to think conscientiously about where their companies are headed, what skills their people will need, and how they can help them develop the skills they’ll need as their roles evolve. Digital leaders are also able to articulately communicate to employees where the world is headed so that they are motivated to get there and be productive now and in the future.
Unleash a New Generation of Executives
Companies can no longer afford to delay recognizing the digital sea change that is transforming decision making and the capacity to respond in real time to challenges and opportunities. Led by Millennial executives, the new digital workforce is ready to spark unprecedented performance improvements in organizations that do not constrain their ability to communicate, collaborate, and contribute. Digital leaders are devising strategies for harnessing their energy, enthusiasm, and innate understanding of digital capacities to achieve higher levels of productivity and profitability. The remaining leaders face a choice: embrace this change or get left behind.
Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.