Vincent Stuhlen – GEMBA 2010

Organizational Behavior and Leadership Implementation Essay

“Leadership in the Digital Age”

First of all, we will provide some historical context, introduce some key definitions, and frame the
change of our world economy that impacts business Leadership. Then we will look at the current theory
of Leadership and the fundamentals that are impacted by Information and Communications
Technologies (ICT). And finally, we will analyze the new experience, skills and knowledge required by
the Leader in the Digital Age.

The rise of the Knowledge & Digital economy

The evolution of business Leadership (as opposed to political or other forms of Leadership) has always
been related to the prevailing economic systems and the way value was created and traded.

The World’s economy went through different stages that shaped our societies and the way
business was done.
Looking back in history, economy started with agriculture when humanity settled 7000 BC and
produced enough goods and related services to start trading them.
At the end of the 18th Century, the steam power revolution triggered a new Industrial economy that
profoundly reshaped the way society was organized and wealth created.
Then, since the 60’s, economists have been describing the transition to a "knowledge economy"(or
"information society"), induced by the emergence of global Information and Communications
Technology (ICT). Here, Knowledge was defined either as a business product (as in the core sectors of
the Knowledge society, often referred as the 3 Cs: Computing / Communications / Content, where
innovative intellectual products and services are traded), or as a productive asset that enhances the
productivity and value of traditional businesses.
Finally, in the 80’s, the term “Digital” also appeared, coining the transition from analog mechanical and
electronic technology to Digital one, with a direct impact on the democratization of Digital computing
and communications, transforming (again) the business paradigm and emphasizing even more the value
of Knowledge.
 In this essay, when mentioning the term “Digital”, we will refer to the democratized and
ubiquitous access to Information and Communications Technology and its impact on society and
economy.

With this context and definitions in mind, it is a safe assumption to say that the rules and
practices that determined success in the Industrial economy, and that shaped most of the business
Leadership theory, need to be rethought.
This Knowledge & Digital economy is now characterized by the following key structural changes:
- rapid and far reaching technological changes
- accelerated globalization and increased competition
- the switch from a push to a pull economy, where customers, consumers and employees have
much more power on corporations than ever before
- more distributed and less hierarchical organizations, with accelerated movement within and
across organizations and sectors
- a shift toward Knowledge as the most critical economic resource.

Those structural changes are reshaping the required Leadership skills and behaviors in the Digital Age.
In this highly dynamic environment, Leadership innovation and adaptability are critical in order to
channel the right knowledge to the right people at the right time.
More than ever, the leadership role is to manage and nurture “Human Capital” and its contribution to the
creation of valuable Knowledge that can provide a sustainable competitive advantage to the corporation.

The impact of Digital on modern Leadership & Organizational Design

Digital impact on traditional qualities of effective Leadership
Setting the Vision remains one of the most important task of the Leadership role, and goes well
beyond setting objectives and strategy. It is to look deep into the future and set a path amongst a forever
growing number of possibilities. The Vision should ultimately be expressed in one sentence, as clear as
the one of Google Corporation that is to “organize the world's information and make it universally
accessible and useful”. The Leader’s role is then to constantly reinforce that Vision, because the
corporation will develop its competitive advantage only through a differentiating core expertise
(Knowledge).

One of the biggest challenge of the Digital Age is the incremental Complexity generated by the
overflow of information: the real-time and ubiquitous access to an exponential volume of information
has greatly surpassed human capacity to absorb, analyze and transfer that information into competitive
knowledge (4 exabytes – 4x10^18 - of information has been created and stored in 2009, more than in the
past 5000 years).
More and more employees are overwhelmed by that information overflow, and the Leader needs to
implement information systems that can filter and communicate simplified information to help the
organization and people focus on actionable insights and strategic tasks.

Embracing Ambiguity and Uncertainty has been made even harder because of the speed and
scale of the change we mentioned earlier, but at the same time, Digital provides new chances to access
competitive and market data, thus permitting to transform uncertainty into opportunities for the company
being able to exploit that data and implement plans faster than the competition.

Digital also provides a unique chance to foster Innovation through internal experimentation,
bottom-up emergence of ideas, and networked collaboration that allows cross-pollination. To reach
efficient levels of Innovation, the leader needs to instill a “controlled risk taking” culture that accepts
episodic failure and its related learning that contribute to the firm’s Knowledge. This necessity to
innovate through risk taking has been emphasized through some outstanding examples of “First movers”
that secured decisive competitive advantages in the Digital space, by acquiring a critical mass of
audience (FaceBook reached a 500M people audience in just 6 years, 10 times faster than previous
Television penetration, leading to a recent break-even and 15B$ company valuation).

The Action orientation and capacity to implement the strategy is another key Leadership quality
that can be enhanced by Digital. Indeed, it provides the capacity to communicate plans real-time,
encourages dialog to ensure alignment and prevent operational crisis, leverages available resources by
shrinking physical distance through virtual team set-up and collaboration tools.
The performance and action plans can be monitored and cascaded through shared dashboards, providing
“absolute” guidance to the organization, and “relative” information to individuals who can understand
their personal contribution within the broader corporate context, and better apprehend how they are
evaluated and financially incentivized.

Finally, the ability of the Leader to inspire and motivate people can also benefit from Digital.
The instant feed-back from employees, more transparent communications, easier dialog across corporate
layers, and better individual autonomy, can all drive alignment and motivation across the organization.
This sense of empowerment and belonging is the strongest incentive that can be provided to employees
on top of the financial incentive system described above.
Furthermore, this bottom-up process provides unprecedented opportunities to the willing leader to gather
precious insights about his own strengths & weaknesses in order to fuel his Introspection.

Digital impact on Organizational Design

Formal Structure
As already discussed, because information can span easily across units, organizations can now be
more distributed and less hierarchical (Ernest J. Wilson III). That means flatter organizations with
more autonomous and flexible units, providing greater agility to the company.

This has also a direct impact on spatial location, leading to the so-called “Hybrid organization”
(Professor Michael Hulme, Lancaster University), where the previous concept of precisely located
offices is slowly replaced by a form of “networked offices” that connect corporate facilities with
temporary (rented shared spaces) or private ones (employees working from home), thanks to the
democratized access to broadband and personal computing.
This is a chance to reduce property overheads and increase the company’s agility to adapt to
opportunities and challenges, and scale accordingly, which could be called “Cloud Working”, the
business equivalent of the new “Elastic Cloud Computing”, a virtualized IT infrastructure that can scale
instantly to any demand.
 This new working environment has led to the creation of “Virtual teams” that allow people to
work together seamlessly from wherever they are. But this new type of organization can only work if
processes are designed to organize the work flow efficiently. Here, ICT provide critical framework for
communication, collaboration, decision-making, knowledge management, etc… They structure the
“networked work” towards the company goals, which needs a good level of adoption and training from
employees.

Another fundamental advantage of Digitally enabled business, is the potential for “Real-time”
management, allowing the Leader to maneuver the organization with a far greater speed than before. If
embedded in the formal system and in the culture and skills of people, it can provide a decisive
competitive advantage. Innovation and speed are currently what best characterize Apple’s success. Their
“Real-time” processes and culture allowed them to outpace any of their competitor in the last 10 years.

Finally, this new formal structure is a great opportunity to distribute Leadership across the organization,
and to implement a formal bottom-up evaluation system, complementing traditional top-down system,
with the multiple advantages we described above. This “Distributed Leadership” (also called “Bottom-
up Leadership”) is especially relevant to drive thought Leadership in Knowledge intensive businesses.

Informal structure
Informal structure is often shaped by the formal organization, but when that one is becoming
“looser” and virtual, the need for a strong Culture becomes even more important.
Inviting employees to collaborate / share / communicate on dedicated Digital platforms, can help shape
ways of thinking and spread the companies values. By enabling people to participate to the culture, they
can better adhere to it. Google is a vivid example of a company using culture as a true enabler of its
innovation process.

Digital also impacts another important aspect of informal structure: Networks.

Within the company, Digital and more specifically the Social Web (also called “Web 2.0”) allows to
easily bridge across units. Outside the company, it allows stronger horizontal linkage across sectors of
the value-chain and geographies. It even blurs the traditional boundaries between the corporate world
(inside) and the outside world as information can flow in & out within a click.
Therefore does the company need to provide a solid “Networking” framework, both for internal usage,
but also for formal communications with the outside world when it becomes part of the company’s
strategy (corporate blogging policy). That latter option can create substantial value by accessing real-
time customers and consumer insights and allowing “co-creation” to design new products (IBM has
been a pioneer in that field, engineering new products specifications through extensive dialog with an
audience of committed specialists).
The downside of Social Media Networking if too informal or not managed properly has been
demonstrated by recent studies (Forrester and other specialized Social Media resources). It can indeed
seriously hinder productivity, as well as threaten strategic information and talent retention.

People management
As we have seen, all those organizational changes led to the necessary empowerment of people
with a level of bi-directional trust, and to the encouragement of their personal creativity within a
framework.
This autonomy requires continuous monitoring of performance, transparency on Key Performance
Indicators and incentive systems.
But it also requires to constantly update employees’ skills and versatility to cope with the “Real-Time
Cloud Working”, through eLearning solutions and by moving them across functions and around
geographies.
This contribution to the firm’s agility is a fundamental competitive advantage in markets that are
changing faster than ever, but all employees can not necessarily cope with those new ways of working,
and there is a clear segmentation between the Generation Y (also called Millennials) and the older
Generation X and preceding Baby Boomers.

For all those reasons, the Leader dealing with this new complexity and leveraging the full
potential of Digital (better than the competition) can improve his internal Leadership by avoiding
incongruencies between the formal and informal structures, and create huge opportunities for his
company.
But that potential comes with some limitations and a new set of Leadership skills.

What has definitely changed in the Digital Age

As we have seen, there are timeless and universal characteristics of Leadership that remain
important today and can benefit from the rise of Digital, but it is also important to recognize the limits of
that enhancement and the new Leadership characteristics required.

The limits of Digital enhancement

The value of Human contact (vs. virtual interaction)

There have been numerous studies demonstrating a variety of valuable psychological as well as
business outcomes of face-to-face meetings and collaboration.
Although Digital greatly enhances the capacity of organization and employees to communicate and
collaborate, it seems our human mind still needs to anchor such collaboration in real human contact.
Professor Richard D. Arvey study indicates 77% of people believe that offsite meetings are a necessity;
85% believe face-to-face meetings are more likely to result in breakthrough thinking; and 82% believe
that meetings bring out the best in people.
Another study by Oxford Economics provides clear evidence that every dollar invested in business
travel results in $12.50 in added revenues and $3.80 in new profits.

The real challenge is therefore to find the right balance between real and virtual collaboration as
they are complementing each other, depending on the importance of the task (initiating a new important
project, or simple check-points along a project timeline…). At some specific occasions, reality is still
much stronger than virtuality.

The value of time spent (vs. real time) and the pressure on productivity
We mentioned earlier that the “real-time” factor could shape the agility of the corporation and its
employees, but it also has important drawbacks. It can impact the stability of planning, force unwanted
multi-tasking (for which the human brain is clearly not well adapted), increase levels of stress, and
potentially impacting the quality of work.
Indeed, Digital certainly increases the efficiency of workers, as defined by the amount of error-free work
performed over time (thanks to the formatting and control mechanisms computers can bring). But it
doesn’t mean that productivity, defined as the quality of the work performed, has necessarily improved,
which has been challenged by numerous studies.

It is again the Leader’s task to find an equilibrium and sometimes “unplug” his employees by organizing
some “offline space and time” to let them get back to quality thinking and work.

New leadership skills or constraints induced by Digital

Specific Knowledge
If the new Leader does not need to be an ICT expert, he still needs to understand how ICT induce
new behaviors, how they shape the market, and how they can be leveraged in order to create a
competitive advantage and drive sustainable growth. This is a new specific Knowledge that the modern
Leader needs to own, and that he can’t delegate to a CIO or CTO to avoid the technological bias.

Skills & Attitudes

There is a series of new skills and attitudes required:
The first one is to Listen, and to become really good at it. There is a good chance that the next
breakthrough innovation will come from inside the company if the conditions to make it happen are
gathered. The second one is the ability to Simplify & Clarify the complexity & ambiguity, and then
channel the actionable information to the right people at the right time. The third one is to embrace
Transparency and Distributed Leadership. “Command-and-control management is as dead as dial-up
Internet” as CEO of Yahoo Carol Bartz puts it. The last one is about Adaptability (or Agility), which
requires intellectual curiosity and a Global mindset.

Human Capital management

The most specific challenge is probably a new way of managing Human Capital within new
constraints, which contains three distinct tasks. First, it requires to identify and mentor “thought leaders”
who can digest and interpret information into valuable Knowledge. Second, it requires to shape the
agility of organization by constantly training people (the 10 most demanded jobs today did not exist 10
years ago, and the amount of technical knowledge doubles every two years), and improving their
adaptability by exposing them to frequent different experiences. Third, Leaders should have a specific
focus on Talent Retention. In Western countries, 25% of managers have been with their current
employer for less than a year, knowing that it takes an average of 6 months for a manager to become
fully operational. That accelerated movement across organizations and sectors has led to unprecedented
managers turnover, which is a critical issue when Knowledge becomes the key economic driver. This
need for Retention demands the company and Leaders to take a special care of identified “thought
leaders” through development programs in order to grow the company’s Human Capital.

The next Generation of Leaders

As a conclusion, we can say that Leadership fundamentals are still there, but new experience, skills and
knowledge are required to embrace the new Digital paradigm.
This makes it difficult for the generation of Baby-Boomers currently in top-Leadership positions to keep
up with the speed and scale of that change, and manage the Generation Y of talents (Millennials) that
was born with Digital technology and knows how to exploit it.
That phenomenon is now described by the business literature as the “Leadership generational gap”.

The new generation of Leaders who will embrace that Digital paradigm change and successfully
combine it with thoughtful Knowledge and Human Capital management, will have the opportunity to
drive unprecedented transformation of their companies and achieve sustainable growth.
Smart Leaders from the previous generation will have to surround themselves with the new breed of
talent who will be able to manage that level transformation, and thus prepare their succession. Others
will certainly fail and pass, from large corporations in the first instance to Small and Medium
Enterprises.
References:
- INSEAD Professor Doug Guthrie: “Leadership & Organizational Behavior” GEMBA10 course - 2010
- “Leadership in the digital age”, Ernest J. Wilson III - 2008
- World Economic Forum: Global Information Technology Report 2009–2010
- INSEAD Library resources on e-Leadership and e-Skills
- e-Leadership Institutions for the Knowledge Economy, Nagy K. Hanna - 2007
- New Economist: Carol Bartz, CEO of Yahoo, “Leadership in the information age” - 2010
- Financial Times - Digital Business: Hybrid Organizations - 2010
- Wall Street Journal - The New Face of Face-to-Face Meetings - 2009
- Professor Richard D. Arvey, Ph.D. Business School, National University of Singapore: “Why Face-to-
Face Business Meetings Matter” – 2009
- Mashable.com: Impact of Social Media on productivity – 2010
- Wikipedia.com: Numerous articles and references (impact of multi-tasking on human performance,
Bottom-up Leadership, etc…) - 2009
- CIO.com: Managing the Leadership Generational Gap – 2010