Digital Economy Dispatch #072 -- The Leadership Dilemma Facing Digital Transformation

January 23, 2022

Digital Economy Dispatch #07223rd January 2022

The Leadership Dilemma Facing Digital Transformation

As an advocate, educator, and advisor on digital transformation, the topic that I see generating the most discussion and debate on my journey around the digital world undoubtedly concerns the best way to adapt to the changing role of leadership in digitally transformed organizations. How do organizations encourage innovation and experimentation across their teams while maintaining a coordinated strategy and adequate governance? Recognizing, addressing, and resolving this fundamental leadership dilemma in digital transformation is essential if your organization is to move beyond using digital technologies to pave over the cracks in your organization’s current ways of working toward a digital-first operating model essential to your future success.

Yet, perhaps it is people like me who are to blame. Fuelled by stories about companies such as Netflix and Spotify, many people are energized by the emphasis they see on flattened management structures, rapid re-direction, and self-organized teams empowered to make decisions for themselves in response to their local knowledge. They celebrate an end to the days of being told what to do by out-of-touch managers who insist on everyone being forced to use the same out-of-date tools and methods regardless of the context.

However, for others responsible for scaling, coordinating, and aligning the organization across its many strands, the agile practices fundamental to digital transformation programmes are portrayed as an absence of leadership, an abdicating of responsibility by those in management roles, and a disregard for the importance of the experiences gained from a lifetime of hard earned lessons in delivering value to clients. They see such moves as a threat to stability, a sign of disrespect for the skills of management, and a misunderstanding of the importance of maintaining strong governance across a diverse, complex organizational landscape.

Where should organizations focus to begin to make sense of this leadership dilemma?

Reflections on recent experiences

A useful starting point is to consider the “great digital acceleration” that we have witnessed over the past 2 years driven by the global pandemic. Rapid deployment of digital technology has been essential to the survival of many organizations. A new accord has been required to rethink risk profiles based on the need to move at speed and to adapt rapidly to a changing environment while ensuring appropriate resilience, coordination, and governance across all stakeholders. In reflecting on this experience, we are finding that there is much to be learned.

The successful deployment of advanced digital technologies has been widely applauded. Yet, at the same time the disruptive forces unleashed raise broader concerns about how organizations and individuals must change to absorb the impact of their adoption. Perhaps unsurprisingly, in the rush toward digitization, the resulting digital transformation we are experiencing has highlighted several areas where tensions are being created as the aspirations we have for these technology-driven changes come up against the reality of managing the shift to ensure meaningful, sustained impact in the complex world in which we live and work.

Adapting to these changes, one of the most challenging areas for many individuals is to rethink the role and skills they require to lead their teams. For organizations as a whole, the nature of leadership and existing ways to incentivize leaders’ behaviour are cast into doubt. From these considerations, a range of questions emerge: What is the best way to encourage greater experimentation and risk taking in leaders? How is the experience and expertise of leaders best used to drive digital transformation? How does additional automation and adoption of data-driven algorithms shift the focus of decision making away from those in leadership roles? What are the implications for organizational structures and carer development of staff?

The challenge of leadership

There are growing expectations that the accelerated adoption of digital technologies we saw during the pandemic will continue. To ensure recovery and fuel growth, many believe that it is essential to maintain the speed at which these technologies are replacing manual practices and transforming businesses models toward digital-by-default engagement with clients. This pressure has caused a significant shift in the attitudes and mentality of senior executives. These key decision makers have recognized the importance of their role in leading the digital transformation journey.

Consequently, attention is turning to the nature of leadership in a digitally transformed organization and the skills this requires for success. Meaningful digital transformation at scale involves coordinating a wide range of activities at all levels of the organization. This is complex enough for leaders in these organization. However, what makes this task even more difficult is that the principles and practice of leadership for a digital transformation are being questioned in the efforts to understand the key areas of focus for leaders wanting to drive meaningful, sustained organizational change.

An obvious place to start is to look at leadership traits in use by executives at successful digital native organizations. For these digital leaders, strategy and decision making has adapted to recognize that traditional top-down hierarchical models are unlikely to be effective in times of rapid change and massive uncertainty. They base their leadership approaches on agile management principles aimed at rapid innovation cycles, experimentation to learn quickly from low-cost investments, and devolved decision making to speed up reaction times when the operating context changes.

Yet, while these characteristics are readily identified, the leadership approaches in many large established organizations remains stuck in the past. The incumbent bureaucratic approach to leadership developed during the industrial age emphasized the importance of productivity and efficiency through standardization and rigour. Hierarchical management models helped to organize large teams into manageable units aimed at achieving a common purpose through adherence to shared processes where the steps to be taken are well rehearsed and the outcome well known. While well-matched to previous ways of working, many see them as ineffective in digitally-driven scenarios where diversity, creativity, and fast response are hight prized.

To overcome these limitations, organizations are looking to new leadership models. For example, in data-intensive domains one direction is to accelerate access to new knowledge by building organizations based on meritocracies. These data-driven organizations perform detailed analysis and amass expertise to guide informed choices about future directions. Strategic decision-making is based primarily on evidence drawn from data. Those that master the data-driven technologies and their application rise to the top. However, as we have seen in recent months, this approach relies on a consistent base of meaningful data to which standard data analytics can be applied. Something hard to find in these unprecedented times.

So, while this approach has helped many organizations in domains where digital change is well underway and the goals are relatively predictable, it has been found to be sub-optimal in many digital transformation situations characterized by massive uncertainty and a fast-changing environment. Here the focus must necessarily be on speed of reaction to the weak signals received, with strategic intuition and opportunistic risk-taking playing a more significant leadership role. This opportunistically focused approach, defined by Julian Birkinshaw and others as adhocracy, requires a fast-paced experimental learning cycle that thrives on uncertainty. Leaders ensure progress by creating tightly integrated multi-disciplinary teams focused on exploratory techniques such as short sprints and Minimal Viable Products (MVPs).

Where to now?

The leadership challenges in digital transformation are not easily resolved. The key dilemma organizations face is whether to shape their leadership approach to persist with well-understood leadership models that emphasize coordinated top-down decision making, or to seek substantially revised approaches toward less familiar techniques based on principles such as meritocracy and adhocracy.

There is no standard roadmap to resolve this dilemma. Each organization must deal with it for themselves in their own context to address several important questions, including: What is the leader’s role in a decentralised, disrupted, data-driven world? How should leaders think and act to drive agile change in the organization? How do we adapt existing leaders to move from bureaucratic leadership to more of a meritocracy?

There is no doubt, bringing a greater focus on these leadership questions will help you to accelerate your digital transformation.

Digital Economy Tidbits

Deloitte Tech Trends 2022. Link.

A very useful discussion of what’s next in the digital world.

Deloitte’s 13th annual Tech Trends report provides insights and inspiration to unlock innovation, build trust, and engineer advantage for your digital journey ahead. 

The Latest Google Research Themes. Link.

Fascinating to see the focus and expectations for Google’s research.

I think we’ll see a number of exciting advances over the next several years, advances that will ultimately benefit the lives of billions of people with greater impact than ever before. In this post, I’ll highlight five areas where ML is poised to have such impact. For each, I’ll discuss related research (mostly from 2021) and the directions and progress we’ll likely see in the next few years.