Leadership disrupted: Pushing the boundaries 2017 Global Human Capital Trends

Introduction

Leadership development continues to be a significant challenge for companies around the world, as the transition to the new digital organization creates even larger leadership gaps. High-performing leaders today need different skills and expertise than in generations past, yet most organizations have not moved rapidly enough to develop digital leaders, promote young leaders, and build new leadership models.

• The leadership gap has become larger; organizational capabilities to address leadership dropped by 2 percent.
  
• Forty-two percent of companies cite “leadership development” as very important.
  
• The percentage of companies with strong or adequate experiential programs for leaders rose by 2 percent this year.

As digital disruption sweeps across every major industry, leadership capabilities are not keeping pace. In 2015, we termed leadership the “perennial issue in business”—a challenge that never seems to go away. This year we see a radical shift. Today, as never before, organizations do not just need more strong leaders, they need a completely different kind of leader. In short, organizations need to build a new breed of younger, more agile, “digital-ready” leaders.

Leadership today is less about the “art” of leadership and more about the challenges leaders are facing. Above all, the dramatic transformation of business is driven largely by the switch to digital.

Unfortunately, many CEOs do not understand the gravity of this issue. In a recent industry study of 800 top business executives, 67 percent believed that technology will drive greater value than human capital (and 64 percent believed people are a cost, not a driver of value).¹ While the topic of human capital vs. technology may be in debate, some executives still continue to focus on the technology side of the business at the expense of developing leaders.

The new skills needed in a digital leader

Of course, technology is critically important, but human capital remains indispensable.

However, the concept of “leader as hero” no longer scales. Highly effective companies such as Google, Lyft, WL Gore, Mastercard, and Atlassian look at leadership as a team effort and recruit leaders who can work together, complement each other, and function as a team.²

When older business models are no longer working, leaders need new capabilities. Yet most companies are digital “immigrants,” new to this world and built on older models such as control mechanisms and financial returns. Now, companies are scaling for different goals, such as innovation and moving at high speed. Ninety percent of companies are redesigning their organizations to be more dynamic, team-centric, and connected. These changes require not just new operating models, but a different type of leadership to mobilize and execute these models.

Because of these shifts, organizations need people who can lead teams and partner with the broader ecosystems. This new type of leader must understand how to build and lead teams; keep people connected and engaged; and drive a culture of innovation, learning, and continuous improvement. They must also be able to lead a workforce that now includes contractors, the contingent workforce, and crowd talent.

A natural corollary of this is that leaders need interdisciplinary skills. Companies such as GE, IBM, Nestlé, Xerox, and Mastercard now bring leaders together for collaborative design and problem-solving exercises, challenging them to understand how different business functions, industries, and technologies come together to form solutions. The days of a line leader reaching the executive level in a sole function have ended.³

Perhaps most important, innovation and risk-taking now define high-impact leadership. In the words of Mark Zuckerberg, CEO of Facebook, “The biggest risk is not taking any risk. In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”⁴ Risk-taking has become one of the most important drivers of a high-performing leadership culture.

Demographics and leadership destiny

Demographic changes are also influencing what is required for a leader to be successful. Millennials expect to be developed throughout their work life via opportunities, mentoring, and stretch assignments. Likewise, the most sophisticated organizations view leadership development as more than training. They combine organizational design, job design, mentoring, and development programs to create the leaders they need.⁵

However, at many companies today, the leadership pipeline remains too top-heavy, preventing Millennials from getting the on-the-job learning and development they need and leaving organizations struggling to build their leadership pipelines earlier. More than 44 percent of Millennials are now in leadership positions, but most believe they are receiving little to no development in their roles.⁶ In this year’s survey, 54 percent of companies report they have excellent or adequate programs for Millennials, up from only 33 percent two years ago. Despite this shift, Millennials still feel left out; only 28 percent believe their organization is fully taking advantage of their skills.⁷

To address business needs and satisfy the desire for lifelong development and more rapid advancement, many formal leadership programs are being supplemented with developmental assignments, external experiences, stretch projects, and exposure to internal and external leaders.

The percentage of companies with strong experiential programs rose from 47 percent in 2015 to 64 percent in 2017. Our newest research shows that formal training is among the least valued investments to develop leaders.⁸ Instead, companies should focus on establishing a leadership culture, risk-taking, knowledge sharing, and matrix management to build the leaders of the future.

The digital leader

The most critical need for most organizations is for leaders to develop digital capabilities. Today, only 5 percent of companies feel they have strong digital leaders in place, according to our 2017 Global Human Capital Trends survey respondents. In a sign of positive change, however, 72 percent of respondents are developing or starting to develop new leadership programs focused on digital management.

Getting there is hard. Our research on digital leadership, based on studies done with MIT, shows a shift in leadership capabilities in three areas: how leaders must think, how leaders must act, and how leaders must react.⁹

Digital leaders: A field guide

Leadership is critical in making the transformation from an organization “doing” digital things to one that is “becoming” digital. For both the organization and its leaders, this involves three different types of transformations (figure 2):

• Cognitive transformation: Leaders need to think differently
  
• Behavioral transformation: Leaders need to act differently
  
• Emotional transformation: Leaders need to react differently

Taken together, these transformations show how radical the digital transformation will be. And organizations should have certain core expectations of digital leaders: They need to make sense of vague external trends, help the organization imagine the digital future, blur the internal and external boundaries in ways that assist the transformation, educate others, repurpose technical expertise, and use design thinking methods to foster innovation.

That is a broad list of leadership characteristics, but it is important to recall that not every digital leader does the same thing. We see three different types of digital leaders, and most organizations will need some combination of all three:

• Digital investors: Senior executives who embrace the VC mind-set, uncover opportunities, invest in talent and ideas, forge partnerships, and build an ecosystem for innovation to thrive
  
• Digital pioneers: Business and function leaders who can reimagine the future, shape new and different business models, and lead a winning digital strategy
  
• Digital transformers: Leaders who can manage people through radical change and transform the business

For digital investors, a principal task is education. This includes educating the board and other senior leaders who may not fully understand the nature of the shift. Another challenge is getting the investment decisions right, such as choosing between internal investment in systems or purchasing from external vendors at less cost but also with less design control. Digital investors must also determine how to balance the current business model with the digital transformation and then integrate it into the newer, digital models.

Digital pioneers are, in many ways, the heart of innovation. They set the vision for the whole organization, “future-proof” the business, define the roadmap for the next two to three years, and drive both the pace of change and the organization’s new digital capabilities. They ensure a consistent vision and plan for digital throughout the organization.

Digital transformers are at the fulcrum point of leading radical change. Businesses face a particular challenge in finding leaders who can carry on “business as usual” while moving the digital agenda forward.

Lessons from the front lines

As the pace of technology disruption continues to accelerate, the high-tech manufacturing industry is experiencing broad-based talent shortages and skills gaps. One global high-tech manufacturer seeking to explore new operating models to spur rapid growth faced serious leadership challenges as it attempted to shift its business strategy. As its business changed, so did its talent needs, particularly when it came to developing the leaders of the future it needed to implement the new strategy.

The company focused first on growing its own pipeline of leaders. But the organization quickly realized it needed greater precision in identifying leadership potential across its workforce. Specifically, the company zeroed in on two goals: to improve its ability to spot leadership talent across all of its talent pools, especially at the middle manager level; and to identify potential leaders faster and at lower cost.

To achieve these goals, the company developed a framework for leadership potential that outlined the specific attributes most predictive of leadership success. The organization rolled out the tool to one of its business functions on a worldwide basis. In two weeks, 20 raters assessed more than 100 mid-level leaders across the globe, enabling a rapid, data-based approach. An aggregate report of all leaders was compiled and reviewed with HR leadership. Raters believed the new tool was both easy to use and offered actionable results; these results provided informative and actionable insights to the executive committee, which helped in making future talent decisions.

The organization is now expanding the tool across the entire global organization, allowing it to quickly compare ratings of potential leaders by placing all leaders on a level playing field regardless of function or region. This approach establishes a standard, consistent language for identifying potential across the global organization. It also helps the organization to uncover “hidden gems” in unexpected places, thanks to rich, consistent data from global and regional talent reviews. Indeed, 5 percent of the highest-potential leaders identified in the initial project were “meets expectations” performers—indicating either poor role fit or untapped potential.

Start here

• Rethink the organization’s leadership model: The new model should include the concepts of innovation, growth, inclusion, teamwork, and collaboration.
• Identify the likely digital leaders in the organization: Determine who can be the investors, pioneers, and transformers. Then train them to understand these opportunities.
• Ensure accountability: Identify the person or group responsible to the C-suite and board for building leaders as part of the business strategy.
• Promote younger people into leadership much faster: Give them the opportunity to learn on the job and the flexibility to lead teams and projects with support from senior leaders. Use them as reverse mentors to help senior executives learn about technology, work practices, and the culture of younger employees.
• Foster risk-taking and experimentation through leadership strategy: Leadership programs must be interdisciplinary and focus on new product and service innovations, encouraging risk-taking and experimentation as people develop new skills.
• Move beyond traditional leadership training: Instead, focus on leadership strategy, with an emphasis on culture, empowerment, risk-taking, knowledge sharing, exposure, matrix management, and building talent as guides. Bring in external leaders and rethink your leadership vendors; many are steeped in old models and traditional leadership thinking.

Fast forward

Great leaders have always been expected to succeed in the context of ambiguity. Now, they face even greater pressures as the speed of technology accelerates. The role that leaders play will continue to change, becoming even more digital-focused and team-centric. A focus on organizational practice, including culture and organizational design, will become an ever-more important part of leadership development. Despite this more challenging environment, leaders will be asked to execute at a higher level—and ensure that their organizations do not lag behind in the digital transformation.