Leaders are struggling with complexity and the sheer speed of today's economy. As the failure rate among CEOs rises, is it time to reinvent leadership to meet the emerging challenges of the 21st century?
When a Microsoft executive mapped out the company's strategy to extend its client and server platforms to the Internet, it took an hour. Confronted by a sea of bemused faces, he admitted that this was a boiled-down version of his usual three-hour exposition. When he finished, the only point of consensus among those listening was that the Microsoft .NET strategy was too complicated to be absorbed in the allotted time. As one reporter observed: "what is beyond doubt is that .NET is one of the most significant things to have happened in IT for a couple of decades, and at the same time the most confusing".
From a leadership perspective, there are two ways of looking at this incident. Either, the Microsoft leadership still has a lot of work to do to articulate its vision of the future in a clear and intelligible form (calling it .NET is hardly an auspicious start). Alternatively, the markets that Microsoft operates in are now so complex that its strategy can no longer be rendered in pithy soundbite form. Both are probably true. We have moved from an either/or world to one where either/and situations are commonplace.
Complexity is the reality for a growing number of business leaders. Complexity does not allow leaders to cut simply and memorably to the chase. Indeed, as the world in which they operate becomes ever more interconnected, business leaders face an increasingly tough job formulating and then expressing their strategic vision. At the same time, they face intensifying pressure to maintain performance in the short term. Those that drop the ball receive little sympathy.
The attrition rate among business leaders is increasing. In one month (February) alone in 2001, no fewer than 119 CEOs left significant US companies. In 2000, 39 of the 200 largest US companies changed their CEO, compared with 23 in 1999. In the second half of 2000 departures from US companies were 40 per cent up on the first six months of the year, according to outplacement consultants Challenger, Gray & Christmas. And it's not just a US phenomenon. It has been calculated that two-thirds of all major companies worldwide have replaced their CEO at least once since 1995.
Various explanations have been put forward to explain this trend. Impatient institutional shareholders, a decline in the quality of leaders and poor selection procedures have all been blamed. But there is another more plausible explanation: that the traditional style of leadership is struggling to cope with the new business environment.
Behind the headlines something significant is occurring. The old models of leadership are creaking under the strain of modern business life. A confluence of factors is creating a level of complexity that is beyond the experience of most leaders. Leadership itself is in a state of flux.
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Leading in a fast-forward world
The leadership crisis is exacerbated - and emphasized - by the economic slowdown around the world. The speed with which it took hold is evidence that we live in a fast-forward business world; things happen more quickly than ever before. Markets are becoming more volatile and economic cycles more compressed.
Consider Cisco Systems, which dominates the market for routers (the boxes that direct data traffic on the Internet). In just 45 days between December and the end of January 2001, Cisco went from 70 per cent growth to minus 30 per cent in what has been described as the sharpest deceleration in corporate history. Its share price tumbled by 70 per cent. The company took drastic action, laying off 8,500 people - 18 per cent of its workforce.
Yet Cisco's CEO John Chambers was regarded as an exemplary leader. Feted by Wall Street, he was voted the best CEO in the US. His vision of a connected world was matched by Cisco's seemingly unstoppable rise. In April 2000 the company's market capitalization nudged $500bn, making it the world's most valuable company. Less than a year later, Wall Street's cover boy had become its whipping boy. Chambers found himself in the dock, with analysts laying the blame for the company's troubles squarely at his door. In his drive to improve customer satisfaction levels - especially delivery times - he had built up inventory. Restructuring costs - which include a huge $2.2bn inventory write down - contributed to the company reporting the first loss in its history as a public company.
It's a salutary tale for leaders everywhere.
"We have learned that the peaks will be much higher in this new economy than people realised and the valleys will be much lower. And they will occur much quicker and closer together," Chambers noted. "Changes that used to occur in 10 years now occur in one or two quarters and changes that used to occur in one or two quarters now occur in a couple of weeks."
This adds to the complexity and heaps more pressure on leaders.
The pressure will increase in the next few years as digital technology, still in its infancy at present, really kicks in. Much of the technology is so new, so unfamiliar and so bewildering in terms of the possibilities, that, as Microsoft is finding, communicating a coherent strategy and persuasive vision will become ever more demanding. But, just as significantly, a more complex world requires a step-change in the way leaders think about their businesses. It demands new attitudes and outlooks.
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Making sense of the jigsaw
The modern leader has multiple roles and constituencies. The job is increasingly fragmented. There is little time to do everything well and so he or she faces a continuing series of trade-offs of time, energy and focus.
Increasingly, too, these demands create seemingly contradictory pressures. At present many leaders face an agonising dilemma. They are under pressure to cut costs. Yet, at the same time, they know that the dot-com bust notwithstanding, the Internet and other digital technologies offer enormous opportunities and are having a lasting impact on market structures and competitiveness. Leaders are caught between the proverbial rock and a hard place. They must create value through performance delivered today while at the same time sowing the seeds of innovation for tomorrow.
This, too, is not an either/or situation. Shareholders expect them to deliver on both fronts simultaneously - and that's a tall order.
The fact is that the job of leaders has never been so hard or shareholders so unforgiving. "It's just one helluva lot harder than it was even 10 years ago,says Warren Bennis of the University of Southern California, a long-time researcher on leadership. "The job is more complex. There's a more clogged cartography of stakeholders, unbelievable changes, disruptive technologies, globalisation, inflection points no one would even think of 10 years ago and, most of all, speed. It not only takes a strong stomach and a tough nervous system but a mind that can take nine points of view and connect the dots."
Connecting the dots has never been more important or more difficult. Leaders themselves admit that the role is becoming more challenging. They cite pressure from financial institutions to meet performance expectations; increasing complexity and competitiveness of business as a result of globalisation; restructuring and managing change; increasingly demanding customers; difficulties in finding good people; and technological change, particularly the use of information technology.
"It's hard to argue against the trends. There are clear signs that the pressures on business leaders are growing," says Murray Steele, a senior lecturer at Cranfield School of Management in the UK who has researched the role of the modern CEO. "There is a convergence of factors - a whole raft of trends coming together - that you can't do much about. There's no way of turning the clock back."
The reality is that leaders must recalibrate their leadership style. A digital world requires digital leaders. However, digital is just shorthand for a new approach to business. It is fast-paced, connected, non-linear, virtual, technology enabled. These are characteristics of not just of digital devices but of the business environment, and are also essential attributes of the new types of leaders and their behaviours.
We are moving to a world where discontinuity and exponential change will become the norm. In the future, leaders will have to orchestrate radical redesign of everything from their internal processes to their business model on an on-going basis. This requires leaders to adopt new approaches to leadership and new behaviours.
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Towards a new leadership model
Leaders must now be able hold several different perspectives at one time without being swamped by complexity; and, at the same time, be able to project a compelling vision of the future and guide people towards it. Many leaders are instinctively groping their way towards a new leadership model. They know they have to keep all their plates spinning, delivering performance in the short term while transforming key areas of the business to deliver value in the long term. Financial markets are unwilling to tolerate down time.
Most leaders recognise the challenges they face. But they are unsure how to make the necessary adjustments to their mental models. They continue with their old leadership behaviours, wondering why they are struggling to cope with the new complexity. Rather than adjusting their aerial - or switching to digital - they hope that the reception on their strategic analogue TV sets will improve.
Others view the issue as generational. Take the industrial engineering colossus Asea Brown Boveri (ABB). When ABB's former CEO Goran Lindahl announced his decision to step down a couple of years ago he acknowledged the company's growing involvement in the information technology industry. Information technology, he said, was at the heart of his strategy to transform the industrial group from one that is dependent on heavy-engineering assets into an "agile knowledge-based company dependent on intellectual assets".
This being the case, 55-year-old Lindahl felt that he was no longer the right man for the job. He simply wasn't digital enough. ABB, he said, should now be led by someone who understands how the company can exploit the new technology. It is no coincidence that ABB's new CEO, Jorgen Centerman, has spent his career in ABB's high-tech automation division rather than the heavy-engineering side of the business.
ABB's solution to the digital leadership dilemma is simple: replace an old-economy leader with a new-economy leader. But pragmatic though it may be, this approach is ultimately unsatisfactory. It assumes that the digital divide is too wide to span. It puts the emphasis on the new leader's experience and background but it does not adequately address the changing nature of the leadership model. To do so requires a broader view of the context in which our current understanding of leadership has emerged. It is necessary to view the leadership role in terms of an evolution in thinking.
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Living with complexity
In practice, business leaders have followed - and continue to follow - two basic styles: the command and control approach (heroic leadership) where leadership is defined by what leaders do and ask of their followers; and the visionary approach, where leadership is defined by the vision articulated by the leader, who empowers followers to do what is necessary to make the vision a reality.
Both are based on the notion that the leader's role is to eliminate uncertainty. Both types of leader codify the world to make sense of it for followers. Both work fine in the right context but very badly in the wrong context. Both are based on a traditional view of leadership.
Today, command and control is out of favour - though this does not make it obsolete. It harks back to a time when leaders regarded themselves as organizational engineers. Their job was to ensure that the organisational machine was tuned up and pointing in the right direction. That is no longer regarded as a viable way to run a company. Companies have metamorphosed from machines into social communities.
This has led to a shift towards the visionary leadership model. Leaders have recast themselves as tribal chiefs - articulating the vision, values and purpose of the corporate community.
In recent years, however, a third style of leader has grabbed the headlines: the "techno-savant" leaders like Scott McNealy of Sun Microsystems and Steve Case of AOL Time Warner. They are digital leaders. They are typically a hybrid of the two traditional leadership styles - drawing their authority from a combination of missionary zeal and a deep understanding of technology and its market impact, which allows them to shape (and be shaped by) the future.
Mike Ruettgers, executive chairman of the information storage giant EMC, is another digital leader. Over the last decade, he has steered his company to the fastest stock-price growth on the New York Stock Exchange. He puts the company's success down to "how well we identified and executed on new trends. We changed the company four times in the 1990s to do this".
Also part of the digital leader set is Meg Whitman, CEO of the online auction company eBay. She presides over one of the pure-play Internet businesses that successfully weathered the dot-com storm. In fact, the company has been profitable in all but two quarters since its inception. Whitman has successfully made the switch from traditional companies. Before eBay her career took her to Procter & Gamble, Disney, the toy company Hasbro/Playskool and consultants Bain & Co.
Whitman describes her role as a 7-by-24 job. She receives 175 emails a day - but only about five phone calls. How does she lead? "I don't tell people what to do - I try to influence the direction of the company," she says. Other nuggets from the Whitman leadership philosophy are reassuringly familiar: "All strategy questions can be reduced to: Who are your target customers? What are your competitors likely to do? What value will it create?"
A string of books and articles have sought to distil the leadership style of digital leaders, yet it remains elusive. What all share, however, is an instinctive ability to make sense of increasingly complex markets. They are not concerned just with developing technology but with harnessing its potential inside their organisations. They lead by constantly transforming themselves, their markets and their organisations. They continually reconfigure themselves and their networks to create competitive advantage and new value for customers and shareholders.
The new breed of leaders combines traditional leadership behaviours with a transformational perspective.
But digital leadership is not concerned only with high-tech businesses. Digital is a state of mind just as much as it is a technological phenomenon. It is about making new connections and creating value in new ways.
Starbucks CEO and chairman Howard Schultz, for example, thinks like a digital leader although his company is not a technology driven business. He is primarily a community builder. "We build the Starbucks brand with our people not with our customers," he has observed. The effect is a network of highly trained partners (the Starbucks word for employees), living the Starbucks brand promise.
Other companies have geared their business to the new environment. Regus, the serviced-offices company founded by Mark Dixon, provides instant office space - a physical solution that mirrors the demands of the digital world. Charles Schwab is another who has successfully exploited the digital environment, transforming the eponymous discount stock brokerage into what one journalist described as a "web-and-telephone- based financial supermarket".
These leaders appear to have different ways of making sense of the world. They are unhindered by the narrow frames of reference that are commonly applied to the business environment. For example, "old-economy" and "new-economy" labels create a false division between leaders, sectors and strategies. In reality, the notion of any such separation is erroneous. The economy is, by definition, always new. It is created anew every day.
Digital leaders are able to mobilise themselves and their organisations to take advantage of new market opportunities. This is at the heart of their success and of their leadership style.
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Leading at the edge of chaos
One response to an increasingly complex world is to throw up our hands and say the market is just too unpredictable and too fast-paced to make sense of. As the traditional leadership model has come under growing pressure, so phrases such as managing paradox, ambiguity and chaos have been used to paper over the cracks. But this is not the best way to reconcile competitive threats and opportunities.
The essence of the digital mindset is that complexity will not go away but that complexity is not the same as chaos. Viewed through the traditional leadership lens, the business environment can seem chaotic, uncertain, ambiguous and even paradoxical. For leaders who are able to grasp the new perspectives it is still complex but with a clearer view of the many opportunities and threats and much more manageable.
Many leaders are struggling at present because they have a narrow definition of what leaders do. Their old behaviours - and the way they view the role - all too easily become a straitjacket on themselves and their organisations. This is the situation many of today's executives find themselves in. The truth is not that the business world has become too complex to comprehend, rather that it has become too complex for the old leadership behaviours to cope with.
The business world is in such a volatile state that it is much harder now than it was 20 years ago to make clear and firm statements accurately. The new leaders acknowledge this. They understand, often intuitively, that the real issue is not passively living with uncertainty but actively embracing complexity. That requires an understanding of what it means to manage at the edge of chaos.
This means getting the balance right between order and disorder. On one side are dimensions of a business that can be structured, regulated and controlled in conventional ways. On the other are activities that by their nature require improvisation, the empowerment of new and non-structured responses. The new leadership challenge is to straddle these two worlds, to live on the edge of chaos without either descending into the abyss or settling into a false comfort zone. It is at the edge of chaos that real innovation occurs. The leader has to find the edge and position the organisation there to exploit the tension between the two sides.
It is an idea that is now gaining currency and one that has resonance with the natural world. In their book Surfing the Edge of Chaos, Richard Pascale, Mark Millemann and Linda Gioja argue that in business as in nature, there are no permanent winners - only companies and species coping with crises and challenges as best they can.
As in nature, they argue, equilibrium leads to decline and eventually death. Inertia may be the natural state in the physical world but for living things it is also the first step to extinction. Disequilibrium, on the other hand, creates new leadership challenges. Once mobilised, living entities can only be disturbed not precisely directed. In their view, leaders in a social system perform the function of a properly shaped lens - directing light and energy.
"The way that we currently live and work is heavily influenced by a science based on predicting and controlling environments. This has led leadership to become mechanical in its character," says Suzanne Fielden, a specialist leadership coach with Emergent Dynamics. "This may be appropriate for a world that is manageable, predictable and more easily measured. But we are now living in a very different world that is characterised by complexity. Leadership needs a makeover to deal with this new world; it needs new skills and abilities to lead and empower others to design organisations, systems and change processes that thrive in this new space rather than shying away from it."
Herein lays the challenge.
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What do digital leaders do?
Today, there is such a cacophony of noise that some leaders are tempted to reach for earplugs. Similarly, some executives complain of information overload. But what is interesting is that the best and most successful business leaders rarely mention information overload. Instead, they thrive on information. They want to be drowned in a constant stream of information because they know that this is a hugely rich source of ideas. Information enables them to put things together, relate them in different ways, change perspectives and learn. They are open to new possibilities. Far from shunning it, they thrive on complexity.
Successful leaders are comfortable with the possibilities that are unleashed. They embrace those opportunities and confront the threats head on. They are constantly curious, rather than fearful, about how they will play out in their markets. As Clayton Christensen notes in The Innovator's Dilemma: "Managers who confront disruptive technological change must be leaders not followers, in commercialising disruptive technologies".
The emergent leaders are not concerned solely with developing technology. They are adept at harnessing its potential inside and outside their organisations. They see the world as a series of networks and communities. Their approach to business is shaped by the ability to create value out of complexity. To do so they employ many of the old leadership behaviours but they also have digital capacity. They are blenders of old and new. It is the transformational element that gives them the added leadership bandwidth: being able to see challenges from new perspectives, seeking new solutions outside of the conventional boundaries For example, they view collaboration and partnerships - inside and outside the organisation - as the most productive route to growth. They join up the dots to make new patterns and transform the organisation.
Indeed, the essence of being a digital leader is transformation. Transformational leaders are akin to visionary leaders but play a more active role. Transformational leaders have the capacity to perceive something that is currently regarded as being impossible and then make it happen. They do this not by doing more, working harder or utilising more resources but by fundamentally altering the context. Crucially, they regard self-transformation as the key to organisational transformation. These leaders last because they become adept at reinventing themselves and their businesses.
Examples of genuinely transformational leaders are thin on the ground, Nokia's Jorma Ollila is probably one of the closest to the ideal. The transformation of Nokia from a nationalised engineering company to a world-leading consumer brand is well documented, a journey which Ollila has led for the last 12 years with passion, discipline and hard work.
Similarly the emergence of First Direct and Egg as UK-based financial service concepts has been largely due to the inspiring leadership of Mike Harris. Harris explains: "Many of us are being asked to deliver transformational change. How? My definition of transformation is taking another point of view: if you do this, the same set of circumstances suddenly looks different, and different actions follow naturally.
"To take an extreme example: if your organisation sees failure as something to avoid, you tend to take over-cautious actions, cover up mistakes and punish those who take risks and fail. If, on the other hand, you look at failure as an inevitable consequence of a powerful strategy and the only way you find out your limits, then you are naturally bold and fearless, embracing failures as learning and reinvention opportunities. I'm not saying either of these two approaches is the better merely that by adopting a different point of view you change the way you and all around you react to the same set of circumstances and events".
Even the most accomplished techno-savants struggle to always remain at the forefront of the digital revolution. Bill Gates was a relatively late convert to the Internet, for example, only grasping its significance after Netscape had taken a large slice of the browser market. Microsoft had to play catch-up for much of the late 1990s. What Gates has demonstrated repeatedly, however, is the ability to transform his own perspective and to mobilise the organisation. Ditto Jack Welch, whose Internet initiative - "destroy your business before someone else does" - was triggered by his personal epiphany. Oracle's Larry Ellison, too, re-imagined his market and then led his company in a new direction, reorienting it from client server products to Internet applications.
Becoming a transformational leader, however, is easier said than done. The leap that leaders have to make is one of self-understanding. Many are held back by their old terms of reference. Their old ways of leading - managing, controlling, financial measures, hierarchical structures - are in conflict with the exponential digital possibilities. In essence, the old ways of leading are no longer enough. Often they simply compound the complexity.
As a result, a false distinction has been asserted between leaders who have embraced new technology and those that have not. The truth is that every business leader, in every industry and every company, must embrace the new digital possibilities. To do so they must first transform themselves.
"Corporate transformation is about personal transformation. It is about the willingness of the leadership to shift its philosophy from what's in it for me to what's best for the common good," says Richard Barrett, former values co-coordinator at the World Bank.
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Becoming a digital leader
Leaders who seek to transform their organisations without changing themselves are unlikely to succeed. By setting an agenda that requires new attitudes and mindsets but exempting themselves from that process they invite failure.
The new leadership model asserts that transformation of the organisational culture is achieved not by leadership diktat but via the transformation of the attitudes and assumptions of individuals - starting with the leader. It also asserts that transformation, by definition, involves a radical step-change.
The first step towards becoming a digital leader, then, is an inward journey. The leader acknowledges an older definition of the leadership role: "to show the way by going first". The leader understands that context is all-important - and that the behaviour and mindset of its leaders determines organisational context. Leaders with closed minds rarely preside over innovative companies.
Traditional leaders are primarily concerned with immediate opportunities and threats. Instinctively, behaviours are rooted in a "this is how I lead" frame of reference. They perceive their mandate comes from their track record for delivering on their past promises. They rely on their hierarchical position as leader to direct the actions of others towards short-term goals. Behaviour reflects the current capabilities, cultural assumptions and repertoire of responses.
In contrast, the digital leader exhibits other characteristics. Digital leaders approach complexity with an open mind. Their frame of reference is "how could it be?" They exhibit transformational behaviour.
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Digital leaders are:
- Visionary: transformational leaders don't shy away from complexity. They immerse themselves in it, embracing it, recognising and grasping the opportunities that it presents. They make connections to bring clarity amid the complexity. They develop inspiring ambitions on top of their rigorous strategies, which are more likely to ride the waves of change and strategic renewal.
- Engaging: in the past, visionary leaders have tended to neglect the practical aspects, maintaining distance from their followers. The transformational leader is also a valued guide. Rather than simply pointing at the mountain, they actively coach and support others in the organisation as they strive to reach their goal. They connect the vision with the actions required to get there.
- Fusing: the transformational leader is a conduit for diverse ideas and initiatives buzzing around the organisation. He or she sees the organisation as a network rather than a pyramid and instinctively wants to be at the centre. Transformational leaders connect the dots or nodes within the organisation to make things happen. They fuse the talents and opportunities to create value today and for the future.
- Collaborating: the transformational leader also seeks collaboration with other organisations, constantly looking for partners that can add the missing pieces to the strategic jigsaw. They view partnerships/joint ventures/outsourcing and the whole panoply of collaborations as a way to make connections that create new possibilities and/or extend the organisation's capability.
This begs an important question: can traditional leaders acquire the additional skills and perspectives required to become digital leaders?
Whether leadership is innate or acquired is a conundrum that has long occupied leadership theorists. When notions of heroic leadership were pursued, the question was easily answered. Heroes cannot be manufactured.
Visionary and command and control leaders are by the very nature of the leadership they practice, reliant on innate skills. You can learn aspects of these leadership styles. There are a profusion of executive programmes on leadership offering access to these skills. Some of them are useful either to get you started, to stretch your perspectives, or to challenge and provoke your assumptions. Outsiders might also be useful as a personal coach or sounding board, facilitating new networks and connecting you with other organisations.
However, the real challenge is a personal one: to transform yourself, and to use that new personal power to transform others, and your business. Too many organisations try to transform themselves driven by leaders who are stuck in their old paradigms - an approach with obvious limitations. Too many organisations also try to transform their businesses without transforming their markets - again, a recipe which limits success to competitive catch-up rather than market leadership.
Transformation must come from within the individual: the leader Yet transformational skills, by their nature, can only be grasped by an individual open to, and proactively seeking, self-transformation. Digital leadership, is therefore a combination of personal, organisational and market transformation. In complex and dynamic markets, such capability and practice is essential for a leader's personal and business success.
Personal transformation and the digital leadership attributes necessary to address today's environment may well be the new frontier in leadership. Whether leaders are ready to confront these challenges, however, remains to be seen. What is clear is that if they can't find a way to live with complexity - life is likely to become a lot tougher in the next few years.
