Leadership in the Digital Age: A Digital Business Strategy

While you mull the meaning of “Leadership in the Digital Age” (LITDA) and digital business strategy and its implementation, let me outline some thoughts for you to consider by setting LITDA and digital strategy in a wider context. 

I have updated my original article following some conversations with senior executives and interest expressed in certain areas. Inevitably setting context means going “higher and wider”, so aspects of this article become more conceptual and I make no apology for that —academic rigour builds confidence in the argument.

My intent is to leverage my practical experience and research, and the research of others, to produce the foundations of a practical approach to building change, transformation and strategy execution capability suited to the digital era. Since all change and transformation requires a strategy to be implemented, and all strategy to improve performance involves change and innovation; the foundations of strategy execution capability are to all intents and purposes the same as the foundations of change capability so the terms are used interchangeably. 

For many organizations, change and strategy execution means moving from one defined and often ‘static’ state, to another. The concept of embracing a systemic, systematic and dynamic approach to strategy execution, designed to enable value delivery in a volatile, uncertain, complex and ambiguous environment remains alien. Such an approach is possible and has delivered proven value in business units of organizations as case studies in Tozer (2012) show.

All organizations exist in order to deliver value to their various stakeholders. For businesses, value delivery generally comprises returns to shareholders; cost-effective and efficient products and services sold to customers; and increasingly benefits provided to employees, the wider community, and the environment. The Armed Services pursue the national security objectives of protecting UK citizens, assisting in the projection of global influence, and promoting the UK’s prosperity. The Civil Service intended outcomes are efficient and effective services trusted by the public, and delivered by skilled, adaptable people. 

A digital business strategy is one designed to realise optimal value in the ‘new’ digital context. In order to deliver optimal value, digital transformation capability needs to be developed and evolved with regard to progress and changing context. Such capability has three distinct components: Information and Communication Technology systems and software (ICT), Leadership Agility, and Structural Agility —together these mechanisms create the conditions in which people can think and work differently.

Context

Every organization, large or small, is now operating in an environment which is influenced to a greater extent than has historically been the case by the range of ‘ecosystem players’ and relationships to be managed; people’s changing expectations, aspirations, and societal values; political imperatives, regulatory and environmental change; paradoxes (e.g. ‘globalization and fragmentation/localization’); disruptive innovation reflected in new products, or current products delivered by new methods and/or to a new market segment.

ICT has enabled all these influencers to interconnect and interplay more easily and more rapidly; driving turbulence and an exponential rate of change. This ‘hypercompetitive’ operating environment may be described by the mnemonic VUCA[1]:

• Volatility —a situation is unstable and may change rapidly.
• Uncertainty —matters are not predictable; the variables, and information about the variables, may be imperfect, incomplete or unknown.
• Complexity —the situation is dynamic with many non-linear interacting elements producing disproportionately large consequences.
• Ambiguity —multiple interpretations exist about situations and information.

VUCA is both an outcome of the external environment, and a driver of it.

Leaders need to understand and appreciate the external context of competitive threats, opportunities and technological developments. A logical extension to the traditional work of many marketing and IT departments is an 'intelligence system' to 'horizon scan', assess threats and opportunities, and to provide timely intelligence (which is processed information) to enable understanding of context and to inform decision making and planning. In this regard, businesses might wish to explore the iterating military intelligence cycle of direction, information collection, processing and dissemination of timely and meaningful intelligence —but that is not the subject of this article.

[1] The mnemonic VUCA was first used at the US Army War College in 1987.

Leadership Agility

In summary, business performance in VUCA conditions depends upon regularly reviewing context, strategy and progress in its execution. Strategy will need to evolve in the light of that review to ensure that what is strategically desirable, is tactically possible. The approach to strategy execution and evolution needs to ensure people’s engagement in the task at hand and alignment of thinking, priorities and processes, on a dynamic and systemic basis. VUCA and digital disruption may mean that strategy to achieve a desired future state is emergent which necessitates planned experiments, acceptance of risk and iterative “clarity creating” practices.

To make all this efficient and effective, a ‘system’ of decentralised decision-making, distributed leaders (leaders have responsibility for people and their outputs), and shared leadership (the leader can’t do everything alone and needs the skills, expertise and time of others) is required. Such a system should be underpinned by the learning and questioning ‘growth’ mindset extensively researched by Dweck (2016, 2008) and highlighted by Kane et al. (2018) as vital in digital transformation. To many leaders, especially those in the middle and junior levels, the need for decentralised decision-making is stating the obvious and echoes Hughes’ (1995) exploration of Prussian “Auftragstaktik” developed as a response to losing the Battle of Jena in 1806. Known as “Mission Command” in western military circles its essence is for a superior leader to make “higher intent” clear to subordinate leaders —the what, by when, why, and with what constraints and resources— and then allowing the subordinate leader the freedom to determine how best to achieve the given mission. 

Here's the academic rationale for Leadership Agility. Global research by Professor Andrew Kakabadse (2015) spanning 5,000 Boards and 12,500 organizations shows that the 18% of Businesses and Public Bodies whose working philosophy is that "strategy is contextualised, and value-delivery led, outperform others". Andrew’s “Success Formula” shows that “Value Delivery” is the product of engagement and alignment in the execution of strategy. 

At a more granular level, de Oliveira et al. (2018) identified 51 indicators of “strategy execution” arranged over five interconnecting dimensions; the first four of which form an evolutionary value delivery/strategy execution loop:

1. Unfolding; the translation of the strategic plan into lower level planned courses of actions, with specific objectives and priorities of work.
2. Coordination; integrated effort of leaders to mobilise people, ensure understanding, build commitment and promote collaboration.
3. Communication up, down and sideways; dissemination of meaningful information about the strategy and its execution as well as dialogue and negotiation between the people involved.
4. Control and feedback; monitoring progress, results and the external environment to enable adjustments to plans and priorities.
5. Development of human resource policies and processes to support the execution effort.

While all five of these dimensions warrant examination, arguably the first, “unfolding”, is the dimension with the highest priority since this is when distributed leaders within the organizational structure make strategy meaningful with their teams and ensure alignment of thought and activity. These teams may consist of people who are leaders of teams in their own right. 

This unfolding process primarily involves problem-solving and decision-making, planning and briefing ‘leadership practices’ at lower levels; in order to align policies, processes and role-relationships; and to define objectives, tasks and the priority of work —including reviewing what current work to stop, start or continue. As noted by Dooley et al. (2000), teams using the same decision-making processes will speed up the implementation process. Overlapping lessons may also be drawn from the examination of dynamic delegation by Klein et al. (2006).

The myriad of formal meetings and informal dialogue through which alignment is achieved provide the ‘leadership episodes’ in which relationships may be built (or damaged). This is hardly surprising since language has always been the lubricant of the ‘leadership engine’; and communication —the choice of words, tone of voice and body language, and perceived confidence, enthusiasm and authenticity— is the essence of leadership in action. How clarity and alignment are created (through emotionally intelligent appropriate, adaptable and authentic leadership behaviour) determines the level of emotional engagement in and commitment to specific decisions and tasks.

Gottfredson and Aguinis (2017) demonstrated that “a good leader-follower relationship is the strongest pathway from leadership behaviours to follower performance…a logical, simple and commonsensical finding”. They provide two rationales for this. First, that a positive leader-follower relationship “creates a psychologically safe environment which allows people to concentrate on the task at hand… and divert attention away from themselves to their work group or organization as a whole”. Second, that “the stronger the leader-follower relationship, the greater the influence the leader possesses”, allowing the leader to achieve greater levels of performance by the team and the individuals in it.   

Therefore, the core of leadership agility and strategy execution capability —the capacity to execute any strategy or change effectively — lies in the common leadership practices which create “dynamic clarity” at different levels of leadership work and complexity (a meaningful understanding of strategy and alignment of thinking and activity); and which build emotional engagement while that clarity is being created. The “what and how” happen simultaneously; clarity is not created then engagement sought.

Leadership agility and the systemic, scalable practices and thought processes which underpin it, will be explored in greater detail in future articles.

Structural Agility

Organizational structures are effectively decision-making systems for breaking ‘the big task’ into smaller component sub-tasks to be achieved; they provide the central nervous system through which information flows, direction is provided, tasks and resources are allocated, authority is delegated and accountability enabled. 

Those smaller tasks increasingly demand effective cross-boundary collaboration within and across organizations. Aggregating the achievement of those smaller tasks over time demonstrates to what extent ‘the big task’ has been realised. 

So well-designed hierarchy has a purpose and is not inherently wrong; how it is designed is where the problem lies!  Structure can help or hinder how decisions are informed and made, how co-ordination and collaboration are enabled and ultimately how engaged people are.  Overly hierarchical and bureaucratic structures with too many levels can result in slow decision-making, an ineffective flow of communication, excessive prescription and reduced delegation of discretion leading to the constraining of creative and innovative thinking among other consequences. Whereas overly flat structures can also lead to slow decision-making and ineffective communication flows because managers have too wide a ‘span of control’ and are unable effectively to manage the combination of volume and complexity of work, and the many leader-team member relationships. 

All effective organizations have a form of matrix structure, complexity makes it inevitable, but ineffective matrices provide little definition of role-relationships and no real alignment of accountability and authority in both the vertical sense (essentially decision-making and delegation authority), and the lateral sense (informing or being informed, delaying, auditing, having access and so on). 

The absence of role-relationship clarity usually results in gaps or duplication in assumed roles as people are influenced by performance management systems, corporate politics and feelings of insecurity to make ‘the system’ work to their best advantage. 'Un-clarity' usually results in avoidable and unnecessary conflict and a culture of longer working hours (the day is for meetings about meetings attended by all and sundry, the evening is for doing the actual job). Unclear matrices allow ineffective leaders to hide and accelerate the burnout and stress of good leaders who have not been set up for success by those responsible for organization design.

Given the increasingly 'project based' nature of work spanning multiple teams and crossing internal and external boundaries; organizations need an agile and common approach to organization structure and individual role design – a system based on principles which may be applied in the forming stage of teams as new groupings are created and new tasks undertaken. 

Perrow (2004) examined two dimensions to address the centralize/decentralize question: interaction and coupling. Interaction refers to the way that the elements or features of a system interact with each other in a (stable or unstable) system and this varies from simple linear interactions (low complexity, expected and predictable) to complex interaction (with one element influencing another in unexpected ways). Most organisations need to deal with complex interactions in a VUCA environment, and NAT suggests that decentralisation is required.

Coupling refers to the way units or subsystems within the larger system are connected. Subsystems which can operate relatively independently have loose-coupling whereas tight-coupling describes units or subsystems where the influence of one on another can dramatically change outcomes making coordination very necessary. Changes in one part of a tightly-coupled system ripple through other subsystems very quickly. 

So tightly-coupled systems generally require centralisation because the dependencies between sub-systems may often only be observed at higher levels within the bigger system. The VUCA environment has been shown to demand decentralisation; but combining subsystems to meet a particular challenge requires a degree of centralisation and coordination.  This dilemma may be addressed by considering four basic interaction /coupling system designs:

1. Systems characterised by linear complexity and tight coupling (for example manufacturing or equipment repair facilities) react well to the appropriate degree of centralisation.
2. Loosely-coupled, complex interaction systems are suited to decentralised working.
3. Loosely-coupled but linear interaction systems have conflicting demands: centralisation to exploit linear interactions and decentralisation to suit loose coupling. Loose coupling and decentralisation may limit disturbing resonance in other parts of the wider system; so this situation should not create too many problems.
4. Tightly-coupled interactively complex systems provide more difficult leadership challenges with their inconsistent demands; they create a dilemma. The complexity suggests decentralisation; the tight coupling suggests centralisation. The solution would appear to include five components.

• Decisions delegated to the lowest level at which capability exists, with freedom of action within defined boundaries.
• Low decision thresholds enabled by self-contained units at a low-level.
• Higher levels of leadership actively anticipating and horizon scanning.
• Regular reporting and flow of meaningful information top-down, bottom-up, and sideways.
• Exploiting both formal and informal communication networks.

Decentralisation can only therefore be successful when loose-coupling applies. Where ICT increases the tightness between parts of the organisation system, the networked organisation becomes vulnerable to normal accidents and more difficult to control.

A modular approach to organization design therefore suits the need for decentralised operations and decision making in VUCA environments. It is capable of separating, recombining, and augmenting other modules. A module may include smaller interdependent parts, but the module itself is ‘self-contained’ (modules with specific capabilities may be used in a manner analogous to a tool in a tool-box). This creates a ‘plug and play’ organization design suited to decentralised leadership and decision making.

An agile approach to organization structure may be devised based on the integrated work of Jaques, Cason, Stamp, Clement, Perrow, Capelle, Bezooijen and Kramer to meet these criteria:

• Ensure that a system of role-relationships promotes shared leadership within a team of teams without diffusing accountability, with individual roles being defined in terms of purpose and outcomes rather than lists of things to do which may quickly become unnecessary.
• Ensure the requisite value-adding vertical levels of work are in place within self-contained modules to manage complexity without slowing communication and decision-making, constraining initiative and creating bureaucratic inertia.
• Delegate decision-making authority to the lowest level at which capability to make effective decisions exists (which means people need to be situationally aware in order to align their decisions to context and higher intent)
• Articulate the principles to apply in defining role-relationships and aligning accountability and authority vertically (eg decision-making and delegation authority), and laterally (eg informing or being informed, delaying, auditing etc) to make roles tenable and truly empower people in the organizational network.

Again I shall explore the principles of structural agility which have been successfully applied in future posts.

ICT Systems and Software

Information and Communication Technologies (ICT) and the voice and data systems they power of themselves do not define structures; they may serve either centralized or decentralized organizations. ICT clearly enables unit and team leaders to increase awareness of operational and tactical matters and enables networked teams better to collaborate, share information and make sense of that aggregated information. Equally it enables senior leaders to be aware of tactical matters and may induce them to interfere or to centralize rather than decentralize decision-making —the perceived ability to control risk may easily lead to the ‘long handled screwdriver’ of the Defence Minister tasking the Corporal section commander on the ground, or the CEO directing the factory shift team leader. ICT therefore can serve both forms of ‘organization design’ and do not of themselves dictate ‘structure’.

Bezooijen and Kramer (2015) use Perrow’s Normal Accidents Theory (NAT) to shed light on the possibilities and limitations of ICT in strategy execution and its demonstrated potential to induce micro-management rather than promote decentralisation. They argue that successful implementation of ICT hinges on pre-requisites in organizational structure and concepts of strategy execution. Robust ICT networks used in very hierarchical structures allow senior leaders to vary the level of control that they exercise, over-ruling more junior leaders at will. NAT makes the point that accidents may occur without any major technical failure or major human error but as a result of a cascade of smaller human or technical errors and that it is the characteristic of the system that determines whether a cascade likely to occur. 

The key point to make is that ICT provides tools to be used by leaders and their people effectively; rather than a platform which people become servants of and a means of micromanagement. How much unnecessary work is done because it can be done, rather than because it is really needed? Such systems should prevent information overload which grinds decision making to a halt, yet enable sources of reliable data to be integrated and mined to aid decision-making. 

ICT requires careful thought in the same way that organization design does and observe the principles of scalability, simplicity, flexibility and accessibility to users. I have precised some observations made by my friend and colleague Guy Reeve at MarkLogic about avoiding unintended consequences in ICT projects and procurement:

"First, ask if the proposed approach will in fact deliver the necessary speed, flexibility and agility. The focus needs to be on delivering real capability into the hands of users in weeks and months, not years. Any project exceeding a year should be regarded as deeply suspect.

Second, database platforms, while robust and good for single point solutions, are technologies with limitations which derive from their evolution 30-40 years ago....'next-generation' data platforms and architectures have evolved to accommodate multiple types of data, and to ingest data without needing costly up-front manipulation to comply to a standard.

Third, if contemplating a modern technology platform and architecture, ascertain whether and how the crucial aspects of data governance, such as security, audit, determining provenance, may be addressed. Ask how fast new data sources may be added and how quickly new formats or schemas of data can be generated to meet emerging business and AI algorithm needs.

Fourth, ask how many software components are required to give life to the vision and what will be the consequences of requiring multiple components. The more software components involved, the bigger the performance impacts, the more security vulnerabilities, and the higher the costs of acquisition, maintenance and upgrades.

Finally, look around. There are a plethora of examples of organisations who have done their due diligence and committed to an uncommon approach to accommodating technological diversity, and achieved successful delivery against complex requirements in short timeframes."

Connected Leadership

Guy Reeve and I have combined our experience to articulate these thoughts.  By connected leadership we mean firstly how well a leader is connected at a human level to those whom they are privileged to lead –even in large, dispersed organisations– and secondly how well connected a leader is to their organization, its customers and stakeholders and to its operating environment, threats, risks and opportunities. Some of this organization connection is face to face (and therefore human), but much is achieved through digital information flow. It is this latter point we will explore here. 

There are too many examples of organisations which have been overtaken by a changing world, and ultimately failed as their business models are disrupted, typically by competitors exploiting new digitally-enabled capabilities. Leaders of those failed organisations did not monitor, appreciate nor adapt to the changes in the external environment. 

In the digital age, agility and speed of response is essential – but this is only useful if an organization is able to scan its environment, sense threats, risks and opportunities and to decide and effectively execute strategy. This demands that leaders must be well connected digitally in two ways. First, in their understanding of how their analytical and intelligence systems operate and whether they are fit for purpose and are able to respond fast enough to provide sufficient decision-advantage. Second, leaders must be well connected to their people in often widely distributed organisations so that they can effectively communicate their intent, and inspire and empower their teams to execute and evolve plans in line with that intent. Both demand levels of digital literacy that is in short supply in some enterprises.

Dynamic Capabilities

In academic research, Dynamic Capabilities (DC) are higher-level competences that determine an organization’s ability to deploy, integrate, redeploy and develop resources competences like to address and possibly to shape a rapidly changing environment (Schoemaker et al., 2018, Teece, 2007, Teece, 2010, Teece et al., 1997).  

Eisenhardt and Martin (2000) show that DC are not vague abstractions but are what we may call best practice — “identifiable and specific routines that have often been the subject of empirical research in their own right”.   They go on to argue that the functionality of DC can be duplicated across firms, so that their competitive advantage value lies in the outcomes that they create; not in the capabilities themselves. Teece (2012) shows that such DC deployed in support of a ‘good’ strategy (and by implication not perfect strategy) enable the enterprise to supply the right products, to meet the right needs, in the right markets; creating competitive advantage. 

As the operating environment becomes more ‘VUCA’, the requirement for strategy execution DC which optimise the speed and agility of an organization to refocus and realign becomes more apparent: structural agility to define and redefine role relationships, and leadership agility based on alignment-engagement interaction — the combination of problem-solving and decision making, planning and communication leadership practices, applied with appropriate and emotionally intelligent leadership behaviour (Tozer, 2012). Leadership and Structural Agility are essential DC.

Digital Infrastructure

Digital infrastructure is the platform for effective work provided by ICT software and systems used by people working in an agile structure which enables reconfiguration, and which defines and re-defines role-relationships, and the alignment of vertical and lateral accountabilities and authorities on a dynamic basis.

This digital infrastructure must be agile, scalable, and modular to enable plug and play working; and where possible elements of the structural system should be loosely coupled. ICT should not be the reason for the micromanagement of people. ICT can give leaders the illusion of a degree of control, predictability and information superiority which does not exist; senior leaders must learn to trust well-trained competent junior leaders. That trust may be systemically induced through a “common operating platform” of leadership practices understood and routinely employed by all leaders at all levels; common “clarity creating” practices but applied to work in different functions and at different levels of complexity.  

References

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