From Industrial to Digital: Redefining Leadership

The HiPPO (Highest Paid Person’s Opinion). Illustration by Evgeny Turaev/Shutterstock.com

The digital era is characterised by its unpredictability and accelerating pace of business change. However, traditional management models, still common in our enterprises, prioritise economic efficiency over adaptability.

Pressure is mounting on the C-suite and management teams to transform their organisations for the digital era. An organisation’s survivability now depends upon responsiveness to customer and market needs. Without change, customers will vote with their feet and migrate to more competitive businesses eager to own the interaction.

This article looks at the origins of our conventional management practices, explains why these fail in the digital era, and outlines what great digital leaders do differently to meet the challenge of digital-age problems.

Conventional management practice: efficiency from predictability

Many of today’s management practices assume that an effective enterprise is built on efficiency. Managers are keepers and architects of efficiency who control planning, synchronisation and coordination of execution through top-down instruction. If you’re in doubt, the derogatory term HiPPO (Highest Paid Person’s Opinion) has been coined to describe decision making where the most powerful person calls the shots, despite alternative perspectives.

This approach to organising human systems originates in the industrial era. At the 1900 Paris Exposition Universelle, audiences were wowed when Frederick Winslow Taylor demonstrated a step change in the production of steel chips. Until that point, production lines typically processed nine feet of steel per minute. Taylor showed that his system could process fifty feet per minute.

He attributed his breakthrough to his theory of scientific management. Applying this model, Taylor would deconstruct the production process into its simplest elements. Then, through measurement, analysis and experimentation, he would continually optimise every task to identify what he called the “one best way”. Finally, he would command the workers to follow new, very specific instructions, allowing him to scale small efficiencies at the task level to significant improvements overall.

Taylor’s results were both significant and undeniable. Despite ethical concerns for the once artisan workforce, his breakthrough was compared to innovations such as the electric light. He captured the imaginations of leaders and ignited a pan-industry efficiency movement that grew to become the backbone of modern management. You don’t have to look far to see the signs of Taylorist thinking in today’s enterprises. For example, in 2003 when Carr declared that IT was a commodity, he opened the doors to a flood of offshoring. This cost driven, divide and distribute management style remains central to many organisations today.

However, scientific management is predicated upon predictability. Efficiency gains are only possible if the specific purpose of your system is known and the system is heavily optimised to that end. The greater the specialisation, the greater the efficiencies. This comes at the cost of adaptability and resilience to change. For example, the screwdriver on a Swiss Army Knife is less efficient than its specialised counterpart; however, under less predictable conditions, the multitool is more responsive to change.

Unpredictable and accelerating: the digital era

Despite the data explosion of recent years, the business world has become significantly less predictable. If you’re an incumbent in a well-established industry, the world is not only accelerating — it’s pulling the rug from underneath your feet. Jeff Immelt, former chairman and CEO of GE, said it perfectly: “If you go to bed tonight as an industrial company, you’re going to wake up tomorrow a software and analytics company.”

A catalyst for this accelerating rate of change is technology advancement. As Marc Andreessen stated back in 2011, “software is eating the world.” With this comes a new breed of digital native organisation that thrives in conditions of volatility. Highly responsive, customer-centric and experimental, they reimagine consumer experiences and are quick to take new products, services and business models to market. In turn, they further increase the connectedness, speed and interdependence of society, fertilising the ground for others to disrupt in their wake.

Such companies are upending decades-old industries by introducing an indescribably thin digital layer that sits on top of the traditional supply chains, effectively owning the highly profitable customer interaction. Consumer behaviours are evolving as a result. The number of touch-points are increasing, and expectations are at an unprecedented level. The line between physical and virtual worlds is blurring, with growing demand for consistent and often seamless experiences across both.

An organisation’s ability to survive now depends upon its responsiveness to customer and market needs — a capability bred out by a century of scientific management. In the words of Charles Darwin, “It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.”

Redefining leadership for the digital era

You cannot apply industrial-age practices to digital-age problems, so how does a leader transform the traditional enterprise with a myopic focus on economic efficiency into a highly responsive, digital-first business? They must put digital culture, practices, processes and technologies at the heart of their organisations. And this requires a very different leadership and management paradigm.

To elevate responsiveness, leaders must mobilise organisations around cross-functional, value focused teams. This is a structural alternative to the functional silos with expensive hand-offs, cost accounting, loss of consumer context and long time to market. Cross-functional teams can more easily collaborate to share learnings, are more customer-centric and demonstrate greater creativity.

Digital leaders create an environment where teams challenge themselves to reduce time-to-value by releasing early and often. The delivery of value and impact is prioritised over adherence to plan and schedule. Business outcome is prioritised over project output. Great leaders are quick to address any barriers to these goals.
 
Today’s knowledge worker expects freedom of choice in accomplishing their goals, and will not tolerate being micromanaged. Teams and individuals must feel empowered to act, yet be comfortable reaching out for help when needed.
 
Confident leaders also recognise that their employees have more recent and relevant specialist knowledge than that which they harbour themselves. When a Fortune 100 CIO commented “we don’t have these Netflix superstar engineers to do the things you’re talking about”, Netflix’s Adrian Cockcroft quipped we hired them from you and got out of their way.”
 
Leaders must nurture a generative, performance-oriented culture, with an “eyes on, hands off” approach. Leaders define what business problems to solve, not how to solve them, applying the doctrine of Auftragstaktik.

Rita Gunther McGrath, author of The End of Competitive Advantage, highlights that the key for management in the digital era is the ability to experiment and to rapidly learn from those experiments. Digital leaders must create learning organisations where teams are free to explore new business models, products, services and features. These benefits are amplified by broad perspectives, which come from teams that are diverse and inclusive, with mutual trust, loyalty and commitment between them. This will drive new and unanticipated areas of growth, help meet strategic objectives and beat the disruptors at their own game.

Summary

Leaders and managers must change from an industrial position of being architects of efficiency to a digital perspective of being catalysts of digital culture, practices, processes and technologies. They will do so by creating learning organisations with generative, performance oriented cultures that reunite the planning and execution processes.


Originally published at digit.fyi on June 19, 2018.