Digital Leadership: How to Develop Relevant Core Competencies?

Digital leadership means strategically doing the right things to achieve success in the digital age. For executives, this requires new skills, such as the ability to create new business models, or to navigate digital ecosystems, but which competencies are critical to success and how can they be developed?

“About 20 to 25 percent of all professional activities will be automated by 2030,” says a comprehensive analysis of the consequences of digitization on the Swiss economy, developed by McKinsey in 2018.

The study assumes that around 1.0 to 1.2 million jobs in Switzerland will no longer be needed by 2030. This is the bad news, but there is also a positive message: thanks to new technologies, 0.8 to 1.0 million new jobs will be created.

Multidirectional Effects

The results of the study clearly underscore the fact that digitization is here to stay and it affects everyday life and behavior. This applies to not only private consumption, but also the working environment and the economy at large. Although digitization continues to provide new advantages for consumers, (Various apps on smartphones,  streaming services, augmented reality etc.), it is a threat to many medium-sized enterprises.

The leaps in technological development bring with them new economic rules that radically change trade (OmniChannel, Platform Business), manufacturing (Industry 4.0, Smart Factory) and customer service (Machine Learning, Artificial Intelligence). This makes it increasingly difficult for companies to choose which strategic route is the right one for them.

A survey presented by the University of St. Gallen Applied Sciences, highlights the importance of digitization for Swiss SMEs and its urgency. It identifies future disruption, technological possibilities and the uncertainty for employees given organizational changes.

This interplay between environmental factors and organizational change is represented by the relationship shown in Figure 1. Organizational disruption is a creative process of innovation that usually results in the destruction of conventional routines and procedures. The associated adaptation of a company to its environment goes far beyond the conventional understanding of technological disruption, and can even influence its core values.

Accordingly, within this organizational change process, it is interesting to answer some questions about how work will be done in the future.

How is the workspace changing? What are new forms of work organization and cooperation? And how will leadership change within this context? Such discussions are currently being labeled Work 4.0 and New Work.

The New Work Design

A position paper from the University of St. Gallen provides a new approach to work area design by providing basic ideas on where and how to work in the new ecosystem of digitization:

› Fluidity vs. rigidity: networks characterize the new world of work. Jobs are created without a clear organizational affiliation.

› Peer­to­Peer vs. Hierarchy: Less loyalty to the organization and more dedication to technical expertise.

› Open vs. closed: a strong need for transparency and collaboration with customers leads to an opening of closed corporate structures.

› Machines as colleagues, business partners and controllers: New forms of interaction between man and machine arise.

› The Data Reader: Big Data is for all areas of life. The ability to combine and interpret them is indispensable.

› Non-linear thinking as the human domain: Automated work has its limits and human creativity is still required.

›Explore next to Exploit: The increasing pace of innovation forces constant change in future-oriented business areas. Core business processes should be as efficient as possible. Management must be ambidextrous and execute simultaneously for today and tomorrow.

Success-critical Competences

Changes in work organization and collaboration can result in the entry-level “VUCA Environment”, or an increasingly Volatile, Uncertain, Complex and Ambiguous work environment. This situation leads to both a paradigm shift in leadership and a corresponding change in the expectations of executives. The hierarchically conditioned manager with a claim to power and lone-fighter mentality no longer succeeds. Rather, companies need executives who can handle complexity and insecurity.

The competency model in figure 2 describes the general competencies required to thrive in such an environment, especially for executives, and to be successful when dealing with digital transformation and efficient collaboration in the digital world.
These key competencies can be bundled further into the following three core competencies:

Learning and development ability/willingness to learn

Continuous learning is crucial, if not the key, to success in the VUCAWorld. Managers should make a habit of devoting sufficient time and effort to promoting the continuous learning by their employees.

However, the establishment of such a learning-oriented environment is only possible if its leader also adopts the corresponding values ??and attitudes. To do this a “Digital Leader” must continuously develop their own self to stay up to speed. Especially, in an environment of rapidly changing conditions and sudden market shifts due to unpredictable competition.

Within the core competency of learning and development ability, self-esteem and development are crucial. Only those who are aware of their own strengths/weaknesses profile are able to reflect on their behavior and draw the appropriate conclusions in order to recognize wins for future situations and create fertile grounds for continuous development.

In addition to their own development, however, the digital leader has the task of creating an environment in which employees are empowered for self-reflection, autonomy and personal responsibility. Here, an open feedback culture and a transparent approach to one’s own mistakes play an important role.

The gaming software company, Wooga, from Berlin, cultivates this approach. Contrary to expectations, the so-called “Wall of Fame” does not openly display the best ideas, but the company’s most spectacular setbacks and mistakes. Employees who share their flops are rewarded so that others can learn from their mistakes. Errors are an important data source that help people and businesses to evolve.

Flexibility and Agility

A VUCA environment requires a flexible approach and fast action. In the digital economy, executives often have to “juggle” multiple options. A pragmatic approach is often more successful than detailed analysis and planning. It is important to set a general direction, think in scenarios, keep open several options and experiment with different approaches to the solution. Dedicate yourself to one project but quickly move on to something else if you do not succeed.

In order to increase agility and flexibility, executives should focus more on promoting and strengthening relationships. In the context of the VUCA conditions, interpersonal relationships are a necessity for work organization.

As described above, in the modern working context, work can no longer be based strictly on predefined rules. It must be organized in such a way that organizations can respond quickly to changes in the environment. Good relationships allow for short-term mutual support, quick identification of the best resources, and a central authority for rapid formation of specialized task forces.

In Switzerland, there is also a gradual trend towards supporting such networks, with the formation of so-called innovation centers. These centers provide space and infrastructure for innovative start-ups and SMEs. This creates a meeting zone where creative minds and leaders can meet, share and collaborate across corporate boundaries.

An example of such collaboration is the alliance between competitors, Microsoft and SAP, which shows that there are opportunities for collaboration not only internally within company boundaries, but also externally among competitors.

Microsoft is working closely with SAP to develop an integrated, end-to-end process for product development, sales, marketing and support. As part of this effort, Microsoft and SAP are also aligning their joint partner ecosystem to ensure seamless customer service. Eric Stine, SAP Strategic Strategist for Digital Transformation, described the relationship between SAP and Microsoft as “frenemies with benefits” with a wink and underlined the strategic importance of this alliance.

Openness to change

A digital leader is expected to communicate well, provide constant feedback and be open to change. Managers that lack openness to change hesitate to pursue new endeavors, a decisive inhibiting factor for a company’s development.

Executives of small SMEs, occupied with day-to-day business, and managing and financing growth, struggle to provide their staff with necessary support on transformation issues. Management must make organizational and structural changes that foster technological developments, and assign responsibility and competencies accordingly.

At the management level, the key to success is to become organizationally “ambidextrous”. This means the ability to operate efficiently while adapting to environmental changes by creating new agile structures.

Other key characteristics relating to “Openness to Change” are vision and innovation. The pressure to innovate in the digital age is exponentially increasing. In order to overcome this, thought leaders should be at the forefront and purposefully push the organization forward according to its vision and strategy. Ideally, there should be a shift from a purely reactive approach to an active approach in order to create a breakthrough in future disruption.

An example from the sports world underlines innovation as the success factor: The New Zealanders emerged as the winner of the 35th America’s Cup, by approaching challenges differently from the very beginning.

Instead of using heavy-duty yachtsmen to pressure high-tech boats, the Kiwis used lighter bicyclists who were superior to the traditional American grinders and produced 30 percent more hydraulic pressure with their leg muscles.

In addition to the points discussed above and the competencies shown in Figure 2, it is also important to emphasize the basic aspect of trust. If leadership is to become more open and more agile, then this requires managers to trust their employees.  This is the only way to set up a framework that facilitates the development of employees’ individual problem-solving skills and encourages the corresponding personal responsibility. The ability to trust in others and one’s own competencies is considered the basis for the competency model described.

New virtues and values needed?

The observations presented so far show that a few days of training on digital technologies are not enough.  If executives want to be successful and guide their organizations in the direction of digital transformation, true personality development is needed. Thus, the biggest challenge for a “Digital Leader” is adopting the necessary mindset and attitude. The focus here is on the further development of social and personality competencies.

New virtues and values are needed that in some cases diametrically oppose those of a previous, perhaps more traditional, understanding of leadership. Instead of delegating, there should be cooperation, instead of top-down announcements, there should be bottom-up communication, and instead of the former zero-error order, now there is a need to encourage experimentation. Managers have to work on their own attitude.

Personality Development

To what extent can personal attitudes and individual personality traits change? While older theories (for example, the Five Factors Theory of Personality by McCrae and Costa, 2008) postulate that personality is purely biological, so determined by genes and brain structures, recent, more broadly based research results do not support such a rigorous interpretation. Corresponding empirical studies prove that the personality is variable over the entire lifecycle. Changes are not all guided, but, for example, can be triggered by external events.

In terms of professional life and the requirements for a “Digital Leader”, this means that managers can adapt their personality to the personality traits and value attitudes needed for the “Digital Economy”, to achieve above-average commitment.

Accordingly, a change in personality requires a number of prerequisites: changes must be considered desirable (1), thought possible (2) and translated into behavioral habits (3). Here, coaching as a supportive measure can be very helpful to understand change objectives, how to obtain them and the corresponding resources needed.

Among other things, people are supported in a coaching effort to strengthen the perceived ability to self-regulate their own personality development. This should also have a positive effect on the self-esteem of the person, a trait that, as described above, represents a key competency of the “Digital Leader” and is associated with numerous positive outcomes.

Previous studies suggest the positive effect of coaching in connection with changing processes, as they show that executives after coaching are more likely to be able to cope with organizational changes. Following coaching, leaders perceive an increase in their well-being and self-efficacy (Grant, 2014). Evidence also shows that sustainable attitudes and behavioral changes can be achieved within the framework of coaching.

Still, there is a need for external leadership coaching in the area of  “Digital Leadership” within the SME environment, due to the many new developments mentioned and the increasing urgency of leadership paradigm shifts required to gain relevance.

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