Drivers of effective leadership transformation
This piece opens a series of six articles on the topic of effective leadership: what it is, where it is going, and how it should be supported and developed.
It is unclear whether the greatest predictor of an effective leader is organisational legacy, a good team behind the leader, personal characteristics and charisma, or something else altogether.
In our more than fifteen years of work in organisational and leadership effectiveness, we have observed a range of thinking and activity on the subject.
If we define a leader as someone who drives his or her team towards a measurable and sustained improvement in business performance, then our experience suggests that the most effective leaders are supported by a combination of conditions that enable them to succeed in their organisation in response to specific market circumstances.
For example, a charismatic leader with a good and effective team behind her and a good match between the values of the leader and her organisation is more effective than someone who is merely charismatic.
The difficulty of measuring and influencing leadership effectiveness, however, lies in the complexity of the interplay of three core factors (see Figure 1):
- The current market challenges and the way they are addressed in business strategy
- Each leader’s individual response to these challenges, including leadership styles, values, skills and networks of individuals chosen to lead the company/team’s market response
- And the organisational response captured in the inherent organisation/team culture and collective ways of supporting leadership response with processes, systems and interfaces.
Effective leadership transformation
The Transformation zone is the place where organisational ‘tectonic plates’ meet. The focus of this article is effective individual leader response (zone 2 of Figure 1) to current market challenges (zone 1 of Figure 1) and possible transformation efforts resulting from any misfit (zone 4 of Figure 1). Our next article will look into the organisational implications of leadership response (zones 3, 5 and 6 of Figure 1).
Successful businesses change strategies every 3-5 years in response to market challenges; the most successful leaders are just as responsive. However, our experience suggests not only that leadership transformation response lags behind strategic response to market challenges (the subject of this article), but also that organisational transformation does not always effectively support the leadership response (subject of our next article).
Market challenges
Individual companies will face a complex and varied set of challenges during the next few years, but we have chosen to focus (below) on seven trends that we believe will have the greatest influence on leadership in that time.
1. Fast, volatile and complex
Today’s business environment is fast paced, highly competitive, increasingly complex and overloaded with information. Companies that find new approaches to decision-making and strategising that allow them to cope with this pace, volatility and complexity in effective and measurable way will see the greatest success.
2. Global and virtual
Teams are increasingly working across multiple time zones, and employees, external partners and stakeholders are distributed around the world. Working in a global market has resulted in widely dispersed offices with teams having to adjust to local culture and practice, and collaborating across borders and cultures. In order to maintain a level of cohesion, technology has facilitated the ability to work virtually. Working in a virtual environment means that fewer employees have face-to-face interaction, and it raises new demands on the implementation and mastery of communication technology.
3. Driven by emerging markets
The growth and influence of the BRIC countries (Brazil, Russia, India and China) on the fundamental strategy and direction of multinationals is palpable, even for companies that do not operate in these markets, and this has a spill-over effect to leadership. Companies targeting significant growth from emerging markets require leaders who understand how to effectively work in these markets, both from a cultural and operational perspective.
4. Generationally shifted
There is a threat that longstanding institutional knowledge will be permanently lost as waves of ‘baby boomers’ and older workers leave the labour market. This intellectual property, accumulated over decades by experts in their field, is valuable. Even with the efficient mechanisms/processes for information transference and extending work tenures, the depth and quality will be diluted or lost. This is particularly pronounced in the global Energy industry, where substantial knowledge in core business areas will be lost in the next 10 years.
5. Socially and environmentally aware
Climate change is finally on the boardroom agenda, and the as a younger generation of leaders and employees mature, they are increasingly expecting the companies they work for to be more socially aware. The climate change and social agendas have been shaping products and services, and the way (and by whom) they are consumed.
6. Disrupted
Few industries are immune to shifting competition bases such as disruptive technology, new economic power centres in emerging economies, and real-time changes in business models. In order to thrive, companies and their people must be able to adapt quickly to changing market conditions. The smartphone is the single best example of a disruptive technology; as they become more popular, the smartphone is simultaneously disrupting the telecommunications industry, the point and click camera industry, the video camera industry and the music industry. The effectiveness of the industry response to this disruption is still not completely clear.
7. Innovative
The pace of innovation is accelerating. Many companies are always on the search for the ‘next big thing’, yet only 50% of executives believe that they are ‘best in class’ in innovation. The position of leaders and their approach to innovation will be actively managed on all fronts: technology, products & services, management processes, etc.
Individual leadership response
While a range of transformation impacts will fan out from these new market challenges, for this article we are interested in the individual leadership response, as well as possible transformation efforts for building more effective leadership to overcome new market challenges. Leaders with the characteristics described below will be most equipped to manage in this environment.
1. Values-driven visionary
Authenticity is becoming ever more important in leaders. At all times, visionary and missionary leadership gives people additional stimulus to contribute with their hearts and minds. But as younger people (‘Generation Y’) inherit the workforce, and as the social and climate change agendas begin to encroach on public opinion, business will be put under higher pressure to contribute to the society via its products and services. The new generation of employees and consumers are values-driven, and the same will be required of their leaders.
2. Team & network manager
The ‘00s saw the rise of so-called ‘collective leadership’. There is an emerging acceptance that in a globalised, fast-paced and complex world, direction cannot be accurately and timely set by one person. Opinions of many must be respectfully identified, brought together and managed towards a direction that is best for the company. While there will always be a place for the ‘lone ranger’ type of powerful and individualistic leader, it is increasingly a dying breed. The future belongs with leadership teams and employees at all levels influencing the direction the organisation takes.
3. People developer
In a world where decisions are taken by teams and the pace of innovation and technology is relentless, people development is essential. The rise of emerging economies as competitors for talent means that competing on compensation alone is no longer viable. The younger generation that will dominate the workforce as baby-boomers retire expects more than financial reward for their contribution, and they expect their employer to deliver on that expectation.
4. Strategist
The pace of the new world, shifts in business models, unpredictability of innovation and emerging markets call for an advanced decision-making ability. This can come in a conventional form of scenario analysis and justified decisions options with measurable outcomes. It may also go down the newly discovered route of expert judgement and intuition in managerial decision-making.
5. Change manager
Managing the increasing pace of change, i.e. numerous trials and launches in innovative businesses, cross-border M&A integrations, generational shift of retiring baby-boomers, will require the ability to manage projects across organisational and national boundaries and gaining employees’ and customers’ mandate for change.
6. Technologically-savvy innovator
Whereas a few years ago, it was merely important to understand new communication technology and the internet, now it is a pre-requisite for managing global virtual teams and understanding consumer behaviour and opinions. Even if innovation is driven out of the R&D department, the new generation of leaders needs to be able to see the commercial side of new developments, as well as the new opportunities emerging in the ever-changing marketplace. With new and rapid advances in technology, leaders who cannot identify ways that new technologies can be innovatively applied to their business run the risk of becoming obsolete themselves.
7. Ambassador and diplomat
As mentioned above, leaders who can work most effectively across cultures – especially developed and developing – will be more able to meet the needs of their global employee and customer base, compete with the emerging market players, deal with national and international regulators, integrate international acquisitions and deliver to local expectations.
Individual leadership capabilities: change needed
With the market demands and individual leadership profile outlined, the question remains: “How big is the gap between the present and future leadership capabilities?”
According to recent research by the Centre for Creative Leadership (CCL), 85% of surveyed blue-chips reported a gap between the current leadership profile and the needs they will have during the next 5 years (see Table 1).
Table 1: Leadership capabilities
Table 1: Current and future leadership capability profile
This research fully supports our conclusions: CCL’s respondents believe that resourceful, decisive, tough and straightforward ‘lone ranger’ types will be less in demand in the future. Instead, a leader suited for ‘collective management’, capable of managing networks, teams, change and relationships, will be highly sought after.
Another big issue is the size of the gap between what leadership capabilities are available now, and what will be needed in the future. In a recent BCG survey, 56% of global blue-chip respondents cited a critical talent gap for managers’ successors, in part because their internal talent pools are too shallow. The survey showed that the shortage existed at all levels of organisations.
What are the implications?
The traditional answer to the problem of lacking leadership capability has been leadership development programmes. Indeed, in the last 10 years, leadership development has become a multi-billion pound business. According to a survey from a leading leadership development specialist, Mannaz, from the year 2000, 40% of European companies experienced greater than 10% annual growth in leadership development budgets, with 38% forecasting steady investment going forward.
However, with 63% of companies reporting that they do not measure leadership development ROI (Mannaz) and 68% of CEOs wanting to make moderate to significant changes to leadership development and succession strategies (PwC), our view is that the investment has not been nearly as effective as it could be.
According to Harvard Business Review, most development practitioners believe that 70% of learning occurs on the job, 20% through coaching and mentoring, and 10% in a traditional classroom setting (the 70/20/10 model). But they also admit that the bulk of their time and budget remains focused on traditional training programs. The conclusion to be drawn is that the highest-impact approach to learning has not yet been fully worked out.
Also, learning is only part of the answer to transforming leadership capability. Social and behavioural psychology helps us distinguish several points of transformational impact on the performance of an individual leader in the workplace. In the amplified form they are: organisational environment, personal identity, values, beliefs, attitudes, behaviours and skills
(See Table 2).
Table 2: Transformation points
Points and examples of transformational impact on a leader’s performance
It clearly follows from Table 2 that leadership development programmes (based on tools like on-the-job learning, coaching & mentoring, classroom training) are a significant part of the answer. The other significant part is effective communication and change management initiatives, and especially programmes that align the organisational environment to the direction set by this new type of leader (this will be the subject of our next article).
Someone with a strongly manifested ‘lone ranger’ identity will never become a true ‘facilitative leader’ (arguably, identity can only be amended at a very high cost to the individual and the organisation). There is a limit to the amount of change one individual can effectively absorb and organisation should agree to pay for. At some point, organisations need to realistically evaluate ‘develop’ and ‘replace’ alternatives. Yet again, this points to the need to measure ROI on the leadership capital and leadership transformation initiatives, being very clear as to what organisation’s culture and expectation of leaders are and at what point in the leadership chain decisions about ‘develop’ or ‘replace’ are made.
What's next?
As market challenges that organisations face continue to change, so do the requirements for the future leadership response and how organisations support their leaders to make that response more effective.
This article has briefly outlined the demands of the future marketplace and identified leadership capabilities required to deal with them. The gap between the current and future leadership capabilities appears to be substantive, and it appears that the conventional approach of addressing it – via leadership development programmes centred on classroom learning – is an increasingly underperforming investment.
The solution may be in changing the approach, potentially diversifying it to include fit-for-purpose learning programmes, targeted communication programmes, organisational realignment and changes in leadership population and succession pipelines, but this requires recognition from the top and budget to address it. All in all, we expect a serious shift in the future leadership transformation approaches and looking forward to facilitating that change.
In the next article, we will look into the organisational implications of the leadership response to market challenges, ranging from impact on organisational culture and blueprint, leadership capacity and capability planning, measuring return on leadership capital, new priorities for leadership talent management and transformation initiatives resulting from the push to more effective leadership.
About the Human Capital Network
The Human Capital Network was established by the London Business School Alumni Human Capital Club as a discussion forum that promotes open debate on the cutting-edge issues in strategic organisational change and talent management.
We publish the cutting-edge research on organisational development and change, provide an online discussion platform on our blog http://humancapitalnetwork.blogspot.com and run the Organisational Development Speaker Series at London Business School.
Our distinguished speakers provide perspectives from industry, management consultancy, academia, and trade bodies. Through the presentation of best practice case studies, new research and group discussion, our three interactive panels will help you identify and tackle the key Challenges of organizational change.
The past events of the Organisational Development Speaker Series covered such topics as employee engagement strategies for the downturn and beyond and building change-ready organisational cultures. We are hosting a panel on Customer Experience on June 14th, 2011 and a panel on Leadership Effectiveness in October 2011. Please, check our blog for registration details.
The Human Capital Network’s events are designed for senior OD and change practitioners and attract LBS alumni and external guests alike. Attendees of our past events represent a varied mix of industries and organisations, ranging from small entrepreneurial innovators to FTSE 250 blue chips, greatly contributing to the quality of panel interaction and the after-panel networking.