Advancement in digital technologies has disrupted everything, including leadership styles, according to Barry Libert, Jerry Wind and Megan Beck Fenley. Employees want more ownership rather than to follow instruction; customers want to participate in the marketing and development process; and leaders are finding that open and agile organizations are able to maneuver more effectively than organizations where “all insight and direction comes from the top. In short, the autocratic Commander, whether brilliant or misguided, just won’t cut it anymore,” they write in this opinion piece.
So what has changed in the last 20-30 years to require new ways of leading? Technological advancement has created a ripple effect that is transforming the market. Today’s digital technologies — social, cloud, big data analytics, mobile and the Internet of everything — have created new, intangible, sources of value, such as relationships and information that are delivered by new business models. Along with the new sources of value, customers and employees’ wants and needs have evolved as digital technologies have created new ways of interacting with businesses. Attracting, satisfying and retaining these connected and savvy stakeholders requires leaders to learn some new tricks — but there are rewards. Businesses and leaders that adapt to this new environment see economic payout with higher profit, growth and valuations, and more (see our earlier article in Knowledge@Wharton, Why Businesses Should Serve Consumers’ ‘Higher Needs’)
New Leadership Styles
So what is a leader to do given this new digitally enabled and hyper-connected environment? Employees and freelancers (such as Apple’s developer community) want ownership, impact and recognition, rather than to follow instruction. Customers want to participate in the marketing and development process (witness how consumer/business relationships have grown on social media and the rise of crowdsourcing businesses like Victors and Spoils), rather than be told what they want and why. Leaders are finding that open and agile organizations are able to respond faster and more effectively to these developments than organizations where all insight and direction comes from the top. In short, the autocratic Commander, whether brilliant or misguided, just won’t cut it anymore. Leaders need a broader range of style options to match the broader range of assets companies are creating today.
Figure 1: Disruption caused by new technology
In our business model research, based on financial data from the S&P 500 companies, we found that Network Orchestrators — companies that invest in intangible assets, like relationships with customers and suppliers (Facebook, LinkedIn, Airbnb, TripAdvisor) have the highest Multipliers (price to revenue ratios) at an average of 8x (more details here). These value premiums result from rapid growth and low scaling cost, as noted by Jeremy Rifkin in The Zero Marginal Cost Society. Further, we identified that the different leadership styles complement some business models and detract from others because each business model leverages different types of assets, which perform best under different leadership styles.
Since most companies are actually a composite of different asset classes and business types — for example, Nike manufactures shoes (physical), but also develops some software (intellectual) and is developing a network with Nike+ (network) — most leaders use several of the four leadership styles:
Figure 2: Relationship Between Business Model, Leadership Style and Value
The Commander sets the goal and tells others how to accomplish it. This works well with machinery, which happily does what it is told, and with direct subordinates who prefer to simply execute. It is less effective with employees and customers who want choice and participation. The result in today’s world is high marginal costs and little participation and buy-in. This style is most suited to the production of manufactured, commoditized goods as it is limited by the Commander’s vision and bandwidth.
The Communicator also sets a vision and a plan, but communicates it in order to inspire and create buy-in. This works better with employees and customers who want to at least understand where “the firm is headed.” It enables them to take action in line with the leader’s vision (it scales effectively), but it does not encourage innovation. This style is suited to services firms where all employees must work to fulfill the mission.
“Leaders need a broader range of style options to match the broader range of assets companies are creating today.”
The Collaborator works hand-in-hand with customers and employees (be they full time, part time or independent) to achieve the organization’s goals. As a result, it is empowering and enabling. This style taps into the innovation of people and drives the creation of new intellectual capital. Great examples are open innovators such as Victors and Spoils, a collaborative ad agency and Merck with its crowd-sourcing competitions.
The Co-Creator allows other stakeholders to pursue their individual goals in parallel with the goals of the organization. As a result, he or she drives both rapid scaling (due to the high level of participation) and innovation. This style is at the heart of network companies where value is shared by the company and the network participants, such as Airbnb, Uber and Innocentive.com.