“Leadership” has historically referred to “industrial leadership” – the managerial styles and structures that served industrial firms well for a century. But the leadership of digital businesses in the post-industrial age is fundamentally different and is defined by five paradoxes. Understanding them can help digital leaders identify and develop the capabilities they will need to transform the firm from a traditional to fully digital enterprise.
To lead this transformation, they must:
1. Radically innovate while optimizing operations. Operational excellence is a competitive requirement for any organization, and digital leaders have a key role in applying new technologies to achieve it. However, at the same time they must redesign their business models in order to compete in a digital world.
This requires two broad sets of skills: the ability to focus on what the firm does today and optimize its current execution, and the ability – and courage – to challenge the firm’s current model by answering fundamental questions such as “How will digital technologies change how we create value for our customers?” “What is the ‘job’ our customers are tying to do?” and, more broadly and disruptively, “What business are we really in?”
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2. Compete in sprints while delivering long-term value. In a digital world, transient opportunities arise abruptly and frequently and must be exploited as they appear. At the same time, the ability to deliver agile, instantaneous responses must be coupled with an ability to build lasting relationships with customers based, for example, on purchase history and how the product is used.
As conventional products become increasingly smart and connected, relationships with customers are becoming ever more service-based and open ended. Thus, digital leaders must effectively change the interaction model with customers from the infrequent and random encounters in the analog world (a store customer meets a sales rep with no knowledge of prior purchases or the information collection process) to targeted digital business “moment exploitations” (an online customer receives personalized and updated offers or service that take online interactions, previous purchases, and digital product usage data into consideration).
3. Integrate external partners while operating as a single entity. The nature of digital offerings means that the cost of incorporating external digital innovations, for example off-premises (cloud-based) digital services, will often be less than creating and developing these solutions internally. However, customers seek seamless, integrated offerings that appear to come from a single provider.
Digital leaders must therefore be able to adeptly integrate (and disintegrate) both internal and external digital offerings in a way that presents a single, unified offering to customers. This has important implications for business design as it relies on the ability to build and run agile digital-partner networks – a leadership capability that didn’t exist in the industrial era.
4. Recognize that providing immediate digital value plays a large role in sales but that more value is delivered over time. Traditionally, the sale — the exchange of goods for payment — has been the defining transaction between company and customer. Though additional products may have been offered later, the purchase decision was based on the existing product at the time of sale. Product development typically occurred before the sale, with a clear line between it and sales. In digital business, the initial sale is more akin to establishing a platform for long-term value delivery as digital product characteristics are typically enhanced and customized over an extended period. Cars, for example, will increasingly be modified by software upgrades after sale.
For digital products, there increasingly is no single defining moment at which the product is exchanged for a price. By nature, a digital product establishes a long-term relationship with the customer, during which product characteristics are enhanced and individually customized, and payment is accordingly modified. In order to create this open-ended customer relationship, digital business leaders must be able to articulate the value that drives the initial transaction – while at the same time supporting the continuous development model that provides indefinite new value.
5. Provide technologically enabled offerings while focusing on value, not technology. Depending on the digital density of an industry, the amount of technology integrated into its products may vary. Nevertheless, the blurring of the digital and physical worlds that defines digitalization will always add a significant technology component to products.
However, if a product is to succeed with a wider audience, the integration of technology must be seamless and virtually invisible, as customers generally do not see technology as a goal in itself, but seek improvements in what the product can do for them. Consequently, digital leaders must develop a deep technology understanding. However they must use this understanding to create offerings that, while increasing products’ technological complexity, simplify the user experience and generate increased value.
As the paradoxes illustrate, digital business leadership is a complex and contradictory undertaking. Senior executives can address the challenges with partial measures, such as creating the position of chief digital officer or forming cross-functional and multidisciplinary digital business teams that include IT professionals and business peers.
However, executives must resist the temptation to act precipitously. Instead, they should take a structured approach and use the paradoxes to define the competencies necessary over the long term for building digital businesses, and leadership.