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Leadership in new normal (age of disruption) and phygital universe


Leadership in new normal (age of disruption) and phygital universe

Assoc Prof Tan Joo Seng, Nanyang Business School & Mr Arun Sundar, The Social Capital Institute & Asia Analytics Alliance, and CMO & Digital Business Lead, KPISoft

Covid-19 has been called a cataclysmic, once-in-a-century crisis that has upended and disrupted lives and livelihoods across the world. Life as we have known in BC (before covid-19) and life as we will experience in AC (after covid-19) will be fundamentally different. How we live, how we work, and how we connect will be transformed. How different will the new future be? One thing for sure is the acceleration of digital transformation. Businesses and leaders will need to address the challenges and leverage the opportunities as digital transformation is expected to scale up exponentially. Which company will survive and thrive and which will not? What new businesses will emerge?

As transitions in times of change involve both economic and psychological facets, leadership is the critical element as crises make leadership visible and become the defining (make or break) moment for leaders and the organizations they lead. Leadership models that have served us well in BC (before covid-19) may no longer be relevant as AC (after covid-19) ushers in a new leadership agenda.

According to a recent Forbes article (March 2020), this new leadership agenda comprises five current leadership challenges to be addressed amid the pandemic: 

1. How to balance being an inspirational and comforting leader while continuing to push on performance

2. How to respond to countless questions from managers and the frontline when no clear answers exist 

3. How to maintain my visibility and influence in the organization with limited interaction opportunities

4. How to keep building my personal brand within the company without appearing self-centered

5. How to keep my team engaged while working remotely.

It is in this context of helping leaders to address these and other challenges in the new normal that we pose the first core question (one of two core questions we attempt to address), in the spirit of questioning inspired by Hal Gregersen’s “Questions Are the Answers”:

Core question #1: What leadership capabilities will help leaders navigate, thrive and succeed in the new normal? 

We propose a leadership model we call “High Velocity Leadership” to help leaders address the first core question (see Figure 1). This is the first of two leadership models proposed in this paper. We define high velocity leadership as “the ability to learn and adapt to the uncertainty, complexity, fast speed and accelerated pace of change unleashed by disruption, and learn not only how to cope with it but to take advantage of it to create value”. High velocity leadership enables leaders to address the 3S of “speed, scope and scale” in the Age of Disruption. 

High velocity leadership comprises 3 core capabilities that correspond to the leadership trinity of “head, heart and hands”: (1) vigilance (“head”), (2) resilience (“heart”), and (3) agility (“hands”) (see Figure 2). The leadership trinity of “head, heart and hands” represents the following triadic challenges faced by leaders in times of disruption: (1) how leaders make sense of disruption (“head”), (2) how leaders respond to disruption (“heart”), and (3) how leaders create value from disruption (“hands”) (see Figure 3).
High Velocity Leadership 1: Vigilance (“Head”): How leaders make sense of disruption?

In a VUCAD (volatile, uncertain, complex, ambiguous and disrupted) world, particularly in the times we are living in right now, there is a growing awareness of the importance of vigilance, keeping a careful watch for possible and emerging dangers and difficulties as companies navigate their way in the covid-19 maelstrom, with no end game in sight. Leaders need to develop “peripheral vision” (Day & Schoemaker) and the ability to “see around corners” (McGrath). As Day and Schoemaker advised, leaders who are vigilant “see sooner” can “act faster”, in responding to unanticipated threats, unforeseen risks, and new opportunities. They develop and apply strategic foresight to avoid being blindsided or paralysed by the headwinds of disruption. They can make sense of weak signals, what’s happening on the periphery and on the edge, and they can foresee emerging potential opportunities.

Amazon is a great example of an organization with vigilant leadership. Jeff Bezos’ “Day 1” philosophy for Amazon has kept the company on a continuous cycle of experimentation and innovation. If you read through all the shareholder letters that he wrote over the past 23 years (1997-2019), the phrase “Day 1” has appeared 23 times. A “Day 1” company like Amazon is constantly vigilant, whereas a “Day 2” company, by comparison, will be more vulnerable.

Jeff Bezos is investing Amazon’s $4 billion second-quarter profit in 2020 into positioning the company to meet the new demands of the post-coronavirus economy. Amazon is going to build the first vaccinated supply chain globally. Amazon’s supply chain will be virus-free. Amazon has already procured 100 million face masks to be worn by all associates, drivers, and support staff in their operations network. It has purchased more than 1,000 thermal cameras and 31,000 thermometers, which are being used to conduct mandatory daily temperature checks for employees and support staff throughout its operations sites and Whole Foods Market stores. It has assembled a team including research scientists, program managers, procurement specialists and software engineers to build incremental testing capacity. In the post-coronavirus economy, Jeff Bezos continues to lead Amazon at the nexus of speed, scope and scale.

High Velocity Leadership 2: Resilience (“Heart”): How leaders respond to disruption?

With social distancing measures in place and draconian attempts to flatten the coronavirus curve and stop the spread of infection, there has been a sudden and seismic shift to remote working. Although there are benefits to remote working, there is also the downside. In remote working, the boundary between work and non-work, between professional and personal, gets blurred. In surveys on remote working during covid-19, employees have reported experiencing higher levels of stress.

It is not just remote working and virtualization of almost every area of work during covid-19 that is causing greater stress. Reports of employees fired or furloughed, and news of businesses filing for bankruptcy and closing down, can heighten anxiety and increase stress. Disruption and change have come at a fast and furious pace, as well as at an unrelenting and unsettling scale. During trying times like this, keeping staff engaged and maintaining their morale would be a significant leadership challenge. Employees who are stressed, worried and disengaged can have negative impact on the business. In times like this, organizations need resilient leaders.

Leaders who are resilient can manage the stress of disruption and change better than leaders who are not resilient. Resilient leaders adopt a positive mindset in the face of adversity. They respond proactively in dealing with the challenges and difficulties. For resilient leaders, it is not a matter of just bouncing back and resuming the path one has been on but also bouncing forward and leading others into the new and ambiguous future. These leaders display what Elle Allison-Napolitano, who has studied leadership resilience in the education sector, calls “extraordinary” resilience. In dealing with an extraordinary crisis like covid-19, we need “extraordinary” resilience.

Research by Professor Martin Seligman, the father of positive psychology, and his associates, has discovered that there are four ways of responding to crises and disruption: (1) Active & constructive (authentic, enthusiastic support), (2) Passive & constructive (understated support), (3) Passive & destructive (ignoring the event), and (4) Active & destructive (pointing out negative aspects of the event). Of these four ways, only the first way, “active & constructive” is adopted by resilient leaders. To be “active & constructive” means the leaders bring positive energy and demonstrate what McKinsey calls “centered leadership”. These leaders are resilient as they adopt a positive framing of the crisis, they connect and build stronger support networks, and they know how to sustain and renew their personal energy. These leaders are likelier to be effective compared with others. The other ways of responding to the crisis are less likely to be adopted by resilient leaders.

When all is said and done, resilient leaders inspire and encourage people to come alongside with them as they journey together in the crisis, and this is really the “heart” of resilient leadership. In a covid-19 audit of leadership in a crisis, Gallup meta-analytics have found four universal needs that followers have of leaders: (1) trust, (2) compassion, (3) stability, and (4) hope. Resilient leaders know how they raise their “tide” to lift “all the boats” around them, by building trust with people through their authenticity and empathy.

High Velocity Leadership 3: Agility (“Hands”): How leaders create value from disruption?

In the Age of Disruption, it is evident that “what got us here won’t get us there”. Past success is no guarantee of future success. We are already familiar with this oft-reported statistic: the average lifespan of an S&P company is now under 20 years, down from 60 years in the 1950s. The Covid-19 crisis is unprecedented, and this may hasten the demise of certain companies, and the average lifespan of a company may be reduced even further. 

In dealing with the crisis and in building tomorrow’s business, today’s organizations need agile leaders more than ever before. Agile leaders recognize they do not have a manual or playbook they can consult to deal with the disruption. Instead, as the covid-19 crisis continues to evolve rapidly, agile leaders have an evolving playbook, underpinned by the “building the plane while you’re flying it” or “building the bridge as you walk on it” approach.

Agile leadership is not new. Several theories on agile leadership have emerged over the years (Augustine, 2005; Pink, 2009; Denning, 2010; Appello, 2011, Rigby et al, 2020). Many focused on the importance of agile leaders in visioning and enabling, delegating and empowering. This is not surprising as organizations are “connecting everyone and everything, everywhere all the time” (Denning, Age of Agile) in today’s connected economy. Alignment, transparency and more agile approaches to organizing and work are valued more as companies go through digital transformation. 

The trend towards more agile approaches of working has already begun in earnest. From established banks like ING and DBS to high tech giants such as China’s BAT (Baidu, Alibaba and Tencent), these companies are empowering employees to be more agile through agile teams and ways of working as they continue to navigate the waves of disruption and stay ahead of the curve.

However, agile is not just about working harder, but rather it is about working smarter. Being agile is about generating more value from less work, not just about doing more work in less time. It is not just about achieving greater efficiency in this era of automation, digitization and virtualization; it is about innovation and value creation. The essence of being agile is about creating value for the customer. Agile leaders know how they can create value from disruption.

Innovation can happen if psychological safety exists in the organization; where people can experiment, make mistakes, and learn from failures. Harvard Business School’s Amy Edmondson highlights the importance of leaders in cultivating psychological safety. Agile leaders understand they will make mistakes along the way and they will have to pivot quickly as this happens, acknowledging mistakes and learning as they go. Agile leaders have a growth mindset – failures are learning opportunities. Agile leaders are powerful role models in setting the right tone and creating a conducive climate for real learning that fuels value creation.

McKinsey defines agility broadly as “the ability to reconfigure strategy, structure, processes, people, and technology quickly toward value-creating and value-protecting opportunities.” The two keywords here, “value-creating” and “value-protecting”, speak of the twin challenges that agile leaders address. To address these twin challenges, agile leaders demonstrate ambidexterity. Ambidexterity is the ability to exploit present conditions by optimizing the current business model’s operations while exploring new opportunities and come up with new business models. Ambidexterity is the art of being equally good at both - the present and the future business. Whatever the shape of the economic recovery (V-shape, U-shape, or swoosh-shape), leaders need to keep an eye on both the present and the future as companies emerge from the coronavirus crisis. 

We believe that organizations will need agile leaders with ambidexterity skills as companies operate in a more dynamic and unpredictable business environment. Agile leaders embrace uncertainty and ambiguity, and they use their ambidexterity to manage ambivalence and tension. They know when to pivot, when to move quickly and adroitly to shift resources to higher value activities sooner than rivals. They also know how to optimize their current business (exploit or value-protecting) and at the same time they know how to pursue future growth (explore or value-creating). Elon Musk (Tesla), Jeff Bezos (Amazon), and Robin Li (Baidu) are some examples of agile leaders with strong ambidexterity skills.

To address the plethora of leadership challenges in the new normal, the High Velocity Leadership model with its three core capabilities of vigilance, resilience and agility, mapped to the leadership trinity of “head, heart and hands” would be key enablers. The road to recovery and the transition to the new normal requires a holistic approach, requiring leaders to bring their whole being (head, heart and hands) to address the core leadership challenges in the leadership trinity. Figure 4 identifies specific actions leaders can take to put the leadership trinity into practice.​
Leadership in “Phygital” Universe

As leaders deploy the High Velocity Leadership to navigate in the new normal, they need to understand the changing context of a new universe disrupted and transformed by digitization, artificial intelligence, and automation, an era that will change the way we live, work, and do business. We call this universe “phygital”.

What is “phygital”? “Phygital” refers to a portmanteau of two words, ‘physical’ and ‘digital’.  As the term arose in marketing, it is about merging the important aspects of physical (traditional) and digital marketing to optimize the customer experience, the complementarity between physical stores and the virtual world of e-commerce and digital technology. 

In the digital world, physical entities have their avatars, sometimes multiple avatars. These avatars have their own identities and characteristics. The world in which the leader leads is a combination of both the physical and the digital, a “phygital” world. How leaders succeed in this “phygital” world requires a very different mindset compared to how leaders succeed in a purely physical or digital world. 

Leaders in a “phygital” universe do much more than just merging physical and digital or finding that balance between physical and digital. It is about reimagining and redefining how businesses and organizations are led and managed. A customer’s journey could be fundamentally reshaped in a “phygital” universe. Business and operating processes could be transformed to create new bespoke customer experiences. Companies need to rethink how they will be operating in a “phygital” universe. With intelligent journeys, digitized and autonomous environments, the “phygital” universe opens up new vistas for novel customer experiences. This requires leaders to address the “phygital” imperatives on leadership. Here, we pose the second core question: 

Core question #2: How do leaders lead in a “phygital” universe?

To lead in a “phygital” universe, we propose our second leadership model, “Phygital Leadership”. 
We define phygital leadership as the ability to create value from orchestrating phygital value networks and integrating phygital resources. 

Phygital leaders address the twin and related imperatives of leading in a “phygital” universe: (1) augmented value networks (“outside in”), and (2) augmented mindsets (“inside out”).
Phygital Leadership 1:  Augmented Value Networks – How to create superior value from orchestrating phygital value networks?

Whilst the landscape of business has changed by leaps and bounds, the fundamentals of business haven’t. Business still and will remain a ‘value network’. A business’s success is a function of the value it creates in the network comprising of clients, consumers, employees and other businesses and organizations including suppliers, partners, governments, and myriad other stakeholders. The value is created by the interactions in this network.  

- Interaction between two businesses (B2B interactions including interactions with suppliers, partners, etc)
- Interaction between a business and a consumer (awareness, marketing, sales, procurement, servicing, etc) 
- Interaction between consumer and another consumer/prospect consumer (reference checks, word of mouth, etc) 
- Interaction between employees (day-to-day work focused on business value)

Most technologies and inventions then focused on augmentation or automation of the business operations. Augmentation focused on optimizing the human resources by enhancing productivity. Automation technologies focused on replacing humans in work that are primarily repeatable tasks. Amidst this, there is a new breed of technologies whose focus is very different. They are not focused on augmenting or replacing humans but replicating them. 

The rise of data processing systems and the ensuing consumerization in the form of consumer devices like computers and phones gave rise to the creation of a virtual world. A virtual world, where data became the currency and algorithms dictated its design. In this new world, every human being and business start to be rendered as digital personas. These can be in the form of various digital identities ranging from websites, email ids, twitter handles, LinkedIn profiles, Facebook pages, etc. These identities represented individuals and businesses, sometimes even with legal validity. They literally are the replicas of businesses and individuals in the digital world. This gave rise to “digital twins”.

As the blanket of the digital world expanded and fused with the physical world, the business value network encompassed the digital twins into the network. In this new world, the nodes in the business value network are a combination of the real and digital twins of both business entities and individuals involved. This made the business value network multi-dimensional and complex. (Imagine every one of us in the world having multiple copies of ourselves overnight, what does that do to our world?) 

 A digital twin of a business could be anything from its website, a social handle, an email address, or a technology system like a supplier management platform, which represents the organization in the digital world. A digital twin of an individual could be as simple as an email address.

Every one of these interactions between the digital twins of businesses and individuals involved has an intent (to interact) and action (interaction). In the past where both the intent and action happened in the physical world, today most of the (inter)action is moving or has already moved to the digital world, in varying levels across industries and regions. Digitization of these interactions has been the first wave of this transformation, dubbed as digital transformation. 

However, the intent bit is also coming into the gamut of the digital blanket. While in most cases, the ‘intent’ of the interactions is decided in the physical world and still human, this is changing, fast. The rise of artificial intelligence has made it possible for these digital twins to have their own intent, which at times can be smarter than the intent of their real-world twins in the physical world. 

Future leaders will be judged by how well they create superior value from augmented value networks to drive growth and transformation.

Phygital Leadership 2: Augmented Mindsets – How to create superior value from integrating phygital resources?

One of the major shifts digital transformation has brought in is a need to shift the way businesses and communities need to look at almost everything. This need has become so primal that organizations and communities that fail to do so can become obsolete. This change is not only about businesses, it is about communities too. A leader of a nation who cannot understand and appreciate issues like cyberwarfare, or a parent who cannot understand the potential threats of cyberbullying, are as incapable in their ability to exercise their duties as a CEO who is not able to understand this transformation. 

The new world order that digital transformation has brought into being has also brought much confusion and anxiety for the masses. Ambiguity in terms of how the world works and what that means for oneself is a substantial cause of anxiety for employees and masses alike. The role of a leader to provide clarity and direction in such a scenario is substantial. However, for leaders to inspire trust in their people in their ability to carry out their work requires leaders to change the way they understand the new world order. This calls for a new leadership mindset that will thrive in a phygital universe.

A business technology is truly disruptive when it moves beyond the business constructs and starts touching everyone. When that happens, it is no more a technology but a lifestyle. Digital isn’t a technology; it is a lifestyle. For leaders, this needs a change in mindset to look at the world they operate in very differently. 

To appreciate the extent of this change, it would be best to imagine what happens if every one of us in the world have multiple copies of ourselves, overnight. To complicate matters, what if these copies have capabilities beyond us, like an ability to be at multiple places at the same time and travel at the speed of light? The world would be a very different place. Seeing the world of business from that mindset is what we call an ‘augmented mindset’ that leaders need to embrace. 

As digital twins get added into the mix of interactions that makes a business, this can be something that is substantially different. In this new mix, leaders need to rethink their business and operating models.

For example, a traditional retail store looks at itself as an interaction between a human ‘who needs to buy’ and ‘a store that sells what the human needs’. If it does not have what that human needs, it can either forego the sale opportunity or try to connect with someone who might have it which needs additional effort and potential delays for the human in need. What if the same retail store starts to relook at the interaction mix from a phygital lens? Imagine adding the digital twin of the human and the digital twin of the business into the mix. It starts to look like this:

The digital twin of the human wants to ‘buy’ stuff. That twin interacts with the retail store’s digital twin asking if it can provide what it needs. The retail store’s digital twin now has the option of either selling the stuff it has or connecting with another twin anywhere in the world to fulfill the need and be still part of the interaction and share the economic gain. This is impossible in the physical world as it is driven by time and space limitations, which the digital world does not have. In the digital world, time is scaled at milliseconds, and space fuses with time. This hybrid thinking, in a nutshell, is what created Amazon in an industry once dominated by Walmart. 

A business’s operation is most easily understood and depicted by its value chain. A value chain that starts from the raw materials to the consumption and advocacy of its product or service by its consumers. The whole configuration of this value chain has named actors and roles earmarked, especially in conventional businesses and business models. The focus of leadership mostly has been making this configuration as efficient and optimized as possible. The drive towards finding supplies from cheaper destinations, finding alternate markets, thrusting on free trade and automation are all based on this. The digital transformation opens a massive opportunity to rethink the fundamental premise of this value chain.

For example, one of the most significant afflictions that a #5 software business in the mature markets would have, is its difficulty in selling to the Fortune 1000, who are the largest tech spenders. Large businesses tend to prefer buying from the top 3-5 players when it comes to technology. The reasons stated include brand-pull, lobbying, exchange businesses, etc.

In a typical scenario like this, the options for the business to look at emerging markets are generally prone with two challenges. First, the price sensitivity of the emerging markets; the second is the high cost of physical expansion to the new markets. In short, they need to drop the price on one hand and increase expenses on the other, which is an untenable option for most. However, the augmented mindset to this challenge has a solution which many software businesses have leveraged, by focusing their selling and consumption process into digital. 

By shifting the marketing and selling of software products from the lens of ‘human sellers to human buyers’ to ‘marketing and selling by the business’s digital twins to the buyer’s digital twins’, they can find access to alternate markets at a very small cost. These interactions are purely through digital channels – the likes of LinkedIn, Google Ads, programmatic dds driving demand. Even the conversations with customers were shifted/led by conversational AI bots. As the deployment of the software is no more physical and done through the internet (cloud platforms), they are able to reduce the cost of sale and consumption to a fraction. This benefit in turn is passed on to clients expanded their market reach globally. This shift has generated some unexpected leaders and ‘rags to riches’ stories from the emerging world.

How do leaders address this classical question, “What/who drives my business?” The answers it generates vary across the spectrum and often represents the leader’s mindset and culture that the organization imbibes. The answers vary from ‘me’, ‘the board’, ‘shareholders’, ‘investors’, ‘employees’, ‘data’ etc. Whomsoever runs the business, what drives the business forward is the interactions between people, and the intentions behind these interactions. An organization in effect is social capital at work in achieving business and organizational objectives. From the phygital leadership perspective, this social capital is created by the interactions between digital twins too, which quite often do not appear on a leader’s radar when it comes to decision making. 

Let us take the example of change management. Age-old wisdom and management approach to change management is to identify ‘change agents’. Change agents are often individuals who are assumed to have a high level of connectedness and hence an ability to influence the opinions of their fellow employees or community. The identification of these change agents is often done by leaders with their gut instinct or perception of the impact that individuals have on the organization’s employee or social networks. Quite often this approach to identifying change agents fail! 

By putting on the lens of phygital leadership, leaders can change the way they identify change agents. By looking at the digital twins of employees (like their email-ids or social handles) and seeing who has the maximum conversations with other employees in the organization, leaders can identify employees with the strong social capital and network impact. This can be done by using tools that can analyze email conversation networks and map the email-ids which are the center of communication networks. An approach that leaders would have never thought of, if they did not have the phygital leadership mindset to see the digital twins of the ones that run their business – the employees!

Future leaders will be judged by how well they create superior value in uniting humans with machines or algorithms to drive growth and transformation. 

Overall, both the augmented value networks and augmented mindsets core leadership imperatives work in concert creating a virtuous cycle of expansive and augmented social capital in the phygital universe (see Figure 8).
Augmented Social Capital in High Velocity Leadership & Phygital Leadership

In the Age of Disruption (not just the new normal but “never normal”), and in a phygital universe where everything is connected, augmented social capital has come to the center stage as the most important type of capital leaders need to focus on driving growth and building resilience for the longer term. Augmented social capital is at the heart of both high velocity leadership as well as phygital leadership. 

In conclusion, we propose 4 takeaways for leaders who are keen to develop high velocity and phygital leadership:

Augmented Social Capital vs Human Capital
Viewing the organization as a platform where social capital is not just created but also augmented by digital interactions between and among the human and digital twins of employees, customers, partners and other ecosystem players. This augmented social capital will be a key competitive differentiator.

Insight vs Intuition
The advancement of AI and analytics coupled with the availability of digital traces of all interactions in the digital sphere presents a substantial opportunity to replace intuition with insight. These insights which were never capable before can provide deep business impact if coupled with the leader’s augmented wisdom. 

Nudge vs Instruction
As Gen Y and millennial workforce become mainstream, the conventional instruction-led models will fall flat. Nudging employees towards the right behavior is where success lies when it comes to leading millennials. The digital twins are more nudge-able than the physical ones – an opportunity if leveraged well can benefit employees as well as make your workplace appealing to the Millennials.

Purpose vs Profit 
Purpose-led organizations have a higher winnability than profit-led organizations. However, making an organization purpose-led comes with its challenges. One of the biggest challenges is in communicating the purpose and aligning the organization’s values, mission and vision with its stakeholders. In the Age of Disruption and in a phygital universe, leaders need to communicate and align purpose with not just employees and the usual stakeholders in the physical world but also the digital twins in the phygital universe.

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