Chapter 7. Leadership in the Networked Economy

Albert A. Vicere

Globalization and the information technology explosion have combined to create a "networked economy," which in turn challenges traditional approaches to management and leadership. Globalization has brought us flatter, faster-paced organizations with global reach. Information technology has enabled us to work in partnerships linked by powerful information networks. Together these forces are triggering the reconfiguration and restructuring of virtually every major industry worldwide, and they are redefining the essence of leadership. Here, we have an opportunity to explore the nature of leadership in the networked economy and discuss suggestions for enhancing approaches to leadership development.

The Changing Leadership Landscape

Traditional or "old economy" views of leadership and management were built on notions of control. People were controlled through structure and hierarchy, and resources were controlled through vertical and horizontal integration. Companies like General Motors, U.S. Steel, IBM, Xerox, and Eastman Kodak are prime examples. These companies ruled their industries for decades. They were the poster children for traditional old-economy management philosophies.

However, these companies grew up in a world in which markets were primarily domestic. To be sure, they sold products outside the United States and likely even manufactured products overseas, but the soul of their businesses was a robust and growing domestic marketplace where, as dominant players, they set the standards and effectively controlled the pace of development in their respective industries. Globalization changed all of that.

Take the steel industry, for example. When competitors from Japan entered the North American steel market in the 1960s and 1970s, U.S. Steel's dominance of the domestic marketplace was irrelevant to them. They had their own sources of materials and capital, and they were able to develop new channels of distribution. Whether they were subsidized or not is irrelevant. What was most important was that they forever changed the rules of the business game.

Unencumbered and unafraid of dominant U.S. market leaders, these "foreign" competitors attacked industry after industry, including steel, machine tools, consumer electronics, and automobiles, until finally the big U.S. companies had no choice but to respond.

During the 1980s and 1990s, U.S. companies aggressively pursued a new organizational model, one that was faster, more efficient, closer to the customer, and above all, flatter. The de-layered, downsized organization was a natural response to global competition. After all, speed, efficiency, and customer focus were the very competitive advantages that offshore competitors were using to defeat established U.S. market leaders, and it was difficult to argue against the logic that by flattening an organization these benefits were more likely to be accrued.

Yet, downsizing alone did not prove to be the answer. A recently downsized company might see short-term improvements in business conditions only to find itself back in trouble a few quarters down the road. This led many companies to engage in a cycle of continuous downsizing that not only failed to pay off in business performance improvement, but also often fueled a challenge to traditional views of employee loyalty and commitment in the workplace.

The Next Wave

The logic behind downsizing is simple: Organizations must be faster, more efficient, and more customer-focused in the global economy. Yet, reducing headcount alone does not produce sustainable performance improvements for an organization. When an organization simply has fewer people doing the same things that were done in their pre-downsized incarnation, the end result is likely to be confusion and burnout, not performance improvement.

In order to reap the benefits of downsizing, organizations must adapt to what might loosely be termed the principle of focus—to focus on core competencies or the things the organization does or needs to do better than anyone.^[1] We learned in the 1990s that downsizing, coupled with a focus on core competencies, could enable an organization to flatten, focus, and move ahead with exceptional intensity.

There is a catch, however. The flat, focused organization does a few things exceptionally well, but it needs help. That help comes in the form of tactical partnerships, such as outsourcing arrangements, which enable an organization to efficiently handle operational tasks that are not core competencies. It also comes in the form of strategic partnerships that help an organization grow revenue through joint ventures or alliances. We learned in the late 1990s that flat, focused organizations operating in webs of partnerships were far more likely to succeed than those who stayed committed to tall, monolithic bureaucracies.

No organization typifies this model better than Cisco Systems. In less than two decades, even accounting for the recent market downturn, Cisco has become a world leader in its industry with a relatively small base of regular employees. How does Cisco do it? Surrounding Cisco is an armada of partnerships and relationships that have helped fuel its phenomenal success.

Cisco has the advantage of having been born in the networked economy environment, but what about the many long-established companies out there? What about organizations that for the most part are accustomed to control, hierarchy, and going it alone? Organizational effectiveness in the networked economy is based not on control, but on relationships. Without question, there is a fundamental difference between management processes based on control and those based on relationships.

That is not to say that control is foregone in the networked economy—in fact, just the opposite. The information technology revolution has spawned the development of computer and telecommunications networks, e-commerce systems, enterprise software, and other forms of connectivity. These systems align networks of business partners together in a new business infrastructure, one built upon webs of information linkages. The interconnected webs enable organizations to control their businesses in ways never before imagined. As a result, they are redefining the nature of doing business in the networked economy.

The dominance of the information superhighway as the foundation for a new wave of economic development is nearly undisputed. The e-explosion is changing the face of nearly everything around us, especially processes for managing organizations, and the demise of the dotcom sector is only helping us to get it right. It isn't just buying and selling via the Internet that is the soul of the e-revolution; it is the fundamental reconfiguration of business infrastructure. From massive gains in productivity, to operational flexibility, to the gathering of insightful customer intelligence, to the opening of new markets and the creation of new channels of distribution, to real-time learning platforms, "e" is impacting all aspects of the value chain, including processes for leadership development.

The Leadership Challenge

Just what does this shift in the essence of organizational effectiveness suggest for leadership development? Core competencies, by definition, are knowledge sets and technical skill sets. It seems, then, that until companies master the science of creating knowledge-management systems, core competencies will continue to reside in the minds of the people inside an organization. Relationships, by definition, are owned by people within companies and not by the companies themselves. That means that the new focus on core competencies and relationships brings people issues, and therefore leadership development, to the forefront of business strategy.

The explosive growth of the search-firm business is just one indicator of this shift. As companies compete for the best talent, raiding other organizations for talent has become a commonplace event. Yet, assembling a group of highly competent but uncommitted knowledge workers is unlikely to lead to the formation of a highly productive, healthy organizational culture.

These individuals need to feel involved, committed, and inspired to achieve and to help the organization to achieve. They need access to the latest thinking and the tools that will enable them to put that thinking to the test. They need to be assigned to visible projects where they can demonstrate their mettle. They need to be acknowledged and rewarded for their contributions. Above all, they need to feel that they are part of an organization that respects them for the knowledge and ideas they bring to the business: They need effective leadership.

New Leadership Mindsets

Throughout my 23 years as a professor, I have had the great fortune to work with scores of organizations and to spend time with their leaders. There is no question that the most effective leaders realize that the essence of their job is to get results and at the same time to build commitment to the organization's culture and values. But, there is little doubt that today's leaders must carry out those responsibilities in an incredibly complex environment.

They not only are charged with ensuring the performance of the organization and building on its cultural legacy, they are also charged with helping the organization transition to the new economic order. Based on discussions with dozens of leaders, as well as in firsthand observation of their leadership challenges, I have identified four key roles for effective leadership in the networked economy:

1. Boundary-less thinker
2. Network builder
3. Diplomat
4. Interpreter

The framework is not intended to serve as a competency model, but rather as a delineation of the perspectives essential for effective leadership in today's transitioning economic environment.

Boundary-less Thinker

Leaders in the networked economy need to think beyond current orthodoxies and to help their organization to do the same. That means they can't be bogged down in traditional ways of thinking. They must be open to new ideas. They must help their organization and the people within it to know themselves—their strengths, competencies, and limitations. Also, they must help those same people to recognize both the value of new ideas and the strengths and capabilities of potential partners, both internal and external to the firm, who can be sources of unique synergies and differentiated competitive advantage. Three skill sets are essential to developing this broad-based mindset:

• Big Picture Perspective: The ability to rise above details and activities to see a situation in terms of correlations, patterns, and potential.
• Openness to Ideas: The ability to appreciate and integrate new ideas and different ways of thinking into the leadership process.
• Willingness to Look Beyond Oneself for Capabilities and Resources: The understanding that no one individual or organization can possess all the capabilities and resources necessary for success in today's environment and that partnerships and linkages, both internal and external to the firm, are essential to the future.

Network Builder

Leaders who think in a boundary-less manner are more likely to have a relationship mindset, one focused on helping the people around them to share ideas, information, knowledge, and capabilities. Organizational effectiveness in the networked economy is rooted in relationships and networking. Complementary partners must be identified and linked together in focused pursuit of mutual success. That a degree of comfort with the new information-based infrastructure is essential to this mindset goes beyond question. But, more than that, four additional skill sets are essential to developing a network-oriented perspective:

• Relationship Mindset: Openness to finding and linking with complementary partners.
• Knowledge of Personal Uniqueness: Ability to identify and articulate the core competencies, capabilities, and capacities of oneself and one's organization.
• Ability to Recognize Others' Uniqueness: Ability to recognize, identify, and appreciate the core competencies, capabilities, and capacities of potential partners.
• Searching for Synergies: Ability to recognize and articulate how one's own competencies, capabilities, and capacities, when combined with those of a potential partner, can create potential well beyond what exists for the standalone entities.

Diplomat

To develop and maintain the effectiveness of networks, today's leaders must have the capacity to bring constituencies together, the ability to help them work together, and the insight to help them see that by working together they can achieve more than they ever could on their own. Three critical skill sets comprise this dimension:

• Ability to Relate: Ability to identify and connect with others.
• Ability to Communicate: Ability to effectively communicate and interact with others, both on an interpersonal basis and via information networks.
• Ability To Negotiate: Ability to create connections and commitments among potential partners.

This particular dimension requires some pause and reflection. It seems that in the traditional "tall pyramid" organization of the Industrial Age, senior leaders had the luxury of "outsourcing" the above requirements to professional functionaries (the public relations department, the human resource management department, the legal department, the IT department, etc.). Often, the specialists did all the heavy lifting around these skill sets with the leader as the advisor. In the networked economy, these requirements have emerged as hands-on, roll-up-the-sleeves, and get-in-there-and-do-it imperatives for leaders. They are absolutely essential leadership skills in the networked economy.

Interpreter

To complement their skills of diplomacy, leaders must have the ability to interpret the nature of business opportunities to the network; the insight to help partners understand each other; and the ability to coach, facilitate, and provide feedback to an organization that is no longer a collection of lines and boxes, but a living, growing, expanding ecosystem. Three skill sets are essential to this role:

• Solid Knowledge of the Organization: Ability to explain and articulate the value and uniqueness of the business and to delineate its capabilities and cultural characteristics.
• Broad Knowledge of Marketplace: Awareness of market trends and developments as well as competitor's capabilities and those of potential partners.
• Ability to Influence Others: Ability to convince others with regard to recognized challenges and opportunities.

Meeting the Challenge

The roles and challenges described here help frame the task of adjusting to the demands of the networked economy. Given the changing nature of leadership and organizational effectiveness during this period of economic transition, and the implications of this transition on leadership development processes, what can an organization do to meet the challenge of leadership development in the networked economy? The following are some suggestions:

• Expand the Definition of Diversity. In the networked economy, diversity takes on a whole new meaning and a whole new sense of criticality. Diversity is no longer an individual or personal issue. It is a strategic issue that requires a new view of people, structures, and strategies. Organizations and their leaders must seek out and work with people and partners who possess different skill sets and ideals. They must not only respect these differences, but also have the capacity to align them with their own unique capabilities to create competitive synergy. Understanding and embracing diversity in this broader context is a critical strategic imperative.
• Teach Leaders to Lead. In the old economy, leaders were often auditors. They watched over things, approved things, and kept things running smoothly. Today, that's not enough. Today's leaders must facilitate, interpret, coach, teach, mentor, and develop both people and relationships. However, they can't do these things unless they have the right skills and mindsets. They won't develop these capabilities until they are educated in them and held accountable for demonstrating them. Leadership development, in this sense, may be the biggest challenge facing organizations over the next few years. Organizations must aggressively move forward to enable leaders to master the shift from the old, control-oriented management philosophies of the Industrial Age to the new relationship philosophies of the Information Age. No company will continue to grow and succeed until it addresses this challenge, until it ensures not only that its leaders can generate short-term results, but that they can do so while demonstrating the ability to be boundary-less thinkers, network builders, diplomats, and interpreters.
• Hold Leaders Accountable for Leadership. McKinsey and Company found in its "War for Talent" study not only that knowledge workers seek out effective leadership, but also that companies that excel at leadership actually perform significantly better than their peers. Today's organizations must view people as a resource. They must see leadership as a source of inspiration and challenge, and they must make the organization itself a cause that commands attention and commitment. This means that they must hold leaders accountable for attracting, teaching, engaging, and inspiring the talented people who will drive the organization forward.
• Facilitate Networks. A networked-economy organization is made of talented people who work together, share resources and information, and are committed to both personal and organizational success. The best-performing companies today have a secret weapon. They have learned that if they seek out the best minds in the organization, regardless of where they reside, put those collective minds to work on challenging opportunities, and create mechanisms to share the knowledge across the organization, they are far more likely to drive performance and generate growth. Leaders in networked-economy organizations must keep people challenged and connected, help them to learn from and with each other, and support their continued growth and development.
• Facilitate Learning. Critical to an organization's ability to make the transition to the networked economy is its ability to continuously seek out and learn from information and ideas. Knowledge management is not a fad, but an essential capability. Those organizations that lead the way in the effort to unlock the secrets of effective knowledge management systems development will be the leaders in the early 21st century business environment. This means companies must develop and leaders must harness the power of real-time, information technology-based enterprise learning platforms through which organizations can catalog and disseminate the organizational wisdom gained through experience and research. Similarly, on-going opportunities for education and development are essential in the networked economy. However, due to the pace of change and the nature of today's knowledge workers, these experiences should be less classroom-oriented and more linked to real-time learning from hands-on experiences among groups of people. These experiences should be designed to facilitate not only learning and skill development, but also personal networking. That's why action learning, leader-led development, and just-in-time education are the watchwords of the day for strategic leadership development in the networked economy.

Conclusion

The networked economy requires that companies redefine requirements for leadership effectiveness, refine practices and policies for leadership development, and hold leaders accountable for real leadership in the networked economy. In many ways, these observations and recommendations are responses to obvious changes that have been taking place in the workplace over the past decade. Why, then, do so many organizations seem to be struggling to accommodate them? Perhaps too few organizations have engaged their leaders in discussions that help them assess and understand the transition to the networked economy and its implications for leadership and organizational effectiveness. Moreover, perhaps too few companies have taken the time to both redefine the essence of effective leadership in the networked economy and to hold leaders at all levels accountable for developing the mindsets and capabilities essential for success in a changing world. Navigating the economic change that surrounds us requires that every organization and every leader take a hard look at how effectively it is addressing the evolving demands of leadership for the networked economy.