Duke Corporate Education recently released the results of a deep qualitative study of CEOs on the front lines of the volatile 21st century business environment. Here’s what they found.
Over the past five years, the business world has undergone a number of seismic transformations. The environment is characterized by interdependence, complexity and unpredictability, as many studies have shown. For a better understanding of what is different about our current moment, Duke Corporate Education interviewed CEOs from all over the world and from a diverse set of industries about their past and present experiences. In the study of nearly 40 global CEOs, the general consensus among them is that the change the business world is experiencing post-2008 is more of a supernova than a ‘perfect storm’. Recent global events have dramatically accelerated the move to a more interdependent world and have untethered many of the assumptions and beliefs that leaders have historically depended on to frame their leadership context.
The new leadership context
From these conversations, two main issues were identified contributing to a ‘new leadership context’.
First, challenges are less predictable and, second, knowledge is less reliable. Known constants in leadership are changing, if not vanishing. When asked how change is different these days, CEOs explained that it is almost impossible to predict future changes and, due to increased global interconnection, current mental models are no longer accurate as the nature of change accelerates.
For the first time in the modern era, emerging and developing countries account for more than a third of total world output. In today’s interconnected world, not only do nations depend on each other, but organizations and their leaders do so as well, often in ways that are not anticipated or easily interpreted.
Many of the mental models held by leaders have been turned upside down. Leaders cannot predict the issues they will face because not only is the playing field different, but so are the players, often with unfamiliar notions of power playing out in different cultures.
Challenges are less predictable
CEOs admitted that they are no longer able to effectively determine what is coming. Because change is happening so fast, leaders need to decipher the current context while simultaneously preparing for how future developments may evolve. As one CEO from India described: ‘I think the notion of doing a five-year plan and then measuring myself against that plan is going out the window.’
One reason it may be hard for leaders to see the entire picture is that the act of driving solutions has changed from being technical or uni-dimensional to increasingly multi-dimensional. It is more important than ever to take multiple factors into account – for example, domestic and foreign markets, your own industry and other industry’s competitors as well as collaborators. A CEO from China stated: ‘The biggest challenge we’ve faced recently is how do we deal with increasing complexity in the global economy.’
Furthermore, the new leadership context involves a transition in authority. Command and control is decreasing, and the act of influencing is more important. High complexity increases the need for teams and collaborative structures. A CEO from a company in Turkey explained: ‘It’s getting tougher to lead, you have to influence more. The business environment has become more egalitarian, not only with our customers, but also with our staff. There are fewer levers to pull to get things done.’
With these less predictable challenges, there is a shift in the type of change. This is seen in the enormous increase in the speed and volatility of change, which we refer to as a shift from first order to second order change. The CEO of an Australian company stated: ‘We used to evolve quite slowly… People now expect instant gratification… You don’t have the time for slow evolution. Not every move you make will be right, so the tolerance for mistakes has to be greater, and sometimes you have to fix it later. That is a hard thing to do.’
Knowledge is less reliable
As challenges have become less predictable along the dimensions described, the nature and reliability of knowledge have also changed dramatically. Four dimensions concerning the value and the nature of knowledge emerged through Duke CE’s interviews.
First, the ‘shelf life’ of knowledge is getting more and more unstable. Leaders’ knowledge bases are being added to constantly, thus leading to shorter life-spans or durations of knowledge. A CEO from The Netherlands stated: ‘You get exposed continuously to the outside world. You make statements. You might very quickly not be in tune anymore with reality if you’re not very broadly interested in what happens around the world.’
Closely related to that, access to knowledge is uncontrollable. Social media, for example, can have a very high impact on the image of a company, and the information there is hard if not impossible to control. A CEO from a Turkish company explained: ‘Social media has become really hard… The difficulty is how do you manage social media in today’s world? Anyone can go on Facebook and say “I hate this company”.’
Moreover, identifying systemic interconnection was described as critical to understanding and solving problems. CEOs reported more successful decision-making through a systemic approach rather than relying solely on technical knowledge. For example, an Indian CEO related: ‘Thinking systemically has never been more important than it is now. I cannot solve a marketing problem in technical terms only because the business is not fractured or fragmented. Successful businesses are those that operate networks consistently and well.’
Related to this, tacit knowledge is also becoming more crucial, compared to the explicit knowledge leaders have relied on in the past. A US CEO highlighted this: ‘We used to say knowledge should be 80% technical and 20% social political. However, complexity is now in the fungibility of information. Eighty per cent is social political and 20%
Overall, the interviews showed that the changes in the business world have resulted in a new leadership context. The world is interdependent, which leads to unpredictable challenges and less reliable knowledge to solve these challenges. This ongoing transition causes some difficulties and complications for CEOs.
Difficulties and complications
The volatile, complex and interdependent business environment requires companies to adapt constantly and deal with unknown issues daily. But the structures of organizations are not well suited to cope with these developments; they are too big and inflexible. An Australian CEO phrased it like this: ‘You don’t have the time for slow evolution. You have to evolve on the fast track. The big organizations are not nimble.’
Relating more to pure size, a CEO from the US said: ‘One of my challenges is that our management has not been able to keep pace with the growth.’
Most companies have structures in place for maintaining their status, or hopefully improving it, but within known areas. However, processes for dealing with unknown and unpredictable events are not incorporated. Therefore, high pressure is put on the leaders as the last resort in handling complex and unfamiliar issues – CEOs are increasingly challenged. The CEO from a Brazilian company mentioned: ‘Today, more than in the past, it is very difficult for leaders to lead.’
They have to deal with continual disruption and are required to make decisions without having complete information or knowledge at hand. Referring to this, a US CEO noted: ‘The leadership team was asking me to make decisions, but I didn’t have any idea what to do. It was really challenging for me, the hardest job for me since coming out of college.’
Even with these challenges, leaders are required to take a step into the breach of uncertainty; otherwise the company will not succeed. A CEO from a South African company articulated this difficulty: ‘Leadership is going into the unknown and working your way through it, you have to navigate, keep your balance and be courageous without ever losing your integrity.’
To be more specific, CEOs reported challenges on several topics, some more direct than others. Many reported loneliness, pressure and even negative feelings while facing this new leadership context. First, reacting to unknown events is not easy. An American CEO said: ‘It is hard to adapt if you don’t know what you are adapting to.’
In addition to unpredictability, another US CEO referred to complexity: ‘How do you configure a company to face up to this external complexity. It is quite nerve-wracking.’ Not only is complexity an issue, but the stress resulting from high pressure on leaders has grown in this context. Coming from another angle, a Brazilian CEO replied to the question about what CEOs need to do differently in the future: ‘Be comfortable with being uncomfortable. A leader can’t know it all, so they have to be comfortable with ambiguity.’ In addition to being uncomfortable, loneliness is a difficulty for CEOs.
Even though collaborative structures and teams are encouraged, it is still ‘lonely at the top’, as a US CEO stated. The CEOs described the need for resilience and persistence. More than once, the analogy to a marathon was given, such as by the CEO of a company in South Africa: ‘Leadership is more like a marathon than a sprint. CEOs must have the perseverance to run the marathon, not the 100 meter dash.’
CEOs are also facing the paradox of decreasing authority and control with continuous high responsibility. The high complexity and interconnectedness make it nearly impossible to decide alone. Leaders have to influence more, and have little to no direct control over outcomes anymore. This was highlighted by a CEO from a Brazilian company: ‘Control has been lost. Leaders can’t control the issues or the outcomes.’ He even went so far as to say: ‘Command and control is gone – really gone.’ So on one side, leaders have a decrease in authority and control and must involve a lot of people in the decision-making process. But on the other side, they bear the responsibility for the outcome mostly alone.
A statement from a Turkish CEO shows this ambiguity and the reality of being blamed for mistakes: ‘You’re still the guy at the top, and everyone is questioning why you are there. You’re only at the top when someone has to take the blame, but you don’t get any credit or the kudos, or have any of the levers to pull because society has become egalitarian.’
The new leadership context creates a tough and complicated place for CEOs. Negative feelings, like high levels of stress, loneliness and not knowing what to do while being less in control are results of the new business environment. A CEO from the US summarized: ‘Courage is important – you do need a lot of courage to keep going in troubled times. It’s a lonely place to be a CEO. The decision and responsibility stops with you.’
All this prompts the question of how to react to these occurrences. What do leaders have to do differently, and what new skills and abilities might be required to be a successful leader? In understanding that the context is driven by constant change, it is inevitable that leaders must cultivate fresh ‘sense-abilities’ to be effective and succeed. As opposed to plain capabilities, sense-abilities refer to a person applying abilities in a certain context, whereas a capability refers to the individual ability alone.
In this complex and interdependent environment, it is necessary for leaders to develop their own process for understanding the unfamiliar at a systemic level that can guide them in a variety of contexts. To successfully achieve this development, leaders need to ‘rewire’ some old thinking and behaving mechanisms.
Leadership in this new context requires managers to seek the right question, and not just the right answer. Additionally, they must change from developing assumptions to discovering context. Asking about one situation is insufficient; leaders need to instead ask how things work. Identifying stakeholders is not enough anymore; local and global interdependencies between countries and industries have to be identified.
Leading by authority and control is not suitable anymore; influence and orchestration are now essential modes of behaviour. Control is decreasing and leverage instead is more important. In the context of high interdependencies and a complex business world, being right will not always be possible. Being well positioned instead gains more and more importance, enabling a leader to better react to new and complex events. Finally, the unpredictable nature of the leadership context makes it nearly impossible to gain great power over external events. It is therefore important to turn to gaining power over one’s own mind and how one reacts to events.
The processes of rewiring mindset and behaviour can be embedded in the cultivation of the seven sense-abilities described below. Duke CE’s research revealed they are essential for leaders to survive and thrive in the new leadership context.
Develop the ability to grapple and grok
Grappling and groking form a process of sense-making that enables the leader to more quickly see leverage for action. ‘Groking’ requires that all previous knowledge, capabilities and experiences are framed and folded in real time to enable the leader to rapidly make sense of the current and unfamiliar context they find themselves in. To ‘grok’ means to understand context, as well as one’s own position within that context in a deep and meaningful way. The key question leaders must contemplate to develop this sense-ability is: ‘How long can I hold on to multiple conflicting hypotheses about which course of action to take until I can see a way forward that gives me the most leverage?’
‘I think we are moving from technical challenges to adaptive challenges. With technical challenges, I know the problem and the possible solution. An adaptive challenge is something that has happened for the first time, so how do you navigate through that ambiguity and solve for what you need to solve?’ CEO, India
Lead through successive approximation
Leaders must cultivate the ability to make forward progress even though complete information is absent. The leader of the future is the one who gets the best answer for the context she is in through figuring out a way with multiple future options to be able to react flexibly to different possible events. The key question leaders must contemplate to develop this sense-ability is: ‘How can I quickly figure out the next move that will leave me the most options for subsequent moves?’
‘You should change your working efforts and mindset to be more sensitive towards any external changes instead of staying static and unconcerned. If you are not concerned with changes around you, you will always fail.’ CEO, China
Build and influence collectives
For many leaders, the muscles they have used to drive decisions or actions (for example position, dominance, economic or military clout) are not as effective as they have been in the past. They need new ways of influencing and orchestrating decision-making and problem-solving that cross economic and cultural boundaries.
The new skills involve a deep appreciation for context and the ability to form collectives of individuals and entities across the system that can take on questions together, solve problems and break through barriers to growth. The key question leaders must contemplate to develop this sense-ability is: ‘How do I engage people in a way that builds understanding and movement? Essentially, how do I inspire and bring people with me?’
‘It’s getting tougher to lead. You have to influence more. The business environment has become more egalitarian.’ CEO, Turkey
Develop reliable sources of knowledge and insight The continuing increase in the velocity of change in the world and the number and kind of outlets for information make the development of new and reliable sources of knowledge inevitable. Leaders must cultivate and curate a more diverse personal network and broader set of trusted knowledge resources to help ‘widen their lens’. These resources need to go beyond their company and business. The key question leaders must contemplate to develop this sense-ability is: ‘How good is my radar for picking up weak signals that could undermine my business or for identifying new opportunities to grow my business?’
‘In the past, I thought if I asked the right question, they would give me the right answer. In the future, you have to assume that they don’t even know the right question. In the future, if you only ask the questions, you are limiting yourself by your own world view.… In the future you must be an orchestrator of a diverse group of individuals from inside and outside the company to break that view.’ CEO, Switzerland
Engage the organization in the new rational
In a world of instability, it is not only leaders who lose their footing. Tremors from the turbulence of the past few years have defined rational behaviour in many organizations as avoidance of risk and following the rules.
The fallout from this is a loss of confidence and the inability to see or the fear of acting on a new opportunity. Leaders must be able to see what inhibits the pursuit of opportunity in their organizations, correct it and redefine rational behaviour through their messages and actions.
A shift from avoidance of risk and following the rules to seeing and seizing opportunities that will advance the business is necessary as a new rational.
The key question leaders need to ponder to develop this sense-ability is: ‘How do I move the default position of the organization from avoidance of risk to the pursuit of opportunity when the context seems less certain?’
‘The change in culture and habitual change internally and externally is a big challenge… it is very difficult for people to move and change the way they do things.’ CEO, South Africa
Understand how to understand
Leaders are dealing with new and complex issues in unfamiliar contexts. In this situation, it is impossible to consistently be armed with the right answers. One CEO explained: ‘Senior leaders have to be able to look at the big picture, and that picture now has no frame.’
This emphasizes that knowledge of how one goes about understanding the unfamiliar (tacit knowledge) is more valuable and practical than trying to absorb what might be known today in a technical sense. The most valuable knowledge is often not ‘what is’, but ‘why it is’. The key question leaders must contemplate to develop this sense-ability is: ‘How can I make sense of unfamiliar contexts as quickly as possible?’
‘There is no playbook that you pull out of the bottom left-hand drawer that says: “Okay, now we all go left.” So I think from that context, it is really trying to understand the dynamics of how to operate in an environment where the things that were valued before are valued completely differently today.’ CEO, US
Broaden systemic self-awareness
Understanding the leader’s impact on systems and situations that go well beyond the walls of the company is central to building that leader’s ability to navigate unfamiliar contexts. Through it, leaders learn to see themselves and their companies as actors in a broader ecosystem that surrounds a problem or opportunity. The key question leaders need to ponder to develop this sense-ability is: ‘What could be the systemic consequences should I choose to take a particular course of action?’
‘The degrees of freedom you have to control the variables that determine the business are less. Your direct influence on those variables is also much less. Increasingly, business is being done, not in terms of hierarchical structure, but more in terms of circles.’ CEO, India
These sense-abilities enable leaders to make sense of what is going on in an increasingly unfamiliar and unpredictable business world, and invoke the appropriate set of resources and capabilities to take collective action to achieve the desired outcome.
The insights from the CEO study reveal challenges facing leaders have changed in material and less familiar ways. They are less predictable and knowledge is less reliable. Given the nature of these challenges, it is imperative that the way leaders develop and prepare for this interdependent world, also undergoes fundamental reform. Preparation to lead when less is predictable, familiar and reliable, requires more than just new knowledge; a change in how we think, act and interact is vital.
Tony O’Driscoll is Global Head of Strategic Leadership Solutions at Duke Corporate Education.
Jared Bleak is an educator in Duke Corporate Education’s Global Educator Network.
An adapted version of this article appeared on the Dialogue Review website.