Three Dynamics Shaping Leadership for the Future

Business leadership is at an inflection point. The number and significance of forces bearing down, while perhaps not unprecedented, is certainly unique in recent memory.  The combination of climate change, a global pandemic, and Russia’s invasion of Ukraine has compounded a set of dynamics that have big implications for organizational leadership.

Below, we discuss each dynamic in more detail and the implications they have on how to lead into the future.

Globalization fraying at the edges

Supply chain disruption made headlines throughout the pandemic, and the war in Ukraine has created further disruption. 85% of executives are concerned about supply chain disruption as a result of Russia’s invasion of Ukraine.¹ One of the most immediate examples has been the impact on the European car industry – Volkswagen and BMW were hit by shortages of wiring harnesses manufactured by Leoni, a German company based in Ukraine. As a result, they closed assembly lines.  A less obvious impact has been the constraints on Russian transportation infrastructure – companies building components in China and shipping them by rail through Russia on to Europe are now faced with substantially higher air-freight costs.²

While these effects are stark and will give many companies cause to reconfigure their supply chains to reduce global exposure, a broader trend towards regional and local sourcing and manufacturing strategies was already emerging. The existing effects of the China-US trade war and rising nationalism, as exemplified by the UK’s exit from the European Union, had given executives cause to look at reshoring some operations. In 2020, a survey of analysts from Bank of America Securities who cover more than 3,000 companies (across a range of sectors and regions, with a combined market cap of $22 trillion) found that 80% of companies had implemented or announced plans to shift at least a portion of their supply chains from current locations.  The research noted that the US-China trade war was one driver of this, but that automation had also reduced the benefit of outsourcing and offshoring.³

The effect of climate change on supply chains has been less swift, but no less important. Research by the McKinsey Global Institute notes that “the probability of a hurricane of sufficient intensity to disrupt semiconductor supply chains may grow two to four times by 2040.” The disruption caused by such events could lead to losses of up to 200% of annual profit for suppliers, and the downstream effect on their customers could be as much as a loss of a third of annual revenue.⁴

The fragility of global supply chains is not the only factor at play here.  Covid-era travel restrictions make global business travel more complex.  While the fast growth and adoption of virtual productivity tools like Zoom and Microsoft Teams make connecting face to face with colleagues easier, the ability of global and regional leaders to meet with their teams and create and feel organizational culture has been dealt a blow. Well over half of executives believe that hybrid and remote working has had a negative impact on culture, cohesion within teams, and collaboration across teams/functions.⁵ Organizations will need to rethink leadership and management structures as a result.

Leadership Implications

As organizations adapt their operating models for a less globalized world, leaders will have to lead differently.  This does not, however, mean that a global perspective is less valuable; in fact, it often becomes more important as overly uniform and top-down operating models become less viable.

Leaders must balance new complexities of more regional supply chains, product, and service offerings, which will include cost-structure implications. They will also need to learn how to lead in a more decentralized model.  The ability to create a unifying purpose for the organization will be key. This is more than great branding; it will be a test of their ability to inspire and empower other leaders within the organization, building a strong culture that facilitates purpose-based decisions at all levels of the organization.

“Leaders will need the ability to integrate local and global considerations. Systems thinking will be a competency that differentiates the best leaders and sets them up to manage locally and think globally.”

Aimee Williamson, Sydney

“Commercial success is one thing, but the staying power and grit needed to lead effectively in today’s world comes from an unrelenting focus on purpose. Moreover, no one can truly lead alone. Leaders are becoming less autonomous and need the support of complementary talent. They need to be self-aware of who they need around them.”

Margot McShane, San Francisco

Innovation waves shortening

Innovation cycles have been steadily compressing, unleashing more dramatic peaks of impact on the fortunes of companies and economies.

As we move from the 5th wave (characterized by the internet and digitalization) to the 6th wave of innovation (defined by artificial intelligence, the internet of things and the early emergence of clean tech), organizations are exposed to ever-increasing levels of disruption.

The pandemic acted as an accelerant for many industries and businesses, disrupting products and operating models while driving innovation. Consumer needs and behaviors were upended, requiring businesses to find new ways to get their products and services to customers and, in many cases, dramatically rework or establish entirely new ones.  Often, this involved tech-enabled virtual delivery or consumption – everything from socially distanced deliveries to online fitness classes. Organizations with better data and analytics, as well as learning-oriented cultures, were best positioned to make this pivot and adapt through the various phases of covid restrictions.

While the pandemic demonstrated how fast industries and organizations can adapt when the fire is lit beneath them, responding to climate change demands sustained innovation. This innovation must become a core, scalable organizational competency.  The monumental shifts needed to avert a climate disaster will extend well beyond technology and into every corner of business – from regulation to coopetition to, crucially, incentives. Close to half of CEOs say that they need to personally spend more time building their organization’s innovation capability. Moreover, 6 in 10 say that they need to spend more time working with other leaders in their industry to solve industry-wide problems.⁶

In our current context, the goal of innovation needs to move beyond profit maximization and fending off competitors, to organizational resilience and agility. Organizations that are well-positioned to quickly shift their operating models, products, or services in response to unexpected events are clearly better equipped for long-term survival.

This agility needs to be combined with the focus and resolve to invest long-term in the disruptive innovation needed to tackle climate change.

Leadership Implications

Leaders need to do more than build up relevant technical capability; they need to create the organizational culture and agility that enables innovation. How individuals and organizations respond to failure, and the degree to which they are able to take a test-and-learn approach matters.  The intersection between commercial leaders, functional leaders, and technical leaders becomes key. Underpinned by the right culture, organizations that can build productive partnerships across all three groups will set themselves up for success.

“Executives need to do more than simply recognize the continuous integration of digital technology; they need to understand how to use it for competitive advantage. This goes well beyond individual technical acumen. Whether leaders can create the culture and environment needed to drive innovation or not is the real issue.”

Sean Dineen, Boston

Employee activism

The stakeholder landscape that organizations and their leaders operate in today is not only a prolific one, but also a loud one.  Thanks to social media, stakeholders – particularly those with historically limited levels of power – have a huge ability to amplify their collective voice.

Employees hold an interesting and powerful position in stakeholder capitalism.  The “great resignation” – the increased number of employees that have revaluated their priorities and are now exercising their ability to choose better employment in a pandemic-tightened labor market– and its role in fuelling employee power has been discussed at length. While the pandemic has no doubt acted as an accelerant, tight labor markets have been a feature of many economies for the last decade. In 2015, Gartner analysed 1.6 million job postings from S&P100 companies, finding that 40% of all postings were for just 21 roles, demonstrating converging skill needs across industries.  Gartner’s analysis of the FTSE 100 found the same dynamic.

The issues that employees care about increasingly impact the consumer or organizational brand, meaning that the board, investors, and regulators are paying attention to employee values as they look to manage risk and drive good governance.  Amazon’s 2020 “smiling worker ad blitz”⁷ is a good example of this confluence of employment brand and consumer brand.

Employees are exercising their power and have been for some time across a range of issues. In 2021, Activision Blizzard employees walked off the job to protest what they perceived as a tone-deaf response to a California state lawsuit charging the company with discrimination and harassment of women in the workplace.⁸ In 2018, The Economist reported that, “employees at Google forced the firm to stop providing the Pentagon with AI technology for drone strikes and to drop out of the procurement process for JEDI, a cloud-computing facility for the armed forces. Google depends, perhaps more than any of its peers, on a smallish number of cutting-edge data scientists and software engineers; their views carry weight.”⁹

This activism is not isolated to the highest paid talent or specific industries.  Wayfair, the direct-to-consumer furniture manufacturer, was hit with walkouts by staff over its failure to stop supplying furniture to immigrant holdings facilities in the US.¹⁰ Nor is it always focused and obviously coordinated: struggling to manage the financial ramifications of the pandemic many airlines have been the subject of frequent negative media reports on their treatment of airline staff, including articles on issues ranging from layoffs and terms and conditions to appropriate onboard staff rest facilities on long-haul flights.

More than ever, employees expect their employers to act with integrity and are increasingly motivated and equipped to hold them to account on issues of employee welfare, the environment, and broader social issues. Leaders in the C-suite and board have taken note.  In 2021 and 2022, we asked executives and board leaders which stakeholder groups they believe will have the greatest impact on their organization’s strategy over the next five years. Consumers/customers, employees, and investors made up the top 3 spots, ranking 1st, 2nd and 3rd respectively in both 2021 and 2022. Importantly though, the size of the gap between consumers/customers and employees has fallen substantially. In 2022, 8% fewer respondents picked them as a top stakeholder (falling to 61%), while the proportion of respondents selecting employees as a top stakeholder rose by 10% to 51%.¹¹

Leadership Implications

Authenticity is one of the buzzwords for leadership today, but it misses the mark on what is actually needed from top leaders.  How you show up with employees—as authentic, humble, open, or even all there—is only half the equation. What you do with your employees is what really matters.  Leaders will need to spend much more time with their frontline employees than they traditionally have, and they will need to develop mechanisms for hearing what employees have to say, empowering them to be an engine of innovation and transformation.  Currently close to half of CEOs report that they spend too little time with middle managers and frontline employees.¹²

“We need leaders who are truly able to connect the dots and manage holistically. They must be able to read signals from across the organization and operate outside the confines of traditional hierarchy.”

Filiep Deforche, Brussels

“The atomization of expectations that employees and other stakeholders have is really hard to deal with. Leaders need to have both high levels of empathy and resilience. And they must be willing and able to devote huge amounts of effort to people leadership.”

Shawn Cooper, Toronto

The Future of Leadership

The size and complexity of the forces bearing down on leaders today is staggering.  CEOs in particular are shifting their focus from operating the business to trying to make sense of the environment in which their business exists, with all of the competing priorities and interests that surround them.  The age of the infallible and stoic Captain piloting his ship towards profits (and historically it has almost always been a “he”) is fast coming to an end.  CEOs of tomorrow will mark themselves out not by their individual contributions, but by their ability to build and lead a team of leaders with diverse skills and perspectives. They will have the courage and resilience to engage with the enormity of the challenges that face business today, and will thread the needle between people, planet, and profit.

Author

Tom Handcock leads Russell Reynolds Associates’ Center for Leadership Insight. He is based in London.

Learn more about the authors and The Center for Leadership Insight

References

_{1 2022 Global Leadership Monitor, Russell Reynolds Associates
2 How the War in Ukraine Is Further Disrupting Global Supply Chains (hbr.org)
3 "Tectonic shift" in supply chains already happening (axios.com)
4 Could climate become the weak link in your supply chain? | McKinsey
5 2022 Global Leadership Monitor, Russell Reynolds Associates
6 2022 Global Leadership Monitor, Russell Reynolds Associates
7 Amazon's smiling worker ads are right out of Big Tech's new playbook (fastcompany.com)
8 Welcome to the New Age of Employee Activism (bloomberglaw.com).
9 “What companies are for”, The Economist, August 24th, 2019 (print edition)
10 The Wrong Way to Respond to Employee Activism (hbr.org)
11 2021 Global Leadership Monitor, 2022 Global Leadership Monitor, Russell Reynolds Associates
12 2022 Global Leadership Monitor, Russell Reynolds Associates}