Th e va l u e o f h u m a n c a pi ta l in t h e d i g i t a l a g e

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1 Executive Outlook Th e va l u e o f h u m a n c a pi ta l in t h e d i g i t a l a g e By Becky Stein and Drew Lipsher August 2013 Companies that weren t born digital must evolve quickly to compete with the fast and flexible ones that were. To spearhead that change, companies are looking for Chief Digital Officers or similar leaders. While the titles and responsibilities vary, these important new players possess common strengths. Of the 21 research-based leadership characteristics Korn/Ferry has proven to be correlated with higher performance, the following are the most important for digital executives to possess: creating the new and different, communicating effectively, managing diverse relationships, and demonstrating personal flexibility. Digital has evolved from describing a new technology to characterizing a ubiquitous way of doing business. Digital technologies are forcing companies in every industry to rethink the way they communicate with their customers and create products or services to serve their needs. There are two types of companies: those born digital and those becoming digital. Within those organizations, there are two kinds of executives: digital natives, who are accustomed to technology enabling almost every aspect of their lives and communities, and digital immigrants, who learned this technology as they would a second language. Today, the cost of starting a technology, digital media, or Internet company is a fraction of what it was just fifteen years ago. The widely held theory is that it costs roughly one-tenth of what it did in 1998, driven largely by the reduced cost of hardware, the evolution of sophistication and developments in open source software, and trends in outsourcing. This lowered cost structure gives born digital companies a competitive edge. Another advantage inherent to companies that are born digital is the flexible mindset that breeds these new businesses, and is necessary as they grow. Many venture-backed companies evolve into ones with a business model, product, and/or service that is different from the one in which the initial capital was invested. These enterprises have, in venture capital parlance, pivoted. Twitter was a podcast directory called Odeo before it became a microblogging site for millions of people around the world. Fab.com started as a social network before becoming a daily deal design site. In her Wall Street Journal article Pivoting Pays Off for Tech Entrepreneurs, Lizette Chapman quotes venture capitalist 1

2 Tony Conrad from True Ventures. Pivot to me is not a four-letter word, he said. It represents some of the best methodology that the Valley has invented. Starting something, determining it s not working, and then leveraging aspects of [that] technology is extremely powerful. This flexible and adaptable mentality is inherent in leaders of companies born digital, elevating the value of human capital over technology costs. From a leadership perspective, this is where the future is going. Figure 1 The cost to start vs. the value of human capital High $ Human Capital Low But let s face it: the vast majority of companies whose products or services we use on a daily basis were not born digital; they re becoming digital. Those businesses aren t going to sit back and allow new companies using fresh technologies to write their obituary. For example, EMC is a company intent on evolving, evidenced by the way it spends its IT dollars. The percentage of EMC s IT spend on New Capabilities vs. Lights On has gone from 20/80 to 42/58 in fewer than ten years, with the goal of New Capabilities exceeding 50 percent this year. That means more than half of EMC s IT budget will have been spent on new initiatives. How do these companies evolve? A company s successful transformation depends on many variables: the support of the board of directors and CEO, which trickles down to support at every level; the willingness to embrace the discomfort of change; and the organizational ability to move at the necessary speed so as not to fall behind. 2

3 Most companies are hiring someone to spearhead the change and lasso the opportunities. The most common title for these executives is Chief Digital Officer, although new titles are being created with little uniformity as to actual responsibilities. What are consistent, however, are the leadership characteristics crucial to their success. Stewarding a company into the digital era takes unique skills. In addition to creating the future, these leaders must build a bridge to the past. They do not have the luxury of knowing that everyone understands the new customer interaction preferences as they do; they have to bring others along. The set of required skills demands more from these digital leaders, as they must find ways to bridge the expertise and knowledge developed in companies that are born digital with the strategic needs and management and cultural challenges of ones that must go digital. Of the 21 research-based leadership characteristics Korn/Ferry has proven to be correlated with higher performance, the following are the most important for digital executives to possess: Creating the New and Different: Is able to come up with the next great breakthrough thing to do; is creative, a visionary, and can manage innovation; is an effective strategist full of ideas and possibilities; sees multiple futures; has broad interests and knowledge; can both create and bring exciting ideas to market; comfortable speculating about alternative futures without all the data. Understanding the Business: Knows the business and the mission-critical technical and functional skills needed to do the job; understands various types of business propositions and understands how companies operate in general; learns new methods and technologies easily. Making Complex Decisions: Can solve even the toughest and most complex of problems; is skilled at gleaning meaning from whatever data is available; is a quick study of the new and different; adds personal wisdom and experience to come to the best conclusion and solution, given the situation; uses multiple problem-solving tools and techniques. Evaluating and Deploying People Accurately: Reads people accurately; can diagnose strengths, weaknesses, and potential; knows what skills are required to fill a job or role; hires the best. Focusing on Action and Outcomes: Attacks everything with drive and energy, with an eye on the bottom line; is not afraid to initiate action before all the facts are known; drives to finish everything he/she starts. 3

4 Communicating Effectively: Writes and presents effectively; adjusts to fit the audience and the message; strongly gets a message across. Demonstrating Personal Flexibility: Is open to lifelong, continuous personal improvement; is aware of self and impact on others; is responsive to feedback; is very flexible; can act in ways that seem contradictory and is adaptable to demand characteristics of different situations. There will be a time, perhaps in the not too distant future, when having one single person orchestrating the evolution to digital will not be required. Digital won t refer to something different in an organization, but rather will be invisibly woven into every strategy and initiative. But we aren t there yet. Corporations are still largely run by digital immigrants who must find ways to lead their businesses from a purely physical world into a more digital-centric future. The ability to manage antiquated legacy systems and, most damaging, old school mindsets are just some of the key challenges that any executive leading these efforts will face. In today s world, as companies confront an array of difficulties around various concepts of digital, successful problem solving will be driven by agile leaders. These individuals are different from those whom most organizations are used to seeing. They have a set of skills and an approach that is unique to their way of thinking. They are digital natives who understand customer relationships and interactions because they grew up using the products and services. They possess a strong interest in change because they are not bound by traditional models. What they may lack in experience, they make up for in intelligence and passion. There will be a time when digital won t refer to something different in an organization, but rather will be invisibly woven into every strategy and initiative. Likewise, they are communicators and visionaries who harness strong opinions and like debate. They are deep in multiple digital business models and have breadth in distribution (social media, mobile, apps). They are analytically minded and lean toward using data as well as instinct to make decisions and lead. They are part mathematician and part marketer. They are bridge builders across organizational functions. They are used to working in informal cross-functional teams. They don t believe in silos and they roll up their sleeves. They are highly strategic, and voracious consumers of the broad trends across the industry. They are customer-centric. For them, this approach is all about people they drive the strategy, the execution, the vision. 4

5 Becky Stein is a Senior Client Partner in Korn/Ferry s Consumer and Technology Practices. She is based in San Francisco. Andrew Lipsher is a Senior Client Partner in Korn/Ferry s Global Media Practice. He is based in New York. About The Korn/Ferry Institute The Korn/Ferry Institute generates forward-thinking research and view points that illuminate how talent advances business strategy. Since its founding in 2008, the institute has published scores of articles, studies and books that explore global best practices in organizational leadership and human capital development. About Korn/Ferry International Korn/Ferry International is a premier global provider of talent management solutions, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa. The firm delivers solutions and resources that help clients cultivate greatness through the design, building and attraction of their talent. Visit for more information on Korn/Ferry International, and for thought leadership, intellectual property and research The Korn/Ferry Institute