An article from The Economist Intelligence Unit Empathy helps German leaders overcome legacy structures The organisational impact of digital disruption makes cross-functional understanding a crucial leadership skill. Digital transformation has been high on Germany s national economic agenda since at least 2011, when the government launched its Industrie 4.0 initiative to revolutionise the country s celebrated manufacturing base. It is unsurprising, then, that German businesses are familiar with disruption. In an Economist Intelligence Unit survey of executives and managers in Western Europe, German respondents are the most likely to have experienced extreme or significant digital disruption in the past three years. And they are also most likely to expect such disruption in the next three years. Thankfully, they are well prepared. Nearly seven in every ten German respondents (69%) say their company has responded well. And, on balance, digital disruption has added to the diversity of roles and skills in more respondents companies (55%) than it has eliminated job functions in (52%). Sponsored by Sylvia Neubauer has seen the impact of digital disruption on German industry first hand. She has worked in the airline industry, telecommunications and e-commerce, all heavily affected by the internet, mobile technology and changing customer demand. She is now vice-president for customer experience, data and analytics at BMW. 1
The carmaker was spared the ravages of disruption for longer than some other companies, Ms Neubauer explains. Industries with a high level of competition and a low level of product differentiation felt digital disruption early on. The BMW Group, although in a very competitive environment, has highly emotive products. So the impetus for a transformation came a couple of years later. Today, though, disruption of the car industry is in full swing. Until recently, most car buyers interacted mainly with their dealers and their service departments. But digital channels, including the web, mobile, and, increasingly, the cars themselves, put manufacturers in direct contact with their customers. Meanwhile, digital transport services, such as ride sharing apps, are changing attitudes towards car ownership. We no longer focus on one single product, such as car ownership. Digitalisation allows us to position, bundle and market [our services] to the right customer at the right time via the right channels, says Ms Neubauer. The industry is therefore moving from one in which a single experience fits all to one defined by mass customisation. In the future, Ms Neubauer says, a customer driving long distance on the autobahn may want a short-term power upgrade for their hybrid or electric car to get them to their destination. Disrupted priorities Industry shifts such as these force organisations to evolve. It requires them to assess their priorities: among German survey respondents, digital disruption has led companies to prioritise improving their technical infrastructure (41%), boosting their customer experience (36%) and expanding into new markets (36%, see chart one). And it requires them to rethink the way in which they work. In many cases, that means working across traditional organisational silos, as digital innovation requires cross-functional collaboration. Just under three-quarters (74%) of German respondents report that their role is merging with those leaders in other functions due to digital disruption. In order to achieve its vision of car usage in future, BMW has introduced a new organisational structure that encourages collaboration between business units. Clusters of unit leaders and their teams set priorities and work together on delivering new solutions. In a company as well-established as BMW, adapting the existing organisational structure is no mean feat. BMW has been successful for 100 years. While this provides us with a great foundation, it is important to overcome hurdles, such as legacy IT systems or organisational silos, admits Ms Neubauer. To do so, the company has explicitly encouraged greater cross-departmental transparency and understanding. A company-wide culture programme includes training and workshops on openness and appreciation of other areas of the business. Teams now share their own targets and scorecards with colleagues to 2
Chart one: Which of the following priorities and objectives have become more important to your company in the past three years as a result of digital disruption? % of German respondents Improving our technical infrastructure 41% Improving the customer experience 36% Expanding into new markets 36% Market share growth 32% Product / service innovation 31% Innovation relating to our internal operations and processes 30% Transforming how we work 29% Cost reduction 27% Restructuring the company 10% Source: The Economist Intelligence Unit encourage collaboration. If you really understand what drives your colleagues, it is easier to understand why they are focused on certain topics, says Ms Neubauer. If we work towards the same goals, it avoids conflicting targets. The company is also using big data and customer feedback to guide change management. Every unit, at every level, can access verbatim customer feedback. Criticism can be painful to hear, admits Ms Neubauer, but is vital to ensure that the focus remains on customer needs. As companies respond to digital disruption, the ability to promote cross-functional understanding and collaboration is emerging as a critical capability for business leaders. When asked which leadership skills are most likely to grow in importance in future, empathy (70%) and transparency (69%) are among the most common answers from German survey respondents (see chart two). These skills outrank more conventional concerns such as change management (61%) and technology strategy (62%). In response to digital disruption, the model of the ideal business leader is evolving along with their organisation. 3
Chart two: How will the following leadership skills change in importance in the next 3 years as a result of digital disruption? % of German respondents who say will become significantly or somewhat more important Ability to motivate staff 80% Data analysis Innovation Empathy Transparency Delegation Managing pressure / stress Internal networking Manage across functions Creativity Communication Technology strategy Programme / portfolio management Change management Building a public profile 73% 72% 70% 69% 69% 68% 67% 66% 65% 64% 62% 62% 61% 57% Source: The Economist Intelligence Unit The path to skills development Happily for German business leaders, they are relatively self-confident when it comes to these emerging leadership skills: 61% are either confident or very confident in their empathy, 66% say the same of their ability to drive transparency. In both cases, this places German respondents ahead of their peers in France and the Netherlands, although the UK leads in transparency. Despite this confidence, the evolving role of business leaders will surely require many to reskill. But German survey respondents are the least likely to believe significantly or extremely that their current role and organisation offers the opportunity to develop the leadership skills required by digital disruption. And although 40% believe that internal training will be the most important source of leadership skills development, nearly as many identify management experience in other departments (38%) and other industries (38%) as being crucial to their professional progression. 4
Nevertheless, they are loyal: just under three-quarters (74%) of German respondents believe it is at least likely that they will take a leadership position within another department of their current organisation, but only 40% say the same of joining a new company, less than in any other country included in the study. This suggests that although they may feel constrained in their current role, German business leaders are relatively happy with the opportunities for development with their current employer. As cross-functional understanding emerges as a vital leadership skill, moving between functions within the same employer may become an increasingly canny career strategy, in Germany as elsewhere. 5