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Winds of change: The shifting face of leadership in business

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Winds of change: The shifting face of leadership in business is an Audi report, written by The Economist Intelligence Unit. It delves into the attributes that business leaders need, the factors that influence them and how they can lead most effectively.

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Winds of change: The shifting face of leadership in business

  1. 1. An Audi report, written by The Economist Intelligence Unit Winds of change: The shifting face of leadership in business
  2. 2. Foreword Audi’s well known strapline “Vorsprung durch Technik” is roughly translated as ‘progress through technology’. A commitment to the future and the adoption of a more progressive attitude is at the very heart of the Audi DNA. Working with The Economist Intelligence Unit to look at current leadership philosophies and practices gave us a valuable opportunity to see how things have changed and evolved in recent years and more importantly form a picture for the future. CEOs and business managers are an important audience for Audi and we need to stay connected and relevant. The findings in this report show a clear change of direction in leadership attributes and make vital reading for anybody in management. I urge you to read on and I hope you find the information contained in this report as useful as we did. Kristian Dean National Communications Manager Audi UK | Winds of change: The shifting face of leadership in business
  3. 3. Executive summary Organisations need good leadership if they are to thrive. But leaders are having to keep pace with a fluctuating business environment, fuelled by globalisation, technological advances, and increased environmental and social awareness among consumers. This Audi report, written by The Economist Intelligence Unit, examines how the role of modern business leaders is changing and what characteristics they need to ensure that their organisations flourish. Based on a global survey of business executives and in-depth interviews with industry experts, it finds that in addition to many of their traditional skills, business leaders need a number of new capabilities; it is no good relying on what worked in the past. The key findings of this research are listed below. • Business leaders must be able to create and articulate a strategic vision. An overwhelming majority of survey respondents cite strategic vision as one of the top attributes for business leaders, followed by interpersonal skills and passion. Chief executive officers (CEOs) need to understand the opportunities and threats that their market presents so as to plan the way ahead, and they must be able to communicate this plan to employees in a compelling way. • Leaders cannot afford to stand still in today’s fast-moving market. More than nine out of ten executives say that being adaptable and flexible is crucial for business leaders in today’s fast-moving market, while creativity is expected to become increasingly important over the next five years, as is the ability of leaders to learn from mistakes. • Chief executives need to consider their organisations’ social and environmental impact worldwide. Multiple external stakeholders exert significant influence on CEOs, including customers, regulators and institutional investors, respondents say. Experts interviewed for this report highlight the need for leaders to manage their organisations’ reputation under increased public scrutiny. Despite a loss of privacy and potential criticism, the media presents an opportunity to address audiences and get messages across. • Education matters less for CEOs, but there is room for improvement in management training. Almost half of respondents think that strong academic qualifications have decreased in importance over the past five years, and that decline is expected to continue. Yet there is a potentially worrying lack of managerial excellence, with only 27% of executives rating their CEO as exceptionally good. Respondents do not want more leadership from above—indeed, more than two-thirds say that being hands-on is as crucial for leaders as delegating. | Winds of change: The shifting face of leadership in business
  4. 4. About the report Winds of change: The shifting face of leadership in business is an Audi report, written by The Economist Intelligence Unit. It delves into the attributes that business leaders need, the factors that influence them and how they can lead most effectively. To shed light on this topic, 601 business executives were surveyed in October 2014. Of these, 31% are from the Asia- Pacific region, 30% from Europe, 28% from North America, and the remainder from the Middle East, Africa and Latin America. Respondents hail from 18 sectors, with financial services, professional services, healthcare, manufacturing and technology especially prominent in the sample. The respondents are relatively senior—half hold C-suite positions—and they work in organisations of different sizes, with 47% working for companies with an annual turnover of US$500m or more. To complement the survey findings, in-depth interviews with senior executives and industry experts were also conducted. We would like to thank all survey respondents, as well as the following executives (listed alphabetically) for their time and insights. Introduction From small business entrepreneurs to the CEOs of global corporations, business leaders have rarely been under more pressure. They must manage relationships with various stakeholders (including investors, employees, customers), against a background of media scrutiny and high-speed, global communications. Actions can be dissected, decisions questioned and privacy invaded. It is all too easy to become distracted—witness the recent boardroom problems of Tesco, which is being investigated by the Serious Fraud Office for overstating its profits. For the CEO, the penalty of getting it wrong is not just being forced out and losing income, there can also be public disgrace. Nor is it just leaders’ professional lives that become the subject of comment. Tim Cook, Apple’s CEO, who recently confirmed publicly that he is gay, said that the “skin of a rhinoceros” that he had developed “comes in handy when you’re CEO of Apple”. In the face of such challenges, it takes a particular type of person to want the role. So what characteristics does the modern business leader need and how have they changed over the past decade? What advice do those in the job have to offer? • Tal Ben-Shahar, chief learning officer, Potentialife (UK and Israel) • David Henderson, leadership development consultant (US) • Matthias Kröner, CEO, Fidor Bank (Germany) • Vinod Kumar, managing director and CEO, Tata Communications (India) • Anne Lim O’Brien, vice-chairman, CEO and board practice, Heidrick & Struggles (US) • Vin Murria, CEO, Advanced Computer Software (UK) The report was written by Jane Bird and edited by Zoe Tabary of The Economist Intelligence Unit. | Winds of change: The shifting face of leadership in business
  5. 5. I. The essential skills of business leaders The success of an organisation depends on every employee understanding what he or she is trying to achieve, according to experts interviewed for this report. To create this strategic vision is one of the key tasks for business leaders. Rather than spelling out the precise steps that need to be taken for a particular vision to be achieved, it lets people understand what they should be aiming for. The CEO of Amazon, Jeff Bezos, spelled this out when founding the company in 1995: “Our vision is to be the world’s most consumer-centric company, where customers can come to find anything they want to buy online.” Our survey finds that strategic vision is by far seen as the most important attribute for business leaders, selected by 77% of respondents. What do you think are the most important attributes in a business leader today? Select up to three. Source: The Economist Intelligence Unit. It is about understanding the market you are in and deciding where you want to take the business, says Vin Murria, CEO of London-based Advanced Computer Software and partner at Elderstreet, a venture capital company. She looks for this ability in a company leader when deciding whether to invest. Achieving strategic vision requires a combination of analytical skills and gut feeling, adds Matthias Kröner, CEO of Germany-based Fidor Bank. Leaders, however, also need to communicate a vision to inspire their teams. Survey respondents recognise this, with interpersonal skills and passion rounding up the top three attributes. “You can have the most well-thought-out strategy and a great financial plan”, says Vinod Kumar, managing director and CEO of Tata Communications, “but unless everyone understands your purpose, direction, stakeholders and how best to serve them, it will fail. Once you get this alignment, people step up to the challenge.” In addition to being passionate, CEOs must be “humble, and good at learning and listening” says Tal Ben-Shahar, chief learning officer at Potentialife, a leadership development consultancy. “Leaders are largely responsible for whether people choose to work for an organisation.” Survey respondents echo this view. Some 71% agree or strongly agree that for business leaders, personality plays an even bigger role than for many other positions. Having said that, there is no “right” personality type for being a great leader, comments Mr Ben-Shahar. “Some talented employees will be attracted to a patient and attentive leader, whereas others with equal talent will want to work for someone who is no-nonsense and gets things done quickly.” Strategic vision Diligence Strong academic degree or qualification (e.g. MBA) Other Don’t know 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% “You can have the most well- thought-out strategy and a great financial plan but unless everyone understands your purpose, direction, stakeholders and how best to serve them, it will fail. ” Vinod Kumar, managing director and CEO, Tata Communications | Winds of change: The shifting face of leadership in business Interpersonal skills Passion Leadership experience Ability to accept failure/learn from mistakes Technical expertise (i.e. knowledge of the business) An open and engaging manner Creativity High appetite for risk
  6. 6. Adaptability and creativity Two and a half millennia have elapsed since Heraclitus, the Greek philosopher, said that the only constant is change. Yet never has this been more true and relevant to the business world than it is today, believes Mr Ben-Shahar. “In the past, change was gradual, glacial; today, it is fast and furious.” Change in the form of technological advance has been the most influential factor in shaping business leaders’ profile in the past five years, according to survey respondents. Next-generation CEOs need to be digital natives, which might require reverse mentoring by younger people, explains Anne Lim O’Brien, vice-chairman of Heidrick Struggles, an executive search firm. “In the past decade we have entered a world where many digitally savvy younger millennials move a lot faster than the generation before them.” Please indicate whether you agree or disagree with the following statement. (where 1=strongly agree and 5=strongly disagree) Source: The Economist Intelligence Unit. Whatever their age, business leaders need to be creative, adaptable and innovative. This is reflected in the 92% of survey respondents who think that being able to adapt quickly and be flexible in their work is crucial for business leaders today. In the past, a particular set of skills could last you a lifetime, Mr Ben-Shahar says. “Today no leader or organisation can remain stagnant and thrive.” Creativity is second only to strategic vision in the survey when it comes to attributes that have become more important in the past five years, cited by 57% of respondents. What leaders do need is a willingness to look for new customers, says Chicago-based David Henderson, a leadership development consultant. “You cannot keep returning to the same customers. We are programmed continually to try to confirm rather than disconfirm our prevailing thoughts.” Moreover, business leaders must learn from their mistakes. This has become more important during the past five years, say 42% of respondents. Failure is inevitable, says Mr Ben-Shahar: “The question is not if you will fail, but what you learn from it and how you recover.” Being able to adapt quickly and be flexible in their work is crucial for business leaders today 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% “Today no leader or organisation can remain stagnant and thrive. ” Tal Ben-Shahar, chief learning officer, Potentialife STRONGLY AGREE 1 STRONGLY DISAGREE 52 3 4 | Winds of change: The shifting face of leadership in business
  7. 7. Gender and leadership Most respondents do not believe that gender affects a person’s suitability to be CEO. Women and men are roughly equally represented at work from the post-university stage to middle management, says Mr Ben-Shahar, but the higher levels tend to be less than 10% female. “While most legal barriers have gone, there are still some deep-rooted, often subconscious, biases. While a male leader might be evaluated as focused and hardworking, a female leader with the same behaviours is more likely to be seen as myopic or insensitive.” Ms Murria says that she is seeing more female entrepreneurs, particularly in technology, but the main problem is that they lack confidence. The answer to this is “faking it”, just as men do, she argues. “If you stand up and speak, providing you are saying sensible things and not getting overwrought, people will listen.” II. Managing multiple stakeholders Business leaders agree that managing stakeholders–from investors, partners, employees and customers to society at large–is one of their biggest challenges. Moreover, the pressures from these various groups are intensifying, says Mr Kumar. “You have got to be able to put yourself in the shoes of different types of people and keep your ‘game face’ on while moving seamlessly from a customer crisis to an investor meeting or a lunch with the regulator.” Having a good relationship with stakeholders is essential because they influence each other, he adds. Mr Kröner sees maintaining the confidence of investors, employees and customers as crucial. “Without shareholders I would not have the money to run the company, without employees there would be nobody to do it, and of course we need people to buy our products to survive. So you have to work hard to win the trust of all stakeholders.” Leaders today should focus more on viewing society as a whole as their stakeholder, points out Mr Henderson. That they are indeed doing so is evident in their increasing use of the phrase “service-oriented” when talking about their company, he says. “Leaders need to be able to generate value for the owner of a business while managing the complexity of its impact on society and anticipating how anybody might be affected by it.” [Case Study]: Creating a legacy Vin Murria, CEO, Advanced Computer Software Vin Murria knows a thing or two about being the boss, she has done it three times. She served her apprenticeship with the founder of Kewill Systems, a technology company that she joined at the age of 22, when it had a value of £2m (US$3m). When she left 15 years later, as COO, its market capitalisation had soared to £1.2bn. CEO jobs for women at that time were hard to find, so her next step, in September 2002, was to buy into a shell company (a company without active business operations), whose market capitalisation at the time was £2m. Within five years she had built it up to be worth £500m, at which point her co-investors, who owned 37% of the company, wanted their share of the money. Forced to sell, she was determined that at her third company, Advanced Computer Software (ACS), no single shareholder could dictate when to exit, so she chose four institutional investors who were long-term players. “I have often been told that I have an energy, enthusiasm and passion for business that people do not see elsewhere,” says Ms Murria. “That is because I consider the business to be mine, so I do things that grow and enhance it and attract the right people.” It is about creating a legacy, adds Ms Murria, who only recently began drawing a salary at ACS, and has donated much of her money over the years to educating children in India, where she is from. “The satisfaction is building something for the long term, something you can look back on and say ‘I created that with my team’.” CEOs who have been brought in from outside don’t necessarily think like founders, she believes. “They tend to operate more like employees, rather than the job being a key part of their story. They might stay for a few years and then move on.” Ms Murria identifies leadership, strategic vision and the ability to communicate as the most important skills for a CEO. “You need to bring people together, understand where you want to go, and make it look sensible and exciting so that people want to buy into it.” “You have to work hard to win the trust of all stakeholders. ” Matthias Kröner, CEO, Fidor Bank | Winds of change: The shifting face of leadership in business
  8. 8. Constant scrutiny After technology, increased public exposure is cited as the most influential factor in shaping business leaders’ profile in the past five years. Once you are appointed CEO of a large corporation, your life is no longer yours, says Ms O’Brien. “The best candidates are those who really want to become CEOs, because their lives become public. The media is constantly looking for storylines, how much you are paid, personal relationships—everything is disclosed.” Which of the following factors, if any, would you say have been most influential in the past five years in shaping business leaders’ profile in your country? Select up to two. Source: The Economist Intelligence Unit. Mr Ben-Shahar points out that constant public scrutiny of CEOs, particularly those working for public companies, can cause them to take short-term decisions rather than do the right thing for the long term. “This is one reason why some make terrible mistakes and others choose not to take the job,” he says. However, digital media provides entrepreneurs with an opportunity to project their charisma to “all corners of the planet at any time of day”, says Mr Kröner. “As in politics, if you cannot seize this opportunity you will lose lots of potential momentum.” Motivators How far does financial reward compensate for the stress of being constantly exposed to public surveillance, or are leaders driven by other factors? When asked about business leaders’ main motivations, respondents point to the ability to create something new and innovative (selected by nearly half of respondents), followed by earning a high income (45%). No amount of money makes up for how much the job of being a CEO can tire you out, says Mr Kumar. “To be successful, leaders need to be driven by a desire to create something different, to leave a sustainable and positive legacy—not for the sake of their ego, but for that of their stakeholders, industry or the environment.” Ms Murria believes that entrepreneurs in particular should not be driven only by the desire to get rich quickly, because it does not happen that way. You have to create something that you can be proud of, she adds. “It need not be the biggest, best and brightest company in the world, it might be that you create some opportunities for people who would never otherwise have got them. This will give you the drive and determination to get through the inevitable tough times.” “To be successful, leaders need to be driven by a desire to create something different, to leave a sustainable and positive legacy. ” Vinod Kumar, managing director and CEO, Tata Communications Improved levels of educational attainment Introduction of quotas for the number of women on corporate boards Increased freedom to pursue a wide range of careers Higher income levels Other Don’t know 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% | Winds of change: The shifting face of leadership in business Technological advances (eg the explosion of mobile devices and social media) Increased public exposure for business leaders
  9. 9. The diminished influence of education Having a strong academic record seems less relevant than other factors when it comes to good business leadership. Only 7% of respondents consider having an advanced degree (such as an MBA) to be an essential attribute. However, more than two-thirds (67%) think that education systems should give greater support to future business leaders, which may suggest the need for education systems to offer more practical information on the professional world and better networking opportunities. Mr Kumar sees education as being more important at an earlier stage, and less so as someone’s career progresses. “What matters more is your experience in multiple functions and roles.” Mr Ben-Shahar agrees: “The best form of education for leadership is a mix of reflection and action. If you want to get an MBA, work first.” Mr Kumar joined one company three days after it went bankrupt. “Getting it refinanced was one of my greatest learning experiences,” he says. “You learn much more than when you are working with an open cheque book. Such experiences usually mean that people have been able to survive situations of discomfort and build reflexes that stand them in good stead for the role of CEO.” “The best form of education for leadership is a mix of reflection and action. If you want to get an MBA, work first. ” Tal Ben-Shahar, chief learning officer, Potentialife [Case Study]: Dare to fail Matthias Kröner, CEO, Fidor Bank Inspiring staff to take risks and dare to make mistakes is crucial to the CEO’s role, says Matthias Kröner, head of the first bank in Germany to let customers buy currency online. Mr Kröner wants to create an entrepreneurial spirit in the business, rather than have staff who find reasons not to do things or are focused on the past. “It is no good just standing on the platform, because the train will not stop at your station,” he says. “It will go through at high speed, so if you want to jump on it you better run.” CEOs need to be open to criticism, Mr Kröner adds. “Turning against those who criticise you creates fear, and you do not want people to be afraid of you.” Being respected by employees and shareholders is essential to managerial success and to bringing them with you on the journey, he says. “You are the anchor point, but you have to be open to criticism because nobody can claim that he or she holds the only truth.” Mr Kröner also welcomes criticism from customers, especially on social media and the bank’s website. “The criticism may not always be fair, but it opens up a dialogue and shows that we are transparent. By responding online I can personally and publicly thank people for their comments, apologise, and explain how the problem has been resolved. So every public complaint gives us the chance to show that we care.” Monitoring online comments also helps Mr Kröner create a strategic vision by spotting opportunities and threats to the business. | Winds of change: The shifting face of leadership in business
  10. 10. III. Leading effectively An overwhelming majority of executives (94%) think that their company’s performance is related to managerial excellence. Yet only 26% rate their CEO as exceptionally good. So how do they think leaders could improve? How would you rate your organisation’s chief executive? Source: The Economist Intelligence Unit. Having a more hands-on role within the company attracts significant endorsement, with more than two-thirds (69%) of respondents listing it as equally important as leading from above. Mr Ben-Shahar, however, sees a leader today as more of a facilitator and enabler. “In the past, the CEO usually rose through the ranks, knew about all departments of the company and was there to integrate what everyone else did. Now, knowledge is much more dispersed; it is no longer possible for one person to know it all, or to know enough to keep the business running and thriving.” These days, leaders are more dependent on others in the organisation to take on leadership roles. “It is about having the right people around you and being more of an ‘integrator’ than a ‘knower’,” Mr Ben-Shahar says. Mr Kumar shares his view. “CEOs can draw on those around them who may have better domain knowledge and functional expertise,” he adds. “It is important to avoid surrounding yourself with people who think in exactly the same way as you. You need balancing views to achieve an optimal outcome.” In line with this approach, says Mr Kumar, the management structure at Tata Communications is not the typical hierarchy, but more the shape of an “amoeba” (a cell that has the ability to alter its shape), so as to adapt to external opportunities and threats and be flexible. “It is no longer possible for one person to know it all, or to know enough to keep the business running and thriving. ” Tal Ben-Shahar, chief learning officer, Potentialife Exceptionally good Adequate Neither adequate nor inadequate Inadequate Exceptionally bad Don’t know 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% | Winds of change: The shifting face of leadership in business
  11. 11. Insiders versus outsiders Outsiders can bring fresh ideas, says Ms Murria—but in sectors such as banking, retail and software, the CEO and the whole executive team should have insider experience and domain knowledge. “These markets have many variables, and CEOs who have been in the market for a substantial part of their career will understand the risk points. If the CEO does not have this expertise, you often end up with a battle between those who think they know and those who do not.” Knowledge of the sector and market dynamics also helps CEOs to recruit, because they can easily judge whether people have the necessary characteristics. Not all entrepreneurs and founders make great leaders, believes Ms Murria. “In the technology sector, for example, you tend to find amazing talent and creativity, but not necessarily great management skills.” She cites Google’s Larry Page and Sergey Brin, who brought in Eric Schmidt as CEO. “They were fantastic technologists and created a solid business, but they realised early on that they needed a CEO with management experience.” One requirement that has not changed and is unlikely to do so in the view of Mr Ben-Shahar, is diligence. “Success for CEOs is about getting things done, ensuring that commitments are fulfilled, taking responsibility for outcomes,” he says. He cites Jeff Welch, who became the youngest CEO in General Electric’s history, as an example of a leader who often said much of his job was about being a secretary and reminding his managers to follow things through. “I see a lot of high-tech start-ups with great ideas, they are a dime a dozen,” adds Mr Ben-Shahar. “The distinguishing characteristic of those who make it is how well they can execute—take the brilliance and turn it into process and a system.” Outside interests are another way to get new ideas, if business leaders can find the time. Many creative people have been multidimensional, says Mr Ben-Shahar, citing Albert Einstein, who wrote about music, geometry, philosophy and politics. “It is important to diversify. As British psychologist Richard Wiseman put it, even taking a different route to work each day can be stimulating — someone who always goes the same way is less likely to be creative.” Finding the right manner In today’s globalised market, CEOs have to show that they have the ability to adapt to different social and cultural environments, says Mr Henderson. “Political leaders do not necessarily set a good example: Barack Obama, the US president, bounces off a plane as if he were going to a football match, which looks arrogant. David Cameron, the UK prime minister, gesticulates too much, he looks like he is always in combat. Adopting a still manner makes you seem impenetrable and powerful—the reigning UK monarch, Queen Elizabeth II, does it superbly.” To Mr Kumar, being “a composed and statesmanlike stereotype” is less important than being authentic, consistent, and maintaining your personal integrity. “Rather than hide your personality you need to marry your personal and professional self.” He also advises CEOs not to take themselves too seriously. “Do not be wedded to your title. I just try to see myself as part of a team helping 9,000 people achieve their personal aspirations. Never expect people to respect you because of your title, or think that they are nodding because they agree. It is easy to fall into a trap of thinking you are always right.” Conclusion In the face of a transforming business environment and rapid technological advances, business leaders have already begun to react. As this research shows, they are implementing flatter management structures, learning to delegate and consulting more with others. Business leaders are acutely aware of the need to address a wide audience, extending beyond the traditional stakeholders to the community at large, and to be digitally savvy. However there is still far to go. Despite being in the media spotlight, some leaders continue to disregard the social consequences of their actions. They need to recognise that it is much easier to lose a good reputation than gain one. Survey respondents acknowledge the growing importance of creating a culture in which people feel free to fail and learn from their mistakes. In the real world, though, many employees are frightened to admit their errors or blow the whistle on those of others. Moreover, while women are generally considered to be as suitable for leadership positions as men, this is not borne out in practice, with women making up less than 10% of boardroom posts. Organisations that fail to give women equal opportunities risk wasting a significant resource and potentially losing it to a more enlightened competitor. With challenges likely to intensify in the years ahead, CEOs need to address their weaknesses and prepare the next generation of leaders. Those that fail to adapt risk being left behind. © 2014 The Economist Intelligence Unit Ltd. All rights reserved. Neither The Economist Intelligence Unit nor its affiliates can accept any responsibility or liability for reliance by any person on this information. “Rather than hide your personality you need to marry your personal and professional self. ” Vinod Kumar, managing director and CEO, Tata Communications | Winds of change: The shifting face of leadership in business

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