The Hunt for Digital Leaders: A Talent Perspective on Navigating the Industrial Internet Transformation

To learn more, listen to our Podcast on Industrial Internet where Susanne Suhonen, Global Knowledge Leader, interviews David Finke, leader of Russell Reynolds’ Technology Sector and Jens-Thomas Pietralla, leader of the firm’s Industrial Sector on their views on senior talent implications.

Executive summary

We conducted more than 40 interviews with top executives from industrial goods companies and used our proprietary psychometric data on traditional and digital leaders to shed light on the industrial internet transformation and its talent implications. Our key findings are as follows:

The industrial internet is becoming a reality

No leader in the industry seriously questions its importance for survival and success.

However, while some still stress the evolutionary dimension of digitally-enabled business, the majority of leaders focus on its disruptive potential for their company's business model.

Good intentions often find it difficult to turn into concrete transformational success in the organization

Some companies prefer ring-fenced "incubator" approaches or "digital testbeds."

While this approach eases the cultural challenges at the beginning, re-integration with the legacy business inevitably becomes the key challenge.

Other companies declare "digital" to be an all-encompassing cultural (and business) change program.

While bolder in its design, this approach has to cope with differences in culture, speed and focus from the very beginning, requiring even more senior executive oversight.

Finding your digital leader is difficult - and one wouldn't be enough anyway

Successful digital leaders need to be "productive disruptors," who question the status quo and can envision a new world defined by software services and take the broader organization with them on this journey.

Digital talent is scarce at senior level and attraction and retention remains a key challenge for all industrial goods companies.

The real challenge will be to assist the larger home population of industrial leadership talent to become "digital migrants" over time.

The peculiar profile of leaders of the Industrial Internet 

Psychometric profile of digital transformation leaders versus industrial executives

Successful digital leaders exhibit psychometric attributes different from those of other senior executives (RRA study Productive Disruptors, 2015).

They have less in common with C-suite colleagues than anyone else in executive management. They are more innovative, bolder and more determined to translate ideas into action.

We compared the psychometric profiles of 178 industrial executives to the one of Productive Disruptors and found that the average industrial leader lacks bench strength on some of the key attributes of productive disruptors.

Industrial leaders are less likely to approach the business in unconventional ways and really push the envelope, and are also less open to taking risks and driving change.

It is important to find ways to identify industrial executives who are more inclined to exhibit some of these traits and benefit from their competencies related to successfully leading through transformation.

In many cases though, industrial companies may need to look outside their own sector to identify their “productive disruptors” to help lead them to the next era.

Five key challenges for the Industrial Internet transformation

Business models need to be reimagined

Traditional battlefields are being redrawn by new competitors

Digital transformation requires a modern organizational culture that cultivates innovation

New talent won’t respond to the old ways of leading people

Software and services will dictate the required speed and agility

Five key challenges and how leaders might overcome them

Business models need to be reimagined

We are moving from a product economy to a service economy all the way to an outcome economy

For the few exceptions who are making significant leaps in this space, there is usually a CTO or CDO in place who acts as a strategic partner and reports directly to the CEO

Traditional battlefields are being redrawn by new competitors

If incumbent leaders do not leverage industrial Internet to their advantage, their businesses will be under threat as products are at great risk of getting commoditized

One way to avoid being overtaken in the fast lane is to see current competitors as future partners.

Companies should open up and work across industries to ensure their survival

Digital transformation requires a modern organizational culture that cultivates innovation

Instead of starting with an overhaul of the legacy company culture, some companies start by creating a separate incubator, where digital talent can ‘be digital’

Other companies take the view that it needs to be an organizational transformation, most successful transformations are those that connect the existing business and intellectual property with new thinking and approaches

New talent won’t respond to the old ways of leading people

Whereas the leaders of the transformation need not necessarily be “digital natives”, hiring from software and technology will accelerate

Integrating employees on teams from two such different cultures can be a huge challenge –it is crucial that leaders can manage two very different types of people

Digital board directors are often key advocates for change, but notably also instrumental in setting and establishing the prerequisites for executing upon a new, more digitally-focused strategy

Software and services will dictate the required speed and agility

As the emphasis is increasingly on data and value-added services, product lifecycles are getting shorter as products are constantly going through updates

Uncluttering the organization and getting organizational structure right is key in order to be able to speed up

Businesses need to have “shared goals, a shared mission, and a ‘tribal’ approach to moving the team towards the same goal”

Key questions to ask to ensure the right talent for digital transformation 

What is my company's current digital IQ?  Evaluate your company's digital IQ and ensure that software and digital capabilities at the top of the organization match the company's ambitions for the future.

Is my organization culturally prepared for digital transformation?
Assess cultural readiness for digitization of the organization and the overall openness for change so you can plan for cultural dimensions that will enable or derail your efforts.

Who are the change agents who are able to lead the transformation?
Identify those executives who can drive digital change forward, execute on the change agenda and secure buy-in from key stakeholders, and adapt strategy to protect market share.

Who has the required digital DNA to take the company forward?
Define your company's digital DNA and ensure that those who understand the opportunities and risks created by technology convergence are defining the new core of the company.

Five key qualities that digital transformation leaders should possess

It is important to ensure an open and innovative culture

Three ways that industrial leaders can inspire and support innovation in their organization

Encourage “fail fast” attitude
Being encouraged, even incentivized to experiment with concept innovation is traditionally thought of as a “start-up approach,” but it is crucial in traditional companies as well.

Re-evaluate compensation and incentives
In order to get the caliber of talent required, legacy industrial goods organizations will need to re-evaluate their compensation structures, to ensure that they are more in line with that offered by software and technology companies, including stock options.

Modernize communication
In order to leverage the young, digital team members, and successfully bring together diverse teams, flattening the communication to suit the younger generation is a key prerequisite.

We recommend the following five elements are implemented for the success of Industrial Internet transformation

Ensure buy-in from the top. The board and CEO need to be in charge of important decisions and changes pertaining to the company’s digital strategy, and they need to communicate their support for these changes throughout the organization.

Identify digital directors. Non-executive leadership is equally important for digital success. Traditional industrial goods businesses should ensure the participation of at least one board member who has a digital background to help build a bridge for the rest of the board.

Transform your company culture. Even with all necessary systems and processes in place, a digital strategy can be thwarted by old attitudes or conflicts between what the organization was and what it aspires to be. Company culture regarding creativity, risk taking and innovation will need to adapt to meet the demands of new types of employees and working styles.

Find your digital leaders. Skilled leaders with digital know-how and vision are the ambassadors of transformation. Identify and assess—through the psychometric measures and benchmarking interviews—who in the organization is best suited to lead and champion change and who is best suited to execute. Empower digital leaders to build new teams and lead change across the entire organization.

Offer the right talent competitive packages. Digital talent is critical, and their options are plenty. Benchmark compensation structures and opportunities for progression against sectors you are competing with to optimize your chances of recruiting and retaining the best talent.

Additional Authors

Susanne Suhonen, Global Knowledge Leader, London

Natasha Treschow, Knowledge Associate, London

With special thanks for their contributions to this paper: Gabriel Czembor, Henry Gabriel and Matti Takala