Leadership

The 5
Business Paradoxes
Leadership of Digital
by Tomas Nielsen
and Patrick Meehan
July 02, 2015

“Leadership” has historically

referred to “industrial
leadership” – the managerial
styles and structures that served
industrial firms well for a
century. But the leadership of
digital businesses in the post-
industrial age is fundamentally
different and is defined by five
paradoxes. Understanding them
can help digital leaders identify
and develop the capabilities they
will need to transform the firm
from a traditional to fully digital
enterprise.

To lead this transformation, they must:

1. Radically innovate while optimizing

operations. Operational excellence is a competitive requirement
for any organization, and digital leaders have a key role in
applying new technologies to achieve it. However, at the same
time they must redesign their business models in order to
compete in a digital world.

This requires two broad sets of skills: the ability to focus on what
the firm does today and optimize its current execution, and the
ability – and courage – to challenge the firm’s current model by
answering fundamental questions such as “How will digital
technologies change how we create value for our customers?”
“What is the ‘job’ our customers are tying to do?” and, more
broadly and disruptively, “What business are we really in?”

 2. Compete in sprints while

INSIGHT CENTER
delivering long-term value. In
Growing Digital Business a digital world, transient
New tools and strategies. opportunities arise abruptly and
frequently and must be
exploited as they appear. At the
same time, the ability to deliver agile, instantaneous responses
must be coupled with an ability to build lasting relationships with
customers based, for example, on purchase history and how the
product is used.

As conventional products become increasingly smart and

connected, relationships with customers are becoming ever more
service-based and open ended. Thus, digital leaders must
effectively change the interaction model with customers from the
infrequent and random encounters in the analog world (a store
customer meets a sales rep with no knowledge of prior purchases
or the information collection process) to targeted digital business
“moment exploitations” (an online customer receives
personalized and updated offers or service that take online
interactions, previous purchases, and digital product usage data
into consideration).
3. Integrate external partners while operating as a single
entity. The nature of digital offerings means that the cost of
incorporating external digital innovations, for example off-
premises (cloud-based) digital services, will often be less than
creating and developing these solutions internally. However,
customers seek seamless, integrated offerings that appear to come
from a single provider.

Digital leaders must therefore be able to adeptly integrate (and

disintegrate) both internal and external digital offerings in a way
that presents a single, unified offering to customers. This has
important implications for business design as it relies on the
ability to build and run agile digital-partner networks – a
leadership capability that didn’t exist in the industrial era.

4. Recognize that providing immediate digital value plays a

large role in sales but that more value is delivered over
time. Traditionally, the sale — the exchange of goods for payment
— has been the defining transaction between company and
customer. Though additional products may have been offered
later, the purchase decision was based on the existing product at
the time of sale. Product development typically occurred before
the sale, with a clear line between it and sales. In digital business,
the initial sale is more akin to establishing a platform for long-
term value delivery as digital product characteristics are typically
enhanced and customized over an extended period. Cars, for
example, will increasingly be modified by software upgrades after
sale.

For digital products, there increasingly is no single defining

moment at which the product is exchanged for a price. By nature,
a digital product establishes a long-term relationship with the
customer, during which product characteristics are enhanced and
individually customized, and payment is accordingly modified. In
order to create this open-ended customer relationship, digital
business leaders must be able to articulate the value that drives
the initial transaction – while at the same time supporting the
continuous development model that provides indefinite new
value.

5. Provide technologically enabled offerings while focusing

on value, not technology. Depending on the digital density of an
industry, the amount of technology integrated into its products
may vary. Nevertheless, the blurring of the digital and physical
worlds that defines digitalization will always add a significant
technology component to products.

However, if a product is to succeed with a wider audience, the

integration of technology must be seamless and virtually
invisible, as customers generally do not see technology as a goal
in itself, but seek improvements in what the product can do for
them. Consequently, digital leaders must develop a deep
technology understanding. However they must use this
understanding to create offerings that, while increasing products’
technological complexity, simplify the user experience and
generate increased value.

As the paradoxes illustrate, digital business leadership is a

complex and contradictory undertaking. Senior executives can
address the challenges with partial measures, such as creating the
position of chief digital officer or forming cross-functional and
multidisciplinary digital business teams that include IT
professionals and business peers.

However, executives must resist the temptation to act

precipitously. Instead, they should take a structured approach
and use the paradoxes to define the competencies necessary over
the long term for building digital businesses, and leadership.

TN
Tomas Nielsen is a research director on
 Gartner’s digital business research team.

PM
Patrick Meehan is a research director on
Gartner’s digital business research team.

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