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ARTICLE
LEADERSHIP
The 5 Paradoxes of
Digital Business
Leadership
by Tomas Nielsen and Patrick Meehan

This document is authorized for use only in Professor Chandan Chowdhury's Advance Management Programme of PowerGrid_[EEP] at Indian School of Business (ISB) from Mar 2022 to Apr
2022.
 LEADERSHIP

The 5 Paradoxes of Digital

Business Leadership
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

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2022.
 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 delivering long-term value. In a digital world, transient 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.

COPYRIGHT © 2015 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. 3

This document is authorized for use only in Professor Chandan Chowdhury's Advance Management Programme of PowerGrid_[EEP] at Indian School of Business (ISB) from Mar 2022 to Apr
2022.
 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.

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

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

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This document is authorized for use only in Professor Chandan Chowdhury's Advance Management Programme of PowerGrid_[EEP] at Indian School of Business (ISB) from Mar 2022 to Apr
2022.