Leading The Capability Revolution

These are revolutionary times, we believe, and our established notions of leadership, many of which are more romantic than functional, must change too in this brave new world if our organizations are to continue to be effective. Existing bureaucratic models of business, organization and leadership, all of which have served us extremely well for the better part of modern history, will become progressively ineffective and unfit for purpose. This article considers the legacy of established leadership models, characterised by the importance attached to the heroic few to secure success. It considers further the leadership requirements of organizations seeking to develop organizational capabilities fit for purpose for the post-bureaucratic future.

Teach an MBA class and you soon learn, no matter what the background or career aspiration of the student, they are champing at the bit to lead. They become frustrated quickly by what they perceive as a lack of opportunity offered by employers to exert influence and instigate change. Managers too, blanche at the prospect of being labelled a follower, but are sufficiently worldly to realize there is a pecking order and careers for the most part means getting in line and climbing the greasy pole before being able to exercise formal authority and thereby effect change. In contrast, the senior executives with whom I work – those who have made it to the top of the hierarchy and enjoy the greatest influence over change – admit in candid moments that their world is becoming increasingly lonely, with all eyes being on them to provide clarity of direction in an increasingly complex, turbulent and uncertain environment. They would like more bottom-up contribution to decision-making, and are exasperated by the inability of their workforces to ‘level up’.

The hierarchical gap between the bottom and the top of our organizations was once an essential feature of effective organization. However, political, economic, social and technological change within the operating environment is transforming our organizations and the capabilities they require for success, including the ways in which they are led. Technological innovations especially are levelling the competitive playing field between firms. Efficiencies alone will not nearly be enough to secure success in future.

The onus is upon firms to set themselves apart strategically from their competitors by developing distinctive organizational capabilities. These developments have far-reaching implications for how we think of leadership as a resource through which organizational capabilities are created and sustained. Traditionally, managers and leaders have been seen as different, with the former being responsible for implementation and the latter being responsible for initiating change. However, in the rapidly changing and complex operating environment of most organizations, the lines between management and leadership are becoming increasingly blurred.

These are revolutionary times, we believe, and our established notions of leadership, many of which are more romantic than functional, must change too in this brave new world if our organizations are to continue to be effective. This article considers the legacy of past leadership models, characterised by the importance attached to the heroic few to secure success. It considers further the requirements of organizations seeking to develop organizational capabilities fit for purpose for future opportunities and challenges, and the various ways in which they will be led for effectiveness.

Bureaucracy and Heroic Leadership

In the context of the industrial age, the introduction of bureaucratic principles of work organization was a completely radical innovation. Credit is given to Maximilian Weber (1864 – 1920), the German sociologist, for identifying the principles of the ideal type bureaucratic organization. Enabled by new technologies, Weber observed a trend within industrializing societies towards forms of modernist organization that were typically rational in design and formal in governance. Such innovations, whilst radical at the time, are commonplace today, including employing staff in an official capacity; paying staff for sustained employment and providing a career structure; building hierarchies of authority tied to size of role and responsibility; and task specialization and the division of labour. We unfairly associate bureaucracy with inefficiency today. On the contrary, the primary goal was to generate surplus value through economies of scale – size is a virtue and efficiency was the organizational outcome of greatest strategic value. Change was resisted, because any deviation from the formal plan was inefficiency. The order of the day was routinization, consistency and standardization, in the interests of high levels of predictability – the ability to match predictable demand with predictable supply as much as possible.

The nature of leadership changed in step with these developments in organization. Weber observed that established patterns of charismatic authority, the right to obedience based on personality, and traditional authority, the right to obedience based upon ritual, such as that enjoyed by the aristocracy, were being supplanted by what he termed rational-legal authority – the right to obedience based upon rules. Rules determined primarily on the basis of rational, impersonal and objective choice. In the language of Weber, rationality is a function of determining the best ‘formal’ means for achieving the best ‘substantive’ ends in any given situation. Strategy, in this sense, was the domain of the very few, located always at the top of the lofty heights of the organizational hierarchy. Endowed with superior cognitive abilities, and unparalleled information upon which to base decisions, the leader (historically often only one) notionally commands the organizational structure in which the many serve as if it, and they, are a physical extension of his (historically nearly always male) body.

Stereotypically, this vision of leadership is best envisaged as the great man of history, standing atop a metaphorical hill, surveying all before him and using superior strategy and tactics to marshal resources to defeat the enemy, whether they be the British at Waterloo or General Motors in Detroit. The leader is often mercurial and beyond reach, removed from the action itself and in possession of vital qualities, including charisma. The traits that make them what they are, it has been assumed for the majority of our history, are rare and innate. Leaders are born and not made, and will always rise to the top whatever their circumstances. Like elite athletes, only the lucky few are is possession of such qualities that will propel them to success and they are therefore immeasurably precious. For the rest of us, the vast majority, our destiny is to follow such great men. Indeed, my MBA students should pause for thought – it is no coincidence that the first MBA was offered by the Wharton School at the University of Pennsylvania, to train administrative officers to serve the burgeoning bureaucratic needs of the American industrial revolution, hence the name ‘Masters of Business Administration’.

But bureaucracy has become largely a negative term in the modern corporate context. The reality perceived generally is quite the opposite of the highly efficient ideal type bureaucratic organization envisaged by advocates. Bureaucracy today is associated with a number of organizational dysfunctions, including inflexibility, the displacement of goals due to an overemphasis on means, slowness to change and inefficiency. Inertia ensures the continued dominance of bureaucracy as the primary logic within contemporary organizational design. Indeed, many facets of bureaucratic organization and leadership retain perfectly valid currency today. The focus on efficiency is as important as ever.

However, the dysfunctions we attribute to bureaucracy, which give it a bad name, are becoming more commonplace and not less despite sophisticated procedural techniques, technologies and management practices. Perhaps success going forward isn’t about doing the same just better – often associated with bureaucratic intensification, but by doing something fundamentally different. Perhaps it is time for a change.

Post-bureaucracy and Network Leadership
Influential commentators proclaim that new technologies – information technologies in particular – are transforming contemporary work organization on a scale comparable with the explosive and radical introduction of the bureaucracy as a model of organization. We are at another tipping point in political, social and economic organization, but this time the trend is away from bureaucratic organization which was fit for the industrial age in Western society to a new emerging form of organization better fit for the imminent information age. Referred to by numerous terms – the network based organization, organic organization¹, cloud organization, ‘polymorphic organization’², and many others – the ‘post-bureaucratic organization’, as it is referred to here, is characteristically an informal network, in which empowered and autonomous agents are connected relationally, aligned behind a common task, and in possession of abundant knowledge which is widely dispersed³. The outcome of greatest organizational value is innovation, and flexibility is a prized capability to permit responsiveness to change within the increasingly turbulent operating environment.

Leadership within the ideal type network organization is highly distributed between all of the nodes and relational connections that make the organization a socially viable and coherent entity. Nevertheless, alignment behind a common purpose is critical, but is secured through cultural and social values, and not structures, as is the case in bureaucratic organization. The development of trust is a key element of effective organization, made all the more difficult potentially by the presence of multiple competing interests (and incentives), wide structural separation and fuzzy boundaries between previously distinct stakeholders e.g. customer, partners, suppliers and competitors. Nevertheless, competence and not formal authority is the key means through which influence is secured, and competence is public knowledge to enable self-managed and spontaneous connectivity between high value talent. Status in the hierarchical sense means little within the post-bureaucratic organization, and action the result of dialogue and trust, and not overtly formal planning, policies or procedures.

Within this emerging pattern of organization, the leadership focus is less on what leaders are, their traits, but on what they do – their functionality⁴. Leaders fulfil a number of roles potentially within the post-bureaucratic network organization, akin to a blend of both classical managerial roles – implementation focussed – and leadership roles – change focussed. Moreover, leaders are in possession of key skills associated with role flexibility and resilience, including basic skills, such as professional knowledge, and meta-abilities, including creativity and the ability to handle disturbance⁵. Crucially, both roles and the skills necessary to perform them effectively can be developed through purposeful measures. Contrary to the assumptions of the past, leaders can be made. Everybody has the capacity to lead, and not just the lucky few that are born with the requisite traits, or the ritualistic authority that is conferred by virtue of birth into the ‘right’ family.

Does post-bureaucracy signal the death of the bureaucracy? Is the post-bureaucratic network model of organization the irrevocable and inevitable future for us all?

Future Capable Organization and Essential Varieties of Leadership
As compelling and progressive as it sounds, the answer is no. The reality of future organization is not so simple as either bureaucratic or post-bureaucratic organization by design. To compete and to flourish in future, all organizations will need to be a hybrid of the best of both, albeit to varying degrees dependent upon circumstance. For instance, irrespective of sector, organizations will need to be efficient as well as innovative; effective at enacting planned strategies whilst versatile to capture the benefits of emergent opportunities. By degree, organizations will be simultaneously both formal and informal; specialist and generalist in skill and scope; controlled and delegated; entrepreneurial and collaborative; highly integrated but with flexible specialisation built in. In short, they will be an order of magnitude more capable than current or past organizations. They will be an order of magnitude more complicated too, especially in terms of the challenge of overcoming the complex trade offs and contradictions that are part and parcel of complex organization. Effective leadership will matter more than ever, but what does effective look like?

It depends, of course, and supreme organizational leadership is required to exercise effective judgment over these critical strategic and organizational decisions. The shape and make-up of individual organizations will be determined appropriately by their individual circumstances – their environment, their strategies, structures and cultures. Significantly, it is argued here that organizational structures, people, processes and systems, will be increasingly configured around core capabilities necessary to secure sustained competitiveness through distinctive advantage. Research by the author indicates four broad configurations of organizational capability required for success in the post-bureaucratic age. Leadership is one of a number of critical resources through which core organizational capabilities are generated and sustained. Each capability requires a different variety of leadership resource, meaning there is no ‘one size fits all’ definition of effective leadership upon which our organizations are built.

Leading Execution: The first mode of organizational capability, execution capability, represents a continuation of the efficiency imperative and most closely resembles the bureaucratic ideal. Organizations that conform to this type continue to rely primarily upon their ability to execute planned strategy as efficiently as possible and, in doing so, match as much as possible predicted demand with predictable supply. Surplus value is created by maximising economies of scale through core product market penetration and expansion. Leadership remains predominantly traditional in nature, with the ability to effect meaningful strategic change residing largely at the top. The focus for the majority, up and down the management hierarchy, is implementation. Change is a necessary evil, and managed carefully to ensure minimal disruption to the established routines through which productivity is maximised. Thus, essential managerial qualities include error reducing behaviours, close co-operation, continuous improvement and risk management.

For the vast majority of blue chip organizations, execution capability rema-ins the appropriate (fit for purpose) core capability required to support strategic priorities and commoditised product led business models. Notable examples of organizations that excel at execution include many familiar household names, such as McDonalds. For decades, McDonalds has led in the highly competitive and cost-sensitive global fast food retail market. Product innovation is itself limited, necessarily, to capitalise fully upon efficiencies and opportunities for scale offered by standardisation and routinization of production and supply. Where new products are introduced, from the perspective of organizational capabilities, they remain simple and standard in offering, not requiring the development of high levels of integration or adaptation organizational capability. A salad is no different from a cheeseburger in respect of the organizational capabilities required to produce it. However, as a separate product, it offers up a new potential channel to market for the firm that can be exploited using existing organizational resources, including talent.

Competing on the basis of efficiency is an increasingly tough beat for many firms as competitors become smarter at acquiring and implementing technologies that perpetually level the playing field. Customers too are demanding more than ever, wanting more and more for their money. For many organizations, the challenge (or opportunity if one is optimistic) of the post-bureaucratic age is the urgent need to transform to acquire additional organizational capabilities to offer customers and markets distinctive (a) integration of existing products and services, or (b) adaptation (typically through customization) of new products and services, or (c) both⁶.

Leading Integration: Where execution capability is structurally made possible through vertical integration, integration capability embraces horizontal integration to connect dissimilar skills, knowledge, technologies and resources. The result is to offer to markets and customer a breadth of product and service variety representative of emerging customer and demographic preference. More importantly from the perspective of competitive differentiation, integrating diverse resources horizontally permits the development of inimitable customer propositions not easily emulated by competitors. Innovations too can emerge through the bundling of previously stand along products and services.

Build Your Dreams (BYD), the Shenzhen based conglomerate in the People’s Republic of China, is doing exciting things by forging horizontal connections between its core businesses in the automotive, mobile battery and solar / electronics markets⁷. In 2008, BYD received a boost to its finances and credibility, most importantly, by the purchase of a ten per cent stake by Berkshire Hathaway. The firm’s ambition is to develop a range of highly innovative electric cars. This is made possible by integrating knowledge, shared learning and technologies across the group’s automotive, battery and electronic operations. Such horizontal integration paves the way for the development of unique offerings to market, which competitors find hard to mimic because they either lack the requisite variety of resources or the capability to integrate those resources as part of a coherent and functional portfolio. To date, BYD has not fully capitalised upon its opportunity, due to the managerial challenges associated with portfolio integration⁸. From the perspective of organizational capability development, this merely highlights the barriers to entry of such a strategy and the potential rewards for those that overcome them.

Project working is a crucial feature of integration capable organization, as is the ability to promote high levels of formal and informal connectivity across the organization. Firms invest heavily in developing high levels of social capital – intra-firm networks and relationships – through which new and novel connections are made. Conducive leadership behaviours are required too. Boundary spanners are highly prized, having the ability to straddle the boundaries of multiple disciplines and bring together disparate resources from across the organization. Such boundary spanners, as leaders promoting change within the organization irrespective of level, bring together ‘meshable’ specialist knowledge. However, the organization continues to offer standardised products, flexibility being confined to the linkages and connections themselves as firms attempt to commoditise new and novel bundled products ahead of the competition.

Leading Adaptation: Another path to distinctiveness is to emphasise adaptation as their core organization capability. Adaptation capability firms excel at manoeuvring quickly to respond to new or variable demand within the market. Moreover, they are highly exploratory, seeking new opportunities on a continuous basis and capitalising upon first mover advantage. Equally, adaptation capability allows firms to compete by developing unique propositions for market that command premium returns. For example, adaptation capability permits the offering of highly customised products and services, tailored to the specific preferences of customers and clients. Flexible specialisation is a hallmark of adaptation capable firms, and the ability to entrepreneurially seek out opportunities for new and / or differentiated offerings. Unlike integration capable firms, adaptation capability requires relative independence of strategic business units and teams to develop new routines and approaches to market. Leadership is of the entrepreneurial variety, with key talent exhibiting a high threshold for uncertainty, instability and ambiguity. Collaboration is not the name of the game, but rather agility to maximise opportunity quickly to commoditise distinctive advantage.

Leading Innovation: The final category, innovation capability, represents the most sophisticated model of organization from the perspective of capability development and resonates most closely with the post-bureaucratic ideal. This model of organization, conceptually at least, offers the capability to be both integrated and adaptive simultaneously. Through this, breakthrough innovations are made possible, as leaders draw fully upon diverse knowledge resources across their organization’s internal and external network, and further focus those resources swiftly on singular opportunities, balancing short-term demands with long term growth and strategic renewal. Rich in knowledge, and highly connected, leaders within the innovation capable organization are also highly entrepreneurial.

Such spontaneous connectivity and enterprise is made possible by highly delegated autonomy throughout the network structure of the organization. Formal authority is limited necessarily by the absence of hierarchies. Rather, influence is personal in nature, and not role or rule bound. A key leadership quality is the ability to nourish and sustain network connections and exert interpersonal influence akin to effects of charisma⁹. The ability to command a solid evidence base too, and the value of analytics therefore, is essential. Decision-making is necessarily collective and consensual, and performance management a peer-to-peer process of evaluation more than a bureaucratic intervention imposed from the corporate centre. In this sense, transformational leadership is a key resource upon which innovation capable organizations draw for effectiveness.

The innovation capable organization resides at the heart of an eco-system, from which new knowledge is drawn from partners, customers and institutions, as well as diverse capability which, when capitalised in novel ways, confers enduring strategic advantage upon the ‘commissioning’ organization. Within the commissioning organisation, therefore, the ability of key talent to manage multiple stakeholders, residing in multiple networks, with potentially multiple distinct interests, is a key feature of the brokering role of leadership. Securing alignment beyond structural means is a key challenge to overcome within the eco-system. But if overcome, through the possession of superior leadership resources, it is also a critical differentiator strategically, allowing the firm to enjoy sustained performance that others simply cannot match.

Figure 1 illustrates the additive nature of organizational capability, with innovation capability being a function of combined execution, integration and adaptation capabilities, through which eco-systems can be fully mined for their innovation potential.

Insights gleaned through research, teaching and consulting on behalf of aspirational innovation capable firms reveals common attributes in the transformational leadership they seek to develop as an organizational resource. They invest heavily in the quality of their human capital to develop abilities to¹⁰:

• Navigate complex scenarios and thrive on uncertainty and paradox
• Exhibit thought leadership, intellectual authority and creativity
• Inspire and mobilize change through personal influence
• Create the right environment for the best contribution of others
• Emphasize humility and the value of ‘other’ in securing success
• Craft a compelling and widely accessible vision of a future state
• Practice responsible entrepreneurshipIn turn, such ‘transformational talent’ demand the following from their employer(s):

• Freedom to create, make mistakes and learn
• An unambiguous remit to drive transformation
• A collaborative leadership ethos and access to diverse talent
• Clarity about the opportunity and potential for their contribution
• The opportunity to leave a positive and sustainable foot print
• Significant learning and development opportunities
• Stimulation and challenge, intellectually and emotionallyThere are few definitive examples of organizations that have developed innovation capability on a sustained basis, by the standards set our here of being simultaneously highly integrated and highly adaptive. Nevertheless, it is the direction of travel for many organizations with which I work, as they seek to transform the basis upon which they compete, and where they compete, by acquiring new or additional organizational capabilities for enhanced integration, customization or innovation. Much that we now consider major change, or business transformation to use another term, is intended to support new ways in which firms seek to compete through the development of distinctive and hard to emulate organizational capabilities. A change in capability paradigm, as part of the strategic renewal of the firm, has massive implications for every aspect of the organization and its design, including its resources, such as talent, and  the systems, processes and structures through which those resources are best managed.

The Children of the Revolution
We live in interesting times. Ours is the generation working on the cusp of the information age revolution. Existing models of business, organization and leadership, all of which have served us extremely well for the better part of modern history, will become progressively ineffective and unfit for purpose. It falls to all of us, not just the wise few at the top, to exercise stewardship over the complex and challenging transformation process already underway. Change represents risk, but the greater risk to on-going and sustainable organizational effectiveness is a failure to overcome the challenges of the impending information age, or to fail to embrace fully the opportunities to reform for the better how we organize work, define value and seek to crate opportunity. The implications of the transformations addressed here are profound both organizationally and personally. As organizations, we need to urgently develop strategies to:

• Respond to change despite greater uncertainty in the operating environment
• Move beyond ‘bureaucratic intensification’ to secure sustainable advantage
• Negate the cult of the CEO / ‘Great Man’ of history model of leadership
• Promote the leadership contribution of the many and not the few
• Embrace the necessary evil of genuine delegation and empowerment
• Balance global learning with local application to ‘crowd source’ strategically valuable knowledge
• Align talent primarily through values and not structures, including the use of highly leveraged incentives

For individuals, the challenge is to embrace news ways of working in this brave new world. Some axioms for surviving and succeeding in the post-bureaucratic future might include:

• Portfolio working: Business as usual will require performing multiple tasks for multiple masters at the same time. As members of multiple complementary networks, the formal organizational structures through which we work will become increasingly diffuse, and with it structural identity. Rather, identity and purpose will be defined at the individual level of the work experience, which is both liberating and challenging.
• Personal brand: As individuals, our value will be measured in terms of the distinctiveness of our skill / knowledge specialization within our networks, whilst also maintaining relevance through universal application.
Collaborative entrepreneurialism: Organizations will not be collectives per se, but will require individual contribution to collective community well-being and consciousness, which is potentially red in tooth and claw as multiple competing interests and perspectives become reconciled through pro-active dialogue.
• Security through wits alone: There will be little to no long-term structural job security. Project working with fixed horizons will be the norm.Leadership has always mattered, and it always will. But through the ages it has mattered in different ways and for different reasons. Our time is no exception, and in future the heroic individual must give way, inevitably, to the strategic influence of the highly connected, consensual and collectively conscious many. The move away from bureaucratic organization, in whatever shape and form that transformation might take, requires the active contribution of all – not simply to implement change, but also to envisage the desired future state and provide the intelligence, wisdom and passion to make it a deliberate reality. Far from being something to be feared, this is a positive development in our organizations. Never before will individuals generally have had a greater opportunity to lead and, through their influence, make a positive difference. My MBA students do indeed have it absolutely right.

About the Author
Dr Jonathan Trevor (PhD, University of Cambridge) is Co-Director of the Centre for International Human Resource Management and Lecturer in Human Resources & Organisations at Cambridge Judge Business School, University of Cambridge, and Fellow of Downing College, Cambridge. Jonathan’s principal areas of research include strategic capabilities, human capital, strategic human resource management, reward management and leadership. He has been published in FT ranked peer reviewed field journals including Human Resource Management. He is the author of a number of book chapters and working papers, and a recent book on compensation strategies published by Palgrave Macmillan. Jonathan teaches widely on the subjects of organizational behaviour, strategic human resource management and leadership on the Cambridge MBA, Executive MBA and executive education courses. Previously he spent three years as a consultant with Mercer Human Resource Consulting in their London-based Performance and Rewards practice, advising Fortune 500 and FTSE 100 companies on issues of reward strategy, performance management, mergers and acquisitions and human capital management.

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