Leadership in Times of Change
What Challenges Do Managers Face and What Can They Do?
Companies and their employees are facing fundamental challenges from globalization, aging, digital transformation and “new work”.
Globalization Requires Intercultural Competencies
Due to increasing globalization, economic cooperation is growing beyond national borders. Smaller but highly developed and well-connected economies such as Switzerland, Ireland or Belgium show high adaptation to globalization (Petersen, 2020). The international exchange of goods has increased by a factor of 1500 in the last 100 years (Simon, 2012, p.15).
However, globalization is not only reflected in the international exchange of goods; (involuntary & voluntary) migration has also increased significantly. In Europe we count about 62 million migrants (people who are not in their country of birth) (Avenir Suisse, 2017). The resulting ethnic diversity is greatly changing the composition of society (Scheffer, 2008). Furthermore, the changing composition of the population has a direct impact on the labor market and individual organizations (Wilke, 2016). Expert functions are taken over by qualified specialists and managers from other countries (e.g., nursing staff, IT specialists) (Koch, 2017, p43-44).
Due to the cross-border exchange of goods, migration and increased competition, organizations have a greater need for specialists and managers with intercultural competencies, e.g. to adapt recruitment processes to interculturality or to ensure efficient project handling in international business. These leaders should be globally deployable, empowering organizations to build new market opportunities around the world (Koch, 2017, p.45).
Challenges Due to Aging and Generational Change
However, the consequences of globalization are not the only challenges facing managers today. They are joined by the general shortage of skilled workers and the resulting “war for talent,” as well as other facets of demographic change that go beyond migration, such as the aging of the population and the generational shift from baby boomers to generations Y and Z.
Due to aging, there will be an overall decline in the labor force (Destatis, 2017), as the birth rate has been consistently low for the last few years and cannot compensate for the amount of people retiring. The difference is also not compensated by migration. One of the political goals resulting from this is to extend working life (Naegele, 2017, p.351-375). For example, in September, the vote to increase the retirement age for women was approved. Managers face the challenge that they could be confronted with two to three generations, all with their own values and attitudes toward work. The challenge is to close the gap between the generations in order to promote digital skills on the one hand, but also to catch up with the experiences of the older generations and not lose them.
The generational shift from baby boomers to generations Y & Z is imminent, which brings new opportunities, but also further challenges (Hackl et al. , 2017, p.13; Rimser, 2015, p.28). Unlike previous generations, generations Y & Z have grown up with digitalization, generation Z more so than generation Y. Both generations (Y&Z) are used to collaborative learning and have a lower inhibition threshold to share private information with others. These competencies and attitudes can facilitate leadership at eye level and make it more effective, as the generations are both open to receiving and providing constructive feedback. They want a certain amount of say, focus on collaboration (Franke, 2016, p.22) and demand competency-based and results-oriented leadership that contributes to their development, without restrictions (Scholz, 2014). They separate work life and private life more than other generations (Scholz, 2014), which can be both an advantage and a disadvantage for companies, as this characteristic could, but does not have to, result in a loss of a certain flexibility.
Although managers need to adapt to these generations, this adaption should not come at the expense of the baby boomer generation. Baby boomers also have specific needs that are different than those of older generations before them. They are more agile than ever, still able to work above the age of 65, and willing to develop and learn. Thus, their life stages (education, gainful employment, retirement) mix into a parallel process (e.g., a 50-year-old leaves the management of an insurance company to retrain as a winemaker and opens a winery) (Kaiser, 2016). Companies are thus strongly challenged and must talk about the joint future of young and old. Demographic change is no longer a future trend, but has reached society for some time, leading to efforts in leadership toward generation-sensitive development of talent and diversity (Kaudela-Baum et al., 2022, p.10). However, in addition to all these challenges with demographic change, globalization, and the struggle for highly skilled talent, we as a society face a much bigger challenge, climate change. The future of people, companies and the world of work is inevitably linked to the development of climate change. It takes optimistic leaders who can deliberately motivate, design viable and sustainably profitable business models / processes with their employees, and are open to building coalitions to achieve greater impact and set positive examples.
So now we face challenges like:
- globalization
- multicultural compositions & internationalization
- aging population & generational change
- shortage of skilled workers & intensified battle for highly qualified talent (“war for talents”) [1]
- climate change
They bring about profound changes that must be faced. Conventional organizational structures with a pronounced competitive (as opposed to collaborative) mentality, concentration of responsibilities in the hands of a few people at the top, steep hierarchies and long decision-making paths are not able to respond adequately to the dynamics of change. This means that we need new concepts focusing on different values than in the past.
New Challenges Require New Values
Globalization is increasingly leading to globally open value networks in which corporate boundaries are partially or completely disappearing due to the deeper involvement of customers, suppliers and other stakeholders. The existing corporate culture is influenced by the increased contact with other organizations and their cultures. New values, such as simplicity, become increasingly important, because the increased complexity due to the network structures can only be compensated by simplifying processes.
However, it is not only network structures that require new organizational values; the change in processes through digital transformation (e.g., automation or robotization) is also changing the world of work. On the one hand, they create new areas of responsibility and roles, and on the other hand, all employees are expected to actively shape continuous process optimization, which requires creativity, entrepreneurship and innovativeness. Digitalization is joined by demographic change and generational change, which demand a high degree of adaptability from everyone, as well as a stronger focus on direct democracy and participation from managers of older generations. Employees’ areas of responsibility will change, so that organizational and individual learning within the organization will become more important. In addition, decentralization is on the rise, so that personal responsibility is gaining in value.
New Values Require a New Kind of Leadership
To put it more simply – things are becoming highly complex: The demands on managers and employees continue to increase and the dynamics of change create uncertainty. Leadership should be designed to reduce uncertainty and complexity. It should be flexible and diverse and enable “in-depth” collaboration. The latter requires setting up cross-generational teams. It must also create opportunities for employees to develop and learn competencies such as entrepreneurship, creativity, adaptability, empathy, and more. Constant self-reflection and an enormously high willingness to learn on the part of managers and employees is crucial for organizations to be efficient and effective (Kaudela-Baum et al., 2022, p.19 ff). Thus, leaders are increasingly becoming change managers (SKO, 2015 A).
Another success factor for effective leadership is the relationship between the leader and the employees. Good relationships result from respectful behavior, successful conflict resolution, good planning and organization, and the inclusion of employees in important decisions. It sounds trite, but ultimately interpersonal relationships are most important (Enste, D. , 2015).
Dealing with Complexity
As mentioned above, the increasing diversity of the workforce will lead to greater uncertainty and complexity in the future. Managers cannot escape this and need competencies to deal with the new situation. They must have strong self-confidence and be able to lead adaptively. This means they must be able to recognize the many different demands employees make on leadership behavior and lead them in a differentiated manner. They must be flexible and self-reflectively optimize their leadership behavior. The different leadership styles for different employees require leaders to have the skills to reflect and recognize mental patterns. Since leadership is not an individual sport but depends on collaboration, they need a large repertoire of dialogue and leadership techniques (Kutscher, 2021). With all these requirements, however, it is important not to lose sight of the fact that leaders are also people with their own needs and that change is difficult. They need good self-management in order not to burn out in the face of all these challenges and must have patience and understanding even for their own mistakes, especially if they have already been working with a different understanding of leadership for several years.
The following recommendations for action can help managers better manage complexity (Hay, 2011; Hettl, 2020):
- Create sufficient time and resources for innovation, reflection and training
- Give employees room to try out new ideas
- Constantly prioritize work content and protect employees from unnecessary tasks
- Be able to go both ways:
- Build self-sufficient employees with decision-making authority with few structures and a lot of freedom
- Establish structures for employees who have a greater need for security and rules
- Build strong network (internal & external) – informal information to act faster.
- Build a culture of trust (build relationships, live openness, be a role model)
Leading Different Generations (Baby Boomers, X, Y & Z)
With the entry of Generation Z, four generations are active in the labor market. In the early 1980s, the term generation management (“Generationenmanagement”) was established by Ralf Overbeck. This involves a special form of sustainable corporate management. His definition reads:
“A meaningful and addressee-oriented people management and thus company management based on mutual respect and mutual appreciation of all generations represented in a company and their life achievements with the aim of a cross-generational culture of trust and sustainable business development.”
As we are in the midst of generational change, here are some possible actions in dealing with different generations (SKO, 2015 A; Garff, F. 2018):
- Build understanding of each generation and take them seriously
- Establish an open and transparent feedback culture that takes into account the feedback behavior of the generations, and design and integrate intergenerational feedback conversations
- Build individual career paths and development opportunities
- Create individual incentive systems where employees can choose for themselves (monetary, further training, vacation days)
- Build intergenerational teams to bring generations together and leverage their respective strengths and competencies and create mutual understanding.
- Launch mentoring and peer coaching programs in which younger and older generations take on lead roles.
Understandably, there are many more possibilities for action in this area. Basically, it is important that the generations work together and support each other.
Leadership Becomes Global, Intercultural and Individual
Social and economic changes are leading to an increasingly intercultural labor market. In the future, managers will have to be familiar with the cultural values and customs of a wide range of countries and adapt their leadership concepts to them. An important leadership style in the context of globalization is “change & intercultural leadership”. Change leadership emphasizes the complexity and challenges posed by internationalization, rapidly growing economic, political and social changes, and the longer periods of uncertainty and instability (e.g. Covis-19 pandemic, natural gas shortages, supply bottlenecks, etc. ). The concept of intercultural leadership highlights the importance of three key elements: Perception management (avoids premature judgment and categorization of what is experienced), relationship management (openness to different contacts and sensitivity to one’s own developmental progress), and self-management (self-confident, optimistic, resilient, and flexible action) (Eberhardt, 2015).
Leaders who can act interculturally are needed, and different competencies are relevant depending on the country (Brodbeck, 205; GEVA Institute, 2015):
- In the case of authoritarian-hierarchical management styles (e.g., Asia, France and Spain), managers should provide precise goals and instructions and make decisions autonomously.
- In the participative management style (e.g., Scandinavia), managers should only provide guidelines for action and ensure equal treatment and a good working environment.
Climate Change Is Not a Sideshow
As already mentioned, climate change is affecting all areas of our society. The complexity of its effects is difficult to grasp and yet we feel them every day. Be it through a shortage of skilled workers, supply bottlenecks and much more. The Deloitte Sustainability Report 2022 reveals that nearly two-thirds of executives are concerned about climate change and 97% of companies have already felt the impact of the climate crisis. Deloitte’s study includes responses from 2,038 C-level executives from 21 countries on the current climate crisis and its impact on businesses. Although 89% of top executives are concerned about the climate crisis, it is difficult to take targeted action. Executives are aware that sustainability must be anchored in the core business, but there is a big difference between intention and concrete actions. Unfortunately, only a few companies from the study show real action; around 1/5 of the companies surveyed are among the pioneers and have integrated sustainable action into their core activities in addition to using resources sustainably. According to Deloitte (2022), directional steps for companies and their executives are:
- Creating new, climate-friendly products or services
- Developing sustainability requirements for suppliers and business partners
- Modernizing office buildings and production facilities
- Including climate aspects in external communication
- Linking bonus systems for managers with sustainable action
Companies need a sustainability strategy. This requires courageous management decisions that can have a positive impact in the long term. And companies must be truly aware that they themselves and their managers are responsible for inducing change.
Conclusion
The reliability and security of structures and processes of the past are increasingly faltering. In the past, people certainly liked to design and operate according to old patterns and thus did not fully accept and adapt to challenges. Today, this possibility no longer exists. In addition to all the megatrends, the pandemic has also shown us that we must take action, make a difference, and accept and shape challenges. The adaptability of managers to new conditions is becoming a “must”. Now it’s time to experiment, innovate and change. Strengthening resilience through courageous, visionary and agile action is rewarded in the end and supports open and flexible organizations. Executives must focus on the following focal points:
- Employee retention and motivation
- Integration of the different generations in the organization
- Shaping a trusting corporate and team culture
- Creating an overview so that several activities can be coordinated at the same time
- Keeping pace with change
- Create clear tasks and areas of responsibility
- And last but not least: being a role model
[1] In the following, I will focus on globalization, multiculturalism, generational change and climate change. I will be devoting a separate article to the shortage of skilled workers at the beginning of next year.
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