Re-generative Leadership | How new growth succeeds with sustainability and digitalization

Re-generative leadership | How new growth succeeds with sustainability and digitalization

by Eva Schulz-Kamm

There are no half measures when it comes to digital or ESG transformation. In these particularly challenging times, family-owned companies from the SME sector especially are faced with an existential question: Consistent implementation or merely a few innovations here and there so as not to rush things? The answer is clear: Hesitation is not an option from an economic and, interestingly, also from an ecological point of view.

The digital world consists of zeros and ones, no 0.3 or 1.2 – just zero and one. And this binary code changes everything – production, consumption, work, private life, communication. This rapid development is turning traditional patterns of thought and action upside down, especially in business. In companies, well-defined serial processes are increasingly giving way to dynamic and parallel processes. The traditional chronological sequence in companies – first research and development, then production, then marketing and finally sales – neither corresponds to the development processes for digital products and services, nor does it meet the demands of customers. This is because customers want fewer and fewer "off-the-shelf" products; instead, they expect fully-fledged solutions – often a service rather than a single product – with clear, measurable added value. In other words, they expect a solution to their problem. In this context, customers also expect to be able to develop such innovations together with the provider.

Four aspects of the added value customers derive from digital products and solutions:

• Improving financial metrics: By using Big Data, corporate decisions become "smarter." Complex relationships are better understood and forecasts can be made about the behavior of buyers, machines or systems. The use of new technologies enables new business models, creates competitive advantages and thus leads to economic success.
• Better adaptability: The adaptation of new technologies in the company is an ongoing process, driven by the rapid development of new digital possibilities such as artificial intelligence. The use of these technologies no longer allows for rigid corporate structures. Companies that focus on speed and adaptability in collaboration and processes can best adapt to rapidly changing customer needs: They are ahead of the game.
• Attracting and retaining talent: Employees in 'digital' companies are more integrated into the company through transparent processes, strengthened collaboration, opportunities for further training and an open communication culture. This is particularly true when it comes to attracting new employees: companies that are attuned to people's needs and tailor processes to meet these 'internal customer' needs – including flexible working hours and the ability to work from home – are particularly attractive as employers.
• Seize opportunities for new growth: Companies that rest on the assumption that their positive business development will still last with the previously proven methods can quickly end up in a dead end. By the time a competitor has passed them by in a flexible, agile and innovative manner and has occupied the customer base, it is too late. Conversely, a digital transformation that is initiated early and consistently offers the opportunity to take the top position in the new growth markets.

The economic advantages of the digital transformation also have an ecological effect. They contribute to acting more sustainably, and offering products and solutions that meet the new ESG requirements from Brussels (EU taxonomy). Computing power and technologies for data collection and analysis, artificial intelligence (AI) and, in the future, quantum computers will help to understand the complexity of climate change or material cycles, and to take effective measures for more sustainability: What exactly influences climate change? How can CO2 emissions be reduced? How do we ensure higher social standards throughout the supply chain (supplier-of-supplier to producer)? How do we get closed material flows (recycling, circular economy, 'cradle-to-cradle')? This is made possible by the collection of data (from smart sensors and the use of IoT solutions), the intelligent use of data (AI, data analytics) and the now affordable computing power (processors, soon quantum computing). The new knowledge gained through digital technologies can be used directly in production and the development of sustainable products to conserve resources, and make an important contribution to climate and environmental protection. This helps the company to be better evaluated by banks and investors in the context of ESG and in its positive external image. After all, digital technologies make companies – their customers and suppliers – transparent and assessable in their actions in connection with ESG criteria (environment, society, corporate governance). Everyone can now see how much CO2 they produce or how much scarce resources they consume or even destroy. Thus, the new mandatory ESG transparency and reporting requirements actively hold companies accountable.

The role of executives in digital and ESG transformation

The biggest task in digital and ESG transformation supposedly lies in the technological or technical expertise that the company needs to build up quickly, and thus in the software developers or ESG experts that the company needs to attract. In discussions with board members and owners, however, it is the massive change in management competencies and new governance that are cited as the greatest challenges. The complexity of the requirements for implementing the digital transformation is enormous – and it cannot be mastered by the boss alone, especially in medium-sized family businesses.?

It is true that new and sustainable growth always starts with the CEO as the 'conductor' who orchestrates the individual 'musicians' and leads them to new heights of performance. But it is essential to have other 'players' in the leadership team to bring customers, suppliers and, above all, employees along with them in their new actions. Leaders who can drive innovation systemically, holistically, effectively and sustainably are needed across the entire leadership team – on the executive board, the management board and the supervisory board.

Companies are particularly successful when they are led by a critical mass of executives who exhibit a re-generative leadership style – 're' stands for repeated and renewed – and encompasses four critical leadership competencies.

A systemic approach is imperative. Facing complexity and using digital technologies for solutions as a matter of course is part of it. From the data collected, correlations and patterns can be identified. This intelligence can be used to develop new, valuable solutions and at the same time achieve positive effects for society and the environment. This cannot be achieved in a single step, but requires several process loops that facilitate intensive learning in one's own organization – the more stakeholders participate, the greater the value contribution created.

Holistic leadership connects customers, suppliers and employees from different functions and areas, and also hierarchical levels in missions or projects. The decisive factor is not the stakeholder label in the sense of the role, position or expertise assigned. The only thing that matters is the value contribution that the individual can make to solving the common task. This means that formerly well-rehearsed processes and proven ways of working no longer serve the purpose. Orchestrating the various and changing project participants according to value contribution is demanding and is in itself a transformation, but one that pays off in the end.

Company leaders who are committed to the uncompromising maximization of customer benefit and at the same time to sustainable management are aiming for 'impact'. This effectiveness is not geared to short-term business optimization or 'self-optimization'. It pays off in terms of a value proposition that is successfully delivered in a measurable way and unfolds its full effect in the activation of all knowledge and experience of the customer as well as the associated stakeholders. Effective leadership enables new and strong growth.

Ultimately, sustainability aims at lasting and long-term business success combined with a positive contribution to the environment and society. This can only be achieved if executives take into account the possible negative effects of their product solutions on the climate, the environment or people. This is where 're-generative' competencies – being able to lead systemically, coherently and effectively – come into play once again. They ensure that the new growth does not become a flash in the pan, but can be sustained – in line with the philosophy of medium-sized and, in particular, family-owned companies.

Eva Schulz-Kamm is part of the consultant team of AvS - International Trusted Advisors. She advises family businesses as well as decision-makers from associations and politics, on leadership and governance issues – in particular on digital transformation, change management and sustainability / ESG.

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