Liquid Leadership — an Alternative to Hierarchical Leadership Principles in the Digital Age?

Management is facing a crisis

2020 has undoubtedly turned out to be the most turbulent year of the decade. The COVID-19 pandemic not only caused an economic crisis that resulted in a rise of insolvencies and unemployment figures everywhere, but it also changed working environments around the globe. Companies accelerated digitalization processes massively as working from home became the new normal. 2020 made clear that the digital age has arrived and that no company or organization can turn a blind eye to it if it wants to survive.

Furthermore, several alarming trends in management that became apparent in recent years are intensifying. According to multiple different studies conducted by the management consultancies BCG[1] and GALLUP[2], employees are growing increasingly frustrated with their leadership, which leads to high levels of disengagement at work. Moreover, the reputation of management as a profession has deteriorated in the past decade causing fewer and fewer young people to strive for a career in it. The digital transition that society is experiencing further worsens these effects as it renders traditional, hierarchical management styles even more ineffective.

Historically grown, overly complex, and characterized by authority and power rather than expertise and direct involvement, hierarchical leadership structures lead to long decision-making pathways that inhibit the ability of an organization to adapt to changes in the business environment quickly and effectively. Furthermore, they make management the limiting factor to organizational success, which causes frustration and disengagement among employees.

Potential Solution: Agile

Organizations need new solutions to overcome these challenges and many are turning to agile concepts. Suddenly, methodologies that were invented to facilitate agile collaboration for certain specific purposes, such as Scrum for software development, are applied to entire companies. However, this approach is short-sighted, as it fails to address the core meaning of “agile”, at least in the context of cybernetics, — the ability of a system to react and adapt to unforeseen, dynamic changes in the environment. A single or even a combination of methodologies cannot grant this ability to an entire organization. Therefore, to become more agile, a more holistic model is needed. One example is the “Liquid Leadership”[3] model, developed by Andreas Slogar, author of the book “The Agile Organization” and expert on agile transformation processes. Based on the “Viable System Model (VSM)” developed by management cyberneticist Stafford Beer in 1972, it provides a comprehensive approach to effective leadership in an organization.

Characteristics of the Liquid Leadership Model

In the Liquid Leadership model, hierarchical constructs are replaced by iterative layers of individually viable entities that are more self-sufficient and operate relatively independently. This is possible because each entity is structured to fulfill all six business capabilities in six different sub-systems[4] that the VSM dictates to be necessary for an organization, department, or team to function on its own. In this way, appropriate agility is ensured, as each entity can rapidly react to external change and does not have to rely on other parts of the organization to do so.

Liquid Leadership promotes principles that are centered around individual responsibility and giving decision-making power to those who know the most about the respective fields and are closest to the processes, the employees. While management as a business capability remains important, agile managers act more as coaches than as figures of authority who decide, supervise, and judge. They provide orientation and ensure that the framework conditions for a work environment to be productive are in place. This also includes spotting problems in the team or organization and resolving technical and personal ambivalences. Therefore, Liquid Leadership is a holistic model that can be applied far more universally than any agile methodology.

Benefits and Challenges of Liquid Leadership

The benefits of a successful implementation of Liquid Leadership are multifold. It reduces the length of decision-making paths significantly, thereby increasing decision speed and effectiveness, allowing the team or organization to react faster to unforeseen outside influences. Moreover, the added individual responsibility makes performance more visible and free riding more difficult, which increases motivation and engagement. Furthermore, agile collaboration has a positive effect on the mental health of employees. Therefore, agile teams do not only have the potential to be more productive than traditionally-led teams but they usually also cost less because employees tend to take fewer sick days due to burnout or other conditions.

Nevertheless, implementing agile solutions such as Liquid Leadership on a large scale is challenging. Transforming an organization into an agile state is time-consuming and few best practices that could help in guiding the process have been established so far. Likewise, change toward something unknown creates uncertainty which often results in resistance. Staff members fear that the agile transformation may include unattainable performance expectations and hidden rationalization aspects that could lead to them losing their jobs. Lastly, employees are worried about their new responsibilities while managers are afraid of losing their positions of power and authority. Therefore, a model such as Liquid Leadership can only add value and be considered viable if enough managers and employees can see its merits and are willing to accept it.

Collecting Data

The author conducted a survey with 300 participants as part of his master thesis to shed light on the acceptance and, hence, the potential applicability of the model. Most participants were university students and graduates, which provides unique insights into the mindsets of individuals that work or will work in organizations in which Liquid Leadership can potentially be implemented. The survey was divided into three sections:

• The first section explored the demographic background of respondents to later facilitate an understanding of how answers differ between groups of, for example, different educational backgrounds.
• The second section included questions about the management experience of respondents, their ambition to work in a leadership role in the future, and their motivation for wanting or not wanting it.
• Finally, the third section consisted of five fictitious scenarios, one for each management-related business capability of the VSM. Respondents were asked to imagine that they were the manager of a team in the described situations and were given three options on how to proceed. One answer choice always adhered to the principles of Liquid Leadership, one was always hierarchical and authoritarian, and the last one was always the middle ground between the extremes. These scenario questions aimed to gain insights into whether respondents see the benefit of Liquid Leadership and would be willing to manage a team or organization accordingly.

The Empirical Evidence is Encouraging

One-third of respondents are currently working or have recently worked in a management position. Moreover, 70% of those who do not work in a management position state that they have ambitions to do so in the future. This percentage is significantly higher than the numbers that GALLUP and BCG found. While this disparity can partially be explained by sample bias (for example, university alumni are more likely to aim for leadership roles) it cannot account for the entire difference. Hence, it appears as if a position in management is still a more attractive career path than anticipated. The same holds for the image of management. Although respondents are rarely motivated by the potential prestige and reputation of working in a management position, they do not see it as having a bad image. The main discouragement that stops respondents from aspiring for a leadership role is the perceived additional time investment it requires.

The responses to the scenario questions illustrate that Liquid Leadership is received very positively. 43% of respondents selected the Liquid Leadership approach as the most viable option in at least three out of the five situations. A further 49% consider it to be ideal in one or two situations and chose the hybrid approach for the others. Only 8% are generally opposed to agile leadership and see more merit in the traditional hierarchical approach. Respondents are particularly open to Liquid Leadership in the sub-systems that are characterized by “soft” factors, such as coordination & communication. Then again, in sub-systems such as management where decisions are about “hard” factors (for example, budgeting) respondents are less trusting and prefer to retain more control about the decision-making.

Characteristics of the Agile Leader

Correlating the demographic data with answers in the later sections of the survey reveals more about the mindset of individual segments of respondents. Fewer women than men work in management positions, even when adjusting for educational background and current occupation. Those who do have personnel responsibility have, on average, less than their male counterparts. Moreover, fewer women indicated that they aspire to work in a leadership position in the future. However, women are more often motivated to strive for a management role by positive factors, such as the desire to have a higher impact and enjoying additional responsibility, rather than a higher salary and prestige and reputation than men. Furthermore, they are more open and accepting of agile leadership. Hence, it can be concluded that more women working in management positions would increase their overall quality and agility.

The role that the educational background plays is less straightforward. Respondents who hold a university degree show a higher motivation to work in a management role in the future and are more agile-minded than their peers who did not go to college. Moreover, those coming from a business background are, especially if they went to a private university or business school, very likely to aspire to work in a leadership position in the future. However, they are also motivated by prestige and reputation and higher salaries more often than their peers coming from public universities or different fields of study. Respondents with a background in natural sciences are the least interested in taking on management responsibility, nevertheless, they wish to work in well-paid and reputable positions. Companies could potentially become more attractive to this talent by offering more specialist roles in which graduates can pursue a successful career without having to take on managerial tasks in the process. Finally, no clear-cut conclusions can be drawn about which educational background is most suited for agile management. Therefore, it makes the most sense to recruit from diversified sources and select candidates based on individual aspects.

Finally, the analysis shows that the acceptance rate of Liquid Leadership is high across all age groups. One might expect young people to be more open-minded and adaptable than old ones but that is not the case. Furthermore, it is higher for respondents who work in management positions than those who do not. Therefore, the belief that most managers will resist agile leadership because they are afraid of losing their power and authority appears to be a fallacy. Furthermore, respondents who are currently working, no matter what kind of role, lean more towards Liquid Leadership than those who are still studying and unemployed. Being confronted with situations such as the ones illustrated in the questionnaire daily seems to sharpen their perception of the merits of agile leadership. Finally, the only motivational driver that is negatively correlated to how agile a respondent is, is prestige and reputation. This makes sense, as individuals who define themselves over the authority they have will perceive Liquid Leadership as a threat to their self-image. However, in a nutshell, it can be said that all relevant segments perceive Liquid Leadership positively and it is, therefore, a suitable alternative to hierarchical leadership principles in the digital age.

Recommendations to Companies

Reviewing the evidence, several recommendations can be made for organizations that are aiming to become more agile:

• The acceptance of agile leadership is high across all age groups and backgrounds. Hence, it makes sense to begin an agile transformation process with existing personnel. Going agile does not imply that a company suddenly needs younger staff or new hires.
• It makes sense to start the process in divisions or departments where people are more open to self-organized collaboration supported by agile leadership, i.e. those areas of the organization that are more strongly characterized by “soft” VSM business capabilities, such as monitoring and communication & coordination. Once trust has been established, a broad implementation becomes much easier.
• Many enthusiastic and highly qualified employees and graduates want to take on additional responsibility but are deterred by the administrative workload of a management position. Companies should aim to create more specialist positions to motivate and attract this talent. An agile leadership model, such as Liquid Leadership, aids this process as instead of concentrating all power and authority in a single person, the manager, it distributes it according to expertise across a larger group of people.
• Companies should aim to attract more women, especially for management positions, as they are more open to agile leadership and less often motivated by money and prestige.
• The correlation between how agile the mindset of an individual is and his or her educational background is very weak. Hence, organizations that aim to hire agile-minded talent should recruit from a broad base of applicants and include, for example, personality tests into the recruitment process to screen for agile characteristics.

Limitations

Nevertheless, while the project provides numerous interesting and valuable insights, several limitations must be kept in mind. Namely, the sample consisted only of 300 people and includes a certain bias because some segments of the population are over-represented due to the way the survey had to be distributed. Moreover, the correlations that have been found between factors do not necessarily imply causation between them. A suitable next step could be to conduct a follow-up survey with a larger sample that is reached through an independent third-party institution. Furthermore, answering the survey could be incentivized in some way to allow for more detailed responses.

Subsystems of the VSM

For an organization or a team within an organization to be a viable system according to the VSM, it must possess six key subsystems. The terminology differs across literature but in this project, they are referred to as “operations”, “governance”, “development”, “management”, “monitoring”, and “coordination & communication”.

• “Operations” comprises the primary activities. Here the products or services generated define the objective of an organization. All other systems are support systems that serve to enable operations in the most effective way possible.
• “Governance” refers to the setting of ground rules for members to work together, as well as the development of a mission that provides the team or organization with an identity that allows it to fit in a grander scheme.
• “Development” comprises planning and the creation of a strategy for the future that allows the team or organization to not only keep doing what it does but to evolve and remain relevant in changing contexts.
• The “management” system ensures that all necessary framework conditions for operations are fulfilled and that employees have access to resources they need, such as equipment, money, or training.
• “Monitoring” refers to the performance figures. These are key performance indicators (KPIs) that are used to measure operative performance and expose potential problems so that action to resolve them can be taken.
• Finally, “coordination & communication” refers to communication content and quality inside the team and with other parts of the organization, as well as other mechanisms that are put in place to facilitate collaboration.

[1] BCG, Ipsos, The end of management as we know it?, 2019 Study.

[2] GALLUP, State of the Global Workplace, 2017 Report.

[3] Andreas Slogar, Lukas Jochem, Liquid Leadership — reinventing management, Medium, 05/2020.

About the Author

Lukas Jochem recently graduated from ESADE Business School in Barcelona with an MSc in Finance and is now pursuing a second MSc in CEMS International Management at ESADE and HEC Paris. During his studies, he engages himself at the student-led social impact consultancy 180DC Barcelona. He worked together with Andreas Slogar, the creator of the Liquid Leadership model, on an agile transformation project in a large German insurance company.