The business landscape is being reshaped by digital transformation, automation and the integration of Artificial Intelligence (AI) solutions and tools. This paradigm shift brings forth new opportunities and challenges for leaders across all industries, with the role of leadership rapidly evolving. Leaders are not only tasked with driving their organisations through technological adoption but also meeting the changing needs of an evolving workforce.

Growing Divide

Unfortunately, there appears to be a growing divide between the workforce of organisations and senior leaders, according to the most recent Work Trend Index report from Microsoft Ireland. Although the report indicates 77% of workers are happy at work, with 66% saying they have the right work-life balance, a significant portion of the 700 Irish workers interviewed feel disillusioned by leadership, disconnected from workplace culture and overwhelmed by tasks. A lack of confidence in leadership was the main reason workers switched roles over the last 12 months, followed by wellbeing challenges and lack of professional recognition. 56% of respondents are considering switching roles over the next year.

“There is now a pressing need for leadership to better understand what engages their employees and find ways of bridging the gap between physical and virtual work environments,” said Anne Sheehan, General Manager of Microsoft Ireland.

Two things jump out here. Firstly, the hybrid challenge. For the second year in a row, workplace culture remains the number one priority for workers in Ireland, with 67% of all respondents – remote, hybrid and in-office  ­­– calling it their top must-have. However, 51% of hybrid workers feel their workplace culture has deteriorated since they began working remotely. Hybrid workers also reported having fewer work friendships (55%), finding it more difficult to build trust (53%) and feeling lonelier at work (45%). Struggling to stay motivated and not being able to keep up with what is happening in their organisation were also listed as concerns and challenges.

Secondly, the need for leadership to better understand what engages their employees. Workplace culture is the single most important priority for workers (for the second year in a row), yet over half of all respondents feel their leadership team is out of touch and that workplace culture has deteriorated in the hybrid working environment. Such poor company culture suggests a serious mismatch between workers’ personal value and organisational behaviours, which must be better aligned.

Mismatch

Deloitte’s Spring 2023 CFO Survey makes for a fascinating companion piece here. While most media headlines focused on the 33% of Irish CFOs who describe themselves as “optimistic” or “significantly optimistic” about their company’s financial prospects – up 12% from Autumn 2022 – if one digs a little deeper into the data, we may find evidence in the Deloitte report of a potential mismatch between workers’ personal values and organisational/senior leadership behaviours and values.

The most glaring example might be that sustainability and climate change is only the 7^th biggest risk/concern for Irish CFOs, according to the report (ranking behind talent retention/attraction, cyber risk, increasing regulations, and numerous other risks). While Deloitte expects this prioritisation to grow considerably in coming years, with organisations coming under increasing external and regulatory pressure to set and commit to ESG targets, this is potentially a sticking point: for an increasingly climate conscious workforce, increased sustainability and climate concern at the leadership level should not come as a result of external regulatory pressure, but should be borne out of genuine concern for the environment and creating a sustainable future for all. While leaders may consider increasing regulations and supply chain logistics to be a more immediate risk, for many workers this may be hard to justify when the World Economic Forum, the UN Human Rights Office, the World Health Organization, and numerous other bodies have listed climate change as the single greatest threat faced by humanity. CFOs may be justified in feeling other challenges pose more immediate risks on a quarter-by-quarter basis for their business, but many employees will likely want greater, proactive commitment to sustainability and ESG measures.

Around ESG reporting challenges, the CFOs in Deloitte’s survey raise some valuable points. 48% of Irish CFOs believe the absence of a global standard for ESG reporting acts as a barrier to unlocking their organisation’s ESG reporting strategy, while 52% of Irish CFOs see limited or lack of in-house knowledge, skills and capabilities as their top challenge in unlocking their ESG reporting strategy. Critically, the latter relates back to CFOs’ number one challenge overall: talent, specifically retaining and attracting talent, which was listed by 87% of Irish CFOs as a significant risk for the business.

“Consistent with the idea that what we can’t measure, we can’t improve, ESG reporting is one of the most important tasks facing organisations,” said Orla Dunbar, Sustainability Data & Technology Lead with Deloitte. “It’s clear that a skilled workforce is one of the critical steps in enabling ESG reporting so it’s vital that businesses foster an environment of continual learning and focus on hiring the right talent.”

However, it’s worth noting that six months ago, 96% of Irish CFOs considered retaining and attracting talent to be a significant risk to the business – with no further details or explanations provided, one wonders what factors might lie behind this 9% decrease.

Digital Transformation

There is an appetite for digital transformation among both leaders and workers. According to the Work Trends Index, one-fifth of workers are currently using AI tools within their role, while a quarter of those not using AI would like to. Similarly, fewer than one in four CFOs said securing funding for digital transformation would be an issue, while 71% of Irish CFOs see increased use of digital tools as a strategic enabler. But similar to skills shortages supposedly hindering organisational ESG reporting, 67% of Irish CFOs identified lack of workforce skills and capabilities as the main obstacle hindering their organisation’s progress toward finance transformation, followed by mindset and cultural shift (51%).

“CFOs are increasingly recognising the importance of digital transformation for their organisations,” said Xiomara Sanchez, Digital Finance Lead with Deloitte. “By investing in digital competencies and capabilities, they can harness the potential of digital tools for both Finance and the broader organisation. This will maximise the return on investment and ensure the organisation remains competitive in the digital era.”

Microsoft Ireland echoes similar sentiments. “At Microsoft, we believe that through the adoption of new solutions such as AI, organisations can address the pressure points being highlighted by workers in Ireland and improve the cultural experience for leaders and employees across all sectors,” said GM Anne Sheehan. Beyond the challenges already mentioned, productivity pressure points include workers not having enough time to complete their work (55%), not enough focus time (49%), being assessed on number of tasks completed rather than their impact (43%), too many meetings (35%), and spending too much time searching for the right data (42%). As Microsoft point out, using next-gen technology to find more efficient ways to source and manage information should help productivity, reduce the risk of burnout and improve the employee experience.

Indeed, Microsoft is right to call AI the defining technology of our time, with the potential to transform the way organisations operate and interact with their employees. But the keyword is potential. Whether AI does free us from digital debt and fuels innovation, as Microsoft predict, remains to be seen. As adoption grows and workplace tools become more sophisticated, Microsoft notes digital solutions can play a key role in supporting greater efficiencies, focus time, and even forging greater connections between leaders and workers – but there is a lot of work to be done to reach that point, specifically at the leadership level.

Skills Gap

Leaders must encourage a culture of continuous learning and experimentation, where employees are empowered to embrace change and adapt to emerging tools and trends. This requires shifting from traditional hierarchies to more agile, cross-functional teams that can respond to market demands and leverage the benefits of digitisation. Crucially, this entails embracing new technologies, processes and mindsets, along with equipping the workforce with the necessary skills and capabilities, which both Deloitte and Microsoft in their reports seem to recognise.

However, the scale of the skills gap may be overlooked. McKinsey predict at least 375m workers will be impacted by automation by 2030, while the recent OECD Skills Strategy Report notes that Irish workers are at risk of falling behind as workplaces and technology evolves. Although the share of young adults with a tertiary degree is significantly above the OECD average, many Irish workers do not have the right skills to thrive in their current employment and are unprepared for changes in the work, while participation in lifelong learning is behind top EU performers like Sweden and Finland.

“Technological change can help drive productivity and overcome skills shortages,” says the report. “However, it also means that many people will need to develop skills for new jobs or upgrade their skills for existing ones.”

“The change in our professional and personal lives is not going to cease,” adds Simon Harris, Minister for Further and Higher Education, Research, Innovation and Science. “The pace of transformation will only increase. We have a short window of opportunity to ensure that these transformations lead to a new age of good work, good jobs and improved quality of life for all.”

Growth Opportunities But Unprecedented Challenges

Unlike the somewhat Utopian predictions coming from Microsoft and Deloitte, the history of automation tells a different story when it comes to worker impacts. In a recent interview with the Financial Times, MIT economics professor Daron Acemoglu notes how major technological disruption – such as the Industrial Revolution – can flatten wages for an entire class of working people. “You got progress, but you also had costs that were huge and long and very long-lasting (from the Industrial Revolution). A hundred years of much harsher conditions for working people, lower real wages, much worse health and living conditions, less autonomy, greater hierarchy.”

Acemoglu adds that unions, progressive politics, better institutions, and a redirection of technological change away from pure automation were key to stopping that trajectory. With McKinsey predicting at least 375m workers may be impacted by automation by 2030 as noted, similar intervention and collaboration between leaders and stakeholders from multiple industries – public, private, governmental, and educational – will be necessary for the incoming Fourth Industrial Revolution.

“Technological progress is the most important driver of human flourishing,” Acemoglu adds, “But we tend to forget the process is not automatic.”

Technology can create growth but not necessarily for everyone – at least not immediately and without intervention and collaboration. Rather than a means to replace people, technology should be used to increase productivity by giving people better tools, better information and better organisation – as Microsoft and Deloitte note in their reports. However, technology can and often does replace people – this is the history of automation. Thus why upskilling and lifelong learning initiatives are so vital: empowering and increasing the capabilities of a hugely diverse group of workers, many of whom have been either left behind – or will be left behind in the future – by decades of technology-driven worker displacement.

What makes the challenge for leaders more complex than at any point in the past: automation and artificial intelligence (AI) threaten jobs much higher up the food chain than ever before.  Potentially for the first time in history, leaders are also at risk of being left behind, which makes it so critical they equip themselves and their teams with the necessary skills and capabilities to navigate the rapidly evolving landscape. By investing in their workforce and fostering a learning culture, leaders are giving their organisations a fighting chance of remaining competitive and surviving – or even thriving.

Despite the seeming openness to using these tools as noted in the reports, digital transformation and AI implementation often encounter resistance and scepticism from employees who fear job displacement – often justified. It’s naïve to pretend that increased productivity as a result of technological advances won’t lead to a certain amount of downsizing (even if long-term it leads to new roles and further job creation). This will be an extremely complex challenge with multiple ethical questions leaders must deal with as they attempt to manage change effectively. However, by fostering open communication and promoting a clear vision, while involving employees in the change process and providing necessary supports during the transition, leaders can hopefully inspire a positive attitude towards these technologies and drive successful adoption throughout their organisation.

Other Ethical Challenges

And there will be other ethical challenges for leaders to deal with, i.e. the complexities of data management and privacy concerns with increased AI usage and data driven decision-making. While collecting and analysing vast amounts of data can yield valuable insights, it also raises ethical considerations surrounding privacy, security and data protection. Establishing robust data governance frameworks, operating in a transparent manner, and ensuring compliance with relevant regulations will be key to building trust with customers and stakeholders. Encouragingly, cyber risk came out as the third largest risk for CFOs in the Deloitte survey – although the drop from 76% of CFOs considering it a major risk six months ago to 69% in the most recent survey is peculiar, considering cyber risk is only increasing. One hopes this 7% drop is the result of increased cyber security investment, giving leadership 7% more peace of mind and confidence in their organisation being able to handle cyber attacks.

While somewhat out of most leaders’ control, AI algorithms and automated decision-making systems can perpetuate biases or create unintended consequences if not carefully monitored and guided. Leaders should champion ethical practices, transparency and fairness in AI development and deployment where possible, along with involving diverse stakeholders – e.g. ethicists, data scientists, if possible, but at the very least fostering open communication with employees – in shaping AI strategies to mitigate risks and ensure AI is used for the benefit of society.

The challenges of digital transformation and AI require leaders to adapt their leadership styles and develop new skills. But equally leaders must address the gap between workers and senior leadership. Without meeting the needs of a changing and often remote workforce, leaders will not be able to drive to organisations forward. By aligning organisational behaviours with workers’ personal values, investing in lifelong learning and upskilling/reskilling initiatives, ensuring ethical-first policies and strategies, and effectively managing change, leaders can ensure their organisations embrace the opportunities brought by AI and digitalisation. This will hopefully keep their organisations innovative, competitive and sustainably growing in the face of ever-increasing complexity.