With the arrival of Next-Gen organizations, we witness the rise of the human-centric enterprise and the dominance of intangible over tangible assets. Intellectual capital, human capital and social capital are moving to the centre of the performance equation.

The source of strategic competitive advantage has shifted from “what, we produce”, to “how, efficiently we are doing it”, to “why, we do, what we do”. In other words, the source of strategic competitive advantage has moved from product, to process to purpose (Schneider 1998). Of course, all elements are still very important, “What” and “How” we produce remain key table stakes of competitiveness. However, differentiation comes from the ability to attract talent, create share of heart with customers and build trust-based relationships across and beyond the organization to allow for inclusion, innovation and learning from the future.

In Next-Gen business, where semi-autonomous units, ad-hoc working groups, agile structures, networks, and eco-systems become the vehicles by which companies deliver their work, purpose becomes a source of cohesion, reduced transaction cost and elevated performance. Employer brands that capture share of heart energise the commitment, engagement, and motivation of talent.

Purpose gives performance meaning, beyond the transaction. It turns “Human Doings” into “Human Beings”. It activates a deeper level of contract. With the right fit, the organization can become an extension and expression of who I am, why I exist and what I am here for. In fact, for some, “Work” itself can become the purpose (or at least the conduit through which I express it). We witness this in the entrepreneurial start-up space of the digital economy, where individual purpose and organizational purpose are aligned (or have huge overlap). This typically has a positive impact on performance. (Do what I love, and love what I do; 90 hours and loving it.)

Purpose thus can become a social marker and part of the personal brand through an implicit moral contract that exists between organization and individual talent. This can of course create potential pathologies. Pathologies of purpose need to be managed carefully and responsibly or can lead to cult-like compliance, self-exploitation and burn out, exclusion of outsiders, cause-based myopia leading to a lack of connection with reality in pursuit of a cause, or even fraud to “cover up” what was done in pursuit of the purpose, without the right moral compass in place. A recent example would be the FTX cryptocurrency exchange led by Sam Bankman-Fried who had been a voluble proponent of ‘effective altruism’, until his business collapsed, and is now indicted on fraud in his attempts to sustain it.

Future ready organizations need to get three contracts right

In the internal perspective, purpose does not exist in isolation. It is part of an interconnected set of contracts between the individual and the organization. These contracts need to be in sync in the perception of individual talent to be effective.

At the base sits the legal or commercial contract. ‘I am here because I am paid for it’ (“What”/First Generation). This contract defines the formal incentives in return for the employees’ contribution. This needs to be complemented by a psychological contract. ‘I am here because I like it here’. (How/2nd Generation). This contract is more implicit and depends on how you feel about the culture fit and the way you are being treated by the organization and by colleagues.

The Third level is the moral contract. ‘I am here because I belong here’. This contract is rooted in a deeply understood and shared purpose or a “cause” (“Why”/, 3rd generation). It expresses why the employee is here. The moral contract is usually operationalized through values or principles linking it to standards of business ethics and the psychological contract. Purpose gives performance meaning, beyond the transaction. It turns “Human Doings” into “Human Beings”.

I would argue, that while not all organizations need to have an “integrator” value proposition (where responsible leadership sits at its core and all stakeholders are considered in its decisions to serve the greater good by doing the right thing) and a cause-based purpose, we will see more companies choosing that position in the future. Because they aim to be more effective in creating sustainable competitive advantage in a next generation environment.

In Next-Gen environments all three levels of internal contract need to be in place. Leaders must ask themselves, what business they want to create. All things being equal, purpose often becomes the differentiator, specifically for talent with choice. The quest for purpose becomes a choice of the right position on the purpose curve and the right fit with the individual purpose of talent.

For talent, the moral contract often is a part of the expression of their overall personal brand and identity. It is an expression of their choice of who they want to be associated with. It is a manifestation of their intention, expressed through visible membership to a social group with a shared purpose. In this way, purpose creates a sense of belonging.

In Next-Gen businesses, the definition, alignment, and the authentic delivery of purpose is at the core of the leadership job. Purpose manifests itself in the decisions leaders take and the quality of trust-based relationships they build to keep systems effective. This is experienced through relationships that align with purpose and values.

Therefore, the quality of leadership is so important to next generation businesses. It also has become more demanding on leaders’ personal mastery and maturity. This may be one of the reasons why CEOs and CHROs see an increasing gap of leadership in their businesses, despite increasing investment into leadership development. Purpose is not a “comms piece”, it is the experience through aligned decisions and role modelling.

Leading in this context is a constant quest of presence, awareness, authenticity, and integrity. Next-Gen leadership is demanding, complex and personal. Structures and processes are the base skeleton, while purpose and values are the lifeblood that makes distributed/semi-autonomous systems productive. It is leadership that creates the glue that makes network structures work. Next-Gen organizations do not just need diverse talent as elements of this network. They need the glue to bind them together through shared meaning and values. This is also the essence of meaningful inclusion. As leadership in networks is ultimately about building trust-based relationships, it is permanent work. There is no final state or stable equilibrium that, once achieved, can be taken for granted. Relationships are dynamic, diverse, (sometimes) disrupted and always personal.

In turn, this means that the development of purpose-driven leadership needs to become a key competence of Next-Gen organizations, both at individual and at organizational level.

What is the role of leadership development

Purpose and values are easy to declare, but hard to deliver in day-to-day decisions and actions. Therefore, the quest for purpose is also the quest for the right quality of leadership. At a strategic level it is senior leadership that sets the right purpose and ensures alignment with society. It is then the job of leaders at all levels to translate and transmit purpose. It activates meaning on a day-to-day basis in all actions and all relationships.

Without leadership, purpose remains an intention or abstract claim. This takes us to the question of how to develop purpose-based leadership. Here it is useful to differentiate between organizational leadership development and individual leader development.

Organizational Leadership Development

This is the process of defining and delivering the right leadership strategy in alignment with purpose, values, and strategy of the organization. It sets the expectations for leadership in any given business. This typically includes the following aligned elements of a leadership strategy.

In some cases, the organizational leadership development includes the process of facilitating the (re-)definition of purpose, values, and behaviours itself. Typically, this happens at exceptional moments in a company’s lifecycle. Examples are crisis/restructuring, merger& acquisitions, launch of a new strategy,
digital transformation.

The role of Organizational Leadership Development is predominantly culture development and alignment, starting with purpose. At an organizational level it starts with system alignment
and organizational alignment to close a potential purpose and culture gap. At the individual level it often requires a mindset shift to align behaviours The work for leadership development can therefore be described as orchestrating the alignment at the following four levels.

At each level a lack of alignment creates a specific gap between promise and reality and can lead to reduced performance, risky decisions, or breakdown of relationships with internal or external stakeholders. Purpose and values are part of the moral contract. It is powerful when it is kept. If the gap is too big it can have a negative impact on people, clients, and results.

Identifying and closing these gaps is a key role for organizational leadership development. Ideally, this alignment is based on data, identifying the current gaps at each level. This can be achieved through the combination of several analytic tools and methodologies. This multi-level alignment will require a dynamic process of organizational learning and experimentation which in turn offers a big opportunity to the leadership development function to re-define its role and relevance in contributing to organizational performance. It also opens the window for innovation regarding tools, competencies, and formats of organizational leadership development.

This starts with a better understanding of the changing role of leadership in next generation environments and organizations. In fluid structures and networks, the role of the individual leader changes. In our work with clients, we suggest defining their current and future profile relative to the 10 roles of leadership in Next-Gen organizations. All roles are closely tied to purpose. However, specifically
the roles of:

• Ambassador
• Anchor
• Host
• Accelerator
• Gardener

show how leaders can practically help to build a purpose-led business.

Having worked with hundreds of leaders around the world we learnt that to deploy these roles effectively leaders need to acquire new skillsets. But more importantly, these roles require the individual and collective development of new mindsets. These mindsets are closely connected with understanding individual and organizational purpose, values and their manifestation in leadership behaviour. These mindsets express a higher level of awareness and consciousness required of leaders in purpose-led organizations.

Working with many diverse organizations around the world, we have identified six mindsets (outlined opposite and overleaf) to be essential and universal for effective Next-Gen leaders. The development of these mindsets requires a process of self-discovery. This leads us to the hallmarks of effective individual leader development for next generation businesses.

Individual Leader Development

At the individual level, the quest for purpose is the alignment or (better) fit, between individual and organizational purpose. For leaders it is the result of a deep dive into their own purpose. It also is a deep dive into understanding their own internal alignment .(Integrity) and the congruence between their leadership intention versus their actual impact on others.

Next-Gen organizations understand that leadership excellence starts with individual self-discovery. This self-discovery is not self-serving. It sits within a compass of relevant stakeholder relationships, within which individual leaders operate and need to become more effective. Leader development therefore starts with understanding individual purpose and identity in context of organizational purpose.

In this context, the personal quest for purpose is more than mindfulness training in pursuit of personal happiness, enlightenment and fulfilment. It requires a thoughtfully designed journey of discovery that allows leaders to understand who they are, how their purpose and values fit with their organization and what their own level of integrity is in delivering their purpose and values in their leadership (with clients/peers and their teams). They also need to understand their own leadership footprint (impact and contribution) in bringing purpose and values alive in their business relationships.

Over the past years, many leadership programs have picked this up and added mindfulness, purpose, well-being, resilience etc. to the list of topics and methodologies for individual development programs. However, often these programs fall short of making the connection to the business and development of shared purpose as a source of commitment, energy, and sense of belonging. Worse, when the course is over, they might spark deeper scepticism as to what the organization’s real intention and purpose is, when faced with current organizational culture and its reality back at work. Lack of alignment creates a lack of trust and integrity. It ultimately disenfranchises leaders. To avoid this, organizational leadership development and individual leader development need to be in sync.

Next generation leadership development is not about teaching content. Purpose and values cannot be taught. They need to be discovered and embodied through experience and exploration, linked to personal and organizational context.

There are many ways in which this can be orchestrated. What we found works best, are carefully designed learning journeys built on exploration, dialogue, and co-creation, built around a personal quest for purpose.

Whether at organizational and/or individual level, it should be carefully thought through and designed from a holistic perspective to be effective and deliver the desired impact.

Conclusion

The push for more accountability and the need to meet future stakeholder expectations will raise the bar for business on purpose and conduct and require a broader definition of value. Next gen business strategies and structures will require authentic, purpose-driven alignment at five levels to build future ready organizations and cultures.

Leadership is the key driver and enabler of this process and therefore needs to be ready to shift its role and mindset to enable sustainable and inclusive businesses.

Future focused leadership development has a double role in this. It needs to understand and embrace the new role and responsibilities of leaders and find new forms for organizational and individual learning, to close the gaps and focus on building trust-based relationships across stakeholder groups, rooted in an authentic purpose.

If you have not already, please also see Ralf Schneider’s companion piece to this article which explores the broader context of our Quest for Purpose.