Leadership in the Age of Artificial Intelligence: Trends and Implications

Digital Leadership in Transition

In recent years, the reliance on digital tools for task management and team collaboration has increased significantly. With the integration of AI technology, the potential of digital solutions in leadership practice becomes even more pronounced. Consequently, there is concern among leaders that AI’s rapid evolution could make them obsolete. Leadership, however, remains deeply connected to fulfilling core psychological employee needs — autonomy, competence, and relatedness (Deci & Ryan, 2000; Van den Broeck et al., 2016). Can AI fully address these?

AI as a Co-Pilot: Enhancing Leadership Functions

AI now plays a supportive role in leadership, offering real-time feedback on employee performance and workflow optimization. AI systems are increasingly useful for managing team dynamics, identifying bottlenecks, and providing individualized feedback and development recommendations. This enhances both employee autonomy and competence, making AI a valuable asset in leadership functions (Quaquebeke & Gerpott, 2023).

However, despite AI’s potential, many remain uncomfortable with its involvement in key leadership decisions. While 65 % of respondents in a recent study believed AI could develop organizational strategies, 69 % expressed concerns about AI making decisions on hiring, promotions, or task distribution. Similarly, only 45 % were comfortable receiving AI-generated feedback, and 57 % doubted AI’s ability to understand their behavior as well as a human (Hougaard, 2024). Yet, research suggests AI may have already surpassed human capabilities in certain leadership tasks. For instance, Tang et al. (2023) found that employees receiving AI-generated feedback outperformed those with feedback from human managers, unless they were aware of AI involvement in the process. Despite promising evidence, people remain reluctant to delegate leadership to AI. While algorithmic decisions on technical tasks like work assignment and scheduling are seen as fair and appropriate as human decisions, this confidence does not extend to hiring or performance evaluations (Lee et al., 2018).

This paradox, known as the ‘deployment vs. disclosure’ effect, highlights how AI’s ability to analyze large datasets improves decision-making, but disclosing involvement in leadership choices can erode employee trust (Lee et al., 2018). Moreover, over-reliance on AI in day-to-day tasks has been linked to increased feelings of loneliness, as people who frequently interact with AI report higher levels of isolation, and lower well-being (Tang et al., 2023). AI’s inability to provide meaningful social validation challenges its perception as a “social agent” (Epley et al., 2007), emphasizing the need for human leaders to address employees’ emotional and relational needs.

Contemporary organizations are not prepared for the AI Transformation

A recent study of 73 organizations at our Institute for Leadership and Human Resource Management reveals that only 13 % of firms have established the necessary culture, skills, and infrastructure to capitalize on the AI transformation. Another 40 % have implemented AI-related practices but struggle to translate them into performance gains. 46 % have not yet set the course for the digital transformation. Technostress is particularly high among older generations, with 44 % of baby boomers reporting significant stress due to digital demands. This issue persists, though less severely, among younger generations, with 32 % of Gen X, 19 % of Gen Y, and 18 % of Gen Z affected. Moreover, 86 % of companies lack strong leadership role models in digital media, especially at middle and lower management levels. This leadership gap is mirrored in the lack of AI training programs – only 21 % of firms offer AI training, and a mere 4 % offer programs related to the metaverse. To foster not only acceptance of novel technologies but enable employees to fruitfully integrate them in their workflows, companies must prioritize developing both technological and interpersonal skills to navigate the AI transformation.

Conclusion: The Future of Leadership and AI

Looking ahead, AI is expected to take over more data-driven leadership functions, but human leaders will remain essential. Hence, organizations must establish the requisite foundations to leverage AI’s strengths while maintaining the uniquely human elements of leadership. We urge firms to build the organizational culture, HR, and digital infrastructure needed to successfully capitalize on the AI transformation and shape the new world of work 5.0.

Sources:

Deci, E. L., & Ryan, R. M. (2000). The ‘What’ and ‘Why’ of Goal Pursuits: Human Needs and the Self-Determination of Behavior. Psychological Inquiry, 11(4), 227–268.

Epley, N., Waytz, A., & Cacioppo, J. T. (2007). On seeing human: A three-factor theory of anthropomorphism. Psychological Review, 114(4), 864–886.

Hougaard, R. (2024, May 8). To AI Or Not To AI: The Question Is When, Not If. Forbes. https://www.forbes.com/sites/rasmushougaard/2024/01/25/to-ai-or-not-to-ai-the-question-is-when-not-if/?sh=3392cfac346c

Lee, M. K. (2018). Understanding perception of algorithmic decisions: Fairness, trust, and emotion in response to algorithmic management. Big Data & Society, 5(1), 205395171875668.

Quaquebeke, N. V., & Gerpott, F. H. (2023). The Now, New, and Next of Digital Leadership: How Artificial Intelligence (AI) Will Take Over and Change Leadership as We Know It. Journal of Leadership & Organizational Studies, 30(3), 265–275.

Tang, P. M., Koopman, J., Mai, K. M., De Cremer, D., Zhang, J. H., Reynders, P., Ng, C. T. S., & Chen, I.-H. (2023). No person is an island: Unpacking the work and after-work consequences of interacting with artificial intelligence. Journal of Applied Psychology, 108(11), 1766–1789.

Van Den Broeck, A., Ferris, D. L., Chang, C.-H., & Rosen, C. C. (2016). A Review of Self-Determination Theory’s Basic Psychological Needs at Work. Journal of Management, 42(5), 1195–1229.

Yin, Y., Jia, N., & Wakslak, C. J. (2024). AI can help people feel heard, but an AI label diminishes this impact. Proceedings of the National Academy of Sciences, 121(14), e2319112121.