Author: Maarit Vabrit-Raadla, based on the Master’s analytical thesis “Implementation of People Management Software in Organizations”, 2025

Over the past decade, Estonia has made several efforts to support the digitalization of organizations – from e-invoices and cloud services to various digital grants and innovation projects. Digital solutions for business processes, marketing, financial management, customer management, and production have developed rapidly.

However, one critical area has remained overlooked – people management.

When we talk about digitalization, we often think of tools, automation, and efficiency. But if the quality of people management doesn’t develop alongside other areas, an organization cannot grow as a whole or fully realize its potential. People – and the way they are managed – are a central component of any development.

That’s why it is crucial to bring the focus to the efficiency and digitalization of people management & Leadership.

An analytical study paper at the master’s level, focusing on this topic in Estonian companies, shows that the barrier to a digital leap is not technology or lack of knowledge, but rather deeper and more systemic factors – such as the inertia of leadership culture, leaders’ readiness for change, and inadequate support structures, including those at the national level.

Simply adopting new tools is not enough. True business and organizational digital progress also require a fundamental change in leadership – such as how we measure and make sense of work, employee development, and the leader’s role. Without this shift, other digital solutions will also remain underutilized.

Here are four key conclusions:

1. Software Doesn’t Lead People – Leaders Do

The successful implementation of any software – whether business or leadership software – requires three critical components from the organization: strategic management, structured change management, and readiness for a cultural shift. Without these, software remains merely an administrative tool – not a driver of development.

2. Digitalization Requires a Cultural Shift in Leadership 

Many organizations still treat digitalization of both business and people management as IT development projects or as HR department tools. In reality, this is a management-level transformation that demands the ability to view people management as a strategic part of the business.

3. The Obstacle is Not Knowledge – But Attitudes and Systems

Many leaders are not unprepared due to a lack of knowledge, but because of their mindset, priorities, and the absence of supportive systems. This is a crucial factor: even with the right knowledge, nothing will happen if the systems (internal, external, and governmental) do not support the change.

4.The National Framework Needs an Overhaul

If we want to see a digital leap in Estonian entrepreneurship, the state’s role must become significantly more systemic and ambitious. Micro and small enterprises currently lack access to flexible support that would help them go beyond digitalizing business activities to also advance in digitalizing leadership. Without a guiding framework, many efforts remain incomplete – or never start at all.

If companies fail to digitalize internal processes – especially people management, which is at the heart of organizational functioning and development – this will lead to negative consequences at multiple levels. The key impacts include:

Weakening of Labor Market Competitiveness

Outdated leadership practices make it hard for companies to:

  • retain and develop talent,

  • offer motivating and transparent work environments,

  • meet the expectations of younger generations (e.g. transparency, growth opportunities, value-based leadership),

  • support people’s potential in a systematic and measurable way.

The consequences: increased employee turnover, migration of skilled professionals to other countries or sectors, and lower productivity in the labor market.

Reduced Innovation Capacity and Growth Potential

Innovation and product development rely on people. This requires:

  • a collaborative culture,

  • continuous learning and development,

  • internal knowledge sharing and management.

If leadership is not digitalized, development becomes fragmented, knowledge is siloed, and processes are time-consuming.

The result: startups fail to grow sustainably, lower value creation, weak export potential, and small companies disappearing in global competition – both as suppliers and as employers.

If SMEs cannot develop their people management systems or invest in employee development, they become dependent on large corporations – acting more like labor users than employers that create value and grow talent.

Limited Impact of National Digitalization Strategies

If public support only targets e-invoicing, production, or customer management automation – while management practices and workflows remain manual and fragmented – the digital shift never reaches the deeper layers of the organization.

The outcome: large investments in digitalization yield only mediocre results, public funding has limited impact, low ROI from national programs, and businesses grow disillusioned with the value of state support.

If a company lacks leadership capacity and digital maturity, even the best support measures will not yield results. Projects often stall or fail to create lasting change because the organizational culture and leadership system don’t support digitalization.

Growing Inequality Among Micro and Small Enterprises

Large companies can usually invest, develop, and involve partners if they want to. Micro and small businesses, however, lack such access to knowledge and resources. Unfortunately, this gap is growing – potentially leading to the stagnation of small businesses and a loss of socio-economic balance.

In Summary:

If we ignore the digitalization of people management, the development of Estonian entrepreneurship will stall right where the greatest potential lies – in people and their growth.

“Unconventional Ideas” That Could Change the Situation

To ensure that economic growth is also driven by internal capabilities of companies, awareness campaigns and training programs alone are not enough. We need structural, practical, and long-term actions. Here are some proposals:

1.National Digital Credit for Startups and Microenterprises

The goal: provide all new entrepreneurs and leaders with a 5+5 year access to a quality digital technology toolset – including tools for internal processes, customer relations, data management, people management, and financial management. This is not a startup incentive but a basic functionality for all business participants.

  • The first 5 years: focus on building a strong foundation

  • The next 5 years: focus on growth

2.Digital Mentorship Network for Micro and Small Enterprises

More digitally mature companies could support new and older-generation entrepreneurs as mentors. Mentorship should be easily accessible, well thought-out, and not limited to a few through government projects. The goal is to provide trust-based, practical, experience-based support on the development journey.

3.Mandatory Digital Maturity Program for Every New Entrepreneur

Every new company founder should complete a digital leadership program, covering people management in the digital age as well as the basics of digitalization. Digital maturity should be comparable to a driver’s license – not just a requirement but a prerequisite for leading and doing business, which must also be renewed periodically.

Conclusion: Digital Leadership Starts with Mindset

The real digital leap in Estonian companies will not come from a specific software (like production software) or from an e-support scheme. It starts with the leader’s mindset: do I see my people and processes as something that can be strategically developed and supported through digital tools – or do I see them as a cost item that occasionally needs “automation” applied?

The state and society could play a key role here: to create conditions where awareness, skills, and systemic support for leaders together form a foundation for sustainable digital development. We have the potential – now we need the systems to unlock it.