Leadership is not merely about creating vision, strategy and action plans but more specifically about translating them into tangible corporate accomplishments. Much has been written about what constitutes the right leadership competency for an organization. Despite companies having leaders who fulfill broad parameters of leadership capabilities the collective competency is rarely translated to corporate performance to the fullest extent. This article discusses the parameters of leadership processes that sub-optimize leadership delivery in most corporations and lays out certain methodologies to enable top-notch leadership performance.
Leaders and leadership
The author in his blogpost “The Cubic Model of Leadership” (Strategy Musings:April 20, 2009) outlined a three dimensional model of leadership which focuses on results, processes and competencies as the three primary dimensions on which leadership gets identified. There being no single universal metric of leadership, the post also discussed three sub-dimensions on each of the primary dimensions. Revenue driving, profit driving and value driving on the dimension of results, envisioning, strategizing and execution on the dimension of processes, and mentorship, communication and networking on the dimension of competencies exemplify leadership variances. The post also highlighted how three iconic leaders, Jack Welch, Bill Gates and Carlos Ghosn, each highly successful in different backgrounds, represented unique combinations of the multiple leadership dimensions.
General Electric continued to post continued stability and growth even after Jack Welch retired. Microsoft revitalized itself even though Bill Gates moved into a passive oversight role. Renault-Nissan continues to be steered exceptionally well under the most trying market conditions for automobiles globally. Leadership in such companies is an institutionalized phenomenon rather than a uniquely personal identity. This lesson is evident from a review of several other well run companies internationally and in India. For example, Toyota, Pepsico, Kellog, Apple and McKinsey internationally and Hindustan Unilever, Tata Steel, Tata Motors, Infosys and L&T in India illustrate how such corporations prospered through successive leadership transitions. Clearly, the ability of a leader to nurture several potential leaders is the primary enabler for companies to benefit from total leadership potential.
Business canvas and leader count
Leadership occurs at functional, business or corporate level depending on the scale and scope of the corporation. It is almost axiomatic that the linear growth or diversification of a corporation tends to be a function of the number of leaders in the corporation. Leaders typically seek excellence and recognition by developing their functions, businesses and the companies they head to ever higher levels. Many management experts therefore recommend organizing a company in terms of clear and focused functions or businesses so that leaders can own them and drive their performance. The organizations that are listed above for continued performance excellence across several generations of leaders have benefited from such structural and strategic clarity.
That said, it is difficult to a priori determine the optimal number of leaders for a company. In an integrated, functionally organized company true leaders who can optimally head a company tend to be few. This is because leaders in a functionally organized company are often not provided the requisite business exposure. An integrated company which is organized under a strategic business unit concept has better potential to develop potential leaders. On the other hand a corporation that is a diversified conglomerate is naturally better disposed to throw up a larger number of leaders with overall corporate potential. Clearly, this is a Catch 22 situation with business growth requiring leaders and leadership development requiring business canvas.
Leadership and corporate context
When companies benefit from broader economic growth rather than competitive positioning leaders fail to see the need for robust leadership teams that can manage economic vicissitudes. Smug with economic prosperity, such organizations and leaders alike often fail to look beyond the current leadership challenges. Boards, internal organizational experts and potential leaders often fail to address squarely the issue of leadership development, let alone succession. This problem is more pronounced in functional organizations and is relatively infrequent in diversified conglomerates. It requires leaders to be as visionary about their own successors as they tend to be about the businesses they seek to grow. A review of worst-performing US corporations such as AIG, Fannie Mae, Freddie Mac, General Motors, Citigroup, Merrill Lynch, ConocoPhillips, Ford Motor, Time Warner and CBS does reveal that a fatal combination of strategic misdirection, operational failure and leadership vacuum contributed to the horrific performance of such corporations in recent times.
On the other hand, the most admired corporations such as Apple, Berckshire, Toyota, Google, Johnson & Johnson, Proctor & Gamble, FedEX , General Electric, Microsoft and Wal-Mart reflect an ability to handle economic vicissitudes through leadership depth. It is instructive that these corporations are essentially driven by innovation, competitiveness and globalization which require, as well as provide, perfect opportunity for leadership development. These corporations typically put forth leadership talent ahead of business development and thus institutionalized a virtuous cycle of corporate growth and leadership development. In this process, diversified companies, for example General Electric, had an even better edge with structured business evaluation processes and leadership development institutions. On the other hand, integrated companies, for example Microsoft, had to rely on external talent to an extent to top up leadership talent to handle the impact of the Internet and Cloud Computing.
Ageing and leadership development
Clearly, there is no substitute prescription for leadership development. The process of leadership development, in fact, needs to be as assiduously instituted in integrated corporations as it is naturally experienced in diversified conglomerates. This requires the leader to look beyond him or her to power future growth. Leadership perpetuation, often built on the past or present successes of the leaders, is a fallacious concept and constitutes a disabling threat to sustainable growth of a corporation. Progressive companies such as Tata Group in India have tackled this problem by establishing transparent and objective criteria for leadership succession. The policy requires that all executive directors retire by 65 years of age and non-executive directors by 75 years of age. Typically, executive directors move into non-executive director positions for the same company or for other companies within the group after the prescribed age. Companies such as Infosys have followed a policy of creating leadership vacuum by design to transit other highly capable leaders move into apex leadership positions.
While it is ideal to have structured retirement policies as in the case of Tata group or Infosys it is not always possible for companies to be time-titrated in leadership development. Voluntary and proactive efforts of the apex leaders and the boards should be channeled to develop a talent pool which not only drives the business but also exerts pressure to identify appropriate channels to utilize the leadership energy. Leadership development has fuelled the growth of several companies into new geographies and product lines. Monolithic companies have established structures such as leadership councils, management committees and executive boards to provide exposure to, and experience in, strategic business management to functional leaders. Some companies have also encouraged functional leaders to become entrepreneurs by letting them establish ancillary companies. Whatever the policies adopted, proactive development and timely utilization of leadership talent has differentiated the firms that have grown more aggressively than others even in single industry situations.
Courting young and counting right
The process of leadership development starts with catching potential leaders young. Many blue chip companies in India have over the decades institutionalized the process of inducting graduate, post-graduate and management trainees through campus requirements. More progressive companies within the blue chip group have, in addition, established in-house leadership training institutes to hone the leadership skills of potential leaders. These measures, coupled with processes of job rotation and entrustment of challenging assignments, have led to an appropriate recognition for leadership talent. Promising officers of several reputed public and private sector undertakings in India have started as such trainees and moved into chief executive positions in their companies or other companies. For example, AM Naik of L&T, S Ramadorai and N Chandrasekaran of TCS, SK Roongta of SAIL and 01 B Muthuraman of Tata Steel all joined their respective companies as engineers and rose to CEO positions. It may be hypothesized, at least in the Indian context, that such structured recruitment procedures could serve as an enabler for high quality leadership development even as their absence could act as a major disabler.
Having the right count of the potential leaders is yet another challenge of leadership development. Like the macro organization, leadership hierarchy is reflective of a pyramid that is broad at the base and sharp at the top. The progress across levels in competitive organizations happens in a deliberate manner, surmounting challenges, demonstrating performance and benefiting from well-planned selective leadership initiatives. Infosys, India’s leading IT corporation, has created a compelling norm in this process. For one CEO, the company has at any time four full time directors who are completely capable of becoming CEOs and four hundred potential leaders across the company, covering various hierarchy levels. The “1-4-400” principle, covering a multi-geographic, multi-service global corporation is certainly a trendsetter for corporations seeking orderly leadership development. The ability of companies such as Hindustan Unilever, Infosys and Tata Steel to retain equals at the top in anticipation of, and despite, leadership selection is a unique attribute that deserves to be imbibed by aspiring blue chip corporations.
Differentiating while integrating
Leadership is all about achievement and differentiation. Business or functional leaders in competitively positioned corporations often exert to demonstrate superior performance. While functional performance is rather easily judged performance of business units is harder to judge. The lead times involved in successful commercialization of novel technologies, for example, makes it difficult to differentiate the performance of sunrise sectors vis-à-vis mature segments. The judgments could, in fact, move either ways depending on the biases that evaluators bring. Adding to the complexity are aspects like interdependencies of functions or businesses, and the expedient business practices that could spur or depress performance in certain markets. For example, it is hard to complain against a business leader if the performance of his business is constrained by the inability of corporate human resources department to recruit the right talent. Similarly, it is inappropriate to praise a business that has been built around ingratiation to opinion makers.
It therefore emerges that while differentiation is important it is also critical to assess performance independent of factors that unnaturally spike or depress performance. In this context, integration of a value-driven ethical platform in the conceptualization and operation of business models assumes importance. Progressive companies lay significant emphasis on ethical business practices as a cornerstone of doing business. Progressive companies also believe in constituting leadership councils and bringing issues of business performance into open discussion. Integration of distinct functions or businesses with transparent policies and objective metrics helps proper assessment of differentiated performance. Groups like Tatas, Proctor & Gamble and Unilever have established global business metrics, including robust financial oversight, to ensure value based performance. Irrespective of scale and scope, companies should institutionalize value-filtered performance management systems from the very inception.
Decision Rights with outcome responsibilities
Leadership is often exemplified and enabled by the clarity, intensity and correctness of decision making. Clearly, a true leader should have the ability to seek and utilize decision making space. Many companies and even leaders fail to appreciate the need for genuine decision making space. Some companies attempt to address the problem through a rigorous budgeting process whereby businesses are allocated budgets as per potential. That is, however, only a partial solution. The real pathway for establishing and enabling leadership potential lies in defining clearly the decision rights of a leader. A business leader should have clarity about the extent to which he can use the levers of operational and business management. A leader who has aggressive business enhancement goals should, for example, be free to take material sourcing, product licensing and inorganic growth decisions to be able to jumpstart the growth. Decision rights are a synergistic combination of strategic paths and budget allocations placed at the disposal of a business leader.
Decision rights, however, have to coexist with outcome responsibilities. A business or functional leader who earns his degrees of freedom through well defined decision rights must also assume responsibility for the outcomes of his decisions. In talent-scarce economies it is not uncommon to see aspirant leaders who assume positions seeking decision rights, making random decisions and exiting for other positions when decisions go awry. Responsible leaders, on the other hand, make balanced decisions and in addition subject themselves to objective evaluation of outcomes. Leaders who make ambitious decisions of divestitures, mergers and acquisitions, in particular, must last long enough in corporations to either make a success of their decisions or bear the cross for their faulty decisions, or ineffective execution. Leadership longevity is an essential prerequisite for responsible leadership.
In summary, successful leadership development is an institutional process which places high responsibility on the leaders as well as aspirants. It is contextual as well as contributory to the business canvas. Poorly led corporations tend to be careless about the process deficiencies that disable leadership development through perpetuation of faulty leadership. Well-led corporations, on the other hand, tend to be respectful about the six critical factors of positive leadership development viz., capturing leadership talent at young age and preparing requisite aspirants early on, differentiating based on performance while integrating based on value systems, and enabling leadership through decision rights while holding it accountable with outcome responsibilities.
Posted by Dr CB Rao on January 8, 2010