Know-How: The 8 Skills That Separate People Who Perform from Those Who Don't

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Author:	Ram Charan
Publisher:	Crown Business
Published:
Pages:	304
ISBN-10:	307341518
Category:	Array

Contents 1 CHAPTER 1: KNOW HOW 2 CHAPTER 2: THE FOUNDATION 3 CHAPTER 3: BEFORE THE POINT TIPS 4 CHAPTER 4: HERDING CATS 5 CHAPTER 5: HOW LEADERS ARE MADE 6 CHAPTER 6: UNITY WITHOUT UNIFORMITY 7 CHAPTER 7: THE BUCK STARTS WITH YOU 8 CHAPTER 8: IT’S MONDAY MORNING—NOW WHAT? 9 CHAPTER 9: IN THE COURT OF PUBLIC OPINION

[edit] CHAPTER 1: KNOW HOW

The Substance of Successful Leaders

"Know-how is what separates leaders who perform—who deliver results—from those who don’t. It is the hallmark of people who know what they are doing, those who build long-term intrinsic value and hit short-term targets."

The problem lies in separating those who portray the appearance of leadership from those who are leaders. Many times those responsible for hiring leaders become focused on:

• Raw Intelligence. The candidate is bright, incisive, analytical.
• Commanding Presence & Exemplary Communication Skills. The candidate is articulate, persuasive, charismatic.
• Has the Power of a Bold Vision. The candidate can envision and relate that vision.
• The Notion of a Born Leader. The candidate is motivational, well-liked, energetic.

While intelligence, self-confidence, presence, the ability to communicate, and having a vision are important, personal attributes are only a small part of what the structure of a leader should be. Personal attributes can be severely diminished if they are not reinforced by the know-how that brings leadership into the realm of profit and loss. The ability to lead your business into the future will be mitigated by your ability to do the right things, make the right decisions, and deliver results.

• Can you position your business? Find the core idea that meets customer demands and makes money? Can you, when required, appropriately reposition your business?
• Are you able to pinpoint external change? Put your business on the offensive by detecting patterns before your competitors?
• Can you lead the social system of your business? Find, motivate, retain a cohesive group of the right people in the right positions to enhance your business?
• Can you judge people? Know the right people through fact and observation, and by that information, place them in the appropriate position?
• Can you mold a team? Provide an egoless atmosphere for your highly competent people to coordinate seamlessly?
• Can you develop goals? Balance your vision of the future against the reality. Break away from the past to engage in radical change.
• Can you set laser-sharp priorities? Define the specific tasks that align resources, actions, and energy.
• Can you respond to societal pressures? Deal with forces beyond the market by creatively and positively responding to the things you can’t control but that significantly impact your business.

Command of the know-hows enables you to diagnose any situation and take appropriate action, lifting you out of your comfort zone of expertise by developing skills that prepare you to do what the situation requires, not just what you’ve traditionally been good at. The skills, however, do not stand alone. Personal traits, psychology, and emotional factors all enter the leadership picture. Rather than trying to define and adopt an ideal profile, consider how your personal abilities affect the way you use the 8 know-hows. Examine your personal psychology and how you react to situations. Essentially, are you a pessimist or an optimist?

Know-How is about what you must both do and be to lead your business in what is shaping up to be the most challenging business environment in decades. It plants business leadership squarely on a foundation of profit and loss, capital utilization, resource allocation, productivity, and customer satisfaction while never losing sight of the fact that leaders are human beings.

The true stories of “Nick” and “Bill” exemplify the differences between having know-how and not having it.

As a candidate for CEO, Nick seemed perfect. He was articulate, decisive, energetic, charming, inspirational, and young enough to see the company through its problems. A financial wizard, he was honest about his limitations and confident in his vision. Upon his hire, he brought in his own long time consultant at the Head of IT, unaware that she had no hands-on experience. In his first months he hired a new president, hired away from a competitor, who built his cabinet with known associates, many of them also hired away from competitors.

Nick’s vision was to break the competition by purchasing large lots at a discount from suppliers and thereby be able to discount the final product. Naturally, the competitors, although losing profit, but in a much better condition to do so, countered by discounting merchandise in strategic locations. Three things happened: Nick’s merchandise wasn’t winning the price war; the now out-dated merchandise had to be sold at a drastic reduction and further loss of profit; and the large amount of inventory, which had sapped much-needed cash, remained static.

The CFO, concerned about the company’s cash position confronted Nick with the problem. Nick, entrenched in his vision and ego, put aside the concerns, telling the CFO to get on the wagon or leave. Unfortunately, the CFO was correct in his assessment of the company’s position, the company soon filed for bankruptcy, and Nick was removed.

When hiring Nick for the position of CEO, the board was beguiled by form over substance. By focusing on his personal traits, they failed to fully research his skills. This type of error occurs in many businesses and at all levels. Young people learn what they have to do to be recognized and spend a great deal of time impressing their superiors with their intelligence, fast thinking, and commanding presence. They do not spend enough time learning the know-hows of how to succeed in substance, and often, in their perpetual striving to be “seen” as competent, they lose the capability to learn to be competent.

“Bill” also had many of the charismatic traits of a leader, but also packed a resume of diverse experience and successful result. He had repositioned three different businesses in three different industries. In studying how to reposition, Bill made the difficult and decisive moves that focused on resultant profit. Whether it was abandoning entire portions of a business in order to focus on the profitable portions, incising the employment base, or relocating corporate facilities overseas, Bill’s decisions were fundamentally based on finding solutions to failing profits.

Bill’s confidence in his decisions wasn’t just bravado; it was rooted in his know-how of positioning the business to make money. His ability to pinpoint external change, judge people, adapt to and facilitate multi-cultural situations, and focus on the priorities that lead to the achievement of both long and short-term goals were all factors in his ability to succeed and lead.

The difference between Nick and Bill boils down to one simple thing: Bill knew what he was doing and Nick really didn’t. In today’s environment of lightning fast change and transparency, leaders who lack substance get discovered sooner, but the damage they do in the meantime can be greater. Missing an opportunity or failing to move on a threat can destroy a company as can mistakes in judging people or organizational capabilities or even in setting goals.

Successful leaders learn, practice, hone, and refine the know-hows until they become natural. Mastery comes with lots of rounds of practice. Over time, with lots of development, the know-hows become automatic, instinctive, and superb, and judgment improves. You become a master in exercising them at the right time and in the right combination as each new situation presents itself. While it is unrealistic to expect every leader to become superb in every know-how, you need a basic understanding of each in order to know where your strengths and weaknesses lie and what kind of expertise you may need to support you.

Linking Know-Hows With the Whole Person

The debate on whether leadership is inherent or learned is irrelevant. By the time you are in your mid-twenties, your essential personality traits, psychological constructs, and patterns of thinking are pretty much ingrained—inherent or not. From that point on, your ability to succeed on a sustained basis depends on cultivating and practicing the requisite know-hows, while at the same time refining the personal traits you have. Know-hows reinforce personal traits and personal traits reinforce know-hows.

For instance, successfully detecting external change and repositioning a business will boost your confidence and perhaps make you more decisive next time. With greater confidence, you might become more open to contradictory views and thereby expand your cognitive bandwidth. A wider bandwidth will help you detect external trends. That’s why it’s so important to practice the know-hows through a series of deliberate, appropriately challenging job assignments, combined with self-reflection on your personal traits. That’s how leaders are made.

There are dozens of personal traits that can affect leadership and some, namely integrity and character, that are absolute. The ways that leaders develop and deploy the eight know-hows are especially influenced by a handful of them:

AMBITION: A drive to achieve something so visible and noteworthy that it propels one to strive to reach his or her absolute potential.

Downfalls:

Blind Ambition: Results in 1) Financially unsound but flashy acquisitions
2) Overburdening priorities by taking on everything
3) Setting attention-getting goals rather than realistic, profitable goals

Over Ambition: Combined with lack of integrity, it leads to undesirable behaviors or corruption.

DRIVE AND TENACITY: A push that gets to the heart of an issue and finds solutions despite obstacles or difficulties.

Downfalls: Can entrap a leader in an unworkable plan, an outdated assumption, or a failing investment.

SELF CONFIDENCE: The ability to listen to your inner voice, endure the lonely moments, speak your mind, act decisively, and know you can withstand the consequences.

Downfalls: Narcissism, arrogance, abuse or irrational use of power

PSYCHOLOGICAL OPENNESS: The willingness to allow yourself to be influenced by others and to share your ideas openly, to seek diverse options in order to factor a wider range of information into decision making, to permeate the social system with enhanced candor and communication.

REALISM: The mid-point between optimism and pessimism and your place on that scale; the ability to weigh, measure, evaluate, and test unfiltered information to determine a realistic course of action.

APPETITE FOR LEARNING: An eagerness for new challenges and experiences and the ability to learn from them.

It goes without saying that developing the know-hows requires innate intelligence. Nevertheless, the best leaders have distinct cognitive abilities that go beyond simply being bright. Their thinking encompasses:

A wide range of altitudes: It is essential to be able to navigate a full range of altitudes, from the lofty conceptual thinking to the worm’s eye view of the mundane details. Many leaders love the world of big ideas but can’t link them to the specifics of how they will be achieved or how they will make money. Their questions are broad and general rather than incisive. On the other hand, some leaders are so focused on the details that they miss the forest for the trees. Either extreme can be damaging.

Broad cognitive bandwidth: This ability allows you to take in a wide range of information and see things in their broader context. You can take in more complexity, and see the interconnections. You are more likely to pick up on trends outside your industry that affect the positioning of your business and create new growth opportunities, and you are better able to see the business and its social system holistically, rather than as separate functions, units, or individuals.

Reframing: Continually reframing improves the know-hows by helping create a more accurate picture of a problem, person, or phenomenon and a wider range of alternatives. Through reframing, you are able to come up with different ways of defining problems and novel solutions for them.

The point, of course, is to become aware of whatever human characteristics are blocking you from perceiving things accurately, making sound judgments, or taking effective business actions. Dissolving the blockages and expanding you cognitive range are essential for the know-hows to improve.

Leadership is a messy phenomenon because there are so many things that influence it. What I have been doing is looking at these messy situations with their many variables, canceling out the uncontrollable factors, and extracting the substantive differences between leaders who deliver and those who don’t. From that, I’ve developed a framework that practitioners can use. This has been possible only because the companies and leaders have allowed me to be present and shared with me their views and perceptions, all built on trust. Those conditions have allowed me to see what really underlies a leader’s success. My research has led to a more complete theory of leadership, one that identifies business know-hows and explains how they interact with a leader’s personality traits, psychological orientation, and cognitive architecture. My research has also helped me to see the underlying foundations of business success and has resulted in the eight know-hows that are the heart of this book.

[edit] CHAPTER 2: THE FOUNDATION

Positioning and Repositioning the Business to Make Money

Positioning is the central idea of your business and the foundation for whether or not you are making money. The true test of your positioning is the real world. If people like what you have to offer and you can sell it at a profit, you’ll make money. If they are confused about what your business provides, or they don’t like it, you won’t. In other words, if the dogs don’t like the dog food, you lose.

Positioning is not eternal. The world is constantly changing and you will have to constantly reshape your business to adapt to these changes. That means making basic decisions about what to add to the business and what to take out. It also means spotting new opportunities for profitable growth, re-segmenting markets, and deciding which technologies to adopt. Knowing how to position and reposition a business is among the most demanding requirements of the twenty-first century leader. While all eight know-hows are important, the know-how of positioning is first among equals. If you don’t get it right, the foundation of the business eventually crumbles.

The clarity and specificity of positioning a company in the mind of the consumer, employees, and other constituencies is paramount. Too often a shift in positioning in a relatively stable environment can cause a permanent blurring of the company’s value proposition in the eyes of the customer. Take, for example, Sears. People once knew exactly what to expect from Sears—who it was competing against and how—but as the competition changed, its positioning got blurred. For more than two decades, Sears has had a kind of identity crisis, emphasizing and de-emphasizing various aspects of the business and leaving people confused about its changing value proposition.

The know-how of repositioning requires you to be on constant vigilance to detect early warning signals and interpret them correctly, whether they indicate a change is an aberration, an opportunity, or a threat.

When the Landscape Breaks

When there is a break in the continuity of the external landscape, as there has been in many industries, the know-how of positioning and repositioning becomes even more important. One recent example is the new technologies, particularly the search engines, that are threatening the very foundation of the newspaper business. For decades the positioning of companies in the newspaper business was stable and straightforward, and the way they made money came from a combination of newsstand sales, subscriptions, and advertising. That stability has been shattered.

As internet usage pervaded the world, more and more companies sought to use it as an advertising outlet. Google offered them not only this opportunity, but tossed in an added advantage. Advertisers could reach people who might actually have an interest in their product by putting ads on Google’s search results pages for the key words that fit the product. By tracking how many people clicked to view the ad, Google gave advertisers a measure unavailable from traditional media: exactly how many people actually saw the ad. This is a breakthrough benefit for advertisers and one they are increasingly taking advantage of.

For any business, positioning is figuring out what the new composition of revenues will be, from what sources, and what the new cost structure will be to continue to make money. When you reposition a business, you have to look at it in a different, usually broader context. How you look at it is conditioned by your cognitive bandwidth and your personality. Are you on the offensive or in a defensive mode? Are you looking at it as the same old game or is your game being subsumed by one that is bigger and radically different? Positioning is a fast-evolving game that changes as the players act and react to each other.

The Moneymaking Imperative

The patterns of change in the external world and the challenges they present can make your head swim. Nevertheless, the acid test of your choice of how to position your business rests simply on whether it meets your moneymaking aspirations. You can get overwhelmed by financial mumbo-jumbo and exotic financial tools, but the heart of the matter is very simple. In its essence, to exist over time, every business—from the Fortune 500 to a small proprietorship in your local community—has to sell something, make a profit, have more cash coming in than is going out, and earn more than the cost of using other people’s money to be in business. The basic moneymaking elements of revenue growth, margin, velocity (use of capital per dollar of revenue), cash, and return on invested capital are universally the same for every business, of any size or type, anywhere in the world. The magnitude of each and how they connect with each other varies from business to business, company to company and from time to time. The mastery of each of these elements enables you to cut through the complexity of any business.

Corporate giants have, of course, immensely greater size and complexity, which makes it harder to see the relationships among the elements of moneymaking and their link with positioning. They still have the same core elements of moneymaking as a small self-owned business. In a small business, the information needed to run the business is at the owner’s fingertips. There are no middle managers or business analysts to filter information and there is little in the way of complexity. The owner runs the counter and personally knows his customers. He or she knows how many people walk through the door, how long they stay, what they are looking for, and what they buy. They know intuitively that customer’s buying behavior has a direct effect on the dollar value of their sales (revenue), the profitability of those sales (gross margin), and how long items sit on the shelf (velocity). They know instinctively that margin and velocity both affect their return on invested capital (R = M x V) and that inventory affects cash: excess inventory ties up cash that might be needed to pay the bills. If the owner senses that people aren’t buying, he or she can adjust his or her merchandise or prices or the store layout or try to negotiate with his or her small number of suppliers—whatever it takes to keep margin, velocity, revenue, cash, and return where they need to be. Price cuts can boost sales but might hurt margins or return.

This is exactly what larger corporations do on a much larger scale.

When the Need for Positioning Changes Frequently

Blockbuster, Inc. shows the difficulty of maintaining the moneymaking imperative as the ground shifts underneath the business. Blockbuster’s initial positioning in the late 1980’s was to fulfill people’s growing preference to view Hollywood movies in the comfort of their homes by renting out these movies. They purchased the videos on credit, the customers rented them with cash, and Blockbuster made a great deal of money.

In the mid-1990’s, small changes began to affect Blockbuster’s positioning. Hollywood had begun releasing their videos to the public at the same time they were sold to Blockbuster and customers were now buying rather than renting. Satellite dishes and expanded cable programming were beginning to provide video on demand. Repositioning to emphasize retailing over rentals saved Blockbuster from complete failure, but did not boost its revenues. Margins on video sales were much lower than on rentals and the difference was soon felt.

A new leader, Bill Fields, formerly of Wal-Mart, was brought in to turn Blockbuster around. His idea was to position Blockbuster as a bright and lively neighborhood center that sold a variety of entertainment goods and convenience items, mirroring what he was psychologically comfortable with. Unfortunately, customers did not perceive Blockbuster that way.

The next CEO, John Antioco, repositioned Blockbuster back to the central idea of renting videos, but sought creative ways to improve moneymaking through negotiating lower prices from suppliers in exchange for shares in the rental revenue. This bought some time, but the world continued to change. DVD’s, lower priced DVD players, web-based rentals and downloads all encroached upon Blockbuster’s territory. Blockbuster once again repositioned to emphasize retail over rental. Unfortunately, this repositioning now pitted them against Wal-Mart and Costco.

In 2004, Blockbuster repositioned again and launched an on-line rental service in competition with Netflix. The path to moneymaking, however, was still not clear and Blockbuster continues to struggle.

The story of Blockbuster is the story of every business in this way: positioning doesn’t last forever. On the contrary, in today’s world, it doesn’t last long at all. The life of a valid positioning continues to shorten, and is likely to do so in the future. The essence of the know-how of positioning is to know when a change needs to be made, to determine the shape of the change, and to correctly link it with the fundamentals of moneymaking. In addition, the leader may need more: the psychological comfort to dismantle that which made him or her successful earlier.

The Ongoing Battle for Positioning

Different players in an industry will have radically different responses to change in their environments; some will be defensive, some will be on the offensive, and some will basically ignore the evidence that something is wrong. Moves by one player influence the moves of the others, creating huge complexity and uncertainty as competitive actions and reactions take place sometimes over several years.

When leaders first sense that the foundation of their business is crumbling and they see no good fix, their inner fears and insecurities sometimes take over and stop them from seeking help to figure it out. Even if you see the need—and a clear way—to reposition, you have the internal organization to consider. Resistance will likely be high and will test your conviction, courage, and drive. If you feel you can’t win the organization over, you might unconsciously let your tenacity flag. These are the moments when your leadership traits and the know-how of repositioning will be tested, not once, but many times.

To be a successful leader psychologically, you have to be open, receptive, and active in searching for the signs that the business is being shifted or needs to be. You need to be surrounded with people whose conversations with you help you wrestle with these issues in a brutally honest manner. Here self-awareness really matters: Are you willing to psychologically wallow in this part of the job and do you devote enough time to it? Are you passionate enough to develop and hone this know-how?

From Fifty Thousand Feet to Fifty Feet

No one would ever question that Steve Jobs is a visionary. In the contemporary business world, being called a visionary is meant as a high compliment. While visions of the future can be inspirational, however, you must also do the hard work of translating your vision into down-to earth specifics. The know-how of positioning requires that you have a range of altitude to think expansively and conceptually about new opportunities in the landscape—but also to think specifically about the down-to-earth realities of customers, competition, and moneymaking. This is not an impossible combination in a human being. All leaders with superb positioning know-how have it.

Will Dogs Eat the Dog Food?

There is no denying that big ideas are emotionally exciting. Leaders at the forefront of shaping them get huge recognition and lots of emotional perks. Other leaders don’t want to miss the train. That’s when you see whole industries going in the wrong direction. Often the leader’s enthusiasm is contagious and sustains investors, at least temporarily. The tide turns, though, when the results fail to materialize, usually after a big time delay. Positioning always requires some educated guess-work, but you have to get emotion out of the way. Sometimes the potential for big money can skew your perception of what will happen if some of the judgments prove wrong, or if something unexpected happens. The margins may be huge, but how long will they last? When can you actually collect the cash? And what happens if a competitor does something unexpected, like cutting the price? The cognitive ability to pinpoint the exact source of uncertainty and the magnitude and timing of risk and the psychological comfort to deal with the consequences if the risk comes to pass differentiates successful leaders.

The idea expressed in Malcolm Gladwell’s Blink: The Power of Thinking Without Thinking—that your first instinctive reaction to a situation may be correct—is dangerous when it comes to the know-how of positioning. By definition, change is new, requiring different thinking than before, almost always demanding solutions that are not part of prior experience. You can trust your instincts and gut only after prolonged iterations of the many factors involved. You may go through periods of anxiety and frustration when the issue is unresolved. It tests the leader’s temperament to endure such prolonged periods of uncertainty.

Early-Warning Signals That the Positioning of Your Business May Need to Change to Take Advantage of Emerging Opportunities

• Nascent industries emerge
• Non-traditional competitors start to appear
• The positioning of a key competitor changes
• The rise of new customers
• Consumption patterns are being influenced by affordable new offerings from new technologies (think iPod)
• Customers are defecting
• Loss of market share in select key segments
• Emergence of new business models and new management models
• Pressure on profit margins
• Unexpected decline in cash flow from operations
• Decline in customer satisfaction

[edit] CHAPTER 3: BEFORE THE POINT TIPS

Connecting the Dots by Pinpointing and Taking Action on Emerging Patterns of External Change

Business has always had to contend with a changing world, but the pace and abruptness of change is new to this generation of business leaders. Your job as a leader is to deal with that change, to get and stay ahead of the curve, ensuring that your business is positioned to make money now and in the future. It takes a special know-how to mentally process the complexity and deal with the ambiguity to form a view of the patterns that are emerging. It is this know-how of pinpointing external change that allows you to make a sound judgment about where the world is going and put your business on the offensive.

Many people continue to look backward for a reference point they can understand, but matches with previous patterns and cycles are nearly impossible to find. China is not Japan in the 1970’s, nor is the Internet like jet transportation. Never before have macroeconomic trends had such fast and devastating impact on companies and whole industries. Traditional ways for making business and economic assessments neither correlate with nor explain the reality of what is actually happening in the world today as they have in the past. On the other hand, the opportunities have perhaps never been greater for those who are ahead of the curve and able to take action ahead of the competition.

Sorting through the complexities of the external world for opportunities does not simply mean engaging in traditional competitive analysis, looking through the lens of your industry as it is currently structured to predict what may emerge in the near future. Nor does it mean leaning heavily on experts for advice about the future. Economists, demographers, social scientists, and strategy consultants are among the many intelligent people with narrow expertise relevant to business. Many have impressive titles, high positions, honors, and credibility. They are passionate and convincing, but they speak through the lens of their narrow specialty and rarely understand a business well enough to detect at the factors that might be relevant to it. Few have the broad lens required to be a business leader.

Only by looking out far over the horizon and taking into account developing trends that may not seem directly relevant now can you really do the kind of analysis necessary to prepare for rapid change and new opportunities. You need to expand your view, observe from the outside in, and be psychologically open to the patterns you detect and their implications for your business.

You need to spread the net wide, then do the mental processing to identify the underlying patterns. You need an insatiable curiosity and interest in the world, and an intense drive to find out what you don’t know. Then you need to find the patterns. Finding patterns is akin to solving a puzzle, so personality traits like tenacity and confidence are necessary to keep searching for the missing pieces. On the other hand, arrogance and insecurity are likely to interfere with this know-how, causing you to filter out unwanted news and other points of view.

The world, however, is becoming such that you can’t go into a holding pattern waiting for the external patterns to become clear. Some people are so cautious that they won’t make a move until a pattern is well defined and validated by others who have already moved into the space. On the other hand, some will make daring moves even when the externals are completely foggy. Some are off and running with a few bits of data that reinforce their preconceived idea and ignore everything that contradicts it. The fruits, however, will belong to the realist, to those who can pick out key variables amid complexity, who see how they might combine and get a viewpoint about where the external landscape is going.

Looking Outside In

The earlier you can detect changes, the more time you will have to generate and test hypothesis, mobilize resources, and, if necessary, reposition the business to achieve your moneymaking targets. Looking beyond the usual boundaries of the business environment helps you detect changes early on. For instance, the political process has far more impact on business now than ever before, and it is essential that you know and understand the ramifications of legislation and regulations for your business and industry, as well as special interest groups that may have an impact on you.

As you continually practice looking from the outside in, you must develop the skill to figure out what kind of change it is. Is it cyclical—this, too, shall pass—and therefore not a fundamental shift? Or is the change structural and secular, something that won’t go away and must eventually be dealt with? If you can perceive changes as opportunities, you’ll be more likely to see things as they really are.

How to Detect the Points Before They Tip

People with extraordinary know-how for detecting patterns in the external environment fly at a higher imaginative altitude than others. They see things others miss, seek sources others don’t, and piece things together in their own creative ways. As with all the know-hows, the skill gets better with practice, and you become more self-assured in acting on your assessments. Thus, this know-how is a source of confidence for going on the offensive, to be distinguished from the bravado of those who make bold moves (and have an occasional lucky strike) without it and those who are paralyzed or continually on the defensive for lack of it. This is the know-how that differentiates true business leaders, all of whom have superb know-how for pinpointing patterns in the external environment. Such leaders have this theater running continuously in their unconscious mind; for them, the sorting, sifting, and selecting is well practiced automatic, and of high quality.

It isn’t necessary that you be a CEO to seek the big picture. While CEOs and business unit managers need to see the external patterns to position the business, other leaders need this know-how too, for instance, for HR to do talent planning, for operations to choose plant locations, and for R&D to find new sources of innovation.

Going on the Offensive

People who create organic growth that is profitable and sustainable connect the dots sooner and are on the offensive. The greatest challenge today is finding new opportunities for profitable and sustainable growth in a complex and tough environment. To achieve an objective like this, you have to be psychologically comfortable to go beyond traditional thinking about an industry and sense what is happening on the outside, connect the dots, and discover what the new opportunities are.

Consider the product that redeemed a foundering Chrysler Corporation—the minivan. A product planner at the company had access to lots of statistics on demographics and the American auto market. Very little of that data was proprietary and everyone in the auto industry used it. He, however, combined those facts in a different way and detected an emerging pattern. He didn’t use the term “soccer mom,” but he intuitively understood a significant shift in the lifestyle of middle-class America.

The challenges, then are to keep your perceptual and psychological lenses open, to actively search for what you don’t know or is not yet clear, to avoid relying too much on the past for indications of what might happen in the future, to absorb and digest complexity, and to shape or let the patterns emerge as they will, even if they present unpleasant realities.

Seven simple questions can help you sort through and detect patterns in the complex world around you

1. What is happening in the world today? The most significant trends affecting business transcend company and industry. They cross borders and infuse all areas of civil society. Trends that at first may seem disparate are not unrelated; they must be considered in combination. Fill in the gaps until a clear picture comes to focus.
2. What part of my frame of reference has worked for me? What hasn’t worked for me? The construction of your own frame of reference based on previous experience is a large part of learning to detect changes in external patterns.
3. What does it mean for anyone? Leaders with well-honed business acumen keep looking at trends through different lenses and from the perspectives of other key players.
4. What does it mean for us? Once you have the big picture, you can begin to examine what it means for your own company’s strategies.
5. What would have to happen? For macroeconomic trends to create opportunities, it is quite probable that other things have to happen first or simultaneously. Think iPod connected to iTunes connected to consumer willingness to pay rather than steal (Napster) connected to copyright law connected to the Internet. A competitor’s move may be what it takes to create opportunities.
6. What do we have to do to play a role? Position? Reposition?
7. What do we do next? Assimilate and process all possible information. Connect the dots into the future.

Leaders Who Connect the Dots

• Have a methodology for anticipating and detecting breaks in the continuity of the external landscape
• Imagine one or more pictures of the future and pinpoint the gaps that make the picture incomplete
• Have a reliable, diverse social network—both inside and outside the business—people with different perspectives who help them see their business through a new lens
• Talk to their network for ideas about how to close gaps that they identify
• Have the personal imagination to construct patterns from emerging disparate trends, always searching for the missing links and missing ingredients
• Are psychologically self-aware of potential bias on their part or that of the people they associate with to be overly optimistic or pessimistic, thereby distorting a realistic perception of external trends
• Connect patterns of change with the question of whether the positioning of the business could become irrelevant or obsolete.

[edit] CHAPTER 4: HERDING CATS

Getting People to Work Together by Managing the Social System of Your Business

Perhaps the biggest untapped opportunity for your success as a leader is shaping the way people work together to deliver the numbers. You own performance depends on your ability to get other people to commit to and deliver their common goals. But, as every leader knows, getting people to align their efforts is a lot like herding cats. You can put a lot of energy into it, and they still do as they damn well please.

Every business, no matter the size, has a social system which is reflected in the various ways people come together to do their work. It is made up of the ways they influence each other, develop relationships and feelings with each other, how they share information, and how they make necessary trade-offs and decisions. How they work together creates energy gains or energy drains and determines whether they deliver on the commitments they make to each other. Understanding the social system of your business is the best way to get a handle on the otherwise mysterious subject of managing and changing how people work together to meet ever-changing business requirements.

Managing the social system has two parts. You have to be able to determine what critical decisions and trade-offs must be made, and by whom, to accomplish you business goals. Then you use that insight to design disciplined, routine, regularly scheduled meetings (operating mechanisms) to bring the right people together at the right frequency with the right information to make those decisions. That’s one part of the know-how. The other part is to actively shape the behaviors that are displayed in making those decisions. In the course of those interactions, people may be hoarding information, going off on tangents, and not getting to the nub of the issues. They may also be driving individual agendas, not surfacing conflicts, and failing to reach clear resolutions. You have to shape the content of these discussions and ensure that the right behaviors are taking place in them and the output links to results. In short, you have to actively design and lead the social system of your business, which comprises all of the operating mechanisms, the connections among them, and what happens in them.

A social system that is running well enables a business to execute ambitious strategies to enter new markets, gain market share, or improve profits. The social system at many businesses is out of sync with what it ought to accomplish. Business results can fall short for a variety of reasons—because the positioning is obsolete, the goals were unrealistic, or the business was hit by something unanticipated in the external environment—but a leader with this know-how will always investigate the social system to see if it is the source of the problem and take specific steps to fix it.

All too often when trying to initiate change, people fall back on changing the organizational structure, replacing key people, and altering what is measured and rewarded. While these steps may be necessary, it’s putting the cart before the horse.

You need to look at your business through the lens of the social system. Look at the interaction among people, the information flows, and the anatomy of decision making. You have to be able to map your operating mechanisms, ensure that each of them is geared around a business result, and diagnose how each of them is actually working. If new ones are required or existing ones are obsolete, it’s your job to change them. If the people are not having the right discussions in them or behaving in the right way, it’s your job to correct those behaviors, using persuasion, power, and rewards, whether money, recognition, or promotion, as necessary.

That’s how the social system changes—through your conscious actions in designing and redesigning the operating mechanisms and conducting the dialogue in a way that shapes people’s behaviors. As you do this repetitively, with discipline, you change the quality and substance of business decisions, and because the behaviors that get shaped in the operating mechanisms carry over to people’s everyday work, you sustain a change in how people work together. With this know-how, you accomplish the elusive goal of culture change and develop the ability to deliver on commitments and achieve business results.

Operating Mechanisms as the Building Blocks of the Social System

The know-how of managing the social system involves your leadership in building operating mechanisms at critical intersections—the places where information must be exchanged, conflicts must be surfaced and resolved, and trade-offs and decisions must be made for specific business purposes. You need to enforce the right behaviors in them, then ensure that the output from one operating mechanism becomes integrated into others.

It takes time, effort, and leadership to make sure that the right people are coming together and discussions are properly focused and intellectually honest so the business makes better, faster decisions and can accomplish what it sets out to do. If you are not doing your job of managing the social system, execution will suffer.

You also have to establish and enforce what behaviors are acceptable and which are not. You do this through conducting dialogue. You have to be able to perceive when a person’s behavior is going off the track and have the emotional fortitude to correct it face-to-face, often right there on the spot. Through dialogue, people can see what the leader thinks is important. They learn, for example, when contradictory views are really welcome, whether conflicts are to be aired or suppressed, whether it’s OK to sidetrack or dominate discussions, and whether decisions are based on fact or personal power. It is in the conduct of these session, guiding the dialogue and flow of information, in which leadership becomes a performing art.

There are four pertinent questions you need to ask about the operating mechanisms that make up your social systems.

1. What is the purpose of the existing operating mechanisms and how do they and their linkages combine to help deliver results?
2. Which ones should be kept, eliminated, or combined?
3. Which require a total redesign and a new way to lead them?
4. Are there new operating mechanisms that should be installed?

How to Know What Operating Mechanisms You Need

If you are going to do an effective job of leading your social system, you will have to design operating mechanisms around your most important business activities, such a serving new markets and achieving growth. Each operating mechanism must have a clear business purpose. With that purpose in mind, try to determine:

1. Who should be required to attend?
2. How often should they meet?
3. Who will conduct the dialogue and shape both content and behavior?
4. Is the operating mechanism appropriate?
5. Does the operating mechanism need to be adjusted? Eliminated?

Does Your Social System Pass the Test?

• The built-in conflicts that are part of every organization are being surfaced
• These conflicts are resolved in a timely way by people committed to delivering results
• Information flows horizontally across silos and is not hoarded or deliberately distorted
• The right questions are raised so that you can look at your business from both “50,000” feet (the big picture) and at ground level and conduct brutally honest dialogue
• Operating mechanisms are designed so that they result in high quality, timely decisions and help deliver the aspired results
• You know the point of intersection where operating mechanisms are needed for people to make trade-offs and share information.
• Appropriate and continuous improvements are made in the working of the operating mechanisms: creating new ones, combining some, eliminating others
• Each operating mechanism is connected in an unfiltered way to sources of external information
• Leaders have the psychological courage to confront reality and shape the behavior of participants to be in line with the values of the business. The right behavior and values are reinforced and those who deviate are dealt with

[edit] CHAPTER 5: HOW LEADERS ARE MADE

Judging, Selecting, and Developing Leaders

A sure sign of the know-how of selecting and developing leaders is that you leave the organization stronger relative to the competition than it was before you took over. Your job as a leader is getting it done, not doing it yourself, however you decide what the “it” is. Your ability to deliver results depends on how well and how consistently you grow other leaders. It takes know-how, however, to judge people accurately, imagining what each person’s potential could be. You then must take the initiative to provide opportunities for them to not only contribute to the organization, but also to be tested and hopefully expand. If they reach a limit—maybe because certain know-how’s didn’t develop properly or personality traits got in the way—you then deal with this issue as well.

The usual way of deploying other people’s leadership talent is to start with a job opening and see who can fill it. But the know-how of selecting leaders and helping them reach their potential means focusing on people first, not jobs—actively searching for leadership talent throughout your organization, creating for those individuals career moves that test their ability to take on more complexity or learn new skills, and creating processes to do it on a disciplined, regular basis. You have to develop and improve your judgments of people, which means spending time and energy on frequent talent reviews or succession-planning sessions. You have to create a view about the person’s competence in the know-hows, but also look at him more broadly to see what makes him tick: what he loves, how he thinks, how he behaves. Then you can match the leader to a job in which that person will shine and strengthen business performance.

Spotting Leadership Talent

Human beings, it seems, are not so easily disassembled into a set of pixels. You know the process is flawed when it fails to release people’s energy and true potential. The job of a leader is to see the person as a whole, over time, in a variety of situations, and work backward from what you observe to determine what that person’s individual gifts really are. As you develop your skill in observing people’s actions and behaviors and check your observations with other people’s perceptions, you can get very close to the truth of the person. Judgments on people are always subjective, but judgments must be based on facts, and facts are gleaned through careful observation.

You improve your judgments on people by reflecting on your own mistakes and becoming aware of your own psychological blockages. Judgments have to be intellectually honest and balanced, but the focus should be on the positives. Everyone has wrinkles; leaders succeed despite them. You should first nail down the person’s natural talents and tendencies, and then look for situations that will allow those things to develop and take off. If the negatives are really getting in the way of job performance or growth, you can coach the person in an effort to correct or compensate for the problem. Expecting people to be perfect is unrealistic.

Pooling Observations

When you are precise in your observations and take the time to connect multiple points of information about a person, you begin to zero in on the real stuff. The best judgments come when five or six people who know the person well sit together to compare their observations and ask questions of each other, drilling for specifics. Master the evidence, probe beyond the generalities. This kind of process gives everyone a fuller, more-accurate picture of the individual’s positives and negatives and under what circumstances these things tend to come out.

Getting to the Truth of a Person

Drilling is invaluable in figuring out who a leader really is and what he or she has to offer. Group processes for pooling observations and opinions are tremendously important for getting to know people. But you have to have your own methodology to keep your mental data base refreshed, as does Patrick Wang, the CEO of Johnson Electric, a highly successful manufacturing company in Hong Kong. For more than three years, he has kept running notes of the top people in the company. Every time he meets with his direct reports or has a discussion by phone, he records his observations of the person in multiple dimensions—what they are doing well, where they appear to need help, how their behavior is changing. He then continuously updates his judgments of each person and is completely open with the person about it. His ongoing calibration helps him detect and address problems with a person’s performance or behavior much sooner and, in particular, has accelerated how quickly he addresses problems with execution. He explains, “Sometime you feel the person is so good and so honest that is must be the circumstance. But when you’ve attributed problems to the circumstance many times in a row, you to question your own judgment about the person.”

Developing and Deploying Leaders in the Right Way

Helping people realize their potential as leaders means clearing a path for them to grow, but it also means identifying what they need to work on in the current job. This is where leadership gets very personal. There is no substitute for ongoing face-to-face dialogue with people about what’s going well and what isn’t. You can’t let fear of their response undermine your know-how in helping leaders grow and improve.

Non-Negotiable Criteria

As you are moving leaders to new jobs, you have to know the person, but you also have to be sure you understand what each job really requires to succeed in it. Contrary to common belief, long lists of criteria don’t clarify what’s required. The opposite is true: lengthy lists indicate fuzzy thinking and are inherently too general to point to the person who has the best chance of succeeding in that job. Worse, when the criteria are too comprehensive, they eliminate people who may in fact be the best choice in favor of people who are so-so in many categories. The consequence is mediocrity for the organization and unhappiness for the person. You have to have a laser-sharp view of what is absolutely required for a person to do well in a job and define the three or four non-negotiable criteria, things you cannot compromise on.

The Power to Shape Destinies

While you have to be sure that leaders meet the non-negotiable criteria, you can’t focus only on the requirements of the job and lose sight of developing people. You have to actively search for and maybe even create jobs to stretch people and be willing to make creative moves that may see risky but that can have a big payoff.

If you’re compromising a bit and putting a leader in a job who does not meet all the non-negotiable criteria—maybe because you want to see if the person can develop them—you have to decide what kind of support you will provide, and you also have to be prepared to reverse your decision if the hoped-for growth doesn’t happen. Selecting leaders is not risk free, but paying attention to whether the person is making the transition lets you address problems quickly.

You make better judgments about people, find more creative ways to deploy and develop their talents, and make a greater human impact when you take a sincere personal interest in each leader’s development. Leaders with this know-how look for those informal opportunities to get to know people better and to provide coaching.

Dealing With Mismatches in a Constructive Way

Selecting a person for a job is always something of a bet. Honing your skills in judging people cuts the risk, but it’s impossible to know for sure that the person will grow into and with the job and that his or her shortfalls (everyone has some) won’t get in the way. People problems are never straightforward, but ignoring them causes setbacks for the organization and to your own progress as a leader.

People often have temporary periods of disappointments, so you don’t want to remove a person from a job too soon if there are things you can do to get the person on track. Many business problems are the result of letting things slide, ignoring the fact that the job is evolving while the person isn’t, or vice versa, or that the decision to put the person in the job was wrong in the first place. Instead of dealing with the issue, you harbor resentment toward the person, maybe even avoid him or her, until the frustration boils over and you ask the person to leave. There are all kinds of psychological reasons for avoiding such situations, whether it’s fear of the person’s response, or a sense of loyalty, or your need to be liked.

The Problem is Incompatibility, Not Incompetence

When a mismatch becomes evident and someone is failing a job, it is important not to jump to conclusions. When you first sense a problem, you have to get to the root cause. Maybe the person has a psychological blockage, a know-how that’s missing, or a bad chemistry with a key person in another function. Sometimes the fault lies with a boss who fails to provide direction. You should use your insights into people to help them find their “pew”—the lane in which their talents flourish and their personal growth accelerates. Use your imagination to help them find terrific matches elsewhere.

Sometimes, and often in smaller companies, finding a job that matches the person’s talents is not an option. That’s when you have to make it clear to the person that his future lays elsewhere. You have to know when and how to de-select people. I use the term “de-select” instead of “fire” to make a distinction in attitude. Leaders with this know-how understand that every human being has inherent value and that errors will be made in trying to deploy a person’s talents. When the person must go, it’s your obligation to ease the transition and preserve the person’s dignity. People accept such realities when the communication has been honest and the intentions are constructive and sincere.

Building a Pipeline of Leaders

The most successful leaders leave a legacy by establishing a pipeline of leaders that is better than what they inherited and, in addition, becomes the standard against which to rest are compared. Most sizable companies have some kind of talent-planning process, but the specifics of those processes vary greatly. They are often out of tune with current and future business needs, tend to focus too much on absolute personality traits, and aren’t geared to unearth the specifics of a person’s know-hows and behavior. You should be sure that the criteria for spotting leaders are consistent with how you’re positioning the business and that the processes for assessing people have enough rigor in them to get to the truth about a person’s performance and potential.

Sometimes a particular layer of leadership or a specific job is so essential, or pivotal, to the success of the business that is warrants your attention. For a company that is seeking a higher rate of growth from emerging markets, for example, a pivotal job is the person in charge of recruiting, training, placing, and retaining leaders in jobs for fast development in India, China, Brazil, and eastern Europe. If, for example, you promote twenty vice presidents, you might want to ensure that at least five are from those countries. For a retailer such as Home Depot, store-manager jobs might be pivotal, since this is where all the good ideas and good intentions get translated into specific actions that affect the customer experience.

Criteria alone don’t ensure the right set of leaders. You have to work with others to develop the process for calibrating and developing people, and you have to revisit them often to test whether they are working the way they should, just as you would for any other business activity. You can, for instance, sample the kinds of leaders that are being identified at lower levels by getting to know some of them. Leaders who are great developers of other leaders sense what is coming through the pipeline of leaders. They make a point of visiting with leaders at lower levels in small groups, spending maybe two hours with, say, ten people, during which time they engage them with questions to see how they think and what their overall ability is. In this way, you can sense from those interactions the overall caliber and even, the DNA, or dominant psychology and criteria, of the leaders in the room.

Your know-how in judging, selecting, and developing leaders doesn’t automatically improve just because you hire and fire a lot of people. You have to reflect on your accuracy in crystallizing what a person is good at, what his or her potential is, and what he or she needs to improve. You have to reflect on whether the individuals turn out to have the potential you saw in them. When you repeatedly practice making judgments on people and reflecting on why you missed in some cases, you are on your way to becoming a master of this know-how.

How to Spot the Future Leaders of Your Business

• They consistently deliver ambitious results
• They continuously demonstrate growth, adaptability, and learning better and faster than their excellently performing peers
• They seize the opportunity for challenging, bigger assignments, thereby expanding capability and capacity and improving judgment
• They have the ability to think through the business and take leaps of imagination to grow the business
• They are driven to take things to the next level
• Their powers of observation are very acute, forming judgments of people by focusing on their decision, behaviors, and actions, rather than relying on initial reactions and gut instincts; they can mentally detect and construct the “DNA” of a person
• They come to the point succinctly, are clear thinkers, and have the courage to state a point-of-view even though listeners may react adversely
• They ask incisive questions that open minds and incite the imagination
• They perceptively judge their own direct reports, have the courage to give them honest feedback so the direct reports grow; they dig into cause and effect if a direct report is failing
• The know the non-negotiable criteria of the job of their direct reports and match the job with the person; if there is a mismatch they deal with it promptly
• They are able to spot talent and see the “God’s gift” of the other individuals

[edit] CHAPTER 6: UNITY WITHOUT UNIFORMITY

Molding a Team of Leaders

You’ve taken the time and made the effort to spot, recruit, develop, and get in place a group of smart and talented people who are your direct reports. That’s crucial. But the bigger challenge is molding these high-energy, high-powered, high-ego people into a working team of leaders who synchronize their efforts and propel the business forward.

Individual team members naturally focus on their own functional specialties and have their own personal ambitions, but those differences often cause them to pull in different directions, especially considering the inherent tensions that exist between various silos of the business. As the leader, you have to get your direct reports to submerge their egos, aggression, and personal agendas so they’re pulling together. You can’t mediate every dispute, ensure that every trade-off is properly made, or that information is flowing as it should on a daily basis, but if you use the know-how of molding a team, your direct reports will do those things as a matter of course, and the business will perform better.

The centerpiece of this know-how is getting your team to understand, focus on, and commit to the total business. You have to help them create a common granular picture of the business in its external context as you see it. That way, they’ll know how their respective areas fit together, and they will have both the motivation and information they need to keep their efforts aligned. You have to mold people’s behavior as well. Too often, talented and ambitious people have a single-minded focus, little aware of what their colleagues in other silos are doing, at worst deeply suspicious of them. Resources and information are hoarded, and communication is sporadic and formalistic. You are the one who tolerates or challenges narrow self-interest, big egos, and dominant personalities.

Most of the work of molding a team happens in group settings, which may require that you change the way you lead. You can’t just work with your direct reports one on one, setting their budgets and goals in private and coaching them individually as you shift your attention from one part of the business to another. You have to help the group create a picture of the total business and correct any divisive behaviors in the presence of the team, so you need the emotional strength to direct and stand up to powerful individuals on whom you depend.

Many leaders think molding a team isn’t worth the effort, but they’re missing a tremendous opportunity to differentiate themselves and build the business. The more people who can see the total anatomy of the business, the intersections of its moving parts, and the broader context in which it operates, the better job they do. When they all see the same facts, discuss their own observations and thoughts, and come to understand the interconnectedness of their functions and skills, they are able to raise the bar, setting higher goals and achieving them faster. They can pinpoint changes in the external environment faster and more precisely, and they can better communicate to their own people the positioning, goals, and priorities of the business. They help each other grow. An effective team becomes not only a powerful competitive advantage; it also becomes a source of satisfaction that is a great device to retain the best people.

The principles involved in molding a team of leaders

1. Share numbers, reasoning, and results to shape a common view of the business and its context.
2. Have the psychological courage to confront behaviors that harm the team’s effectiveness.
3. Anticipate, surface, and resolve conflicts.
4. Pick the right people.
5. Provide prompt feedback and coaching.
6. Recognize and avoid derailers.

Shape a Common View of the Total Business

A team of leaders starts being molded when everyone is on the same page. It begins to happen when every member of the team masters the basics of the business: its markets, market segmentation, customers, and buying behaviors; the nature of the competition; and what drives or inhibits the ability to make money. In short, the entire team needs to know what you know. That might be self-evident, but in traditional one-on-one top-level relationships the leader, whether consciously or not, usually does not share the full picture of the business with all his direct reports. Even when you share information with the team, it takes an enormous effort and sustained repetition to get every member of the team to arrive at the same point. At first, team members will see and hear what you are saying through the lens of their job specialty and select only what seems to apply to them. Learning curves differ, and it will take longer for some team members to get up to speed than for others.

The key is to develop an internal team dialogue in which each member contributes to the discussion that shapes the team’s common view of the business--its challenges and opportunities and the resources available. Getting on the same page tests the cognitive bandwidth of not only each member of the team, but of the team as a whole. Once drawn, however, the common picture channels the team’s energy and, more importantly, provides a reference point for future dialogue as team members influence and are influenced by their colleagues. The stage is set for collaboration.

Confront Behaviors that Harm the Team’s Effectiveness

Leaders often avoid conflict, hoping that a problem with one of their direct reports’ behavior will somehow resolve itself. They seldom do.

Anticipate, Surface, and Resolve Conflicts

Organizational structure divides people. It results in inherent conflicts that can take several forms, some more corrosive than others. Task conflicts—who will do what—and process conflicts—how do we get this done—are among the most common and easily resolved. Conflicts over resource allocations are less common, but more corrosive since resources are, by their nature, limited. Priorities and goals change, resulting in someone being given more resources, necessarily at the expense of someone else. Any one of these conflicts, if not resolved, can culminate in personal conflicts, the most corrosive of all.

Two people in conflict usually can take the same information, massage it differently, and make plausible arguments why each of their positions is the correct one. You can, of course, handle such disputes by simply decreeing a decision. But the value of a team and your ability to lead it is that a decision can be reached that allows everyone to voice an opinion, debate the merits, and the right choice emerges. Handled like this, conflicts are powerful team-building tool because people recognize that the group makes better decisions than individuals and no one person has all the information.

Surfacing such conflicts begins with the agenda you set out and the early team dialogue. But people can be reluctant to offer opinions or comments in a group setting where they may be challenged or, worse, ridiculed. Those who do speak out can become committed too early to a position and be unwilling or unable to retreat. As the leader, you have to be sure that an overly competitive team member doesn’t exploit another’s vulnerability when discussing problems or concerns.

Once the issue has been adequately framed in early group discussions, it often is useful to divide the team into groups of two or three, pose a few relevant questions, and have the small groups go off to formulate alternative answers. The social dynamics change radically within such small groups. The fear of being challenged evaporates, informality sets in, and individuals gain confidence. When the small teams return to the group, the architecture of the group discussion has changed. Mental attitudes have been realigned beyond each individual’s narrow spectrum, the pros and cons are articulated and discussed honestly, and the group is able to consider second- and third-order consequences of a given action. Often a commitment to finding a solution develops. If a clear alternative does not emerge as the consensus of the group, the leader can always call the shot and ask for commitment.

Pick the Right People

It goes without saying that building a team means having the right people on it. As the foundation, you must have people with obvious qualities such as technical competence, decisiveness, the ability to deliver on commitments, the respect of other members of the team, and the skills to lead subordinates. Perhaps as important are receptiveness to new ideas and the willingness to work horizontally with others, submerging ego and personal agendas to make trade-offs that are best for the entire organization.

You may have the best expert possible in a particular field, but if his or her ego cannot be submerged to work with the team, you have to decide what is more important to you: the person’s expertise or the working of the team.

One of the biggest problems team leaders face is maintaining the continuity of the team. Once the right people are in place on your team, how do you keep them there in the face of their own ambitions and solicitations from other companies? Research indicates that money is rarely a factor when an individual makes the decision to change organizations. There are two primary reasons for a move: the individual does not like his or her boss or he or she does not feel appreciated.

Teaching managers to be “coaches” rather than “bosses”—asking questions rather than just telling someone what to do—can go a long way toward solving the first problem, and embedded processes that recognize peoples’ contributions can help with the second problem.

Nevertheless, there will be departures, and with the departure of a team member comes the necessity to integrate a new member into the team. Newly promoted or brought in from the outside, the new team member might be intimidated by the apparent closeness of relationships among the existing team members. You will need to use facilitative skills to bring the new member into the team dialogue. Breaking up the team into small groups to work on problems helps the new member develop confidence and trust in his teammates and helps other to be receptive to the inputs.

Provide Prompt Feedback and Coaching

Keep a mental inventory of the skills and methods for getting things done for each member of your team. One team member may be too blunt in arguing a point with others, another may be too shy to participate in debates, and yet another may have a habit of holding back information essential to reaching a good decision. All these impediments to effective teamwork must be clearly identified to the individual, and he or she must be counseled in overcoming them. Feedback is most effective when given in written form and given frequently, but you must realize that human beings typically can change only or two behaviors at a time.

Some team members will need more coaching and feedback than others. It won’t take long for you to observe who in the group are the energy drainers and who are the energy generators. Drainers are prone to useless philosophizing, which can lead down sidetracks, or focus on a minute aspect of an issue, drilling down to the nth degree. They tend to put other team members on the defensive by the nature of their questions, and they keep coming up with problems without offering any solutions. It is critical to the team’s success that you act decisively to end such behaviors in the group setting and later give feedback to the person in a private setting. Confrontation of such behavior displayed in a group setting can be tremendously valuable for the message it sends everyone about what will and won’t be tolerated and about your resolve and integrity.

It requires inner security and courage to be able to bring a high-ego individual who is performing well but disrupts the team in line so that the team as a whole benefits. The trick is how to do that without unduly bruising the person’s ego, but at the same time showing the other team members that you are willing and able to exercise the leadership necessary to build the team. People with this know-how are very direct and to the point. When they give feedback to their direct reports, there is no mistake about whether that person understands the feedback. It’s an essential part of team building to remind the team members of the core values they have agreed upon and the behaviors that are to be followed, and to reinforce those values and behaviors when necessary.

In addition to helping each member of the team become better at making the team more effective through feedback and coaching, the leader needs to link improvement in the individual’s team behavior to tangible rewards and recognition. Most leaders at higher levels give tangible rewards to the financial performance of the individual with little, if any, weight given to their team behavior.

Recognize and Avoid Derailers

To mold a team, you have to watch out for the following pitfalls:

Last In, First Out. People who hold back their opinions and comments during team meetings and later privately voice their opinions to the team leader—often after a consensus has been reached and actions already taken.

Falling Prisoner to the Team. Allowing the team to reach mediocre consensus through lack of guidance and forcefulness, settling for second best through fear of negative response.

Kitchen Cabinet. Allowing communication and interaction with the team to be channeled through others. This pattern of behavior disempowers those in the team.

Fear of Giving Feedback. Allowing the psychology of fear/insecurity to circumvent you ability to provide feedback, take risks, resolve conflicts, or honestly critique progress; fostering an unreasonable desire for loyalty and likeability that cripples your ability to lead effectively.

The Decision is Final…Not Really. Allowing people to break commitment by continually questioning the final decision.

Nine Questions to Ask Yourself

1. Many people espouse the merits of building a high-performing team but actually prefer to deal with people one-on-one. Be intellectually honest. Are you really willing to invest your emotional energy and time to mold your direct reports into a high-performing team?
2. Are you psychologically uncomfortable dealing with your direct reports as a team rather than one-on-one? Can you overcome your discomfort?
3. Do you have the confidence and temperament to confront one of your direct report’s behavior when it is not conducive to the team, even if that person is a high performer and/or a strong personality?
4. Have you articulated and communicated the expected team behaviors and got your team to commit to them? Do you reinforce them consistently? Are they linked to rewards?
5. Do you include as the basis for selecting and evaluating your direct reports not only competence and performance in their particular area, but also their unmistakable willingness to make the team more effective even if there area is adversely affected, their ability to contain their ego, and their cognitive bandwidth to see the total picture?
6. Do you build openness, trust, and intellectual honesty among your direct reports by ensuring that conflicts are surfaced and resolved without making poor compromises, giving feedback and coaching on team behavior, and pushing as many critical issues as possible into the group setting?
7. Do you encourage your direct reports to communicate and make trade-offs directly, rather than having to go through you as the leader?
8. How well has each of your direct reports internalized the total business as you see it? Are you willing to help create for your direct reports the same total picture of the business that you have?
9. On a scale of 1 to 7, where 7 is the highest, how would you rate your direct reports’ ability to function as a high-performing team? What will sustain the high-performance function?

[edit] CHAPTER 7: THE BUCK STARTS WITH YOU

Determining and Setting the Right Goals

Goals are the destination you want to take your business to. Once stated clearly and communicated to the organization, goals align people’s energy, and when they are linked to rewards, as they usually are, they have a powerful effect on people’s behavior. Goals set the tone for decisions and actions that follow and greatly influence the business results that get delivered.

Many leaders think setting goals is simple and straightforward, but in fact, selecting the right set of goals is the ultimate juggling act. The goals have to be of the right type and magnitude to be both achievable as well as motivational. They have to be acceptable to investors, most of whom care more about the short term, but also ensure that the business can make money in the long term. Because the pursuit of one goal necessarily affects the others—achieving short-term gains in market share from promotional deep discounts, for instance, can have an adverse effect on operating margin and cash flow—the individual goals have to be balanced with one another. And above all, the goals must reflect the opportunities in the external world, while taking into account the existing and potential ability of the organization to pursue them.

If you can’t take all that in and mentally process it with a heavy dose of self-confidence, your goals will almost certainly be too modest or too aggressive or internally contradictory. In fact, the best way to judge the quality of any leader’s goals is by the quality and rigor of the thinking that underlies them. Before establishing aggressive goals, it is necessary to assess how your organization might go after them. The granularity of the thinking makes all the difference. If the goals are realistic at every stage, the realism eventually earns credibility, just as surely as unfulfilled promises will destroy it.

There’s a know-how to setting the right goals, in the right combination, with the right time frame, and at the right level. You can’t set goals by looking in the rearview mirror at what was accomplished last year and adjust this year’s numbers accordingly, and you can’t go by what is being projected for the industry or the economy overall. Goals should reflect the opportunities that lie ahead and what is possible for your business as it goes forward. You have to choose more than one goal to keep the organization in balance, and the goals don’t all have to be financial and quantitative. There will always be tailwinds and headwinds that will help you reach the goals faster or slow you down, but the goals must be clearly defined with specific time frames at the start. Then you must b willing to adjust them as the world changes and the opportunities and organizational capabilities expand or contract.

The Power of Goals

You have to be very clear in your thinking about what is really required to deliver the chosen goals. You need to assess whether the goals are doable. When you assign goals to lower levels of the organization, you need to anticipate what decisions are likely to follow. At the same time you should not be impervious to real world difficulties lower levels will face. By saying “meet this goal—or else,” you may be authorizing the systematic destruction of a perfectly good business.

Many middle managers get caught between meeting the goals they’ve been given and doing what they know is best for the business. Of course, it’s common for anyone at the receiving end of goals to feel some pressure, but when people are held accountable for goals that cannot be accomplished constructively, the emotional toll is very high, and the business suffers. A revolving door of managers is symptomatic. When you set the goals, you have to understand what actions and behaviors will follow as people try to achieve them.

Digging and Dialogue

Keeping the dialogue open with the people whose goals you assign helps ensure that your are not missing something, and that the goals you set are motivating rather than discouraging. Dialogue gets the assumptions behind the goals into the open and lets you be a coach who helps people think through how they might respond.

Confronting the possibility that a goal is not right requires courage on the part of both the subordinate and the superior. The courageous subordinate must be willing to initiate discussions with his or her superiors about a questionable goal. It may be that he or she did not fully grasp the logic on which the decision was based. It may be equally true that the superiors didn’t think through the unintended consequences of the decision. Sometimes the view from below is a wake-up call for high level leaders.

Dialogue prevents you from dodging another uncomfortable issue: the need to confront some leaders who are not performing. All too often, leaders ratchet up the financial goals of their high performers to make up for what the laggards fail to deliver. Instead of growing their businesses, the high performers are forced to make drastic cuts. Such situations are not sustainable over the long term and drive away the best leadership talent.

Some people are resistant to goals simply because they don’t understand or agree with the logic of the goals. That is another reason why repetitive communication is so important. The natural tendency is for people to see things through their own prism. Dialogue gives you the chance to show that the goals really do make sense given the pressures and constraints that exist elsewhere in the organization.

Setting Stretch Goals

Sometimes you might want to set goals that build the self-confidence of the organization. Usually that means goals that you are almost certain can be accomplished. When they are, the organization gets energized. Over time you can increase the goals as you simultaneously increase the self-confidence, and eventually you can begin setting stretch goals.

Stretch goals show people that they can accomplish more than they thought they could. The most common kind of stretch goals is tactical in nature. It seeks to achieve incremental improvements by encouraging the people who work for you to be on the alert to achieve higher operational results in a shorter period than they thought they could. More rarely, leaders employ stretch goals that are strategic. They require people to think about what they are doing in a radically different way, not just to work harder and be more alert.

There is an art to setting those kinds of goals. Judgment, practice, and perceptual abilities come into play. What is it that will challenge and expand the organization’s capabilities and what is it that will create a credibility gap? Stretch goals can fire up people’s imaginations and bring energy to the organization, but only if they are doable. The point is not to get people to work harder. Rather, it is to get people to do things differently and thus raise the capability of the organization. Such a goal carries with it higher risks. Unless you do the mental gymnastics necessary to figure out what has to radically change, setting a stretch goal won’t be credible and the organization won’t trust you. You have to be sure that people are prepared to think differently and have sufficient resources to accomplish the goals.

Setting Goals When the World Turns Upside Down

Goals are tied to how the business is positioned. In a complex and rapidly changing world, the nature of the goals, as well as their magnitude, may need to be radically different. Not all change is profound, but change is a fact of life and leaders have to keep their eye on how change affects their goals. Even if goals aren’t adjusted quickly to fit with the changing realities, you can adjust the rewards that are linked to them. If it is understood that changing external circumstances could result in missed goals despite the best efforts of everyone concerned, it is possible to empower your executives to do what they need to do in the face of changing circumstances to achieve the best possible outcomes for the business, even if they fall short of the agreed-upon goals.

Keeping Goals Relevant

Having the right goals is inherently very demanding when customer demand shifts frequently and multiple silos have to continually coordinate to deliver on them. Keeping goals meaningful and the organization on track to achieve them under such conditions is challenging but very possible. A leader who changes goals because he is indecisive creates confusion and loses credibility. Goals that start out right can end up being wrong simply because the world changes. Adjusting goals because reality has significantly changed is the sign of a leader’s know-how.

Setting the right goals mean frequently rethinking every assumption about the market, the competition, and the business environment. You have to be cognizant that there are factors far beyond your ability to control, such a foreign exchange rates, commodity prices, and fiscal and monetary policy that will impinge on the business. If you have an exceptional know-how you will take a broad look at what is on the horizon two or more years out, then work backward to visualize what you think the organization can achieve in that context, both over the longer term and in the interim. You also think about the quality of each goal. Can it be reached by doing things that strengthen the business, such as cutting costs through quality improvements? Or can it only be achieved through draconian measures that weaken the business, such as cutting mission-critical investment in R&D?

The Psychology of Choosing Goals

Setting goals is never as objective and analytic as it sounds on paper. In real life, leaders have emotions and their own psychological quirks. Emotions and psychology can help you solve the goals’ puzzle and stick to goals you believe are right in the face of disbelievers. Emotions, however, can sometimes block clear thinking when it is needed most. If you are the leader of a public company and choose goals that are too modest, investors will take their money elsewhere in search of a bolder leader. Conversely, an unrealistically high goal that isn’t met will hit the stock price even harder and damage the leader’s credibility for a long time.

Different leaders faced with the same set of circumstances will make different decisions about which goals to pursue based on their psychology and cognitive abilities. You have to expand your observational lenses and weigh many factors, including your own psychology, personality, and cognitive skills before you can be sure your goals are right, or healthy, for the organization.

Ambition, pride and in some cases excessive narcissism often lead to setting a single goal that is bold, ambitious, captures the imagination, and is easy to communicate, but is ultimately bad for the business. Compensation schemes can exacerbate the problem by allowing leaders to declare and achieve a single goal that has devastating effects later.

People new to a job can be especially tempted to shoot for high, sometimes unattainable goals in order to impress others. An outrageous goal excites people and attracts a lot of attention. Many new CEOs have gone on the road to impress Wall Street, touting huge revenue growth five years out. Investors are seduced, the stock price rises, and the chief executive basks in the admiration until the lack of progress toward the goal becomes evident. This failure to deliver the touted goal results in devastating effects on the individual and the company. The same thing occurs at lower levels of the organization—people make big promises in hopes of being perceived as movers and shakers, then try to move on before the lack of results catches up with them.

The smarter approach is to underpromise and overdeliver. People who use this approach are no less ambitious than their boastful competitors, but are more likely to have a longer-term set of goals that are continually evolving and being refined as external conditions change. Over time, of course, the investors begin to calibrate the predictions of these seemingly modest leaders, adding a few pennies a share to their forecast to account for that modesty. If they are seldom disappointed, investors come to admire these leaders because they can trust them not to over promise and under deliver.

You should do some self-assessment about why you are setting the goals you are. Leaders, who are psychologically closed, for instance, might set modest goals because they have trouble seeing novel solutions, like forging partnerships with outsiders or leveraging other people’s expertise. A fear of response can cause a leader to avoid tough choices, like killing off projects or products that have lost their promise or restructuring the business to reduce the number of people, things that should have been done anyway.

Perhaps the greatest psychological challenge associated with goals is dealing with the investment community. Finding the right balance between the short term and long term is a critical part of this know-how. After all, there is no shortage of predators looking for weak short-term performance that signals a floundering company. Your edge must be to find the balance, sacrificing short-term results only when doing so ensures greater benefits in the long-term and letting people know when their expectations are out of touch with reality. Doing so requires considerable courage in the face of constant pressures from power investors who seek instant gratification.

Everybody knows the announcement of goals is not enough. Followers align emotionally with visions, mentally with the goals, and physically with priorities. Businesses have become so complex that leaders end up with too many priorities, or are overwhelmed when it comes to picking the right ones. It’s choosing a few, and the right ones, and sticking with them that creates excellence in execution.

[edit] CHAPTER 8: IT’S MONDAY MORNING—NOW WHAT?

Setting Laser-Sharp Dominant Priorities

Priorities are the pathway for accomplishing goals. They provide the road map that organizes and directs the business toward its goals. When the priorities are unmistakably clear and specific, people know what to focus on and, therefore, what should get their attention, resources, and follow-through. The right priorities, combined with appropriate follow-through, keep the truly important things from being driven off the radar screen in the day-to-day hurly-burly of life at work where everything can seem urgent and important. The right priorities help you rise above the constant demands that create stress and confusion. They enable you to provide clarity and focus for yourself and the other people in your organization. Without priorities people are apt to try to do everything, wasting precious time and energy on things that aren’t important.

Goals are set at fifty-thousand feet. Priorities are set at ground level where you must have the tenacity, attitude, and willingness to probe the messy details to think through and define what the most important actions should be and what their second- and third-order consequences will be. Priorities determine how resources are allocated and thus have the potential for touching off clashes as resources are moved from one person to another. While the priorities must be absolutely clear, very specific, and above all, doable, that isn’t enough. Once set, you must repeat the priorities over and over again and follow through on them to ensure that people understand them, buy into them, and act on them so the organization executes them and doesn’t deviate from the course the priorities set.

When you select priorities you have to choose among four criteria: what is important, what is urgent, what is long-term versus short-term and what is realistic versus visionary. If you don’t make choices among them because you want to do everything, the result will be muddled. You have to have the psychological conviction to choose the right balance among them, knowing that some may not be popular and will draw opposition. Others may change the balance of power among people. If you have the inner conviction that your judgment is right and that you don’t have to be liked by everyone, you can make the right choices.

Setting the Wrong Priorities

Some people set too many priorities in the mistaken belief that they must do everything. They fear that by selecting a few priorities and purposely not taking other possible steps they will be criticized by their peers, their employer, or the media. They dilute the entire effort by giving equal weight to everything and not determining which are the most important factors in reaching a goal. Others choose the wrong priorities because they don’t have enough information. These people often obtain information through various filters that screen out important pieces of the puzzle, especially bad news. It is certain that ego plays an important role in the selection of the wrong priorities. Some leaders don’t want to face the conflicts or embarrassment that result when an emphasis on one priority necessarily reduces the resources allocated to someone else. To avoid such conflicts, they may cede the decisions to finance people, who rely on financial tools instead of business judgment to determine where to invest. Some people don’t do the mental work that goes into sifting, sorting, and selecting the right priorities out of a morass of complexity and possibility and reducing them to stark simplicity. Others, fearful of making a mistake, don’t choose at all, preferring to procrastinate and make excuses, such as a lack of sufficient information.

Communicating and Getting Buy-In for Your Priorities

It may be necessary for you to choose unpopular priorities that are nevertheless important for reaching your goals. Priorities hit people where they live on an everyday basis and are highly visible in terms of resource allocation and shifting power bases. If you are a leader who likes to be liked, you may not have the psychological courage to set the right priorities or the skills to convince the people in the organization that they are the right priorities. When people disagree with the priorities you set, it’s one of the times when leadership becomes a performing art and you have to sell you ideas and get buy-in from those people who have to carry them out.

People and Priorities

It is people who must bring the priorities to life. Therefore, whenever you set new priorities, you have to ask, Do we have the right people to carry them out? Getting the right people—that is, finding and developing people who have the potential to become growth leaders—should be a dominant priority.

Without Assigning Resources, It Isn’t a Priority

Anyone can state a priority. It is only when resources are applied to it that it really becomes one. The flow of resources—people and money—is a leading indicator of where the company is headed in the short and long term. Leaders who don’t have a handle on the flow of resources aren’t really holding the reins.

Anytime you shift priorities you have to assign accountability and resources to the new ones. That almost always requires reshuffling or reallocation of resources. It also implies that the power of some people may be shifted. In real life, people announce priorities but find it psychologically difficult to take resources from someone and give them to another. The hate conflict and avoid it. They often fall victim to the last-in, first-out syndrome. You need to have a process to ensure that the necessary shifts take place. It isn’t enough to just announce them. You also have to ensure that in the budgeting process the shift is in fact happening and then you have to monitor in your regular reviews that the shift is continuing to happen and that priorities are being executed.

Judgment and Strength of a Leader

The greatest psychological challenge in setting and acting on priorities has to do with resource allocation. Whether in a group meeting or through conventional budgeting and capital approval processes, you have to demonstrate judgment and courage in making resource allocation decisions that reflect your business priorities and in following through to ensure that the things that should be happening, in fact, are. You have to do the analytic work to separate out the facts and assess the opportunities and risks, but you also need to call upon your inner strength and judgment.

When setting priorities do the right thing but avoid the temptation to do everything. Recognize that in such situations what is “urgent” often drives out what is important. Establishing the right priorities and communicating them provides the foundation to tell yourself and others what not to do—and the courage to stick with it. Keep in mind the following key points about priorities:

• Priorities are a road map that organizes and directs the business toward its goals. Without priorities people are apt to try to do everything, wasting precious time and energy on things that aren’t important.
• Priorities are set at ground level where you must have the tenacity, attitude, and willingness to probe the messy details to think through and define what the priorities should be and what their second- and third order consequences will be. Priorities must be absolutely clear, very specific and, above all, doable.
• Priorities are drawn from among four criteria: what is important, what is urgent, what is long term versus short term, and what is realistic versus visionary. If you don’t make choices among them because you want everything, the organization will lack focus.
• Having too many priorities is the same as having no priorities.
• The wrong priorities often result from the lack of sufficient information, the avoidance of conflict, or the failure to do the mental work of sorting through the morass of complexity and possibility.
• Priorities aren’t real until resources are applied to them.
• Because resource allocation can create conflicts, you must have psychological courage in setting the right priorities and the skills to convince people in the organization to make the necessary shifts.
• Executing priorities requires constant repetition and disciplined follow-through to ensure that everyone understands them, buys into them, and is following them without deviation.

[edit] CHAPTER 9: IN THE COURT OF PUBLIC OPINION

Dealing with Societal Forces Beyond the Market

Moneymaking is your job. You spend most of your time and energy thinking about your business. Is it positioned correctly? Is your team of leaders synchronized in the pursuit of your goals? Are the priorities right? Is the social system healthy? The job doesn’t end there however. Every business today operates in a complex societal and political milieu that demands more of it than just profits. Gone are the days when Milton Friedman could proclaim that “the business of business is business.” It’s a foregone conclusion that business leaders have to be able to deal with market forces, and over the years they’ve learned to live with them. In the twenty-first century, business leaders will be required to deal with issues that go beyond the market.

Special interest groups have, of course, long been with us. Today, however, stakeholders include a whole laundry list of groups and individuals, and it is not the mere number that is different. It is also the range of issues they’re concerned about and their ability to impact the very heart of your business and industry. Consider a short list of topics that are generating controversy and threatening the very core of several businesses today.

• Obesity and its causes and consequences
• Stem cell research
• Environmental concerns about drilling for oil in Alaska
• The possible revival of nuclear power generation in the face of rising fuel prices
• The rising cost of drugs to treat a wide array of diseases
• The high cost and lack of availability of health insurance
• Illegal immigration

Companies that are on the wrong side of an issue can suffer immense damage if it gains traction, which many special interest groups know how to accomplish. They know how to organize, get access to the media, form coalitions with groups with different causes, raise money, and influence customers and governments. They have unprecedented access to information through the Internet and can disseminate their views widely at low cost. Even an individual can exert influence through a blog. Special interest groups can be helpful if they share your business goals and philosophies, but more likely they don’t. While you may be willing to do everything in your power to make the business flourish, they may be doing everything in their power to make sure it doesn’t. Their agendas are logical to them but may seem illogical, even irrational, to a business person and the interests of various groups may conflict with one another and pull your business in opposite directions. Avoiding such groups, however, does not make them go away. If they choose to target your company or industry, there is no way to escape them. Don’t count on first-rate lawyers. We live in an age of “moral liability” that imposes new responsibilities on companies to behave not just legally, but ethically as well.

The challenge is to keep abreast of changing societal expectations and adapt your business accordingly, while avoiding the landmines. Many special interest groups raise legitimate issues, and you need to understand and respond to them. Bear in mind that pressure from outside groups has led to many societal benefits, such as air and water pollution regulations, lower emissions and increased automobile safety, anti-discrimination laws, and workplace safety rules. Dealing with groups whose issues seem to be on the fringe is more delicate. You don’t want to raise the stature of such groups by paying a lot of attention to them, but that doesn’t mean you can ignore them just because they seem to lack power or their issues seem far-fetched. They can still do damage and their status can change fast. Dealing with external constituencies may not create shareholder value, but the failure to do so most certainly can destroy it and a leader who shies away from the challenge will often wind up looking for a job.

Like all the other know-hows a leader must have, this one requires experience, yet it is the one know-how in which very few leaders get sufficient experience before reaching the CEO’s office. Leaders reach the top accustomed to analyzing hard data and making decisions that are then carried out by subordinates. They simply aren’t prepared for the psychological stress and frustration of dealing with the ambiguities and the lack of control that characterize the company’s relations with such interest groups. For them, such tasks become time-consuming diversions from the real business of running the company. No matter how much you dislike dealing with special interest groups, you can’t regard them as distractions from your day-to-day work of leading the company. You have to overcome any psychological aversion you might have to the ambiguities of such political and societal discourse and become constructively engaged.

The know-how of dealing with forces outside your control is to identify new interest groups that are emerging and to discern which groups are gaining influence and have legitimate issues. You have to build relationships and understand the real motivations and attitudes of those groups and their leaders. You have to look for ways to communicate, knowing that if you bridge the gaps soon enough, you can help reshape the issues and outcome. If the issues are legitimate, you should respond, maybe by building coalitions among your peers so the industry doesn’t continue to be attacked. While you have to be prepared to resort to legal channels and, frequently, negotiated settlements, you can’t depend on them, because many battles take place in the court of public opinion and are won on the basis of emotional appeal rather than legal argument. Each move requires new analysis, like an evolving chess game where you have to see several moves ahead to predict the opponent’s causes, power base, and passion. If you lack the will to get in the game, there is a high risk you could lose.

Adjusting your Attitude

You will never master the know-how of managing external constituencies if you are not psychologically willing to deal with the inherent ambiguities and lack of control. It is a big mental adjustment for many business leaders accustomed to operating in an environment characterized by logic and relative control. Sitting across the table from a social activist who has little grasp of business realities yet is demanding the company to take a certain action can be disconcerting or even painful for someone from a corporate environment. Most leaders get into trouble because they simply ignore advocates of change whose demands don’t fit squarely with a business and economic rationale. If you company faces or may face challenges from the outside—few companies will be able to avoid them in the future—and you don’t like operating in that kind of environment you should at least question if you are the leader your company needs.

The most effective leader is psychologically open and willing to negotiate, adept at understanding that no matter how irrational the interest group’s position may seem, it makes perfect sense to the opponent. The ability to listen with an open mind and determine what the group or its leader are really after is essential, because listening itself can defuse an issue and because it helps you understand what “winning” and “losing’ really means to those parties. Outside groups often have goals that are idealistic and even admirable. Their leadership, however, is often interested in self-aggrandizement or fame as well. Though listening and observing, you can develop your insights. Imagining what an outside group is really after requires the ultimate in reframing, seeing things not just through a different lens but with a whole different logic and set of values.

The New Facts of Life

Before you can deal appropriately with interest groups and stakeholders, you have to understand their cause and analyze their power base. Their skillful use of the media can greatly affect public opinion, which in turn affects government and the actions of regulators and legislators and even juries. You should keep your lens open and periodically rethink basic assumptions about who the societal advocates are, what their causes are, what tools they might have available, and where the power to influence really lies.

Nothing is Off-Limits: Every aspect of your business, including the very premise of your business model, is fair game for external constituencies. Think environmentalists against logging, mining, and drilling.

Everything is Transparent: “Transparency” is a condition under which every company now operates. The advent of the Internet provides a greater audience for more esoteric, special interest news through independent sites, bloggers, webzines, and email traffic. There is also little guarantee that any of this media utilizes thorough, unbiased, or accurate reporting.

Laws Come Too Late: Laws and the courts are a lagging indicator of society’s evolving values and expectations, and a leader who focuses exclusively on parsing what is legal and illegal according to the law books is putting the company at risk. Social trends start small and are not readily noticed. Once they have gained momentum, it is often too late to be proactive.

Government Can be an Ally: The two biggest sources of external interference apparent to any corporate leader are Government in its many manifestations—federal, state, or local, legislative or regulatory—and Wall Street. Government interference is extensive and increasing. Leaders need the know-how to deal with this complexity as it continues to evolve.

Wall Street is Different: A powerful force has arisen on Wall Street—Hedge Funds. These huge pools of capital, using an array of sophisticated tools, including mathematical models, prowl the Street for arbitrage opportunities. Conservative managements that amass cash are vulnerable to attack by hedge funds, which move swiftly to buy shares and force changes in corporate strategy—a merger, the sale of assets or recapitalization—that quickly boost the company’s stock price.

Distinguishing What’s Legitimate: You have to know how to identify issues long before they become a serious problem so your company can take a proactive approach to mitigating them. This requires an internal mechanism that brings budding issues to your attention as soon as possible. To be proactive, you will need to shape such internal groups as the general counsel, public relations, investor relations, and human relations into a cohesive issue-identification team that can provide early warning of potential problems when there is still time to act and not just react. Stay in touch with sources outside the company to help pick up on issues involving the industry.

“Googling” the company name can turn up negative information being spread on the Internet. Reviewing bestseller lists gives an indication of what issues have become a growing public concern. Spend a few hours each month with people who have completely different views and agendas. When an issue affects your whole industry, it is wise to build relationships with other leaders and engage in dialogue together.

Having identified groups and issues, separate those issues that are truly important and those that are superficial. Even superficial issues can erode your brand image and affect employee moral. You cannot assume, however, that your business is beyond legitimate criticism. A cause that is counter to your business might very well be in the best interest of society.

Caught in the Cross Fire

There is an emerging trend where two or more special interest groups have a deep passion for a societal issue affecting an industry or company in a way that their stands are directly opposite to each other. In such situations, the business leader is caught in a cross fire and may have extreme difficulty finding a win-win solution acceptable to all parties.

Societal pressures on business will continue to increase and so will interventions by governments. Leaders of the future have to like it or at least not resist it and build the know-how to deal with it. Otherwise, their organizations may be put on the defensive. Leaders must by psychologically adept to anticipate such forces and deal with them effectively. They need to develop a framework, methodology, tools, and capability in the organization to anticipate them and develop effective solutions. Younger leaders may have something of an advantage in accepting societal pressures on business, but it is a challenge for every leader to develop a methodology and the judgment to handle it well. Being a business leader today’s world is not for the faint of heart.

How Not to be Between a Rock and a Hard Place

• Get the management team psychologically prepared for the fact that societal issues will arise and can pick up steam quickly given today’s high transparency and the Internet.
• As you examine your company’s positioning, you need to anticipate what societal issues might be raised and what kinds of advocacy groups might raise them.
• Develop a methodology for dealing with such issues, first in terms of your personal psychology, and second, for the organization. What are your methods for picking up early warning signals of issues that are just emerging or gaining traction? How will you assess the power of various causes?
• Be prepared to exchange information and build bridges with advocacy groups to help shape the issues and solutions. Go on the offensive.