Importance of the Business Environment

In most years, more than six hundred new books on leadership are published, and almost all make the same mistake: they make the assumption that one leadership style and one set of managerial behaviors fit all environments. This is simply not true; organizations in different business environments have different identities and require different leadership and management behaviors.

Growth situations require different behaviors than do recessionary environments. Technology firms require a different style and behaviors than do capital-intensive companies, such as ExxonMobil or Chevron. Single-product service companies, such as Southwest Airlines, require a different style and behaviors than do investment banks.

Many CEOs in the 1990s overreacted to the argument that corporations are overmanaged and underled. They became so carried away with emphasizing the leadership side of their role that the managerial side slipped out of focus. This failing hurt them when a slowing economy demanded different behaviors. It is not surprising that CEO turnover increased dramatically in this period, as it is not easy for leaders to adjust their styles.

B2change companies must contend with the fact that one management style does not fit all situations. Clearly, any approach intended to produce a particular type of leader is extremely risky. Such an approach, if it does anything at all, may well produce leaders who fit yesterday’s business environment but not today’s or tomorrow’s.

B2change firms can use two tactics to deal with change: one is to employ managers who can change styles, the other is to replace managers whose styles go out of alignment. We will look at these options in more detail later in this chapter. The critical idea to hold on to at this point is that b2change organizations need to be able to change their managers’ behaviors. This represents an enormous adjustment for companies, which have invested in selecting and developing one right type of manager—a very popular approach that makes sense only when you assume the world is stable.

Shared Leadership

Much of the popular writing on leadership focuses on the behaviors of senior management. There is a good reason for this—they are the most visible and, in many respects, the most important leaders in an organization. However, if they are the only effective leaders in an organization, it will not operate or manage change effectively.

Good leaders who are also good managers believe in the power of shared leadership. As Mark Hurd, who replaced Carly Fiorina as CEO of HP, noted in a Wall Street Journal interview, leadership should be a “team sport.”³ He went on to note that management is a dynamic process, that managers need to understand the business, and that everyone has to have the same script.

It is easy to get swept up in the belief that hero-leaders are critical to an organization’s success and to be deceived by hero-leaders who are masters at self-marketing. For example, in 1999, the book Lessons from the Top identified America’s best business leaders.⁴ Its authors said that they used a rigorous methodology that enabled them to identify the very best business leaders in America. Since its publication, nine of those leaders, including Ken Lay of Enron, Dennis Kozlowski of Tyco, and Bernard Ebbers of WorldCom, have watched their companies become subject to criminal prosecution, regulatory rebukes, or shareholder revolts—or all three.

There are obviously a lot of lessons to be learned from the failure of these apparently successful CEOs, but we would like to focus on just one: organizations that are led by hero-leaders often are fragile entities. If the CEO messes up, the organization suffers. They are unlikely to be able to navigate a rapidly changing environment and all too often, cannot survive the leader’s personality defects or the loss of their leader. They can’t live with their hero-leaders, but they can’t live without them either.

Sometimes corporations are viewed as big ships with the CEO at the helm ordering changes in direction. This is not a helpful metaphor. It may fit traditional hierarchical organizations, but it doesn’t fit today’s knowledge-centered businesses. A better metaphor is to think of a corporation as a community of people spread out over miles and miles of hills, fields, and forests. To get the community moving in a new direction, competent leaders need to be dispersed across the countryside. It’s a far bigger job than simply moving the tiller.

There are three advantages to shared leadership. First, shared leadership can very effectively replace hierarchy. Hierarchy and rigid levels of management are, in effect, control devices that substitute for having a workforce that performs effectively because they understand the mission and vision and are motivated to make the organization effective. Viewing leadership as a team sport allows b2change organizations to spread decision making and dealing with uncertainty across a lot of knowledgeable people.

Second, a shared leadership approach has the advantage of building a deep cadre of leadership talent. Given the turbulence in individuals’ careers and the changing demands of environment, it is reasonable to expect increasingly high levels of turnover among managers. Thus an organization needs either to recruit individuals who can fill leadership positions or to develop a surplus of leaders. If it faces a great deal of change, it probably needs to do both.

Finally, and most important, a shared leadership approach supports more effective change management. Multiple leaders at all levels of an organization who understand the external environment and the internal capabilities of the organization often see trends that call for organizational change before senior management does.

Even in b2change organizations, when organizations change their strategic intents or how they create value, individuals need to have the change explained and supported by someone who is close to them, whom they respect, and to whom they can talk about the change. The best person usually is their boss or someone in their work group, not just a few senior managers who may be several levels removed. Thus, the more an organization needs to change its strategy, the more leaders it needs.

Organizations need to make the choice between looking for hero-leaders or building leadership at all levels; they cannot coexist. The right choice for the b2change firm is clearly the latter. Not every manager needs to be a great leader, but it is an enormous plus for an organization to have a lot of effective managers, many of whom are also effective leaders. An organization that has a broadly shared leadership capability is likely to be effective at enrolling people in its strategy and, as a result, to be able to change.

Leadership Talent

How difficult is it for an organization to manage leadership talent effectively? At this point, the answer should be obvious—it is very difficult. Even in a stable environment, managerial positions are difficult to fill because they require a mix of managerial and leadership skills. The difficulty increases under the shared leadership model because it requires organizations to have talented leaders in managerial and some nonmanagerial positions, throughout the organization. In a changing, unstable environment, the challenge is even greater; an organization needs to have managers who are able to change their managerial and leadership behaviors as the environment changes. Alternatively it needs to have multiple individuals available who have different leadership and managerial capabilities.

There are a number of approaches that b2change organizations use to build a leadership capability. Some of them are the same talent management practices that we discussed in the previous chapter. But there are enough unique issues involved in developing leaders that it warrants being treated separately. As we will emphasize in our discussion, successful leadership development is not just a matter of picking the right practices; organizations must develop systems that combine compatible practices.

Establish the Leadership Brand

Just as it is useful to brand an organization’s value proposition, products, and employment policy, branding its leadership style is an effective way to distinguish the organization in the marketplace. Having a clearly identified leadership brand can be a powerful factor in helping attract, retain, and motivate the right leaders and employees. A positive leadership brand that permeates the organization can also serve as a touchstone for all current employees who are managers or who desire to be managers, guiding them toward an organization’s “true north” with respect to the leadership behaviors and skills expected of them.

Every organization needs to develop its own leadership brand; no formula exists to indicate what is right. However, there are three essential characteristics we can identify that are critical to strengthening the leadership brand of a b2change organization and making it effective.

First, the leadership brand must reflect the organization’s identity. If an organization views itself as a product-driven company, its leadership brand must reflect innovative practices, maintenance of technical expertise, and creative problem solving. A leadership brand that does not honor the firm’s identity can create cynicism in the workplace because what the organization believes is different from how people are led.

Second, it must commit leaders to communicating truthfully and openly with their employees about what is going on in the business. Managers quickly lose credibility when they withhold critical information from employees or, worse yet, give them inaccurate information. Sometimes the best answer is “I don’t know”; at other times, it is letting employees honestly know that conditions are worsening and changes will need to be made. And whenever bad news about the company must be delivered, it is best to frame it in terms of what is happening in the external environment and how this requires the organization to make changes.

Third, the most important characteristic is that a leadership brand must apply across the entire organization and at all times; it should not involve what is often called “situational leadership.” Some leadership gurus have suggested that the most effective managers consider each work situation and then decide how to behave. They argue that managers should take into account such things as the experience of employees, the time available to make a decision, and the type of work that is to be done. We agree that these should have some influence on how a manager behaves, but we believe that all too often, situational leadership results in confusion and alienates people. Employees don’t want to be uncertain about how they will be treated or unable to count on being involved in decisions or informed by their manager.

At this point you may be wondering about what we said earlier concerning the importance of the external environment in driving appropriate leadership and managerial behaviors. Although we criticized the idea of situational leadership, we are not abandoning the idea that leaders have to take the environment into account. What we are arguing is that there needs to be a set of givens—including honesty, integrity, providing business information, and helping people understand the implications of organizational strategies and decisions—that simply aren’t optional. They need to be the foundation of a b2change organization’s leadership brand and relevant in all environments.

A brand is a promise, and in a b2change organization the leadership brand is likely to contain promises about being focused on the environment, not internal politics; about never settling into a status quo; and about always communicating. These kinds of promises can and should be kept, even as some behaviors change due to the nature of the business situation. Like the organization’s identity, its leadership brand must be stable, something that people can trust.

Effective leaders do need to adjust their leadership and managerial behaviors to the economic times. What should be situational are many of the management behaviors—for example, what is looked at in evaluating performance, what the consequences of negative performance reviews are, what kind of goals are set, and so forth. These all need to be contingent upon the environment and the organization’s business strategy.

In an adverse economic environment, what our colleague Jim O’Toole calls “yellow-light leadership” is appropriate.⁵ Managers need to make tough analytic decisions about cost controls, investments in new products and services, and especially the treatment of their human capital. If they have to downsize, it must be done in a way that remains respectful of their staff, with a positive long-term vision.

In short, organizations need to maintain their leadership brand regardless of the economic conditions they face. What they need to change when the business environment changes are their tactics, business practices, and business models.

If leaders can’t change their managerial behaviors to fit the organization’s strategy and environment, then they clearly will be leaders for only one season. This may not be a severe limitation on the careers of managers whose organizations encounter only one season, but for managers in b2change organizations, a season can be short. They need to be warned that if there is a change of seasons, they may no longer be effective and, therefore, no longer needed by the organization. In other words, they, like other employees, need to know that their continued employment is contingent on the relationship between their skills and the organization’s strategy.

Plan for Leadership Change

Maintaining a leadership brand is an important cornerstone of leadership development, but sometimes organization change requires leadership change. When this occurs, b2change organizations must determine the best way to make a leadership style change.

Sometimes it is so difficult for managers to change that an organization making a major transition will do best by simply hiring a new group of managers. Many organizations that went through deregulation in the telecommunications business, for example, found they had to change their brand and recruit a large number of new managers. Similarly, fast-growing small companies often need a fresh management team when they discover they are no longer small.

GE, which is often identified as one of the best developers of leadership talent, has recently hired a number of senior managers from other companies, breaking a long-standing GE tradition of promotion from within. Why did CEO Jeff Immelt decide to look outside for talent? He wanted to quickly increase the degree to which GE is focused on growth from existing businesses. To do this, he needed managers who were not just good leaders; he needed managers with deep expertise in a single business. GE was short of this type of leader because its frequent movement of managers prevented them from developing deep expertise in particular technologies and industries.

One alternative to recruiting new managers when change is needed is for an organization to have a diverse pool of leaders with different styles. This can enable it to draw on the talent it needs from within rather than having to go outside. Thus, odd as it may be, b2change organizations may find it advisable to develop some leaders who don’t fit the current environment. Before doing this, systematic thinking is required about the different types of change that are likely to be needed and which managerial behavior may be appropriate if the changes occur. It also requires a tolerance for a diversity of leadership styles.

To produce a diversity of leaders, it is not enough simply to train for it and advocate it. The reward and evaluation processes of the organization must reflect this goal. Individuals must be rewarded for demonstrating a diversity of managerial behaviors. B2change organizations shouldn’t just ask, “What have you done for me lately?” They should also ask, “What will you be able to do for me when the world changes?”

Immelt has taken steps to increase the diversity of leaders that GE develops. Some are being asked to stay about five years in positions that provide good development experiences. They are being well rewarded despite their not being promoted every two years.

It is difficult to develop a diversity of leaders, but we believe that b2change organizations can develop leaders who have a range of management styles. To do it, they need to pay particular attention to the kinds of jobs in which they place individuals and to the kinds of coaching and career opportunities they offer. If they have a systematic program to develop a diversity of managerial behaviors, we believe it is possible to develop leaders who can respond effectively to strategy changes.

A Company of Leaders

B2change organizations profit from having leadership at all levels. Without it, shared leadership is impossible. Building leadership depth and breadth calls for a development approach that moves away from the traditional focus on growing senior leaders. Shared leadership doesn’t rule out giving high-potential executives special courses, competency training, and developmental assignments, but it does argue that following this model is not good enough. Building a company of leaders requires a leadership development approach that touches all levels. It must encourage people throughout the organization to develop the skills needed to take on leadership roles and responsibilities. For a stable organization, shared leadership is a luxury; for b2change firms, it is an essential part of their infrastructure.

The shared leadership approach operates best from the bottom up. Rather than just identifying and grooming a select group of potential leaders, an organization needs to use its structure, work designs, and development programs to open the way for the emergence of leaders at all levels. Doing so requires making leadership training and development programs available to people throughout the organization and opening up information about business results and business strategy to create a shared sense of mission and direction.

In P&G’s 2002 annual report, CEO A. G. Lafley describes his view of what has made and will continue to make P&G a successful company. Sounding very much like the leader of a b2change organization, he argues that the secret to P&G’s success lies in developing leaders at all levels and creating a culture that values and embraces leadership. According to him, this leads employees to feel a “passionate sense of ownership” of the business.

Leadership Opportunities

The shared leadership approach requires a commitment to innovation and creative thinking from everyone. Emerging leaders need to be able to propose new projects and get the budget authorization and support required to make those projects happen. For example, 3M has a well-developed process that allows people who want to take on a leadership role to get support for projects they initiate. It has special budgets for such new projects so that aspiring leaders can apply for money outside the normal hierarchy of approval.

The last critical element of a shared leadership approach is that it must include sufficient rewards for those who are successful in becoming leaders. As we will see in the next two chapters, rewards motivate people to take risks and achieve goals. Without rewards, the best potential leaders may not emerge, or they may look to move to another company that will reward them for their skills.

W.L. Gore is an excellent example of an organization designed to support the emergence of broad-based leadership and product innovation. Gore, which has a staff of six thousand produces textiles for manufacturers of a variety of products; their Gore-Tex fabric is well known by consumers. Bill Gore, the founder of W.L. Gore, intentionally built an organization that relies on teams and emergent leaders rather than on hierarchical bureaucratic management. It is a b2change organization that supports change based on new applications of its core competency in fabrics.

Everyone at Gore is considered an associate, and there are no hierarchical titles. Becoming a leader is a matter of finding a new business opportunity and convincing others to pursue the venture. Gore does not make the process easy; all emerging leaders must compete for the talent and resources that are needed to get their new product to market.

People are rarely assigned leadership responsibilities or singled out by senior managers for leadership. Instead, everyone takes a one-week course on how the company operates and is assigned a sponsor. Emerging leaders get a great deal of feedback about how effectively they are contributing to the company. They are rated by their peers and given regular feedback on their leadership skills and their development as leaders, but it is up to them to actually become leaders.

Gore’s emerging leaders must show they can overcome challenges to earn their stripes as true leaders, and the company makes the rewards for doing so worthwhile. Any associate at Gore who succeeds in growing a business opportunity can end up running his or her own mini-enterprise within the company. Admittedly, the Gore model is an extreme case of structuring an organization to encourage emergent leaders and change. Nevertheless, most organizations can use parts, if not all, of Gore’s approach.

Leadership Development

B2change organizations need to develop leaders who not only are willing to change but also have shown competence in getting others to buy in to change. As part of the selection process, candidates for leadership development programs should be asked to “Tell about a time when you led a change effort” and to “Describe how you got others to change.”

Leader development needs to start early in someone’s career and continue well beyond his or her initial year or two in a management job. If an organization wants to create shared leadership, it must make development experiences available to a broad range of employees within the organization, not just a select few who have been chosen as candidates for senior management positions.

B2change organizations recognize that classroom training is important in leadership development, but that the right experiences are even more powerful. Emerging leaders learn most from taking on challenging job assignments that force them to examine their capabilities and improve their leadership skills. As mentioned in Chapter Seven, b2change companies identify “crucible” jobs that provide good learning experiences for emerging leaders. For example, to learn about making trade-offs among the demands of customers, employees, and financial markets, emerging leaders should fill a crucible job (for example a general management job) for a while and then have a chance to reflect on their experiences in the job. This reflecting can be done with the help of a coach or through an educational experience that focuses on making trade-offs. Overall, the best leadership development efforts are those that combine classroom education, coaching, and strategically timed job changes.⁶

There is one big mistake many companies make: in their eagerness to give people a wide range of leadership experiences, they move them too quickly. As the earlier GE example showed, this can create managers who lack a deep knowledge of a business. It can also reinforce bad habits, such as quick-fix mentalities. In many pivotal positions, such as that of division manager, it often takes at least two years to see the impact of a person’s managerial and leadership behaviors. The more senior the position, the longer this will be. Usually senior managers have a good sense of what the right period of time is; they simply must have the discipline to follow that good sense rather than to rush someone’s development.

Ideally, as part of its talent management program, an organization should specify the critical leadership and management skills that everyone needs and how they are going to develop them. Capital One, for example, has done an excellent job of identifying key leadership and management competencies and alternative ways to learn those competencies.

One last point to emphasize about leadership development is that in b2change organizations it is crucial to have leaders at the top who are role models and can educate and communicate well. It is very difficult—and in fact may be impossible—to get managers throughout an organization to adhere to a leadership brand if senior managers do not follow it and teach it to others. Both the development of the leadership brand and a consistent leadership style need to start at the very top.

Top-level managers in particular need to be excellent communicators and educators who never miss an opportunity to teach everyone in the organization about the company’s business and to engage in dialogue with employees about how the company is doing. At the very minimum, senior managers must be able to articulate the organization’s leadership brand in an “elevator speech.”

Two CEOs we have worked with are models for how top leaders need to behave. Rich Teerlink, the now-retired CEO of Harley-Davidson, took every opportunity to talk with employees about what they were learning and how the company was performing. Bob Eckert of Mattel is cut from the same cloth. He is always ready and able to talk with employees about the toy business and to learn about new developments in management. Given the major changes that these leaders orchestrated for their companies, both have clearly demonstrated that a commitment to communication and education can produce important benefits.

Transparency

Too many organizations shroud many features of their leadership development program in secrecy. As many as 60 percent of managers in large companies do not know whether they are explicitly part of their company’s succession plan, and many more don’t know what their position is in it. When we ask organizations why they keep such information as who is being developed secret, we get a variety of answers. The most frequent one is that they fear that if everyone knows who is on the “fast track” for leadership development, others will be jealous and may lose their motivation. Another common one is that they don’t want to make an implied promise that they may not be able to fulfill.

Secrecy may indeed fit well in a world of paternalistic management and top-down moves. But it doesn’t make sense in a b2change organization where the need for leadership behaviors is changing, leadership performance is regularly assessed, and shared leadership is the predominant mode.

A major advantage of transparency and openness policies in b2change organizations is that they allow individuals to self-manage their careers. As was noted in Chapters Six and Seven, this should be an important part of the employment contract in b2change organizations. It goes along with the idea that rapidly changing organizations often can’t do a good job of managing individuals’ careers, and individuals shouldn’t count on them doing it.

When career management isn’t a major responsibility of their organization, individuals need to act. To take on the responsibility, individuals need to know what opportunities exist and how to take advantage of those opportunities. Job openings should be visible to all candidates, and information should be available about the learning opportunities the jobs offer and, of course, what skills they require.

Many organizations rate each individual on the level of management that they think he or she is capable of reaching. (As you may remember, the person description in Exhibit 7.1 contained this information.) This is a useful planning device and should play strongly into the career planning and opportunities that are offered to individuals. There is a key question here, however, about whether the individual should be aware of this assessment.

Although doing so may be a bit uncomfortable at times, we think that b2change organizations should provide just this kind of information to individuals. Having the information can allow them to challenge the perception that others have of them and, one hopes, stimulate a positive dialogue that will lead to a change in either the organization’s assessment or in the individual’s self-assessment. Admittedly, at times it may lead to the departure of the individual, but that is not necessarily a bad thing.

Transparent career development systems allow employees to reasonably assess their future in the organization and make good decisions around how they pursue career opportunities. They can place their bets on how the environment will change and what new skills they will need, and make a realistic assessment of how likely the organization is to meet their needs. In a world where the organization is not responsible for their career and doesn’t guarantee them job security, the ability to access career information is an important feature. Access to it supports an employment contract that is based on mutual understanding and a fair exchange of data. Particularly if an organization’s development programs allow most individuals to develop their leadership skills, it can be highly consistent with the model of making every employee a leader, if not a manager.

Finally, when a major change in the firm does occur, transparency can be a tremendous aid to change management. It can help identify people within the organization who are the best candidates to fill new positions, and it can help individuals sense how well they will fit after the changes occur. If they see a relationship, they can take advantage of it. If the organization is moving away from the kind of things that they want to do, then transparency can enable them to receive an early warning that they need to look elsewhere. Clearly, self-managed departures are much better than organization-managed departures, for both the individual and the organization.

Regular Assessment of Managerial Performance and Behavior

B2change organizations regularly assess managers against leadership, managerial, and business performance criteria. Fortunately, the growth of assessment software packages makes it increasingly easy for organizations to gather information about the leadership behaviors of their managers. By using intranetbased systems, such as those at IBM and Capital One, much of the paperwork and forms associated with appraisals can now be eliminated.

Without referring to it by name, we mentioned one potentially useful leadership assessment technique, the 360-degree appraisal, when we discussed Michael Dell in Chapter Five. When an organization assesses its leadership, it should ask customers, employees, peers, and bosses to offer their views of a manager’s performance. This breadth of feedback creates a far more useful appraisal of someone’s leadership behaviors and skills than can be derived from a single boss’s appraisal. All too often, managers develop the ability to manage upward and thus to receive good performance reviews from their bosses, even though their ability to manage downward or laterally is poor.

But 360-degree feedback tools are not perfect. They can be biased by competition among raters, the relationship between the rater and the ratee, and inaccurate or incomplete data. As a result, 360-degree processes in a b2change organization are most useful as a source of development feedback to managers who want to improve their skills.⁷ As a general rule, a 360 should not be used for evaluation purposes as part of a regular performance appraisal. It should be a separate activity that is for development purposes only. One way to ensure that this is the case is to have the results go only to the person being appraised and, if there is a coach involved, to the coach.

Figure 8.1 presents a way to think about evaluating leadership performance in a b2change organization. It shows that good results alone are insufficient. Those results must be achieved in the right way; in other words, the organization must also evaluate how well the leader adhered to its leadership model.

Conclusion

Leaders are a key component of their organization’s human capital. They contribute significantly to the intangible value of all corporations. They are particularly important in b2change organizations, where they are needed to lead change as well as to produce good operating results. Leaders need to play a key role in gluing the elements of the designing process together to create dynamic alignment. B2change organizations need to focus specifically on the development of leaders—not just a few, but rather an entire organization of leaders. This is what we mean when we say that a b2change organization must develop a leadership capability.

Fortunately, there are things an organization can do to be sure it will have the leaders it needs. The most important is having senior management focus on the development of leadership in the organization. Neither of us has ever seen an organization develop a leadership capability without the strong support of senior management. Companies that have a strong leadership capability, such as IBM, PepsiCo, and GE, all have had CEOs who see developing effective leaders as one of the most, if not the most, important part of their job. They teach leadership classes, conduct talent reviews (for example, GE’s Session C), and in many other ways show their commitment to developing leaders in their companies. This kind of support is not optional: it must exist if an organization is to meet the leadership challenge that change creates.

Following a shared leadership model is not only a powerful force toward improving current organizational performance; it helps guarantee that an organization will have a reserve of leaders and, in many cases, a diversity of leaders. As a result, the company will be well positioned to cope with change.