Mworld Summer 2013 by AmericanManagementAssociation

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RLD

The Journal of the American Management Association

Summer 2013

Volume 12, Number 2

Jim Leighton and His

Dream Team Concept OTHER ARTICLES Chris DeRose and Noel M. Tichy Share Examples of Frontline Success Analytics Can Set the Course for Triple-Digit Growth Five Global Trends Driving Changes in Learning and Development The Power of Surprise in Business Breakthroughs: A Conversation with the Author of Leapfrogging Leadership’s New Normal Thriving in Complex Times Jim Leighton

Creating a Culture for Unrelenting Innovation Avoiding the Pitfalls of Executive Turnover: Make Succession Planning a Priority

COMMENTARY

SOUNDINGS

FIRST PERSON

TOP SHELF

The Competitive Advantage of Conscious Capitalism

The Employees’ Message Is Clear: Ignoring CSR Isn’t Sustainable

Where Are the Outstanding Business Leaders?

Lead by Example, from Motivation by Brian Tracy

Growth opportunities... Amazing breakthroughs... Valuable insights...

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The Journal of the American Management Association

Volume 12, Number 2

S U M M ER 2013

JIM LEIGHTON AND HIS DREAM TEAM CONCEPT. In his 35 years in the consumer-packaged industry, Jim Leighton, now president of Perdue Foods, has increasingly seen leaders become team players who spur their organizations toward effective change. By Florence Stone. PAGE 6

Chris DeRose and Noel M. Tichy Share Examples of Frontline Success. MWorld interviewed two thought leaders on the important role that frontline employees play in how a brand is perceived. By Florence Stone.

Analytics Can Set the Course for Triple-Digit Growth. Learn how analytics helped create a quickly growing private company. By Dan Roitman.

Five Global Trends Driving Changes in Learning and Development. Albert Siu, Vice President of Learning and Development at PAREXEL International, identifies five global trends changing the function of learning and development around the world. By Shari Fryer.

The Power of Surprise in Business Breakthroughs: A Conversation with the Author of Leapfrogging. Soren Kaplan, author of

a Culture for Unrelenting Innovation. 38 Creating The right culture can enable a corporation to be relentlessly innovative. The wrong culture can push a corporation into overconfidence, lethargy, and failure. By Gerard J. Tellis.

Avoiding the Pitfalls of Executive Turnover: 42 Make Succession Planning a Priority. The unexpected departure of the leader at the top can create waves through an organization—including disruptions in employee morale, organizational culture, and financial performance. By Nancy Martini.

FROM THE EDITOR

3 COMMENTARY The Competitive Advantage of Conscious Capitalism. Conscious Capitalist companies outperform their peers— especially for the long term. By Patricia Aburdene.

Leapfrogging: Harness the Power of Surprise for Business Breakthroughs, reveals why command-and-control mindsets stymie innovation. By Florence Stone.

5 SOUNDINGS The Employees’ Message Is Clear: Ignoring CSR Isn’t Sustainable. By Ron Loch.

Leadership’s New Normal. Today’s “new normal”

9 FIRST PERSON Where Are the Outstanding Business Leaders?

faces a number of challenges for leaders, including managing the complexity of a worldwide marketplace and a global workforce, building a culture of adaptability, leading employees who have different expectations, and managing succession in the face of an upcoming retirement bubble. By Howard J. Morgan.

Thriving in Complex Times. Management practices change daily. To cope with today’s VUCA times, learn how Vision, Understanding, Clarity, and Adaptability can deal with today’s Volatility, Uncertainty, Complexity, and Ambiguity. By Drs. Joel and Michelle Levey.

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John Mattone, author of Intelligent Leadership, identifies the qualities of an outstanding leader.

12 INSIGHTS Planning and Managing a Virtual Work Team. A successful virtual workforce offers self-motivated professionals with the skills you need. By Allison O’Kelly.

45 TOP SHELF Lead by Example. Brian Tracy points to the importance of leadership style.

48 OUR VIEW Great Leaders Never Skip Practice. By Robert G. Smith.

FROM

THE

EDITOR

The Growing Responsibilities of Leaders

MWorld The Journal of the American Management Association EDITOR

Florence M. Stone

This issue of MWorld is about those responsibilities that leaders can assume to significantly better manage and grow their organizations. There is even an article titled “Leadership’s New Normal” (page 30) that identifies seven new leadership skills that today’s ever-changing environment demands, including helping employees deal with generation differences and identifying the great people on staff who are critical to your company’s future and how to keep them. Our cover story is an interview with Jim Leighton, president of Perdue Foods, who has promoted FIT or “Fully Integrated Teams” within his company and thereby improved cooperation and collaboration across the organization and a significant return in increased productivity and quality. What other new leadership tasks do our authors suggest? Dan Roitman demonstrates how his decision to introduce analytics at his private company led to triple-digit growth (page 18); and Drs. Joel and Michelle Levey advocate vision, understanding, clarity, and adaptability to counter VUCA or volatility, uncertainty, complexity, and ambiguity (page 34). If innovation is critical to your company’s growth, you may want to read “Creating a Culture for Unrelenting Innovation” (page 38) by Gerard J. Tellis, who warns that the wrong culture can push a corporation into overconfidence, lethargy, and failure. In advice on how to build a stronger organization, Albert Siu, Vice President of Learning and Development at PAREXEL International, shares five global trends that are changing the function of learning and development in his company and companies around the world (page 22); and Chris De Rose and Noel M. Tichy suggest how leaders can achieve frontline success (page 14). In our department First Person, we include an excerpt from John Mattone’s book Intelligent Leadership that identifies the qualities of an outstanding leader (page 9), and in Top Shelf we offer an excerpt from Brian Tracy’s new book Motivation on the importance you can play in the way you lead your corporation (page 45). No question, this edition of MWorld makes clear how important leaders’ performance is to their companies’ futures. Not only for senior executives, either. Increasingly, today’s managers and employees are also being called upon to assume leadership responsibilities and will need leadership training and development to handle well these new demands.

CREATIVE DIRECTOR

Seval Newton COPY EDITORS

Geoffrey Gneuhs, Laurie Russo GRAPHIC ARTIST

Tony Serio PRODUCTION MANAGER

Laura Grafeld

PUBLISHER

Robert G. Smith PUBLIC RELATIONS MANAGER

Roger Kelleher

Edward T. Reilly PRESIDENT & CEO

MWorld© (ISSN 1540-2991) is published quarterly by American Management Association International, 1601 Broadway, New York, NY 10019-7420, Summer 2013, Volume 12, Number 2. POSTMASTER: Send address changes to American Management Association, 600 AMA Way, Saranac Lake, NY 12983-5534. American Management Association is a nonprofit educational association chartered by the Board of Regents of the State of New York. MWorld is an independent forum for authoritative views on business and management issues. Submissions. We encourage submissions from prospective authors. For guidelines, write to The Editor, MWorld, 1601 Broadway, New York, NY 10019-7420 or email fstone@amanet.org. Unsolicited manuscripts will be returned only if accompanied by a selfaddressed, stamped envelope. Letters are encouraged. Mail: Letters, MWorld, 1601 Broadway, New York, NY 10019-7420; email: fstone@amanet.org. MWorld reserves the right to excerpt and edit letters. Names and addresses must accompany all submissions. Subscriptions. Executive and Individual Members of American Management Association receive MWorld as part of their annual dues, a nonrefundable $50 of which is allocated for the subscription to MWorld. Single copies are available at $25 plus shipping and handling. Requests should be sent to sgoldman@amanet.org Rights and permissions. ©2013, American Management Association. No part of this publication may be reproduced or transmitted in any form or by any means without written permission. Requests should be sent to Joe D’Amico, at jdamico@amanet.org Editorial Offices 1601 Broadway, New York, NY 10019-7420 Tel: 212-903-8075; Fax: 212-903-7948 Email: MWorld@amanet.org Opinions expressed by the editors, contributors or advertisers are not necessarily those of AMA. In addition, the appearance of advertisements, products or service information in MWorld, other than those of AMA itself, does not constitute endorsement by AMA.

Florence M. Stone Editor, MWorld 2

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COMMENTARY

The Competitive Advantage of Conscious Capitalism

BY PATRICIA ABURDENE

In 1970, Nobel Laureate Milton Friedman famously penned an article titled “The Social Responsibility of Business Is to Increase Profit.” Whether you agree with Professor Friedman or not, few have better articulated the “shareholder model” of capitalism. Today, however, a new wave of business leaders champions a fresh iteration of free enterprise. These self-styled “Conscious Capitalists” question the efficacy of the shareholder model and boldly proclaim that the path to business success is paved with human values and a purpose beyond profit. Furthermore, they offer compelling evidence that Conscious Capitalism outperforms the traditional variety at its own game—making money. THE TRADEMARKS OF CONSCIOUS CAPITALISM

Conscious Capitalism is defined by the following characteristics:

The Stakeholder Model Since all parties with a stake in the enterprise—customers, investors, employees, suppliers, communities—in some way contribute to the success of a business, the interests of each stakeholder should be weighed when making business decisions, without acquiescing to the interests of any one of them. This holistic view recognizes, as many CEOs put it: Our employees take care of the customers and our customers take care of the investors. Purpose Business needs strong earnings to reward investors, fuel compensation, and fund the R&D that delights customers. But Conscious Capitalists insist that the business exists to fulfill a deeper purpose, such as to “make a difference” or “contribute to life.” Sunny Vanderbeck, cofounder of social equity investor Satori Capital, describes purpose as “the nonfinancial reason a company is in business.” Profit is essential, but profit is a business result. It is not the purpose of business. Values Positive values create an inner compass that gives a business direction and focus. Online retailer eBay was built on the value of trust. Early on, founder Pierre Omidyar posted this on eBay’s website: “We believe people are basically good.” Trust became the core of eBay policy and technology later MWORLD SUMMER 2013

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reinforced that trust. Result: Only a fraction of 1% of eBay transactions end in fraud. Agilent, the world’s leading maker of measPatricia Aburdene urement equipment, was compelled to lay off thousands of people, but did so while honoring the value of truth. Agilent informed employees about the layoffs before the public or the media. The firm specifically trained managers to relate with honesty and respect for those losing their jobs. As a result, even former employees sang Agilent’s praises, thereby solidifying the company’s brand and reputation. At Whole Foods Market, values like “delighting our customers” are posted on store walls and put into practice on the spot. Whole Foods encourages customers to try new products and return what they don’t like. When more customers try and like more products, Whole Foods’ sales and profit soar. When leaders consistently affirm human values like trust, truth, and customer delight, they forge those ideals into the foundation of corporate culture, which determines which behaviors a company rewards. Each of these trademarks requires committed and conscious leadership, and each ultimately contributes to sustainable profitability. There are clear indications that the stock market value of Conscious Capitalist companies outperforms that of their peers—especially in the long term. Raj Sisodia, marketing professor at Bentley College and coauthor of Firms of Endearment, studied 28 companies, including Google, Costco, and Honda, that fostered positive relationships with employees, customers, and investors. Over a 10-year period, the stock of these firms soared 1,025% versus 122% for the S&P 500. A decade-long study, by the Great Places to Work Institute, creator of Fortune’s “100 Best Companies to Work For,” discovered that the list’s public firms outperformed the S&P 500 by a factor of 6. CONSCIOUS CAPITALISM BEATS THE COMPETITION

COMMENTARY

“When people change, so does capitalism. Today, business, not government, is reinventing free enterprise and reversing the errors that threaten its future.” Whole Foods’ CEO John Mackey calls this phenomenon “the paradox of profit,” which holds that by managing the enterprise as a whole (rather than focusing only on profit) and according all parties their proper due—including investors—a company can earn greater profits in the long term. Traditional capitalists applaud Walmart’s capacity to deliver some of the marketplace’s lowest prices. But Walmart is also criticized for its low wages, meager benefits, and cheap imports. So some ask whether any retailer can sell quality inexpensive products, pay good salaries, and remunerate investors. National discounter Costco, with more than 425 U.S. locations, succeeds with just such a formula. Costco takes very good care of its employees. In 2012, the Simply Hired website estimated the average annual Costco salary at $61,000 versus $30,000 for Costco rival Sam’s Club. Costco offers generous health insurance and retirement plans. It also cultivates customer loyalty by refusing to raise prices over a certain profit margin (about 15% vs. 25% for supermarkets). “This is not altruistic,” says former Costco CEO Jim Sinegal, “this is just good business.” What about investors? In spring 2013, Walmart’s one-year stock chart beat Costco’s. But the five-year chart showed that Costco handily outperformed Walmart, thus exemplifying how Conscious Capitalists consistently deliver value and rewards to multiple stakeholders over the long run. CASE STUDY: WALMART VS. COSTCO

Consider the following questions to determine whether your company practices Conscious Capitalism: ᔢ Does your firm treat people fairly and well? ᔢ Do you please and satisfy your customers by delivering excellent value? IS YOUR COMPANY A CONSCIOUS CAPITALIST?

ᔢ Do your employees typically go out of their way to deliver great customer service? ᔢ Do you generate sustainable shareholder value? ᔢ Do you enjoy great relationships with suppliers? ᔢ How do you “give back” to the communities where you do business? ᔢ Is your commitment to sustainability and the planet something you are proud of?

While some might argue, “Capitalism is capitalism,” that is not the case. Free enterprise was not set in stone during the Industrial Revolution; it’s a living, breathing, dynamic philosophy of business that expands over time to reflect the values, awareness, and aspirations of its followers. The reforms of the New Deal sanctioned labor unions (which business opposed) yet built a middle class that could afford automobiles, appliances, and televisions, thus solidifying the success of free enterprise. Similarly, the Securities and Exchange Commission, deemed unfriendly to business, stabilized markets, attracted middle-class investors, and sustained capitalism until the recent crises. When people change, so does capitalism. Today, business, not government, is reinventing free enterprise and reversing the errors that threaten its future. Furthermore, government intervention alone, however well intentioned, cannot achieve the moral rebirth of capitalism. Regulation can foster a culture of compliance, but it cannot create a culture of commitment; that requires a change of heart in the individual capitalist. CONCLUSION

If shareholder capitalists imprudently celebrate short-term profit as the sole legitimate goal of business, which objective should the wiser, more astute capitalist favor? Clearly, it ought to be the creation of financially healthy enterprises that reliably deliver profit over a longer term. This is the positive, life-affirming vision that unites the growing ranks that call themselves Conscious Capitalists. MW A POSITIVE VISION

Patricia Aburdene, one of the world’s leading social forecasters, is coauthor of the New York Times number-one bestseller Megatrends 2000 and author of Megatrends 2010: The Rise of Conscious Capitalism. Her most recent book is Conscious Money: Living, Creating and Investing with Your Values for a Sustainable New Prosperity. American Management Association

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SOUNDINGS

The Employees’ Message Is Clear: Ignoring CSR Isn’t Sustainable

BY RON LOCH

Employees have made it clear they want their employers to practice corporate social responsibility (CSR), and they want to be involved in the process. However, not enough employers are heading the clarion call. According to Net Impact’s What Workers Want in 2012 talent report, 35% of graduating college students said they would be willing to take a 15% pay cut to work for a company committed to CSR. In fact, 65% expect to make a positive social or environmental difference in the world at some point through their work. Unfortunately, there appears to be a gap in supply and demand. According to the 2013 Gibbs & Sobel Sense & Sustainability® Study conducted by Harris Interactive on behalf of G&S, a global business communications agency, 63% of employed U.S. adults said that no one at their company is responsible for corporate sustainability, or they are not sure who is. Also, nearly 70% said they wished their employer engaged in more sustainable business practices, and less than half felt their company does a good job of communicating sustainability to their employees or other stakeholders. Even employees who are engaged in sustainable activities at work want more. Of those, 73% said they wished their employer implemented even more sustainable practices. This demand isn’t too surprising since we know that workers who engage in sustainable activities at work tend to be happier and more productive. In fact, according to Net Impact’s talent report, employees who say they can make an impact while on the job report higher levels of job satisfaction than those who can’t by a 2 to 1 ratio. A worker’s health is at stake as well. According to Gallup, actively disengaged employees tend to have levels of poor health similar to that of the unemployed. Its Gallup-Healthways Well-Being Index REASONS TO INCLUDE EMPLOYEES

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found that disengaged employees have higher rates of chronic disease and obesity, which lead to more time off and less productive days at work. The G&S study also discovered that the benefits of involving employees around sustainability aren’t confined to the workplace but follow them down the elevator or out the factory door. According to the survey, when employees engage in sustainability activities at work, 73% are more likely to become sustainable consumers at home, and 80% say they are more likely to encourage others to behave more sustainability. Employees need to learn about their employer’s efforts to embrace CSR, but more important, they need to know how to become involved. Many companies are finding that their “green teams” are the most popular employee volunteer opportunity. For example, Verizon’s Green Team program has secured more than 10,000 employee participants in 23 countries. Despite these success stories, 40% of employed U.S. adults say that either their company does not promote sustainability or they do not participate in corporate sustainability activities, possibly because of poor internal communications. Employees who took part in sustainable activities at work were more likely to say their employer did a good job of communicating to employees about sustainability (69%) than employed adults in general (49%). Whether your company has an active CSR program but poor communications, or needs to begin embracing sustainability as a core business strategy to have a story to tell, there is one thing existing and prospective employees are telling you: Ignoring CSR isn’t a sustainable strategy. MW COMMUNICATIONS IS KEY

Ron Loch is principal and managing director of sustainability consulting at Gibbs & Soell, Inc., in Chicago, IL.

COVER STORY

Jim Leighton and His

Dream Team

BY FLORENCE STONE

Jim Leighton has had 35 years’ experience in the consumer-packaged industry. Throughout those Jim Leighton

years, he has seen leaders increasingly become team players who spur their organizations toward effective change. In his book FIT, which stands for fully integrated team, Leighton, now president of Perdue Foods, the third largest poultry company in the U.S., describes how FIT elevates energy levels, prepares team players with grip to overcome obstacles, inspires them to help others find their own FIT, and demonstrates the powerful impact it can have on business results and on people’s lives. As Leighton explained in an interview on Edgewise, AMA’s podcast program, “An integrated team is a team that comes together around a common purpose and common principles to create or do something much greater than any individual could do alone. Once you have a team formed, you define what it is you want it to do—what I refer to as the promise.” Leighton compared the FIT process to building a house, one whose foundation is steadied with purpose. “After the structure’s built,” he said, “it can shift and change as a house would adapt to the internal and external dynamics.” “Organizationally, we frequently refer to a FIT as the company as a whole rather than a project team or work group,” but, he added, “FIT could also be a self-directed team or a management group.” Leighton uses the term FIT to refer to two people, a married couple, a team of three, or an organization of over 100,000. To better understand a fully integrated team or FIT, Leighton compared it to a disintegrated team or team that is very siloed or focused. “Let’s say you’re in operations or in marketing, or in sales. Your focus is on your functional area, and you’re basically managing that functional area vertically. A fully integrated team, on the other hand,” said Leighton, “is horizontal first and vertical second.” What a FIT is doing, he observed, is looking across the value chain about whatever its promise is to the marketplace or to a person or to whatever it is that it’s serving. “I have found that the return on investment for integrated teams is much, much higher than it is for disintegrated teams because all members of FITs are rowing together in harmony.” So with FIT, you have integrated team collaboration and cooperation, or as Leighton has said, “Your workers are linked, they’re synced, and they’re aligned.”

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Concept He went on to remind us that we spend at least 25% of our lives at work, so it’s about time work became something more than what Studs Terkel called a “Monday-to-Friday sort of dying.” Good news. These individuals—whether fresh out of college, midcareer, or changing lanes on the fast track, can revive and come alive at work through the application of FIT.

Getting fit at Nabisco.

Leighton explained that the FIT concept was born while he was teaching postgraduate classes in leadership and organizational behavior at Keller Graduate School. In the 10-week period of learning, he recalled, 10 to 20% of the class made significant changes to their personal or professional situations. These changes were triggered by questions like: If you could be your ideal self at work, what would that look like? What would it feel like? What would it mean to you and those around you? As he noted, people in a FIT trust each other. They understand that their real job as team members is to support and make other team members successful, therefore making the entire team (aka organization) successful. How has Leighton applied FIT? At a large consumer-packaged goods company where he had responsibility for around 80,000 associates, in one particular plant, productivity was high but so was turnover—100%. Safety for associates was unsatisfactory as was the quality of product produced. Said Leighton, “We basically applied FIT by stepping back, identifying and articulating what the purpose of the facility was, and then what the principles were that we were going to adhere to. We started with the people and then we focused on products. We were able to communicate to the people that if we did right by them and if we did right by our products, our profitability would flow. Profitability solely on productivity only works in the near term and is not sustainable.” The alternative would have been more investment in training new people year after year and inefficient production because each year there would have been a new group of new hires. He said, “It’s very difficult to get people engaged in what they’re doing when they first come to a company when you do not utilize FIT methodology. When people are around and doing what they have been doing for a while, they become emotionally attached to what they do and they do quality work.” MWORLD SUMMER 2013

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“FIT is an acronym and, according to Webster’s, that acronym is about people working toward a cooperative goal, it’s creating together something that no one person could ever create on his or her own.” He continued, “I’ve been in the food business my entire adult life, and I have been with companies that produce just about everything you see in a grocery store. If you have FIT teams around operations, performance is significantly enhanced. For instance, if the company produces food, the people don’t just view their jobs as producing food. They view their job as something much more purposeful.” According to Leighton, “Team members represent the best quality control system you can have. When people care, they are supportive of one another, they take pride in the products they produce, they understand the purpose of what they’re doing is larger than what any one individual could do himself or herself.”

A NEED FOR PURPOSE Leighton sees the concept of FIT as an answer to a major problem in American business; that is, many people in the American workplace have lost their sense of purpose. This is true of most employees and the way that leaders direct them. “I have found,” he said, “that this great country we live in was built upon the operating system of the industrial age. And it worked very well during that period of time, but it was very top-down. That is, the top of the organization would shout orders to people lower in the organization. They were told exactly how to do their jobs in the steel mills or the textile mills or wherever they were, and people would come in and leadership would pay them a rate, and that was it. Well, those times have changed. There is a need for a new operating system—we need to engage associates now and to ask them to be creative. We need them to engage their minds, hearts, and souls. We need to specifically have them use more of the right side of their brain to help solve complex problems.” Asked how a leader encourages a fully integrated team structure and behavior, Leighton said FIT is the intersection between an individual and an organization. “In my book, I speak specifically about the intersection or ‘sweet spot’ of skills, needs, and passions, all in a nutrientrich, toxic-free environment. FIT is an acronym and, according to Webster’s, that acronym is about people working toward a cooperative goal, it’s creating together something that no one person could ever create on his or her own.” Leighton is proud of the FIT teams he has worked with. Due to careful recruitment, the people at these FIT organizations are “Thank-God-it’s Monday” people and the principles at these organizations are clearly communicated and inculcated into the very fabric of the organizations and their team members. Leighton is proud of his company’s dream teams and the organizations they represent. MW AMA’s seminar Collaborative Leadership Skills for Managers will give you the tools to be an adaptive manager, someone who can create clarity, vision, and build mutual trust with your team and other departments. For more information, visit www.amanet.org/2186

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FIRST

PERSON

Where Are the Outstanding Business Leaders? BY JOHN MATTONE

As I travel the globe, meeting with senior executive teams, coaching executives, and speaking to various management groups, it is clear to me that the world of business has very few outstanding leaders. The distribution of outstanding leadership, like anything else, follows the bell-shaped curve. I always knew this. Everyone has always known this. But nobody really cared because being a good leader has always been good enough to keep a position and meet its basic requirements. But things are changing quickly. The bell-shaped curve needs to be shaped into a negatively skewed distribution, in which all organizations possess a larger percentage of very good and outstanding leaders just to be able to compete. I had suspected the need for this critical shift for a couple of years, but it became very clear in 2011 as we were interviewing executives as part of our Trends in Executive Development research study (Pearson, 2011). Beyond the actual research, an interesting qualitative note emerged. When I ask executives to identify a great leader in their lives—someone who had a positive impact on them and helped shape their values—roughly 9 times out of 10, they mention a former teacher, coach, parent, grandparent, or friend, as opposed to a business leader. Unfortunately, the fact is that most of us in the business world can identify the poor managers we have had much more quickly than we can the great ones. Why is this? There is no clear answer; however, it is pretty clear that many managers are promoted before they are ready to assume leadership roles. They are not adequately trained, coached, and mentored by more seasoned executives, who often can share stories and insights to dramatically shorten a manager’s learning curve. More than anything else, I believe the speed and pace of change in business—technology shifts, demographic shifts, and a more demanding operating environment—present daunting challenges to most leaders. Frankly, very few possess both the strong inner core of values, character beliefs, thoughts, and emotions and the outer core of leadership competencies that are required to successfully overcome these challenges. In the end, too many executives are beginning to derail, or have already MWORLD SUMMER 2013

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derailed, because of character flaws or perhaps just sheer immaturity. Whom do I consider an outstanding leader? First and foremost is Jeff Bezos, the CEO of Amazon.com. In an interview in U.S. News & World Report, which David LaGesse conducted with Bezos in 2011, Bezos demonstrated numerous examples of his strong inner core (i.e., character, values, positive beliefs, positive emotions, self-concept) and outer core (i.e., leadership competencies) that together, form the foundation of what I refer to as leadership maturity. I define leadership maturity based on the following qualities: ᔢ Strong statements of conviction ᔢ Character elements of diligence and focus ᔢ The ability to handle uncertainty and ambiguity ᔢ An understanding of the value of experience and “references” that are the foundation for creating strong and compelling beliefs about what is possible ᔢ A powerful sense of optimism Another great example of outstanding leadership is Anne Mulcahy, former CEO of Xerox. When Mulcahy took over Xerox in 2000, she delivered a blunt message to shareholders: “Xerox’s business ROLE MODELS

FIRST

PERSON

JOHN MATTONE ON THE LEADER SHORTAGE Interview by David Summers David Summers, digital media director for American Management Association, interviewed John Mattone, author of the new book Intelligent Leadership: What You Need to Know to Unlock Your Full Potential. President of John Mattone Partners Incorporated, a global leadership consulting firm, Mattone has done research on trends in leadership development, the most recent involving 150 CEOs.

What is the one leadership development/talent management issue that executives say keeps them up at night? Mattone: Most companies worry about the brain drain in the near future, as 40 to 70% of their management population retires over the next five years….You look at your Generation X population, and you don’t have enough talent. Generation Y is not any better. These younger people are not ready to assume roles of responsibility at this point. Further, most organizations aren’t doing a great job of looking into the depths of their organizations and identifying the talent that exists among the younger people. There is massive talent that exists, but organizations, quite frankly, have to do a better job of identifying these people and accelerating their development.

How do you locate these high-potential leaders? Mattone: Great leaders have strong inner- and outer-core skills. Indeed, those leaders with a strong inner core have a stronger outer core. The outer-core competencies include critical thinking, strategic thinking, decision making, talent leadership, team leadership and drive for results. The inner-core values are comprised of character, courage, and diligence.

What is the biggest mistake companies make in predicting top performance? Mattone: They believe that the best predictor of future behavior is past behavior. That’s just not correct. If organizations work from this premise, it’s my prediction that they’re going to make a lot of succession mistakes. In reality, the skills and competencies required for success in a leader’s current role often have very little to do with the skills and competencies required for success in the next role. In my opinion, the best predictor of future behavior is to understand the competencies required for success in the role that you’re projecting for the leader. For sure, you have to consider past performance. Too often, organizations are not assessing leaders’ can-do ability to execute successfully in their new role. They’re not measuring what I call the commitment or the motivation and drive to excel in that next role. And they’re certainly not measuring the alignment factor, which really is the must-do, and the degree of connectedness that a leader has to the mission of the organization. That’s the piece that’s missing.

model is unsustainable. Expenses are too high and profit margins too low to return to profitability.” Shareholders, wanting easy answers to complex problems, started to dump their shares, which drove Xerox’s stock price down 26% the next day. Looking back on that dark time, Mulcahy admitted she could have been more tactful; however, she had decided it would be more credible and authoritative if she had acknowledged that the company was broken and that dramatic actions were needed to fix it. Although she had been with Xerox for 25 years and knew the company well, when Mulcahy was named CEO, she acknowledged her lack of financial expertise. She quickly enlisted the treasurer’s office to tutor her in the fine points of finance before meeting with the company’s bankers. Her advisors told her to file for bankruptcy to clear $18 billion in debt, but Mulcahy resisted, telling them, “Bankruptcy is never a win.” In fact, Mulcahy thought that using bankruptcy to escape debt would make it more difficult in the future for Xerox to compete seriously as a high-tech player. Instead, she chose a much more difficult and risky goal: “restoring Xerox to a great company again.” To gain support from Xerox’s leadership team, she met personally with the top 100 executives. She let them know honestly how dire the situation was and asked them whether they were ready to commit. A full 98 out of 100 decided to stay, and the bulk of them are still with the company today. Like Bezos, Mulcahy’s actions reflect numerous examples of her executive maturity: ᔢ Character elements of honesty, modesty, humility, and courage ᔢ A powerful sense of vision ᔢ Skill at empowering others ᔢ Passion, drive, and incredible zeal How many executives do you know who exhibit the qualities of Bezos and Mulcahy? There are nine strategic and tactical leadership competencies and skills you must possess to be successful as a leader now and in the future. Within the wheel is the inner core consisting of the intrapersonal and interpersonal elements that strongly impact how effectively you acquire and cultivate the nine outercore leadership competencies. LEADERSHIP COMPETENCIES

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FIRST

DRIVE FOR RESULTS

DECISION MAKING

Thoughts Values CHANGE LEADERSHIP

STRATEGIC THINKING

ons

fer Em

o ti

Elements of Character

ief

en TEAM LEADERSHIP

ences

Self Concept

B el

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CRITICAL THINKING

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John Mattone Partners (JMP’s) Leadership Wheel of Success™

B e h a vi o r

The nine outer-core elements consist of: 1. Critical thinking 2. Decision making 3. Strategic thinking 4. Emotional leadership 5. Communication skills 6. Talent leadership 7. Team leadership 8. Change leadership 9. Drive for results The inner core consists of six elements of character, ten values, and eight emotional states. The six elements of character include: 1. Courage 2. Loyalty 3. Diligence 4. Modesty 5. Honesty 6. Gratitude Visualize an iceberg. Beneath the water’s surface is the larger volume of ice, which constitutes your character. Above the water’s surface, the smaller volume of ice represents your values, which evoke pleasure in some way, shape, or form. The values include the desire for achievement, the desire to serve others, appropriate social behavior, and desire for excitement and fun. These are ranked in order of importance from 1 to 10, with 1 being the most valued and 10 the least. The hierarchy controls every decision you make as a leader and ultimately will determine the degree of pleasure or pain you experience as a result of the decisions you make. Once you isolate your individual values, you can better understand why you behave as you do. Leaders generally derail not because of a character flaw but rather because they respond immaturely to mounting stress and change. Leaders who are immature in their thoughts, beliefs, attitudes, and habits, however, are capable of recovering from their unleaderlike behavior. For example, one of the most important traits of great leaders is what I call the helping trait. Leaders who are selfless, giving, and altruistic demonstrate the mature behaviors associated with the helping trait. However, when their helping is done in an inauthentic way, with strings attached, they demonstrate the immature behaviors associated with that trait. Great leaders also possess a mature disciple trait. Leaders who

PERSON

EMOTIONAL LEADERSHIP

TALENT LEADERSHIP

COMMUINCATION SKILLS

can follow others and who value being part of something bigger than just themselves demonstrate the mature behaviors of this powerful trait. When leaders demonstrate a lack of belief in themselves and do not think they are worthy of success and accolades, they show the immature behaviors of this trait. I have come to believe that organizations that do not compulsively develop their leaders and future leaders—through coaching, mentoring, executive development programs, action learning projects, and the like—unknowingly grow and multiply leaders with a high probability for derailment and failure. At a minimum, when an organization, leader, or future leader leaves things to chance, the probability of leader derailment or success is the same. MW Excerpted, with permission of the publisher, from Intelligent Leadership: What You Need to Know to Unlock Your Full Potential. Copyright 2013, John Mattone. Published by AMACOM. For more information, visit www.amacombooks.org Harness the power of your own innate genius—what Dr. Stephen R. Covey calls your voice—at AMA’s seminar The 8th Habit®: Unleashing the Greatness in Yourself and Others. For more information, visit www.amanet.org/2603

INSIGHTS

Planning and Managing a Virtual Work Team BY ALLISON O’KELLY

The talent war for skilled professionals will affect recruiting and retention methods for nearly every organization in every industry. Professionals from all generations are voicing preferences for flexible work options, of which working virtually or remotely is a popular choice. A successful virtual workforce is chock full of self-motivated individuals. Professionals who prosper in this virtual work situation ultimately succeed because they understand accountability and the importance of getting tasks completed as agreed. Because these professionals do not have supervisors looking over their shoulder and keeping them on task, they must learn to self-motivate and take personal responsibility for their work, which will allow them to be independent, successful, and selfsufficient professionals. The Families and Work Institute conducts national studies of employees and employers. These studies find that flexibility is a critical component of workplace effectiveness—just as important to success as betterknown components such as challenging and meaningful work, learning opportunities, job autonomy, input into management decision making, and supervisor and co-worker support. Panasonic recently launched a number of diverse working style initiatives to promote a healthy work/life alignment. The goal was to build a culture that enabled its employees to obtain easy access to programs that support parents. Panasonic also encourages an eWork program, which allows employees to work remotely by means of a virtual workplace. The program was initially introduced in 2007, and by 2012 approximately 7,000 employees worked from home, from once a month to as often CULTURE OF COHESION

as biweekly. Panasonic’s flexible work efforts are continuously evolving to find the precise formula for an efficient workplace. In a 2012 internal survey (displayed on the right), Panasonic found that the positive effects of their work/life alignment support system were significant. Some business executives subscribe to the flex work myth of “If I can’t see them, they aren’t working.” In 2010, Brigham Young University released results from a study of IBM’s workforce, with the discovery that telecommuters generate an average of 19 more hours of work per week, compared to those who work in the office. IBM has mastered the creation of a culture of self-disciplined go-getters. How did they do this? Trust and confidence. Employers who trust their employees’ abilities to effectively complete their tasks without being overseen see positive results. And employees who are confident in their supervisors’ ability to manage them remotely are more efficient and productive. These two factors in flexibility also improve employee retention. Research proves that employees are more likely to stay with a company in which they feel some freedom and empowerment. Leading a virtual team may seem more complicated than leading traditional office staff because it requires more precise planning and a detailed communications plan. Managers are required to retain exceptional time management skills for the purpose of meeting team deadlines and making sure to deliver what was promised. Here are some sample questions and answers in conversations we’ve had with clients on the topic of managing virtual teams: PERFORMANCE MANAGEMENT

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INSIGHTS

The Benefits of Working at Home Helped prepare me for working at home under the Business Continuity Plan

Effect on Work 40% 37%

Work efficiency improved Enabled me to reexamine how I work

25%

Lifestyle Improvements No commute means less fatigue

58%

Able to spend more time with/communicate with family Able to have time for child/elder care

25% 15% *Panasonic: Fiscal 2012

Which one specific skill is critical when managing remote workers? Actually, overcommunication. Without a solid communication plan, a virtual workforce cannot function. When employees aren't physically in the same space on a daily basis, it isn't as easy to recognize when teammates are available for a quick chat, working on a deadline, or are at their most productive, all aspects that need to be shared proactively. Employees have to be prompt in responding to their manager and peers. All persons on the team should identify set times when they are available and working, and the manager needs to coordinate and direct those schedules accordingly. How do you ensure good communication takes place among the teams? It is so easy to get lost in your day, working from home or another remote location, but it is cross-team communication that makes this model work. On our regular team calls, we address this aspect of our jobs on a regular basis. We discuss productive methods for interaction, the latest technologies for team collaboration, and where we are not meeting expectations. How do you oversee employees you can’t see faceto-face? We have deliberately created a work environment built on trust and accountability. All Mom Corps staff is remote, and we employ the concept of a results-only work environment (ROWE). ROWE is a management strategy where the focus is on the work product and employees are evaluated on performance. Our employees can work whenever and howMWORLD SUMMER 2013

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ever they want as long as they meet their objectives. When companies hear about ROWE, they often worry about losing control. But ROWE is not about relinquishing control but rather a shift in focus from controlling when, where, and how people work to holding people accountable for results. What’s the biggest challenge to managing a virtual workforce? Managing a mobile team requires some fundamental changes in how an organization measures and rewards work outcomes. Company leadership needs to define what those parameters are, then communicate those to the management team and teach them to manage their remote employees according to those parameters. Planning and managing a flexible workplace that incorporates virtual, or partially virtual, teams of professionals has its pros and cons. This business model is not suitable or practical for all companies, but what does prove to be successful for most businesses is exploring formulas to construct the workplace with the utmost efficiency. The formula will evolve over time as businesses mature and develop successful practices. Allison O’Kelly is founder and CEO of Mom Corps (www.momcorps.com), a national professional staffing firm launched in 2005. O’Kelly can be found on Twitter at @MomCorps and @AllisonOKelly AMA’s seminar Leading Virtual and Remote Teams is designed to help you build truly synergistic and effective long-distance teams. For more information, visit www.amanet.org/2280

Chris DeRose and Noel M.Tichy Share AN INTERVIEW BY FLORENCE STONE

Frontline employees who deal directly with customers are the face of any organization. Not only do they have the most impact on how a brand is perceived, but they are also the most valuable source of insight into what customers want and how to give it to them. In their book Judgment on the Front Line: How Smart Companies Win by Trusting Their People, management experts Chris DeRose and Noel M. Tichy offer powerful examples of frontline leadership. They also describe how many organizations don’t prepare their frontline employees to make good judgments.

What is frontline leadership? Frontline leadership is about releasing the innovation potential, customer insights, and organizational knowledge of the people who serve customers or directly impact the customer experience. Those on the frontline customer interface are often the largest group of employees in a company. Their daily customer interaction makes them some of the best potential contributors for developing new products or services that will address unmet customer needs. They can also help identify and correct communication breakdowns, unfriendly customer policies, and inefficient work processes that frustrate customers and needlessly waste organizational resources. Despite their potential contribution, most organizations fail to meaningfully engage frontline employees to generate new ideas, solve problems, or help avert crises. While empowerment and engagement initiatives abound, few companies have truly rethought their organizations in order to unleash the power at their front lines. We like to think of this in terms of leveraging an organization’s capacity. Based on survey data we’ve seen, the typical organization gets 50% (at best!) of the potential contribution by those at the front line. For some reason we tolerate that in human resources but can you imagine a factory manager accepting that level of productivity? By contrast, organizations like Ritz-Carlton, Amazon, Zappos, Facebook, and Intuit systematically engage their front line to help improve their business. Features that we take for granted—Amazon’s shopping cart or Facebook’s video—were created by people who were new to their organizations but entrusted to run measurable customer experiments. As a result, these organizations are unleashing frontline leadership and developing innovations that are quite literally worth millions of dollars. 14

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Examples of Frontline Success How do you prepare frontline members so they make good judgments? We outline a 5-step process that is based on benchmarking more than 20 businesses as well as noncommercial organizations, such as the U.S. Navy SEALs, Mayo healthcare system, and a police department. Chris DeRose

Noel M. Tichy

The first step is strategically identifying how the front line can most effectively contribute. Paradoxically, this process has to start at the top. Senior leaders need to interface directly at the front line to listen and see how the company’s strategy and operating tactics are translating into real-life practices. The second step is teaching people how to think about the business and the customer. Many organizations assume that financial terms or customer segmentation schemes are too complex for salespeople, delivery drivers, hotel clerks, and the like. The real problem is that leaders have failed to make the concepts simple and accessible. We’ve seen part-time retail salespeople master the application of return-on-invested-capital better than many senior executives. Armed with insight about how their business makes money and how to serve customers, the front line is prepared to solve problems. The third step is teaching the front line to experiment. This requires having an organizational process for testing ideas in the market without requiring layers of approval. We typically recommend a simple version of the “scientific method,” which enables anyone to develop a hypothesis about what customers want, design a lightweight test to see if customer behavior matches expectations, and then develop an action plan based on measurable results. The fourth step is breaking down the hierarchy. While senior leaders can set up the right conditions for frontline judgment and experimentation, unless there is a culture that encourages frontline action and provides the right toolkit, it will never last. When we look at how frontline personnel spend their time in many organizations, we find that legacy bureaucracy and policies consume a great deal of energy and distract them from serving the customer to their best ability. Finally, organizations need to have rigor about whom they hire and how they train. In retail or call centers, we often meet managers who half-jokingly say they need “warm bodies.” The best organizations invest heavily in the hiring process to ensure not only that people have the required technical skills and learning aptitude but also that they share the organization’s values. Additionally, the best organizations have comprehensive development programs for the level above the front line because they know that these managers most directly impact their local work environments. MWORLD SUMMER 2013

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What kind of resources does it take to ensure solid frontline leadership? The most important resource is senior leadership time and attention. For example, at Yum, the parent company of Pizza Hut, KFC, and Taco Bell, CEO David Novak does more than just talk about how their restaurant general managers and store personnel are the most important people in the company; he actively visits stores around the world. He provides positive recognition with awards for frontline cooks or counter personnel. He sets policies that enable the front line to do its job, such as prohibiting any calls to stores during the busy lunch-hour rush. And he was personally involved in both the design of training and teaching people at all levels of the organization. Novak and Yum are a great case study of how an organization can create the right culture, reinforce personnel through rewards and recognition, support people through the use of tools and training, and find the right balance between operating discipline and local innovation. What kind of culture do you need to build a smart company that can trust its people? So many organizations today say “people are our most important asset” but very few seem to genuinely act on that statement. A successful frontline-focused organization starts with the conviction that the untapped potential for human creativity is the greatest resource a company possesses. A paradox for all organizations is that they require control yet succeed most spectacularly when they unleash the imagination and energy of their employees. It’s the perceived inability to manage the operational risk of putting more power in the hands of rank-and-file employees that tends to tilt the balance in most organizations toward control through a reliance on policies and hierarchy. A store manager at a big-box retailer in San Diego gave us a lesson on this. He noted that turtle owners in apartments often undernourish their pets and keep them in small aquariums to stunt their growth. Intrigued, we naturally asked, what do turtles have to do with frontline leadership? He told us that most places where he had worked had boxed him in with rules, procedures, and administrative work that stunted employees’ development and their potential contribution. We learned from Amazon that many companies do this because they are dominated by “HiPPOs.” HiPPO stands for the “highest-paid person’s opinion,” in other words, cultures that defer to hierarchy tend to be dominated by gut decisions on the assumption that the most senior person has some sort of acquired omniscience. As Scott Cook, the founder of Intuit, told us, many managers think their job is to act like Caesar and give a “thumbs up or thumbs down” on every decision. Building a strong frontline-focused culture requires the following leadership behaviors that start with the CEO and permeate at all levels: ៑ Leaders truly realize that the frontline interactions with customers define their company’s brand and competitive position in the market ៑ Data is the driver for decision making ៑ Experimentation to get real data is encouraged at all levels ៑ Failure is both appreciated and expected, and there are organizational routines for capturing learning from failures

How much freedom can you give employees to innovate in direct customer contact? There clearly need to be some boundaries, but there’s much more scope for frontline action than most organizational leaders assume. If an organization has followed the 5-step process we outline, it will have frontline associates who understand the business model, know the 16

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“A paradox for all organizations is that they require control yet succeed most spectacularly when they unleash the imagination and energy of their employees.” customer, have problem-solving routines, and know how to experiment to measure outcomes. If you’ve hired good people, trained them, and built an organization based on shared values, you should be able to trust them to take action that’s simultaneously good for the business and good for the customer. The reality is that most innovations start small. At Facebook, employees are challenged with “hackathon” events in which they have 24 to 48 hours to code a new product and demonstrate that it works. They may release it to see the results but can kill it quickly if it fails—“move fast and break things,” as they like to say. At Amazon, software engineers will play with small design changes such as the positioning of a feature on a page or varying the amount of text. We may be on their site simultaneously, but you’ll see version A on your computer while I see version B. Then they measure the results and make decisions based on the best customer experience that drives the greatest sales increase. Again, if you’ve invested in educating, skilling, and supporting your frontline with the right knowledge and tools, it’s incredibly unlikely it can do anything that will endanger the business.

What are some kinds of mistakes companies encounter if they do all of this wrong? Most companies never give the 5-step process a sincere try because models for how organizations should work—models that originated in the industrial era—are deeply embedded in everything from senior leader perceptions to Wall Street analyst opinions. One unfortunate customer service example we encountered was at a high-end luggage company. After ordering a product online, the company shipped the wrong product; it wasn’t just the wrong color but an entirely different product in a different color that had no resemblance to what was ordered. Since it was the company’s mistake, and since the bag was needed for an upcoming trip, we expected the company to send the right bag. Instead the policy insisted that the company had to receive the bag sent incorrectly before it would send the replacement. This entire process would have taken 7 to 10 business days, and we wouldn’t have had the bag for travel. Everyone we talked to starting with the call-center employee, then her manager, and ultimately the head of North American sales was dumbfounded by the policy’s ridiculousness. Only the corporate sales vice president actually had the power to fix it. Such horror stories happen because while companies talk about engagement or net promoter scores, they don’t fundamentally change the assumptions about how they can trust and support frontline people to do the right thing for their customers. MW Noel M. Tichy is the coauthor of Judgment, Control Your Destiny or Someone Else Will, and many other business bestsellers. He is a professor at the Stephen M. Ross School of Business at the University of Michigan and advises CEOs around the world. Chris DeRose teaches executive education at the Ross School of Business. He has consulted and taught throughout the world with companies such as Royal Dutch/Shell, Ford Motor Company, Intel, 3M, and HP.

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Analytics Can Set the Course BY DAN ROITMAN

The year was 2002. I was in my third year of business, focusing on our second business model, and sales were still stuck in first gear. I had started the business during my senior year at the University of Maryland and my funds were long gone. At this point, I was keeping expenses to a minimum by moving back in with my parents, putting in endless hours, and keeping everything alive with credit cards. I knew it was time for another “pivot” and I was scrambling. I soon discovered a highly effective but little-known language-learning product line. The Pimsleur Approach had been around for years, used by millions to learn second languages, but still was relatively unknown. I worked a deal with Simon and Schuster to resell it. And then realized I didn’t have the money to market it—I mean to really market it, and grow a big business. There was no way I had the thousands, maybe hundreds of thousands, of dollars required to grow the brand. I realized the only way to succeed would be to leverage the few dollars at hand along with some ingenuity. My goal was simple: Don’t lose money. I already had a custom website that I built mostly myself, and I had access to several third-party testing and optimization tools. All I needed to do was to monitor and assure an ROI on every advertising dollar invested so that I could ultimately optimize my results until I was successful. Analytics and optimization became my rallying cries, a means to lift me from my own disaster and build a quickly growing business. Fast-forward 12 years, and analytics continues to drive our e-commerce company Stroll, which last year grew 112% and is on track this year to again exceed 100% growth. The Pimsleur Approach continues to be our primary product. But it’s the power of our analytics that has allowed us to self-fund one of the fastest-growing private companies in the country. Analytics can help millions of other businesses find new growth by optimizing the way they continuously improve their operations.

THE POWER OF COMPOUNDING PERFORMANCE With no money to invest, I needed to rely on those things that came free to me in order to build the performance of my marketing and sell more products. While advertising is expensive and necessary, learning new skills, networking with other marketers to find out what really works, and embracing constant experimentation to improve results doesn’t cost much. I spent no less than three hours a day reading for at least two years, and I tried to meet as many successful business owners as I could. I devoured the writing of my early mentors, Bryan Eisenberg, Jeff Eisenberg, and Roy Williams. The Eisenbergs evangelized the need to measure 18

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for Triple-Digit Growth and monitor how well you are converting visitors on a website into customers from each advertising source, and Roy Williams made me understand how to tickle emotions through advertising. I deployed their teachings into the simplest of tactics. For instance, an email campaign provided an early laboratory. I fine-tuned the subject line and strengthened the offer in order to heighten the emotion of the sell until I achieved the desired ROI. If small tweaks over time compounded into big results for an email marketing campaign, I reasoned that it could work with every aspect of a business—from marketing to human resources and management. But oh, the complexities lurk in back of such simple assumptions.

THE NEED TO ALIGN CULTURE WITH A COMMON GOAL Business analytics only work if they are pointed toward a common goal. Most people believe that the singular goal of a quickly growing business is to sell more and spike revenue numbers. But growth, at least in my experience, has proven to be merely the result of starting with a big vision, breaking it down into goals and, ultimately, creating operating plans that are simply a collection of projects with very clearly defined outcomes. At Stroll, any one of our quantitative goals shares a common goal, which is to add to the contribution margin. We don’t care about “revenue” per se. Simply put, think of the contribution margin as the profit a single order produces. It’s quite different from gross profit margin or profitability. Rather, the contribution margin is what’s left to pay overhead once you have fully costed an order by subtracting out all of your variable costs, such as product cost, shipping cost, advertising, and so forth. We view the contribution margin as the single most important metric at our company. Most of our meetings mention the contribution margin in some manner because that’s how we measure performance at the company and operating-plan project level. Even when we speak of “lifetime value,” we really mean the contribution margin generated over the lifetime of a given customer. My hamburger presentation, which was no more than pointing out the cost of the bun, meat, and toppings, as well as the labor and fixed costs of preparing the burger, is legendary inside the company. Interestingly, we set no expectations on how much each order should contribute. Rather, if it pays overhead and delivers something in the end, the investment is worth considering. Stated another way, as long as it’s profitable to acquire a new customer, we have no fixed marketing MWORLD SUMMER 2013

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“Identifying key business drivers represents the first step in building an analytical backbone to any business.” budget. This open-ended approach brings with it some richly complex considerations made simple through business analytics.

THE ABILITY TO FORETELL FUTURE RETURNS OF CURRENT INVESTMENT In the end, business analytics allow a well-managed company to make unlimited current investment, assured that each invested dollar will in the end cover overhead and return some sliver of profit. That sounds like magic—a perpetual motion machine. But if you understand the actual drivers of your business, monitor and track them, and build the model to optimize their interplay, then the ability to foretell future returns becomes a reality. Drivers include lifetime value of a customer, number of new customers, acquisition cost, and the like. Identifying key business drivers represents the first step in building an analytical backbone to any business. To accomplish that task, we have aligned our hiring practices to identify individuals with the right quantitative and problem-solving skills. By having a team that embraces contribution margin and all of its component parts, we’ve unleashed an army of problem solvers in our business. We typically have more multimillion-dollar opportunities that our team is originating than we can possibly focus on at any given time. This wouldn’t be the case if we didn’t cherry-pick the right data-driven individuals and invest management time in honing the analytical frameworks we share throughout the company.

BUSINESS ANALYTICS APPLIED TO ANY BUSINESS It often surprises me, the number of businesspeople who believe analytics won’t or can’t work in their own enterprise. It’s the old art-versus-science debate, with those on one side arguing that analytics fit any business, and those of the more liberal arts persuasion countering that business is a mix of intuition and craftwork. So let’s see how business analytics might work in any business, even a trendy new type of craft business. The sharing economy is a relatively new idea that allows consumers to share products and services in ways that are more ecological and sustainable. One version is a shared woodworking business that provides space, tools, training, and materials for woodworking enthusiasts who pay a monthly membership fee, like a gym or country club. On its face, the business would seem more art than science, more creative than quantifiable. But underneath it all, the woodshop is still about acquiring and retaining customers in a way that pays overhead and returns a profit. How can business analytics be applied in this case? Well, you can begin by estimating the lifetime value of a customer by answering a few questions. How long will a member continue to pay a monthly fee to belong? What additional materials will a customer need to build a woodworking project? What classes can the business offer to generate additional revenue from customers? What percentage of current customers will take classes? Answers to these questions move the business closer to identifying the real value of a single customer, long term, and what the customer might return to its contribution margin. Then comes a new set of questions, all pointed to determining the cost of customer acquisition.

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What are the real costs, by channel, of finding and closing new customers? What channels provide the greatest LTV CM either by cheaply acquiring new customers or by acquiring more loyal customers who buy more over time? In the case of the shared woodworking shop, perhaps the least expensive, most fruitful channel is geo-targeted search engine marketing (SEM). But another channel, direct sales to tradespeople, costs more and results in fewer members. Which one warrants your time and investment? It depends. While SEM might harvest more customers, tradespeople might produce more loyal customers who stick with the program for years doing fine woodworking. By identifying the value of each class of customers, by channel, you begin to build a powerful model that allows you to mix and match factors to optimize your contribution margin over time.

THE RIGHT MODEL Now that you have woodworking customers, how can you retain them over time? A Facebook page or retention email program could help build community and remind customers of new programs and offerings, keeping them engaged as part of the community and retaining them longer over time. Regular cocktail receptions (when lathes and drills are silent, of course) could also be an effective tool for networking members with one another, leading to longer team participation. A cancellation-intervention program, whereby members who want to terminate their membership receive an offer to stay, might add costs but also might extend the value and retain members for longer periods of time. This offer could simply be a helping hand; perhaps a customer is stuck on a project he or she hasnâ&#x20AC;&#x2122;t completed and just needs some advice on how to get them reengaged? All of these factors provide the data needed to build a forward-looking financial model for how a business can invest to gain new members, and how much new members will mean to the companyâ&#x20AC;&#x2122;s contribution margin model over time.

A COURSE SET BY DESPERATION In my own quest to build a quickly growing company, business analytics, or the iterative process of scientifically optimizing a business (i.e., once you can measure you can improve), has played the single greatest role in helping us achieve triple-digit growth. What began out of desperation now serves as the very core of our being, providing us a crystal ball of sorts, for gazing into the future and determining the ROI of current investments. It has not been a simple process, demanding us to hire the right talent, build an analytical culture, and create the models and complex algorithms that balance and optimize critical business drivers. Business analytics account for our success, and lights a path that someday we hope will transform us into a $1 billion + business. MW Dan Roitman is founder and CEO of Stroll, a next-generation e-commerce platform company that specializes in marketing educational products to consumers. His blog, Hypergrowth, is written for multichannel operators who want to supercharge the growth of their business. Build more powerful and more accurate forecasting models to better analyze financial data, predict revenues and costs, and assess risks at AMAâ&#x20AC;&#x2122;s Advanced Modeling and Forecasting Workshop. For more information, visit www.amanet.org/1276

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Five Global Trends Driving Changes BY SHARI FRYER

In Spring 2013, AMA met with Albert Siu, Vice President of Learning and Development within the HR Department at PAREXEL International, to learn about his perspective on five global trends that are changing the face of learning and development abroad and their influence over the learning function in his firm. The PAREXEL Academy is a corporate university at PAREXEL, providing learning and development services inside and outside of the company. Siu, a recognized thought leader and global learning guru, joined PAREXEL in 2010 with prior experience in leading the T&D functions at such prestigious organizations as Boston Scientific, AT&T, and Hewlett Packard. Given Siu’s global scope, he shared with MWorld his views on how learning functions are changing and the macrotrends that are shaping their development. These trends are: ៑ ៑ ៑ ៑ ៑

Functional integration Amalgamation of processes, platforms, people skills, and politics Network-centric development Operational excellence Shrinking time horizon

Read on to learn more about these trends and their influence over the changing role of learning professionals and how Siu is embracing and adapting accordingly at PAREXEL International.

FUNCTIONAL INTEGRATION A key trend Siu sees is the integration of learning and development, organization development (OD), talent management, and succession planning functions. Historically, these functions have worked independently. The trend now, according to Siu, is for these functions to be more integrated and to work together as part of an overall, ongoing business planning and continuous improvement process. No longer are they isolated processes. Consider, for example, how OD intersects with training, leadership, and succession planning. “I think it’s easier sometimes for people to understand why an organization underperforms if it’s only an issue of leadership,” says Siu. “If you get down to the heart of what OD does, it is really 22

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in Learning and Development about tools and processes that facilitate constructive conversations. The quality of a business outcome is contingent on the quality of the leadership dialogue, and OD basically creates a frame, tools, and processes to guide leaders to work through issues. We have applied OD to strengthening client engagements, addressing quality issues, and improving project executions through change management support.” Take another example. At PAREXEL, when they are implementing a new technology platform for clinical trial project management, the learning and leadership teams spend time upfront to understand the implications of this change on the employees’ habits and consider what people will need to relearn or unlearn. Process change, like structural change, involves people doing things differently. OD can be used to plan the change process and support the elements. “The whole intervention is designed upfront to be inclusive of communication messaging, defining the new roles and responsibilities and decision rights,” says Siu. Albert Siu, Vice President of Learning and “If we don't have that OD capability integrated within HR Development at PAREXEL International and learning and development, a change project may be missing some powerful tools to enhance MEET PAREXEL INTERNATIONAL operational success. And that's why I believe Industry: Bio/Pharmaceutical Services functional integration becomes very significant in Focus: PAREXEL International is a clinical research impacting operational success!”

AMALGAMATION OF PROCESSES, PLATFORMS, PEOPLE SKILLS, AND POLITICS Another trend influencing learning and development is what Siu calls the “amalgamation of processes, platforms, people skills and politics,” that is, the four Ps. “When we think about learning, we tend to teach these things separately,” notes Siu. “The typical approach is to teach someone by what I call ‘horizontal’ learning…to learn a process from point A to point B. People are taught a series of steps to become competent in performing the skills they need to do their job. But if the training is not designed with thought given to amalgamating the four Ps, you can predict that the odds of success will drop significantly.” Consider, for example, how PAREXEL trains a MWORLD SUMMER 2013

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and regulatory consulting firm that helps clients expedite time-to-market through development and launch services, including clinical development capabilities, integrated advanced technologies, regulatory affairs consulting, and commercialization of services. Headquarters: Waltham, MA Scope: 78 locations in 52 countries Size: 14,400 employees Unique approach to supporting training: Invest in well-designed training by cultivating and leveraging best content and high-quality instructors globally through selective vendor partnerships and internally groomed instructors. Operating environment: Rapid expansion within a fast-growing industry. Hired thousands of people in the past 12 months. Currently still sustaining a high level of recruiting activities globally. Learning challenges: Building bench strength and accelerating the performance of leaders at all levels.

“Many companies are consolidating their training functions into a single organization, with the intent of driving out costs, improving efficiencies, scalability, and accountability.” “clinical research monitor” to monitor and review a clinical trial site to make sure the doctors and nurses who perform the clinical trials are following the prescribed research procedures. “She also wants to make sure the trial drug inventories are managed properly,” says Siu. “Let’s say she noticed the procedures were not followed properly and the recorded documentations were missing or incomplete. The clinical research monitor needs to speak with the doctors and nurses involved. She will need to file a report about what she has seen. If the deviations are significant, she will need to escalate the findings to her manager and the trial project manager.” In this situation, the clinical research monitor will follow these monitoring procedures. She will need to use the right screen to record the findings in the monitoring system. That is the platform, which is the system tool. She will need to ask the nurses and doctors to explain the deviations. How she asks and what she confronts will test her people skills. If the doctor who deviates is a well-known physician, she now has politics to deal with. This situation shows in specific situations, like the context of how the skills required to be applied really must be linked, or else the person may not know which part of her training to draw upon to decide the right tools, skills and knowledge to apply to these in specific circumstances. Siu contends, “The most effective training is one that integrates these elements in a coherent manner so that the learner can learn the skills, and context at the same time. That is what I call integrating the four Ps. That is ‘vertical’ learning.” Siu believes that in order to implement “vertical” learning by integrating the four Ps, the L&D team must own the design of the learning. “You own the design, you own the outcome!” At PAREXEL, Siu has been redoing many of the functional curricula by applying the “vertical learning” approach, incorporating the four Ps as much as possible so that learners can be trained to perform their work well. “I always emphasize we train to perform. We don’t train to train. Performance is what matters to us from an enterprise point of view.”

NETWORK-CENTRIC DEVELOPMENT A third global trend relates to the impact of the ubiquitous network-centric world in which we operate today. There are so many devices that connect us to information, people, and experiences. People development historically is person-centered. “I go to a specific program. I have a coach. I have a mentor. In a network-centric environment, even if something is just meant for one individual, others will get to see or learn what that person is interested in too. Facebook is a great example. If you check ‘like’ on something, all your friends will see what you like,” says Siu. And the network effect will multiply. Learning professionals need to harness such network power and be able to structure developmental experiences that can leverage the network effect. Take the dimensions of dealing with “place” versus “presence.” For example, for a long time learning took place in a space with others, like a physical classroom. Today, we can be “present” in a virtual classroom without physically being in the same “place.” Another example is the dimensions of organized versus organic. Traditional face-to-face training is an organized event and experience. Today, we can “organically” connect people by 24

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posting challenges or problems that can engender selfgenerated shared interest. People can “organically” join forces to solve problems, without having to be organized. “Organic” learning happens simply by getting the right people connected. Thus, the paradox is how to work and manage the connections without having to organize them. “As L&D professionals, we have to develop our skills to effectively leverage the network-centric dynamics and master the network capabilities to bring to bear the right development experiences for employees and managers alike,” advises Siu.

OPERATIONAL EXCELLENCE IN L&D A fourth global trend influencing learning and development relates to operational excellence and the ability to understand how training outcomes impact business performance.

PAREXEL INTERNATIONAL WINS AMA’S PRESTIGIOUS “BEST PRACTICE AWARD” PAREXEL International is the recipient of the 2013 “Best Practice Award,” given by AMA. Under the leadership of Albert Siu, PAREXEL received this award for the global training provided to prepare the organization’s talent around specific competencies linked to the business objectives. The award is given based on Siu’s work in: • Establishing personal and leadership sponsorship • Building an effective team structure • Orienting competencies aligned to business objectives • Creating a global network for delivery • Standardizing consistency of vision and strategy deployment Congratulations to Albert Siu and PAREXEL International!

Many companies are consolidating their training functions into a single organization, with the intent of driving out costs, improving efficiencies, scalability, and accountability. In a consolidated environment, transparencies on efficiency and effectiveness will become apparent. L&D will have to be more accountable. Accountability is achieved through operational excellence and credible metrics. As Siu says, “Once training organizations are integrated, the proverbial management questions are always the following two: How much are we spending on training, followed by, for all that we have spent, how do we know it matters?” To answer these two questions, the L&D organization must do three things well. First, it must know how much training is being consumed, and how much it costs to support the consumption. Second, it must understand the cost drivers and drive the costs out. Third, it must have credible business metrics to measure progress that matters to the organization. Getting a true picture of how much training is done and how much it costs is a big challenge. “To have a handle on cost and consumption we must have strong management support, especially from the perspective of the CFO, ” notes Siu. Many learning leaders struggle with this first challenge, despite the fact they have integrated the training organizations. “How can a business be credible if it doesn’t know how much something costs? Most companies will not keep spending more and more in training otherwise. As a learning leader, I advise leaders to redirect training investments from one area to another. For example, most companies spend 50 to 80% of their total training expenditures on their functional training; that is, training that helps employees do their work. Since I know the cost and the cost drivers in this segment of training, I can improve efficiency and use the savings to apply to another area.” Thus, having a grasp on dealing with the first challenge (cost and consumption) allows improvement to the second challenge. With regard to metrics, Siu believes learning leaders must know how to measure three things: 1) How effective is the training delivered? 2) Can the learner perform what has been taught? 3) What impact has the training created?

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Siu contends that learning professionals sometimes are their own worst enemy. “They tend to look down upon learner reactions as merely ‘smile sheets.’ Learner reactions are my first defense! Information gathered allows me to take corrective actions and drive continuous improvements immediately. But when it comes to measuring training’s impact on business results, I tell L&D people to stay away from doing that because business leaders already have their business results, and let them use their own metrics and don’t confuse them. Rather, we should focus on measuring training impact. We should find answers to questions such as these: Is there a culture of quality in the organization? Do leaders walk the talk of the organizational values? What is the quality of supervision? Do employees believe they can grow and advance in the company? Do they believe in what the company aspires to achieve? Having normative metrics to monitor these types of impact measures is useful to substantiate the investments made and to guide future training investments.” Learning and development professionals must have enough sophistication to know how to create, deploy, and interpret meaningful measurements. “That, to me, is a big part of how learning and development contributes to business outcomes,” confirms Siu.

SHRINKING TIME HORIZON For most organizations today, market forces are accelerating the pace of change, which means the planning horizon and time to execute are shrinking. Learning professionals need to continuously monitor skills and knowledge gaps, assist leaders to describe and define the new requirements, and recalibrate and develop those leadership capabilities on a continuous basis. According to Siu, “In clinical research outsourcing, we have had double-digit growth for a few years. The scope of a general manager’s responsibilities may have grown from managing a $50 million business to managing a $500 million business. This kind of scope change creates strain and stress on the leadership bench strength, and L&D must adjust to a rapid development process to meet the leadership challenge. At PAREXEL, that means that by the time we have created and implemented a new leadership development initiative, we have to start evolving those tactics to move with the changing times.” Siu believes that in a rapidly changing environment one must rely on credible partners to scale for growth. “We cannot be managing training by ourselves. We must have credible global partners that can scale with us. They must be great at doing what they do.” PAREXEL relies on AMA to provide training in core professional and management fundamentals. “AMA ensures we can execute the learning function with quality and consistency in countries in which we operate.” Leveraging a partnership is hard work. “A great partnership is like a marriage. You have to get to know each other’s strengths and gaps and be committed to work through the issues. We have been leveraging AMA’s expertise. That’s how we can thrive in our growing business,” he explains. Learning professionals need agility and the ability to perform within these global trends and structure their workflow to adapt. Continuous improvement must be the mantra of all people in the learning and development function, according to Siu. “Our role is to constantly adjust, not to maintain the status quo.” MW Shari Fryer is president of Shari Fryer and Associates, a global marketing communications firm. Before starting her own business in 2004, Fryer held global marketing leadership positions in the human resource consulting sector.

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The Power of Surprise in Business Breakthroughs

A Conversation with the Author of Leapfrogging BY FLORENCE STONE

Business schools tend to warn about the need to avoid surprises. Not so, says Soren Kaplan, PhD. In his book titled Leapfrogging: Harness the Power of Surprise for Business Breakthroughs, Kaplan reveals why command-and-control mindsets are exactly what stymie innovation today. If we open ourselves to surprises and learn the right way to harness unexpected experiences and events, we can uncover tremendous opportunities. Kaplan’s research over the years has revealed that surprise is not just something that differentiates breakthrough products and services—it is also a key ingredient in creating those surprising breakthroughs—and in a recent interview he shared some of his findings with MWorld.

Why do most businesses avoid surprises at all costs? Kaplan: We’re trained to think that the more control we have, the more successful we’ll be. That’s why on Amazon every management book with the word “surprise” in its title is about how to avoid or prevent the phenomenon. Businesses hate uncertainty. You can’t forecast or anticipate surprises, so they’re seen as either irrelevant or threats. Why is the power of surprise necessary to creating a business breakthrough? Kaplan: First, the definition of a breakthrough is that it’s something fresh and new that produces a significant leap forward. There are two dimensions to the power of surprise when it comes to breakthroughs. When we experience a game-changing product or service, for example, we feel positively surprised—just think Apple, Nintendo Wii, or Cirque du Soleil. Moreover, brain research proves that we actually crave surprise. MWORLD SUMMER 2013

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Second, during the process of creating breakthroughs, surprises inevitably crop up along the way. Success depends on our ability to interpret and respond to unexpected good and bad events, unanticipated customer comments, and other surprising experiences.

What are examples of business breakthroughs that resulted from harnessing the power of surprise? Kaplan: Examples can be found in business and also nonprofits: ៑

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OpenTable’s CEO, Chuck Templeton, received a huge negative surprise when Danny Meyer, famed New York restaurateur, said he didn’t need the reservation service since his restaurants were full every night. This led Templeton to flip a negative surprise into a positive opportunity by creating a new model that delivered both reservations and “guest management” tools to help restaurants understand who was actually sitting at their tables. Canon USA president and CEO Joe Adachi recently launched the EOS 5D Mark II camera geared toward general photo enthusiasts. But something unexpected happened. Accolades poured in from professional videographers across Hollywood. With video quality that matched that of more specialized cameras used for television commercials, the Mark II had begun disrupting the high-end professional video market. Canon is now developing cameras specifically designed for this profitable niche—and leapfrogging the competition in the process. Dave Levin, the founder of the Knowledge Is Power Program (KIPP), a network of 100 inner-city charter schools with 27,000 students, experienced a surprise that led to a unique approach to shifting the allegiance of gang members away from their gangs and toward school. When first starting out, Levin unknowingly sat a group of new students facing the existing students in his class—and didn’t realize they were from rival gangs. To alleviate the tension, he had students say chants and sing songs to create shared purpose and unity, which has become an essential approach for all KIPP schools.

Why is surprise one of the most essential tools for innovation? Kaplan: First, surprises are an inevitable part of life, and that includes business. Most companies don’t realize that surprises actually contain useful information if we take the time to interpret them. In the late 1990s, for example, Four Seasons Hotels primarily served business travelers in the North American market. When the first-ever Wall Street analyst report comparing hotel websites was issued, Four Seasons ranked #1. The reason why? “Spending time on the Four Seasons website makes us feel like we are already on vacation,” said the report. The fact that the report lauded the hotel for its vacation focus created a big disconnect for Four Seasons execs since they were targeting the business traveler. This surprising misperception was a key factor that prompted senior leaders to reposition the company to Four Seasons Hotels and Resorts and expand globally into vacation destinations.

Which businesses are suffering today by refusing to open themselves to the power of surprise? Kaplan: Among those are the following: ៑

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The book publishing industry is in the middle of a major disruptive surprise today. Things are changing extremely fast and some publishers are fighting this reality. Just look at what happened to the bookseller Borders. The financial industry has obviously experienced a huge surprise over the past few years. And the surprises continue with JPMorgan Chase’s billions in trading losses. Rather than American Management Association

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fight against the response to fix the root cause of the problems, there’s an opportunity to flip the negative surprise into a positive by proactively working to find win-win solutions.

How can surprise be useful to managers to create breakthroughs in everyday challenges they face at work? When we’re surprised by something, it can be because our assumptions are challenged. And when our assumptions are challenged, we are given the opportunity to revisit what we are doing and why. What can management do to foster a culture of innovation that is open to surprise? Kaplan: Most leaders and companies can point to defining moments that resulted from being surprised. Make these experiences explicit and talk about them. Recognize the role that surprise played in shaping where you are today. There are also techniques that can be used to find surprises, which then help create a culture that values the unexpected, for example: ៑ ៑ ៑ ៑

Find customers using your products or services in the “wrong” way Discover “untargeted” customers who are using your products or services Listen for market misperceptions Flip negative surprises into positive opportunities

What’s the first step anyone should take to start getting closer to a business breakthrough? Kaplan: Actually, there are two complementary things: a mindset shift and a practical step. The mindset shift involves tuning in to the value of surprise itself. Look back at the unexpected events that have already shaped your personal and professional lives. Realize that more are coming. The practical step involves putting a stake in the ground around what you want to create or transform as part of your breakthrough. Once you have a sense of overall direction that will shape your lens on the world, you’re better able to find the most meaningful surprises.

Why do you say breakthroughs begin with yourself, not the market? Kaplan: Customers rarely ask for breakthroughs. And market research rarely defines game-changing breakthroughs. Rather, such breakthroughs come from needs your company has. For instance, Apple created the iPod and iTunes because it wanted them for itself, not because customers asked for them. If you want a breakthrough, you need to do something that’s meaningful for yourself first and foremost. After you’ve figured that out, then go out and test your ideas with customers and let the surprises roll in. MW Soren Kaplan is managing principal at InnovationPoint, where he works with organizations including Disney, Visa, Colgate-Palmolive, Kimberly-Clark, Medtronic, Cisco, Philips, and numerous other global firms. He previously led the internal strategy and innovation group at Hewlett-Packard.

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Leadership’s New Normal BY HOWARD J. MORGAN

Do you remember when working in the corporate world was predictable? If so, then you are probably retired! For much of the 20th century, the corporate world was a pretty predictable place. As leaders, we learned how to develop long-term plans that projected the 10-year strategy; we rewarded employee compliance; we valued employee loyalty; and our development cycle for products was methodical and well engineered. Innovation often took years to realize. Most industries provided service and recognition awards to honor employees for their longevity within the organization. For the first half of the century, companies often became an extension of the family. Many of us grew up watching our parents work hard, patiently waiting for promotions, which came every few years. It was the social contract of that generation: work hard and follow the rules and you would enjoy a lifelong career with your employer of choice. Gradually, the corporate world—mirroring society-at-large—changed. These changes resulted in part from an upheaval in North American (and later global) society where expectations and cultural mores were reexamined. Long gone is the concept of lifelong employment. A few companies continue to value long-term retention but it is a fading concept. More often than not, a corporate “lifer” is regarded as a fossil—with less than valuable contributions. Today, volatility, uncertainty, complexity and ambiguity are the new reality. Unlike the past, most companies now would rather launch a less-than-perfect product and modify (aka improve) its features later, if it means being first (and fastest) to market. This “new normal” validates the platitude that change is the only certainty. We must either deal with change as a healthy, progressive reality or become as obsolete as an 8-track tape. (My observation is underscored by the fact that many of you reading this article will not even have heard of an 8-track tape.) So, organizationally, we find ourselves at a crossroads. We still have some long-term, loyal employees in our companies, but most people hired over the past decade are focused on different employment objectives. This new workforce is looking for immediate gratification in the form of challenging work output, an acknowledgment of their skills and capabilities, and, most important, for a leader who can help them grow quickly, either to advance within their current organization or to move on to another company.

MANAGING THE NEW WORKFORCE Let’s examine some of the major challenges that leaders face in managing a workforce in today’s business climate: ៑ Retaining the people who will contribute to the company’s future success ៑ Leading employees who have different expectations of their employers and who have differing needs ៑ Creating a unified workforce without certainty of direction 30

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៑

Building a culture of adaptability to handle constant change Managing the complexity of a worldwide marketplace and a global workforce Managing succession when companies are facing an upcoming retirement bubble—and transitioning during the cultural shift that will occur Creating a culture that is successful in delivering to a much different set of customer expectations and needs

One of the most impactful results of technological changes over the past 50 years has been the rapid escalation in global information access. Companies and their employees have needed to move faster just to keep pace. This in turn has created a greater reliance on both leadership and employee talent. The increased importance of competencies such as agility, judgment, leading a diverse workforce, and driving a workforce into unknown territory has resulted in top performers being even more valuable and the struggling employee becoming an increased liability to the organization. So, the leadership challenge becomes clear: shed the chronically underperforming employee and work with the solid performers to enhance their skills in order to avoid the company’s overdependence on the most talented employees. While one could argue that most developmental activities should be focused on “high-potential” employees, organizations have recognized this—and are creating programs to address their “highpotential” contributors. In considering leadership challenges, we should also acknowledge that our most talented performers will always be attractive acquisition targets for companies looking to enhance their competitive advantage, particularly when coming out of an economic downturn. This seems always the case. By focusing on leadership-development effectiveness that can increase the number of “highly talented” employees, we will provide a critical step to mitigate the risk of losing a top performer and go a long way in establishing a high-performance culture where the best want to be. So, what are the leadership skills that will be effective in this changing world? Put simply, they are focused more on personal leadership attributes and less on management skills. I am not saying that management skills are not important, just that it will be more critical for leaders to motivate and inspire the workforce than to simply lay out a course of action and hold people to it. Let me outline the key leadership skills that today’s ever-changing environment demands: 1. Provide more frequent communication During times of uncertainty or change, people’s

need for increased communication goes up dramatically. People find comfort and motivation from having clarity about where they are going and how they are going to get there. An analogy MWORLD SUMMER 2013

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“It is the leader’s responsibility to guide and direct a group of talented resources and encouraging them to give their best without forcing conformity.” would be driving to a city where you have never driven before. You will program your navigation unit or get maps that will allow you to plan both the direction and the stops that you will likely make along the way. It is this planning (information) that allows the trip to be less stressful. And if you are unable to get all the information that you need on the final destination, you can achieve a similar degree of comfort by planning a series of short trips. We see this when people plan to drive across the country. For leadership, this is achieved in two ways. The first is to lay out, ideally graphically, where the end point is and where the major benchmarks are along the way. The second is to refer to this “journey” and point out what has been accomplished and what must next be achieved on a frequent basis. It is the “not knowing” that increases the discomfort of employees when they are facing change. When a goal is communicated by leaders in whom we have confidence, we are willing to do what’s necessary to achieve the goal—even if all checkpoints on the roadmap are unknown. A simple way of looking at it is that an appropriate amount of communications helps talented people lower their anxiety and increase their enthusiasm for the “destination.” This remains true—even when the destination is unknown. When a decision has not been reached by an executive team, but employees know that a change is pending, leaders must communicate, even if the message is “nothing to report.” 2. Adapt your leadership style to the person/team We have always understood the need to adapt our leadership style according to the person or team being led. Inherently, we have aligned ourselves with employees who are most similar to us and whom we can count on to deliver what we want with minimal direction. However, in a complex world with ambiguity, new stars are likely to emerge. It is no longer good enough to delegate and promote based on personality—rather, we must challenge ourselves to assess and coach (and elevate our leadership skills) according to the task or project that we want completed. And diversity of thought is a critical attribute to foster, yet it often creates a challenge at both a personal and team level. By encouraging divergent thinking, we are better able to leverage results and reach the best solutions. However, from a leadership perspective, it requires skill: making sure that the most timid on your team have equal airtime with those who are most vocal and confident. It is the leader’s responsibility to guide and direct a group of talented resources and encourage them to give their best without forcing conformity. The innovation and agility required in today’s world require different ways of approaching problem resolution. 3. Be willing to encourage creativity and risk taking in others All leaders like winning. We

are rewarded for it and like to have as much clarity and information possible to be able to make the best decisions to achieve success. In an uncertain and volatile world, leading into a known territory is becoming more common than not. So, we, as leaders, need to become more comfortable operating in this environment. The creativity and necessary risk taking that is inherent to this environment needs to be encouraged in order to be in a position to achieve innovation (or even the next logical success in one’s strategy development). Agility comes from speed of decision making and the ability for quick implementation. It comes from taking calculated risks. It also comes from the ability to change direction when prudent to do so. 32

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4. Identify the people who are critical to your future and keep them Great employees like working beside other great employees. If you cannot manage to keep your best, it is very difficult to attract the top performers from other organizations. Many organizations try to acknowledge the people who are critical to them by giving them corporate awards or putting them on high-potential lists. While this is good, today’s environment may require more aggressive leadership. For example, if some employees are critical to your success, have a member of the executive team phone them and tell them that what they do is so important. Recognize that today’s younger worker requires more reinforcement than many employees did 50 years ago. You can also have them work on a special task force for a key project. 5. Always look to your “stars” when it comes time to attract another key hire

Ask them to identify former colleagues whom your company cannot afford not to hire. You will notice that I only mentioned “star” performers. It never has made much sense to me to have a new-hire referral program that asks the bottom 50% of performers to make recommendations. If someone is a great performer, he or she will recognize the same traits in others. 6. Understand what your customers/clients want The changing requirements of our clients or customers have led to uncertainty and volatility in the business environment. Where they used to contract with local vendors, many now use global vendors to provide components and/or services. Further, they want you to assume warehousing costs. This puts even more pressure on your ability to change and adapt quickly. One of the new characteristics of successful leaders is the ability to anticipate change. 7. Deal proactively with generation differences in your employee population One of the challenges of leadership is dealing with the conflicting needs of employees close to retirement age and those of the younger, more recent recruits. Employees closer to retirement are more likely to be focused on survival, being protective of their “turf.” Younger workers are more interested in having meaningful tasks and in what can be changed to make for a nimble, dynamic organization. Great leaders will have to manage the dynamics of this divergent group: valuing and transferring the knowledge of the older workers while relying on the agility and energy of the newer employees.

These are exciting times for leadership. Great leaders are energized by the challenge of dealing with volatility, uncertainty, complexity, and ambiguity. It gives them a chance to shine. MW Howard J. Morgan is managing director of Leadership Research Institute located in Rancho Santa Fe, CA. For more information, visit www.lri.com At AMA’s seminar Achieving Leadership Success Through People, you’ll learn to lead more effectively by creating rapport, synergy, and two-way trust. For more information, visit www.amanet.org/2128

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Thriving in Complex Times BY DRs. JOEL AND MICHELLE LEVEY

Management practices seem to change daily. These changes sometimes go unnoticed due to the much bigger changes that are occurring around us, called “VUCA times,” a term the military coined for these times of Volatility, Uncertainty, Complexity, and Ambiguity. To thrive in these challenging times requires our capacity as leaders to transform the worldchanging VUCA elements into nearer-home VUCA factors like Vision, Understanding, Clarity, and Adaptability that will help us navigate more adeptly through powerful currents of global change in VUCA times.

CAPACITY SHRINKS WHEN WE FEEL STRESSED OR OVERWHELMED When overwhelmed by stressful circumstances, the higher order “executive functions” of our brains literally shut down, shunting control of our critical decision making to more primitive and emotionally reactive brain centers that increase our tendency for panic and mental paralysis—responses that only exacerbate already desperate circumstances. When we are overwhelmed by stress, our level of functioning is as impaired as someone who is heavily intoxicated, and, indeed, is often compounded by relying on the consumption of alcohol and a host of other mind-numbing substances to blunt the emotional trauma. Is it any wonder that VUCA tendencies tend to become ever-more complex and overwhelming? Sanjay Khanna, global macrotrends expert at Massey College at the University of Toronto, observes that global managers find it tremendously challenging to align short-term business and innovation realities with the dire societal implications of accelerating global climate change. “These leaders may shut down because accelerating change is by its very nature overwhelming,” he says. “That’s exactly why professional education should teach how to perceive clearly and function optimally amid massive change.” A poignant example of this was when a group of senior British Petroleum (BP) leaders from London first flew over the Alberta Tar Sands operation. A number of them became physically ill upon witnessing firsthand the devastating impact that the work and policies back at headquarters were having on the natural environment. 34

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st re ss

ange r

ce n e fid con

peace

conflict

n tio s u a exh

colla bora tion ene rgy

As advisors to hundreds of leaders around the globe, we have witnessed how deep the cognitive dissonance and soul-searching go when leaders find the courage to assess and reflect honestly on their capacity to manage their lives and lead in VUCA times.

THE NEUROPSYCHOLOGY OF EXTRAORDINARY LEADERSHIP In an age of immediate gratification and downloadable apps, the notion of “developing capacity” is more than a mere idea. It is a concrete, measurable neurological potential waiting to be realized by anyone who is sufficiently motivated and dedicated to the disciplines necessary to realize it. The key is “neuroplasticity.” Neuroplasticity is a process by which we train our minds and literally change our brains. As we say in the field, “what gets fired, gets wired” in the brain. What this means for the VUCA-savvy leader is that those qualities and states of mind that are cultivated—either through mindless habit or on purpose through intentional discipline—will, through repeated practice, measurably reshape and rewire our brains so that those tendencies and their associated capacities grow stronger and become more natural. Mindfulness, the quality of intentional attentiveness so vital to executive presence, clear seeing, and deep thinking, is associated with creating changes in the nervous system that produce greater connectivity, integration, and optimal functioning in the brain. In as little as two weeks of disciplined mindfulness practice, there are measurable changes in the number of connections between neurons and the thickness of portions of the brain related to increased self-awareness, greater self-mastery, and higher mental processing.

THE VUCA ADVANTAGES OF THE NINE EXECUTIVE POWERS Through the practice of mindfulness—intentionally being present and attending carefully, curiously, and nonjudgmentally to experiences as they arise and pass—mental and neural development are correlated with rewiring neural circuitry sufficiently to allow nine mental executive powers to emerge more fully in our lives. With VUCA themes in mind, imagine the advantages that you would have if you were to develop these nine executive powers: ៑ Optimal self-regulation of your body ៑ Emotional balance ៑ Attuned communication MWORLD SUMMER 2013

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“…VUCA-savvy leaders muster the support, resources, and collective intelligence within their organizations to open the portal to the emergence of new models.” ៑ ៑ ៑ ៑ ៑ ៑

Empathy Courage to examine and work with fear Freedom from impulsiveness and reactivity Deeper insight Greater intuitive intelligence Moral intelligence

While virtually everyone has the potential for developing these mental and neural capacities that are so vital to being a VUCA-savvy leader, these potentials are only realized if we have the discipline to engage in the inner work to develop the requisite neural connectivity. Mind-fitness disciplines are also measurably associated with documented improvements that any leader or organization would benefit from, including accelerated information processing; reduced vulnerability to accumulated stress and stress-related disease; increased neural connectivity across different parts of the brain; capacity for more complex analysis and thinking; greater empathy; enhanced discernment; improved memory; enhanced creativity; increased emotional and intuitive intelligence, greater wellness and happiness. Certainly all of these factors increase our resilience and capacity to live, work, and lead more effectively in VUCA situations.

INTEGRATION The VUCA-savvy leader navigates toward what Dee Hock, founder and former CEO of VISA, described as an integrative “chaotic” state: a state with an optimal balance of freedom/chaos and constraint/order in mind, body, and behavior. Daniel Siegel, UCLA social neuroscientist, offers the acronym FACES as a mnemonic for this integrative state, explaining that we are most effective when we are Flexible, Adaptable, Coherent (i.e., having a view of circumstances that is congruent with reality), Energized, and Stable amid the ceaseless stream of complex VUCA circumstances. When we are centered in a FACES state of being, we are in what Siegel calls “The River of Integration,” a highly functioning state free from the dysfunctional extremes of either rigidity or, at the other extreme, chaos and confusion.

THREE CORE STRATEGIES VUCA-savvy leaders exude rare qualities to respond to the overwhelming chaos and complexity of VUCA circumstances in three ways: First, with a clear, courageous, and realistic view of complex system dynamics at play, they

strategically focus their efforts, gather their teams, and devote their valuable resources to mitigate dangers, and slow the progress of the devastation and disintegration in the world around them. Second, VUCA-savvy leaders muster the support, resources, and collective intelligence within their organizations to open the portal to the emergence of new models. They develop the new 36

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platforms, systems structures, solutions, and products that serve as lifeboats to leap over unsustainable systems that are no longer viable. Third, VUCA-savvy leaders serve to raise the consciousness of those within the field of their

influence to see the VUCA nature of these times. These leaders are outspoken visionaries, reformers, innovators, educators, and whistleblowers dedicated and courageous enough to step forward and focus the attention of society on the critical issues that must be attended to in VUCA times.

FRONTIERS OF VUCA-SAVVY LEADERSHIP While VUCA trends will certainly grow over time, affecting billions of people in virtually every community and organization in the world, there is an awakening community of people and groups around the globe who are seeking to develop the conditions in which the adaptive qualities of VUCA will flourish. At an organizational level, VUCA-savvy leaders are more aware, adaptive, courageous, confident, and empowered by VUCA forces at work and are better equipped to deal effectively with: ៑ The business of making sense of data streams and knowledge management ៑ Reading the world and anticipating emergent trends ៑ Managing critical processes and resources for optimal adaptability ៑ Increasing functional responsiveness and modeling ៑ Informing learning loops and process improvements at every level of influence ៑ Recruiting and developing VUCA-savvy senior leaders and management teams ៑ Creating healthy, thriving organizational cultures and inspiring people with the knowledge and skills necessary to flourish in VUCA times At a personal level, VUCA-savvy leaders have greater capacity to: ៑ Demonstrate the skill, courage, and discipline necessary to be fully present, mindful, and attentive to the stream of information that flows to them and through them ៑ Be more discerning and realistic regarding attributing meaning to circumstances, and better able to recognize both opportunities and dangers that are present or likely to emerge ៑ Clearly perceive and anticipate a broader spectrum of interpretations, likely scenarios, and options for action ៑ Be better able to maintain their clarity and balance in the midst of highly complex, turbulent circumstances and thus be more resilient and adaptable in responding to emerging realities ៑ Inspire others to do all of the above through their personal integrity and example No question, VUCA is manageable on an organizational and professional level. You can build your own capacity to cope with tumultuous change, but you can also build that of your team and company. MW Drs. Joel and Michelle Levey are founders of Wisdom at Work, The International Center for Corporate Culture and Organizational Health, and are on the faculty at the University of Minnesota Medical School. They are coauthors of several books, including Wisdom at Work and Living in Balance. For more information, visit WisdomAtWork.com Explore your role as a leader, visionary, and strategic thinker at AMA’s Advanced Executive Leadership Program. For more information, visit www.amanet.org/2104

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Creating a Culture for Unrelenting BY GERARD J. TELLIS

Unrelenting innovation is the most enduring source of growth, profit, and competitive advantage for corporations today. Market leaders are in the best position to innovate because of their deep pockets, rich talent, and intimate knowledge of the market. Yet, throughout history, major companies have stumbled, declined sharply, or gone bankrupt due to a failure to innovate. Recent examples include Sony, Kodak, Hewlett-Packard (HP), Nokia, Research in Motion (RIM), and General Motors (GM). Not too long ago these corporations were dominant in their respective markets and some may have been symbols of innovation. At the same time, other firms seem to have strengthened their dominant positions: Samsung, Apple, Google, Amazon, and Facebook. Why do some giant incumbents stumble and fail, while others move from strength to strength? My research strongly suggests that the internal culture of the corporation is the common theme that ties together all these seemingly disparate cases. The appropriate culture can enable a corporation to be relentlessly innovative. The wrong culture can push a corporation into overconfidence, lethargy, and failure.

DANGER AT THE PEAK OF SUCCESS While Kodak and GM had some warning of impending doom, the decline of HP, Nokia, and RIM seems swift, especially given the firms’ technological prowess. However, in the current age, when technological change is rapid, such declines need not surprise. Indeed, organizations are in greatest danger of failing when they are at the peak of their success. These corporations suffer from a culture we have called “the incumbent’s curse”—in other words, they were cursed by their own success. What causes the incumbent’s curse? My coauthors and I conducted three major studies to find the answer. One study examined the evolution of 66 markets since inception almost 150 years ago. Another study examined the history of about 93 radical innovations spanning over a hundred years. A third study surveyed over 770 corporations in 17 countries. These studies suggest that the incumbent’s curse is driven by three cultural traits: a focus on the present instead of the future, a desire to protect one’s most successful products against the threat of innovation, and an aversion to risk. A review of some of the cases cited above is instructive. 38

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Innovation

SOME SPECIFICS Since March 2010, HP’s stock has declined steeply. The company has lost about 72% of its market cap. What was special about March 2010? In April 2010, Apple introduced the iPad. The runaway success of that product rendered the personal computer partially obsolete. At the time, HP was the world leader in personal computers. As sales of tablets soared, HP’s stock price took a dive that has continued ever since. The irony is that HP had a nifty eBook in the mid 1990s, at least five years before the iPad. eBooks of the time were the precursor to today’s tablets. Sadly, the company failed to commercialize the eBook. Focus was one reason. At the time, sales of even a $1 billion innovation paled in comparison to the $100 billion in sales for HP. Thus focus on current products, rather than the future, led the company to overlook the eBook. Risk was also a factor. With the secure stream of profits from computers and printers, there seemed no reason to invest in the risky business of eBooks or tablets. Ironically, as sales of computers declined, HP made a rash attempt to diversify into services with a reckless acquisition of Autonomy for $11 billion. A fraction of that amount spent on commercializing the eBook might have enabled HP to preempt the iPad with a tablet of its own and retain its dominance in the computer market. Likewise, Kodak had most of the patents of digital photography when that revolution hit analog photography. Yet Kodak was tightly focused on its current products, analog cameras and film, and failed to embrace the digital future. Despite heroic attempts by some of its CEOs, the company failed to shake off the old film culture and embrace the new digital culture. From 1996—when digital photography took off—until 2010, Kodak suffered a loss of over 90% of its value and went into bankruptcy. Similarly, RIM had a touchscreen smartphone before the iPhone. At the time, RIM was riding high with the great success of the BlackBerry, especially in the business market, which loved the security of the product. It did not see the future of the mass market of consumers for touchscreen smartphones. As touchscreen smartphones took off, RIM lost its dominant position in smartphones and about 90% of its market cap. In these cases, a focus on the present, resistance to risky innovations, and fear of cannibalizing successful products led dominant corporations to ignore innovations developed within. This is the incumbent’s curse. MWORLD SUMMER 2013

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“To remain relentlessly innovative, corporations need to bring within the corporation the competition that is outside in the marketplace. ” COUNTERING THE INCUMBENT’S CURSE Companies need three traits to counter the incumbent’s curse and stay relentlessly innovative. First, they need to focus on the future. Successful products become obsolete by the nonstop advance of technological evolution. The future belongs to innovations. Second, they must willingly commercialize innovations even if they cannibalize their successful products. Better to cannibalize one’s own products even at some loss in profits rather than go bankrupt when a competitor does so. Third, companies need to embrace risk. Risk arises from the steep-loss function of innovations. That is, thousands of ideas have to go through a process of screening, development, prototyping, and testing to yield one innovation. Even then, most innovations fail. Risk means willingness to stomach all those losses to reach one success. The three drivers of relentless innovation outlined above are deep cultural traits that cannot be changed overnight. My coauthored research into the psychology of organizations suggests three practices that can overcome those traits: offer incentives for enterprise, empower product champions, and foster internal competition.

INCENTIVES, INNOVATION, AND COMPETITION First, let’s consider incentives for enterprise. Most corporations today offer meager rewards for successful innovation but steep penalties for failure. Such penalties lead innovators to shy away from taking risks, which is essential for innovation. For unrelenting innovation, corporations need asymmetric incentives that are the opposite of the above: strong rewards for innovation with weak penalties for failure. For example, 3M allows its employees 15% of their time to devote to developing innovations of their own. Google offers an even more generous 20% of time for the same. Moreover, Google repeatedly admonishes its employees to learn from failure and move on. Such an incentive structure encourages employees to experiment, embrace risk, and develop and commercialize game-changing innovations. Second, let’s consider empowering innovation champions. Great innovations often emerge from deep within the bowels of giant corporations. Examples include digital photography at Kodak, the MP3 player at Sony, the eBook at HP, and the touchscreen smartphone at RIM. However, many large corporations have bureaucratic structures in which innovations have to be approved by numerous committees and levels of the hierarchy before being implemented. This is anathema to innovation. The reason is that innovations arise from the minds of mavericks. Bureaucracies and hierarchies enforce conformity and inadvertently kill innovations. Worst still, great corporations often commit the cardinal sin of ejecting innovation champions. For example, Tony Fadell, the co-champion of the iPod, left Philips, where his novel ideas did not receive a warm reception. Steve Jobs was at one time fired from Apple, which he had cofounded. Subsequently, he led it to become the most innovative company of the century. Roger Newton, the father of the profitable drug Lipitor, left Pfizer because it found his talent and style irksome. To remain relentlessly innovative, corporations need to create, retain, and empower champions of innovation. They can do so by devoting adequate resources, time, and talent to innovation; few penalties for failure; and productive critiques of ideas. 40

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FIGURE 1: Dynamics of Components of a Culture of Innovation Source: Gerard J. Tellis, Unrelenting Innovation: How to Create a Culture of Market Dominance (2013, Jossey-Bass), part of the Warren Bennis Leadership Series.

+ Incumbent’s Curse • Protected Products • Focus on Present

– Innovation

Practices • Incentives for Enterprise • Internal Competition

Traits • Cannalbalize Current Products

Market Dominance

• Future Focus

Third, let’s consider internal competition. Many employees choose to work for big corporations because of job security and protection from the ruthless competition of the marketplace. By the time it went bankrupt, GM highlighted this security, where employees were paid generously even when the factory closed. But the market is fecund in generating game-changing innovations. For example, Silicon Valley, which has generated more wealth in a short time than any other marketplace in the world, did so by ruthless competition among innovations. Large corporations that did not innovate quickly declined. Entrepreneurs who spawned great innovations dominated new markets that brought them enormous wealth. Thus, the market innovated while the corporation stayed still. To remain relentlessly innovative, corporations need to bring within the corporation the competition that is outside in the marketplace. In that way they can generate innovations to make their own products obsolete before the market does so. Thus, the culture of unrelenting innovation consists of three traits and three practices. The three traits are a focus on the future, an embrace of risk, and a willingness to cannibalize successful products. Traits are difficult to change overnight. But three practices can engender the traits: incentives for enterprise, empowering innovation champions, and internal competition. Success with innovation can make a corporation wealthy and lead to the incumbent’s curse. The aforementioned practices and traits help to overcome the incumbent’s curse. Figure 1 shows the dynamic causality that exists among practices, traits, innovation, and the incumbent’s curse. Understanding the psychology of these factors and how they have played out in real corporations is very revealing. Unrelenting innovation is not an option but rather is essential for survival and dominance. MW Gerard J. Tellis is Neely Chair of American Enterprise, director of the Center for Global Innovation, and professor of marketing, management, and organization at the USC Marshall School of Business. He is the author of Unrelenting Innovation: How to Create a Culture of Market Dominance (2013, Jossey-Bass), part of the Warren Bennis Leadership Series. Discover new ways to break through mental barriers, ho-hum thinking, and roadblocks at AMA’s seminar Creativity and Innovation: Unleash Your Potential for Greater Success. For more information, visit www.amanet.org/2208

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Avoiding the Pitfalls of Executive Turnover: BY NANCY MARTINI

Companies today realize the importance of having a crisis plan. From natural disasters to financial mismanagement to death, the global corporate world understands how emergencies impact the bottom line. But research shows that nearly half of all companies—4 out of every 10—aren’t prepared for an executive leadership crisis: the unexpected departure at the CEO level. Recently, David Stern, the commissioner of the National Basketball Association (NBA), announced he will retire in February 2014 after serving in the position for 30 years. Stern gave plenty of notice and, in fact, has already tapped a successor, Adam Silver, the current deputy commissioner. With a firm plan in place, the transition is expected to go smoothly. In another executive departure, Progress Software Corp. president, CEO, and board member Jay Bhatt announced he would be stepping down to lead another software company. The news came within a year of his appointment and during a time when the organization was already restructuring its business. Although the company acted quickly to appoint a new chairman and launch a search for Bhatt’s successor, the company suffered a 13.1% drop in stock price and anticipates a subsequent revenue dip. And in one last, prominent example, Citigroup’s surprise announcement that CEO Vikram Pandit would immediately step down after heading the finance giant for five years sent strong ripples—indeed waves—through the business community. This recent spate of turnovers at the top underscores the clear repercussions on a company— both short- and long-term, positive and negative—with leadership change. Besides the impact on shareholders and the company’s public reputation, any change in leadership can be disruptive to the various dimensions of an organization, such as employee morale, organizational culture, and financial performance. Many organizations spend a lot of resources attempting to get key senior leaders into the right roles. In fact, research suggests the cost to replace one employee can reach as high as 50% to 60% of that employee’s annual salary, with total costs associated with turnover ranging from 90% to 200% of annual salary. Moreover, evidence continues to accrue indicating that at least some degree of change in executive roles is commonplace, ranging from highly visible exits that play out in the public to relatively veiled transitions in which the underperforming executive is quietly shuffled into another role within the firm. 42

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Make Succession Planning a Priority

WHY DO LEADERS FAIL? According to The Right Leader: Selecting Executives Who Fit by Nat Stoddard and Claire Wyckoff, about 40% of CEOs are fired or “retired” within their first 18 months, and 64% never make it to their fourth anniversary. My experience working with executives leads me to believe that at least half of C-Suite executives underperform on one or more of their core responsibilities. Typically, leaders who have ascended to the C-Level rarely fail primarily because of skill-set deficiencies or lack of intellect. Rather, I find the core reasons are cultural misalignment, overpromotion, and/or a failure to evolve. Cultural misalignment occurs when individuals who have the requisite experience, intellect, and core skills to be successful in a high-stakes role underperform due to a lack of fit between the individual and the culture and values of the organization. Often, these are senior leaders brought in from outside the organization or who have been promoted quickly from function to function within the same organization. Overpromotion occurs when individuals whose performance in prior roles ranged from merely acceptable to superb, are seen as loyal organizational citizens and good people—and are given new, bigger jobs because they “deserve” them. Often a factor that contributes to this mistake is a decision maker’s fear of being seen as not rewarding hard work, not respecting longevity, and not promoting from within. Finally, there are executives who either cannot or will not adapt to shifting business conditions or whose priorities tend to have short tenures. These individuals might over-rely on their old way of doing things when new approaches or perspectives may be required. They often live in the past and fail to listen and respond to feedback. Phrases like, “The way that we used to do it…” or “The way we did it at my old company…” are telltale signs that the executive hasn’t completely progressed into the new position.

PREDICTING SUCCESS IN THE SEARCH FOR A SUCCESSOR The good news is that it’s not all gloom and doom. According to an Ernst & Young study, companies with a well-planned, fair, and objective succession process not only have better chances of securing the best leaders but also find it easier to attract and retain key talent. As the CEO of an organization that combines the power of predictive data with business strategy, I see every day how behavioral science, research, and analysis can provide an inside look at how a leader’s drive, decision-making style, ability to take on risk and more will meet MWORLD SUMMER 2013

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“A company’s history is another good way to help senior leaders see the need for a systematic succession planning process.” the current and future challenges of the company. A well-validated personality assessment can be an invaluable part of the toolkit for succession planning, because it allows a company to systematically assess behavioral strengths and compare those “behavioral snapshots” to the organization’s future goals.

THE PROCESS OF PLANNING When working to help our clients develop succession plans, we collaborate with the executive team to determine which positions are critical to the company’s business strategy. These are roles that: ៑ Can stop the business if left vacant ៑ Play a strategic role or are of tactical imperative to operations ៑ Have singular knowledge or experience of systems ៑ Must be filled with a unique type of person in addition to skills A company’s history is another good way to help senior leaders see the need for a systematic succession planning process. For example, asking how many of the organization’s senior leaders assumed their positions within the last three to five years can often be telling. Next, take a deeper look at existing leadership through the lens of a personality assessment. Our clients use the Predictive Index® (PI®) System to quickly and accurately measure an individual’s behavioral needs and tendencies and compare this with the behavioral requirements of the job. From a planning perspective, this insight helps address important questions like “What talent does the executive team need to meet the company’s strategic goals?” and “What behaviors must the next person for a specific position possess?” Using behavioral data as a benchmark, the organization can confidently identify a “shortlist” of succession candidates and apply the same evaluation process to gain a deeper understanding of how each person will meet the demands of the role. Specifically, the Predictive Index can shed light on an individual’s: ៑ Pace and Variety of Activities Sense of urgency for goal achievement, need for varied activities, multiple, simultaneous projects, multitasking and a fast-paced environment ៑ Communication and Collaboration Levels of extroversion, communication style, dominance, degree to which he or she exerts influence, stimulates others to actions, fosters collaboration ៑ Delegation and Leadership Style Measures authoritative leadership ៑ Focus Idea generation, innovative/creative problem solving, rapport and relationship building, attention to detail, pursuit of achieving results ៑ Decision Making Measures problem-solving orientation, risk taking, inclusive or independent approach, change management As the old adage goes, “If you fail to plan, you plan to fail.” Thus, simply put, when a company does not have a succession plan, it is threatening its own future success. MW Nancy Martini, president and CEO of PI Worldwide, is a well-respected authority on topics including effective leadership development and sales management. She is author of two books: Scientific Selling: Creating High Performance Sales Teams Through Applied Psychology and Testing and Customer-Focused Selling. AMA’s seminar Succession Planning: Developing Leaders from Within will show you how to design an effective and flexible succession plan. For more information, visit www.amanet.org/8110

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Lead by Example BY BRIAN TRACY

One of the most important responsibilities of management is to lead by example and to be a role model for members of the staff. Managers need to shape their self-ideal by being the kind of person that they admire and respect. Leading by example is an absolute requirement in management—and a prerequisite for leadership. The character and performance among people in the workplace can never be higher or better than the behaviors, standards, and integrity of the management, including you. You do not raise morale in an organization. Morale filters down from the top. It is based on the character and personality of the leader or manager. The words and actions of the manager set the tone of the entire department, whether positive or negative, productive or unproductive. One of the great questions for you to ask is: “What kind of company would my company be if everyone in it was just like me?” In business, it is generally accepted that employees treat customers the way they are treated by their managers. Whenever you experience excellent customer service, you know that there is an excellent manager behind the scenes who takes very good care of his people. Whenever you experience poor customer service, you know that there is a poor or negative manager that these people report to. Since they cannot pay their manager back for the negative way they are being treated, they simply take it out on the customers. You see this all the time. The key is for you to adopt a warm, friendly, and supportive personality around your people. You create a positive corporate climate by being a positive, cheerful, and confident person. At work, the boss (and everything the boss does) has an inordinate influence on the thoughts, feelings, attitudes, and behaviors of the staff. A positive or encouraging word from the boss can make a person feel happy and more productive all day long. On the other hand, a negative comment or a frown from the boss can cause a person to become anxious, insecure, THE GREAT QUESTION

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and generally less productive for the rest of the day. The things that you do and say as a manager have a major impact on other people.

Brian Tracy

Everybody watches the boss, all the time. People watch you out of the corner of their eye. Whatever you say to anyone is quickly relayed to everyone else. And everyone knows everything. There are no secrets in a business or an organization. If you make a positive or negative comment about someone, even casually, it will come back to that person faster than you can imagine—and usually as a distortion of what you really said. In meetings, you are on display. Everyone is watching you. People are aware of everything you do or say, and even the things that you neglect to do or say. One of the best ways to lead by example is to always be positive. Always speak in a positive and uplifting way about each staff member when you are talking to other staff members. Whenever you compliment other people behind their backs, it will get back to them quite quickly and have the desired effect of raising their self-esteem and improving their self-image. EVERYBODY IS WATCHING

The most important time for you to set an example is when things go wrong—when you are under pressure, when there is a major problem, reversal, or setback in the organization. This is called the “testing time,” and it’s when and where you demonstrate the real quality of your character. This is when you show everyone who you really are inside. In 2010, I was diagnosed with throat cancer. For someone who has built a 20-person business around professional speaking engagements, seminars, and video/audio recordings, the discovery that I had throat cancer was a real shock. At the same time, I realized that all of my staff members would be affected by my diagnosis, especially in wondering if their jobs were safe and secure. People think about their incomes all the time. THE TESTING TIME

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Fortunately, I had excellent doctors, and the cancer was one that was eminently treatable. My doctors had caught it at stage one, and although I required chemotherapy, surgery, and radiation to deal with it, I was not in any danger of losing my life. As soon as I understood the gravity of my situation (or lack of), I made it a habit to go into my office and talk to each person every week. I remained continually positive, upbeat, and cheerful. I told them what was going on, my course of treatment, what was likely to happen, when I would lose my voice and for how long, and every other detail. As a result, although people were worried, they continued to be positive and carried on the business of the company as though everything was quite normal.

Whenever you have a problem or a crisis in your business, remember that everyone is watching you. This is an opportunity for you to demonstrate your qualities and a character as a leader. Your job is not to react negatively or with any kind of panic to negative situations but to respond calmly and effectively and to keep everybody focused on solutions and on doing a good job. As the leader, if you want other people to be effective, efficient, and punctual, you must also be effective, efficient, and punctual. Manage your time well. Set clear priorities, work on your most important tasks, and demonstrate diligence and industriousness at your work for all to see. You cannot expect other DEMONSTRATE CHARACTER

THE FOUR FACTORS OF MOTIVATION There are four factors that exist in every organization and determine the levels of motivation of the staff, whether positive or negative. Fortunately, each of these ingredients can be changed in a positive way—usually when a new leader replaces a leader whose management style has not been conducive to bringing out the very best in each person. BASICS OF MOTIVATION Let’s begin with the four factors that are the basics of motivating anyone, in any organization. These four factors are (1) leadership style, (2) the reward system, (3) the organizational climate, and (4) the structure of the work. Leadership style This is a key factor in determining how people feel about the company and how motivated they are. Very often, just changing the leader changes the psychological climate of the company and, in turn, the whole performance of people in the organization. The appropriate leadership style depends on the goals and objectives of the organization, the people within the company, and the external environment. In a SWAT team or a fire department, the appropriate style would be more directed and dictatorial, with the person in charge telling people what to do quickly with little concern for personal sensitivities. This style can also be found among entrepreneurial organizations, many of which are struggling for their very survival. In most cases, however, traditional-to-down leadership style is no longer acceptable in today’s breed of employees, who expect to be able to speak out, be heard, and have a clear influence on how they do the work. Different strokes for different folks A second leadership style is collegial, where one person may be in charge of a department but functions at the same level and with the same knowledge and skill as his co-workers. In this type of organiza-

tion, people are respected for their knowledge, skill, and ability to do the job. Other leadership styles that have been identified are telling, selling, persuading, and participating. Each of these styles is appropriate depending on whether the employee is new or experienced, and whether there is ample time or urgency in completing the task. Sometimes, the manager is required to use different leadership styles for different people under differing circumstances. The reward system Every organization is characterized by a particular type of reward structure, often differing from person to person and from department to department. As author Michael LeBoeuf says in his book, The Greatest Management Principle in the World: What Gets Rewarded Gets Done. If you want more of something in an organization, simply increase greater rewards for that behavior. If you want less of an activity in an organization, simply reduce the rewards, or increase the punishment or disapproval for that behavior. People respond to incentives. It is quite common for companies to identify their most profitable products and services and then increase the percentage of commission that salespeople will receive for selling those specific products and services, while maintaining lower commissions for less profitable items. Salespeople, and managers for that matter, respond very quickly to increased or decreased financial rewards for specific behaviors or for achieving specific goals. Organizational climate Is your company a “great place to work”? The organizational climate is deliberately created and maintained by management. It largely consists of the way that people treat each other up and down the line. When Thomas J. Watson, Sr., started IBM, he laid out the three core values of the company. These values—excellent

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people to perform at any higher level than you perform on a day-today basis. Also, as the manager, be courageous and decisive. Be willing to take principled positions, stand up for your staff, and make firm decisions, and be able to explain the reasons for the things that you do. Just imagine that every day and in every way your staff is watching you and forming its own behaviors by observing the way you act. Set a good example for everyone on your staff, so that if every employee behaved the way you do, your company would be a terrific place to work. In summary, to motivate and encourage positive behavior, begin with these two steps: 1. Select one behavior that you can change in

products and services, excellent customer service, and respect for the individual—would determine the future of IBM, eventually making it the biggest and most respected computer company in the world. The principle of “respect for the individual” was adamantly enforced at every level of the organization, both nationally and internationally. You could make almost any mistake at IBM, except one. You could not disrespect, demean, or insult another person, either inside or outside of the organization. As a result of this element of organizational climate, not only did people compete vigorously to get into IBM in the first place, but once there they were some of the happiest, most productive, and creative people in any company in any industry. The structure of the work Some work is inherently motivational, requiring creativity, imagination, and high levels of energy. Work that involves communicating, negotiating, and interacting with other people in order to gain their cooperation to get the job done quickly and well brings out the best energies of the individual. It is exciting and challenging. It is usually highly rewarding as well. However, an enormous amount of work must be standardized, routinized, and made relatively unexciting in order to be done efficiently and cost effectively. It is hard to motivate factory workers who work on a production line all day and whose activities are carefully monitored and regulated to ensure maximum levels of productivity. Good organizations are always trying to structure the work so as to match the nature of the work with the nature of the employee and to make the work as interesting and enjoyable as possible.

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order to demonstrate your quality and character as a manager—a behavior that would be helpful for everyone to practice (such as punctuality). 2. Resolve today to remain calm, positive, and cheerful whenever something goes wrong, because everyone will be watching. MW Excerpted, with permission of the publisher, from Motivation by Brian Tracy. Copyright 2013, Brian Tracy. Published by AMACOM. For more information, visit amacombooks.org Brian Tracy is a professional speaker, trainer, seminar leader, and consultant, and chairman of Brian Tracy International, a training and consulting company based in Solana Beach, CA.

THE LEADER CAN MAKE AN IMMEDIATE DIFFERENCE The reward structure, the organizational climate, and the structure of the work can be changed, but usually slowly; everything must be thought through carefully and in detail. The leadership style of an organization, however, is the one factor that can be changed quickly, and this change can make a major difference almost overnight. There is a story of a factory whose managers were highly political and more concerned with their own rewards and privileges than they were with the morale of the workers. The factory was demoralized, suffering low levels of productivity and high levels of defects, and it was on the verge of being shut down by the head office. Instead of shutting the factory down, the head office sent in a new general manager, replacing the existing management completely. On his first day on the job, the general manager was waiting when the first shift of workers arrived that morning, parking their cars out in the unpaved parking lot and walking through the mud to the factory entrance. When the entire shift had gathered, the new manager introduced himself, and then in front of everybody, walked over to the reserved parking spaces lined up next to the main entrance, where the executives were accustomed to parking when they arrived at work. An assistant gave him a bucket of paint, and the new manager walked along the wall, painting out the names of the executives for whom the parking spaces had been reserved. “From now on, whoever gets here first gets the best parking space,” he told the workers. Within six months, that factory was producing at the highest level in its history, and it was one of the most productive and profitable factory operations in the entire national organization. One highly motivated leader with a clear, exciting vision for the organization can become a motivational force for change and transformation, even when everything else is unchanged.

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Great Leaders Never Skip Practice In his bestselling book Outliers, Malcolm Gladwell discusses “the 10,000 hour rule”—the finding that achieving truly world-class mastery in any discipline, whether chess, music, or basketball, requires 10,000 hours of practice. Even Mozart, arguably the greatest musical prodigy of all time, writes Gladwell, didn’t hit his stride until he had 10,000 hours under his belt. Ongoing, repetitive practice isn’t just important for mastery of a skill; it also plays a critical role in situations that require quick thinking and rapid decision making. This is why even baseball players with high batting averages take batting practice before every game. When the ball comes hurtling toward them at 98 miles per hour, they don’t have time to analyze what their response should be. They have to decide to swing, ignore the pitch, or even get out of the way—in an instant. Because they’ve practiced reacting to every possible pitch over and over again, their 10,000 hours of practice—combined with their muscle memory, instincts, and natural talent—helps them make the snap decisions necessary to perform their best. So, what’s the takeaway for business leaders? What is the business equivalent of batting or playing the violin? How can leaders stay at the top of their game? In business, as in any discipline, the answer also lies in practice—getting the proper training, then following through with ongoing learning, both on and off the job. Leadership mastery results from serious study: gathering intelligence about the competition, reading about industry trends, talking to team members and experts, and obsessively preparing for every possible twist and turn that might arise in today’s constantly changing business landscape. But first, you need to acquire the fundamentals. This is where AMA comes in. Our mission is to advance the skills of individuals to drive business success. By helping build better leaders and managers worldwide, we help build stronger and more successful organizations. We’re here to provide leaders and managers with a strong foundation. They take the skills they learn in our classrooms back to their organizations, where they practice them every day to meet the demanding challenges and make the tough decisions. With over 90 years of experience as a world leader in professional development, we’re well beyond the 10,000 hours threshold. Yet, we’re still refining our craft every day. Gladwell tells us that before they hit it big, the Beatles had performed live an estimated 1,200 times—more than most bands play in their entire careers. It’s one of the things that set them apart from their contemporaries and laid the groundwork for their eventual mega stardom. Although AMA can’t promise you rock star status, we do know that practice truly does make perfect. We’ll provide the raw materials—the 10,000 hours is your responsibility.

Robert G. Smith Senior Vice President Marketing & Membership American Management Association

American Management Association

MWORLD SUMMER 2013

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