Backstage Leadership: The Invisible Work of Highly Effective Leaders [1st ed.] 9783030361709, 9783030361716

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K R O W E L B I S I INV E V I T C E F F E Y L of HIGH c i n u l a G s e l r a h S C R E LEAD

Backstage Leadership

Charles Galunic

Backstage Leadership The Invisible Work of Highly Effective Leaders

Charles Galunic INSEAD Fontainebleau, France

ISBN 978-3-030-36170-9 ISBN 978-3-030-36171-6  (eBook) https://doi.org/10.1007/978-3-030-36171-6 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgements

To my amazing kids, Tess and William. We got it done, somehow. Special thanks to my colleagues Yves Doz and Quy Huy, who helped get this book started, and for Javier Gimeno for his insights and support. I’m also grateful to my OB colleagues at INSEAD for their wisdom over the years.

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Contents

1 Leading, Front and Back 1 2 Scanning and Sensemaking 25 3 Building and Locking in Commitment to Strategy 67 4 Handling Contradictions: The Structural Work of Leadership 103 5 Harnessing the Silent Power of Culture and Norms 147 6 Developing Talent and Capabilities 187 7 Back to the Front: Foundational Leadership Traits and Skills 233 Index 269

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List of Figures

Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. 3.4 Fig. 3.5 Fig. 4.1 Fig. 5.1

A continuum of commitment modes Creative and Fair Process Creative and Fair Process (backstage/frontstage emphasis ratio) How we often look at organizations Human bridges Polarization of organizational modes Schein culture model (see Schein, E. H. (1999). The Corporate Culture Survival Guide. San Francisco, CA: Jossey-Bass) Fig. 5.2 A leader is a storyteller Fig. 6.1 Collaboration networks (Thanks to my colleague Julien Clement for sharing with me this network graph, created using D3.js software)

73 78 92 95 96 120 152 184 222

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1 Leading, Front and Back

People like heroic tales, whether in children’s stories or business strategy. It’s inspiring to see new enterprises and business models crafted, ­particularly when a visionary challenges the status quo and attempts something truly ingenious with company strategy. Consider the following story. A 1­ 50-yearold utility company runs waterworks for large cities but eventually diversifies into mostly related sectors, such as waste management, energy, property, and construction. The company is profitable but boring, and more importantly, it has no spark and limited growth potential. Not the sort of firm that sparks interest in current-day investors or the international business press, it is sustainable as a business but not likely to dent the universe. In steps the young, flamboyant, and visionary leader, who enters the stage with fresh perspective and creative zeal. He sees opportunity where others do not, attracted not only by the substantial cash this company pushes out with lunar regularity, but also by the wonderful prospects in the emerging digital media space—films, music, television, and the potential of digitally streaming all of this content to consumers. He works tirelessly to transform this boring “local” operation into an exciting and relevant global player, taking the reigns to fearlessly push through the new strategy. Within five years, this company is the Cinderella story of the business world. It succeeds in acquiring a film studio with plenty of caché, a giant record label, a pay-TV channel, which the company had once helped to found, along with mobile telecom services, theme parks, and educational publishing. The business media and the public give the lion’s share of credit to this heroic leader who becomes a celebrity beyond his industry and is called a “master of the

© The Author(s) 2020 C. Galunic, Backstage Leadership, https://doi.org/10.1007/978-3-030-36171-6_1

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universe,” an Ironman-like figure for the media world. The community of thought leaders in strategy and organizational leadership sleep soundly at night with yet another confirmation of the importance of visionary strategic leaders, individuals who lead from the front and are capable of “doing,” not just “knowing.” The big problem with this heroic tale of strategy development is the next chapter: it’s mostly a bust. Turns out the strategy was not developed to withstand even the near-term uncertainties of a chaotic industry. The company was Generale des Eaux, effectively France’s national waterworks, and the heroic leader was Jean-Marie Messier, a man with impressive educational credentials—graduate of the highly competitive grande ecoles system in France—who cut his teeth in leading global investment bank Lazard Freres. The strategy seemed appealing enough—drive the free cash flows from an old, low growth company into the fast-growing media space and exciting new industries, to seize emerging opportunities—but it was simply unsustainable. Generale des Eaux, now known as Vivendi, made acquisitions at the height of the dot-com boom when prices were more likely to bubble, thus saddling Vivendi with a debt mountain that not even a triedand-true waterworks giant could pay off. But the bigger issue was how to make sense of the whole organization—how to execute on the strategic synergies that an integrated media company would require in order to generate new value for consumers and investors. Also, Vivendi had to figure out how to develop a strategy for this business model over time, to continuously adjust to the vagaries of the marketplace, even while retaining an appealing and visionary future. Vivendi, it seems, was unprepared to deal with these larger issues. Not surprisingly, Messier’s critics were as misguided as his early admirers, too often focused on style or other personal qualities. As Vivendi plunged (over 13€ Billion in losses in 2001, nearly double that in 2002 and the largest such loss in French corporate history, debts of up to 27€ Billion, and a stock price that was decimated),1 the criticisms of Messier were loud and mostly focused on the quality of his earlier investment decisions and, all too often, on the lavishness of his life as CEO. The underappreciated issue,

1Litterick, David. (2003). “Vivendi Snatches Record for French Losses.” The Telegraph, March 7. Retrieved December 10, 2019. https://www.telegraph.co.uk/finance/2845264/Vivendi-snatches-recordfor-French-losses.html; Davies, Lizzy. (2010). “Former Vivendi Boss Messier Admits Making ‘Mistakes’ as He Faces Fraud Trial.” The Guardian, June 2. Retrieved December 10, 2019. https://www.theguardian.com/business/2010/jun/02/messier-fraud-trial-begins.

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however, was the failure to remake the firm and build the processes and foundations that would allow Vivendi to develop this bold strategy from the ground up and so that it can last. After all, others have offered outrageous visions for their industries—such as Martin Eberhard, Marc Tarpenning, and Elon Musk in luxury and sport electric vehicles—but also managed to build sustainable organizational processes, processes or strategies that don’t quickly fade away but have staying power, behind them (although Tesla is still very much work-in-progress). The foreground and frontstage strategic work was accomplished—buy into growth, leverage steady cash flows, compel and impress the media and investors—but the background work not nearly so. The story of Vivendi is neither the first nor the last such story, of strategic leadership that seems to be preoccupied with what happens on the frontstage and not the backstage, the messy plumbing of strategy development. The raison d’etre for this book is to shine a light on what leaders are doing on the backstage. First, successful strategies are enacted, developed over time, with adaptations, and are never complete. They are works-in-progress, a collection of ideas on product-market scope, technology, timing, supply chain, partnerships, staffing, etc. And they require swapping and testing in order to craft the consistency and logic that amounts to a “sustainable strategy.” Contrary to popular business mythology, strategies seldom emerge from a single epiphany of a genius, nor do they neatly fall in place through advanced strategic planning and foresight. Second, and the core purpose of this book, this ongoing strategic development rests upon fundamental processes, processes that are not media headline grabbers but that nonetheless increase the chances that a firm will achieve sustainable performance. Through research on strategy and organizations I’ll help you name and describe these processes, which operate at various levels of depth in business organizations. Third, business leaders need to appreciate the central role that they play not just as cheerleaders and inspiring “Masters of the Universe,” but also as behind-the-scene orchestrators or architects in this work. Creating, maintaining, and integrating these processes are the key, albeit backstage, sometimes invisible, work of business leaders. It’s about putting in place the foundations, the networks and the wiring, the invisible systems and procedures that enable corporations to navigate through competitive markets, adapt and thrive. The essential work of leaders is the crafting of these processes and ensuring that there is a connecting thread of logic and emotion that runs through them. Let’s consider each of these starting points in turn, but first understand something about how business strategies flow.

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The Surprising Life of Strategy The CEO of a sizeable British insurance company, Patrick Snowball, learned about the real requirements of strategy the hard way. A thoughtful and no-nonsense, commanding figure, Snowball was on stage with his fellow Norwich Union Insurance executives during an off-site conference.2 In the audience various managers and directors who had come to the end of a grueling restructuring process following several years of mergers and acquisitions in the industry. The company executives called this process “banging them together,” replete with cost-cutting initiatives and efficiency drives. Now, the executives thought, it was time to launch a new strategy, one so simple and clear that Patrick Snowball—a military man earlier in his career—was charismatic enough to instruct and sell to the troops: to focus closely on customer care and service, with “insurance at our core and care at our hearts.” After all, the restructuring work was showing financial results. The new philosophy had emerged through some brainstorming work of several smaller task forces, each headed by one of the executive team members and with the input of a selection of local directors. After Patrick’s speech and the announcement of the new direction, however, there was a long and awkward silence and a lot of hushed mumbling in the room, something that resembled a sketch from an episode of Monty Python rather than an executive conference of senior leaders. The audience was simply stunned. One brave manager finally uttered what everyone but the executives were thinking: “But we don’t understand where this has come from…,” after which he was effectively told to sit down and shut up. Some managers initially thought that this was a joke—not a silly thing to think, given the overwhelming cost-cutting and efficiency theme of recent years. How could the company now expect them—beaten by the restructuring—to morph into a caring and compassionate organization? They were unanimous, in not believing a word of what was being told to them, totally unconvinced of the new corporate strategy. The executives were equally dumbfounded and baffled, as well as angry and disheartened. Here they were, trying to do their best for the company, working tirelessly on the restructuring but simultaneously on the company strategy, for which they believed they bore responsibility. They genuinely believed they had pulled in

2Galunic, Charles. (2008). “Leadership, Culture Change and Transformation at AVIVA: Norwich Union Insurance.” INSEAD Case 03/2008-5502.

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the opinions of people below them, and now they were receiving this ­push-back and ingratitude? Everyone in the room walked away thinking “what just happened here?” Executives were setting strategy, simply doing what they thought they should be doing, but their senior managers did not believe a word of it. So how can we explain this? The company had conducted a cultural survey around this time and the results were discouraging. It revealed a massive disconnect between how the executives, on the one hand, and directors and lower managers, on the other, experienced the recent restructuring work. The executives were upbeat and motivated about the future, but the troops were exhausted, unengaged, and cynical. Essentially, there were two different narratives and interpretations about the restructuring. The executives told the story of heroic strategic decision-making, particularly around the puzzle of rationalizing two merging units and limiting inefficiencies. Managers’ narrative was one of being asked to do too much with too little, in a process that sought very little input from the bottom, and with greater concern for the financials than the human factor. In their eyes, the experience of the restructuring cost the company dearly in terms of goodwill and ­go-the-extra-mile employee motivation in the lower ranks. The narratives around the restructuring, and so the positions of the executives and the rest, were, as one manager put it, “miles apart.” The leadership lost the pulse of the organization, was unable to empathize with the troops, and, so, an emotional gap appeared. As a result, they could no longer gauge key issues in the development of the new strategy, especially the readiness of the workforce to effect a culture change and, thus, the likelihood of operationalizing these “heartfelt,” “authentic,” care ideas in the marketplace. After all, it’s the people further down who ultimately needed to show such care to consumers—and the irony of being “commanded” to show care was not lost on this audience. In other words, it had something to do with the deeper processes in the company, such as those that shape the adaptability of the company and shape the broader culture. In addition, the executives made an assumption that many company leaders make on a regular basis but that is progressively flawed in modern business: the strategy realm belongs solely to us, the execution belongs to you, the middle managers and your teams. This is certainly a w ­ ellestablished assumption, backed by formal offices and roles inside of many companies (strategic planners, chief strategy officers, etc.) who support the executive in creating strategy. But it’s an assumption that is losing relevance. Strategies require scanning, sensemaking, and framing processes that go well beyond the work of the executive or strategy specialists. To be sure, these

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people are central and important players in strategy development, but they need to be joined by voices both further down and outside of the organization. Executives in our story of Norwich Union would have discovered much earlier, then, that developing a customer care position would be challenging at this juncture in the industry. They would have picked up on growing cynicism about financial institutions in general and insurance companies in particular, where stories of complex claim procedures and ­“you-didn’t-read-the-fine-print” replies from claims agents were folklore, as well as a steady but massive swing in the distribution channels with the rise of mobile and online technologies. For example, comparison websites were booming, elevating price to the forefront of consumers’ minds and rapidly commoditizing insurance products—did it make sense to focus on “care” now? In other words, leaders need to craft and tap processes that bring those who are closer to the street and theorists together, something that is essential in our digital, agile innovation crazed business world, where thinking-and-doing are closely intertwined. Relatedly, these scanning, sensemaking, and creative processes are just the foothills of the mountainous challenges in the development of any strategy: building real commitment to action in the organization, that’s both broad and deep. But this story has a happy ending, where a leader managed to grasp the importance of backstage processes and turnaround the situation. To his credit, Patrick Snowball took the lessons from the botched conference seriously and put in place an extensive process to both figure out the real direction of consumer sentiment and establish genuine commitment among the workforce. The key insight Patrick and his team had was that any positioning as a caring, service-oriented insurance provider had to be authentic to its core to be believable on the outside, and for that to be possible the company had to build an authentic and caring leadership model on the inside. This meant an engagement process that was open and fair, building and fine-tuning the strategy collectively. It also meant an extensive culture change process, finding ways to alter thinking and routines not by preaching—that is not directly—but through shaping the context—that is indirectly, by backstage work. The successes Patrick and his team eventually enjoyed resulted from the processes these leaders crafted and maintained, processes that I will define and explore in this book. The life and health of strategy, then, depends upon such silent processes running in the background but actively managed by the leaders of a company—processes for scanning and sensemaking in the marketplace, for building commitment to action, for shaping the culture and gauging the emotional health of the organization and more. My main claim at this point

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is that strategic development requires more than simply a strategy planning process attended to by few specialists and that is focused on a specific strategic “play” or event. Rather, strategic development—which we can define as the ongoing conduct and broader positioning and value promise of a company in a product-market—requires clever and skillful attention to broader organizational and leadership processes. Some may not be comfortable with or accepting of this broader view of strategy development. There may be discomfort at the thought of losing control, an automatic recoil by those who believe they can actually fully control company strategy and its development. But to paint this broader view as simply the democratization of strategy development is not accurate. In fact, there is more work for senior leadership—it just happens to be different kind of work with different tools. After you read this book, my goal is for you to see a much tighter connection between strategy development and leadership and organizational development, a viewpoint that I believe is lacking or underdeveloped in the current business literature. This broader process-oriented view is particularly relevant for the digital, disruptive age, in which strategies and business models may need to shift more often and more rapidly, but which in turn requires supporting organizational processes and structures that can also turn on a dime. In general, an important premise of this book is that sustainable strategic development is built upon sound organizational processes, rather than from a “top-down” or “outside-in” strategic planning approach. To further illustrate, consider one of the most famous incidents in the strategic management literature: the competing narratives surrounding the early strategy development of Honda’s entry into the North American motorcycle market, what is known in academic circles as “Honda A vs. Honda B.”3 Briefly, the motorcycle market prior to the 1960s was dominated by the United States (­ Harley-Davidson) and UK (BSA, Triumph, and Norton)—think tough guy Marlon Brando on his beefy Triumph in the classic film “The Wild Ones” and you get a good sense of what motorcycling meant in those days in the United States. That would change dramatically over the next two decades with the highly successful Japanese motorcycling foray into North America, introducing a different identity to biking (more yuppie, less gangster). How did Honda, a new kid on the block, manage this conquest of such a difficult marketplace, which resulted in over 15,000% growth between 1960 and 1965? 3Pascale,

Case #.

Richard and Evelyn Christiansen (1989). “Honda A and Honda B.” Harvard Business School.

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The first story to emerge centered on traditional, top-down strategic planning and insight (the Honda A story). The essence of the story was this: Honda first built a dominant market position in Japan, where it enjoyed a big cost advantage and substantial scale economies in producing smaller and simpler automatic transmission motorcycles, and from that position, it entered the US market, leveraging its know-how in the lightweight segment, marketing heavily to middle-class consumers, offering the bike at a low price that would allow sufficiently high production volumes to ensure favorable margins and reinvestment, and so on. The lore was that top-down strategic genius and insight won the day, based on experience curves and deductive reasoning. Chalk one up for the consultants and strategic planners! It turned out, however, that this wasn’t really true. The real story, Honda B, went like this: Honda managers believed that they could sell bikes in the United States but were in fact more focused on larger bikes (250cc and up) rather than the small 50cc bike that was doing so well in Japan, and in fact the initial selection of bike volumes was determined by the Japanese Finance Ministry imposing currency restrictions on Japanese firms doing business abroad, rather than advanced marketing analysis. After mistiming the entry, they were confronted by major problems with the larger bikes breaking down because they were being driven faster and further than in Japan. Meanwhile the smaller bikes were not being offered at all, but they were being used by Honda managers. And people noticed, and liked these little bikes. Encouraged by these reactions, they decided to push the smaller bikes, and only after there was some momentum did they figure out the targeting and the ad campaign, itself a much debated issue which created internal tension. The Honda A vs Honda B story is a good example of how we generally think about strategy and how it actually works. It shows that the life of strategy is much more dynamic than we may think. Of course, there is a major problem with the Honda B story, and the number one reason it is still criticized to this day despite being “true.” It fails to tell us what, exactly, are these underlying processes and how to actually approach strategy development. As a story, it is wonderfully revealing and satisfying, the triumph of human learning and humility over “academic” learning. But as a lesson for companies and managers—a method for allowing others to similarly develop and nurture their strategies—it is weak and insufficient. The Honda B story just isn’t able to layout anything resembling systematic processes for ferreting out the strategy. In fact, it can do more harm than good if readers walk away thinking that strategy development of this non-economic, non-planned, sort is ad hoc and just a matter of learning-by-the-seat-of-your-pants.

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Fortunately, there are plenty of examples of companies that offer good templates for planning and developing strategy through consistent efforts of backstage leadership. One such company is Pixar, the iconic film company that gave us Toy Story and its acclaimed sequels, 1 through 4, A Bug’s Life, Monsters Inc., The Incredibles, Wall-E, Inside Out and that pioneered the whole field of computer-generated film. Former President of Pixar and Walt Disney Animation Studios Ed Catmull certainly led the effort to bring computer-generated graphics and other digital technologies to Pixar, but he didn’t do it alone; he implanted a culture of innovation in Pixar that exists to this day and which isn’t possible through Catmull’s leadership alone but through the actions of hundreds of employees. Catmull instituted a number of practices that sparked collaboration among groups and individuals and that could well be considered in the realm of backstage leadership. One of the most crucial ones is “Brain Trust Meetings,” in which directors gather a “brain trust” of peers to view and discuss works in progress whenever they are feeling stuck. Catmull cautions, “This is not a random, ad hoc gathering. Brain Trust meetings follow a particular process and have a set of norms around them that we have refined over the years to help a director see new creative possibilities but not rob the director of control.” Building on the success of Pixar’s Brain Trust Meetings, Disney team members instituted a similar process called “Storytrust,” but Catmull remembers that it took awhile for the Storytrust to work, because Disney didn’t take power dynamics out of the meetings, as is imperative. Just a few months in, Catmull saw that the meeting participants were self-censoring themselves, deferring to what John Lasseter, the star director of Toy Story and former Chief Creative Officer of Disney, thought before they ventured their own thoughts. The knowledge that it took several years for the Disney Storytrust meetings to operate with the same level of trust as the Pixar Brain Trust ones, highlights the organic nature of backstage leadership. Even when a leader seeds the right processes, it may take years of incremental reinforcement and adjustments to make them flourish.4 But what is key here is that it is up to the

4Hill,

Linda A., Greg Brandaeu, Emily Truelove and Kent Lineback. (2014). “Collective Genius: The Art and Practice of Leading Innovation.” Harvard Business Review Press. Boston, MA (pp. 9–18); [Quote from Catmull] Catmull, Ed. (2018). “Ed Catmull on How He helped Foster Creative Collaboration at Disney and Pixar.” Fast Company, November, 13. Retrieved August 26, 2019. https:// www.fastcompany.com/90262530/ed-catmulls-approach-to-creative-collaboration-at-disney-and-Piixar; [Information on Disney’s Storytrust Meetings] Buchanan, Leigh. (2014). “The Source of Piixar’s Magic? Straight Talk.” Inc. Magazine, April 11. Retrieved September 10, 2019. https://www.inc.com/magazine/201404/leigh-buchanan/Piixar-ed-catmull-creativity-inc.html.

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leader to establish, monitor, and hopefully accelerate these processes. In my view, it is the careful construction and development of these processes that is the core of business leadership. With the examples above as jumping off points, this book will show you that there are recurring and fundamental processes that are the bedrock for broader strategy development. So far there has been too little systematic and practical effort to synthesize these processes for managers but there is good evidence in the business and academic press that they are viable and they work.

The Core Processes of Backstage Leadership So what are these processes? Certainly, they concern familiar things, like incentives, job descriptions, formal structures, linking mechanisms, informal networks, selection and training, and leadership behaviors. In other words, the processes are made up of the familiar language and workings of organizations and management. However, the way these pieces come together into ongoing routines and the ways they are linked to strategy development do reveal a higher order competence that is important for organizational leaders to understand and master. Understanding and then building and maintaining the following processes over time and with quality may seem, in a way, a little bit of “magic,” but it is really skillful, thoughtful, hard work. What follows is a summary of the core processes you will learn about in this book. Processes are complex by nature and need to be unpacked carefully, so the goal here is just to give you the lay of the land with the help of some familiar companies, such as the retailer Ikea. This familiar global company is an apt choice because it is one of the most valuable brands in the world5—more valuable than Porsche, Starbucks, and Chanel, massive brands selling products that are more likely to be a popular topic of conversation than a bristly doormat or a bog-standard wine glass (although, by some estimates, 10% of living Europeans were conceived in an Ikea bed).6 Ikea is also an apt example because their strategy, and success, was built

5Badenhausen,

Kurt. (2015). “World’s Most Valuable Brands”. Forbes, May 13. Retrieved December 10, 2019. https://www.forbes.com/sites/kurtbadenhausen/2015/05/13/the-worlds-most-valuable-brands-2015behind-the-numbers/#55d4f7385106. 6Grandoni, Dino. (2011). “One in Ten Europeans Were Conceived in IKEA Beds.” The Atlantic, September 27. Retrieved December 10, 2019. https://www.theatlantic.com/international/archive/2011/09/ one-ten-europeans-were-conceived-ikea-beds/337380/.

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slowly, over decades, with a strong core logic (and plenty of Swedish emotion), and not without detractors and problems along the way.7 It’s important to remember as you go with me on this journey that these processes within this broader view of strategy development are about the ongoing and systemic way organizational leaders and members operate. They are not oneoff success stories or events, and they are not without their challenges. Each process is described in detail in each of the five subsequent chapters, from Chapters 2 to 6.

Chapter 2—Scanning and Sensemaking Post-war Sweden was much like any other post-war nation: urbanization was accelerating and the middle class was on the rise, and people were turning to consumerism like never before. This meant, for example, that it was no longer practical to make your own furniture, or rely on family inventories being passed down. It also meant that a youthful population would be looking for good deals and thrift. It’s hard to imagine that adults living in those times could have missed these facts. No special intelligence is required. But it took a deeper look at society and economy to realize the opportunity and to connect the dots. Ingvar Kamprad, a farmer’s son living in southern, mostly rural, Sweden, took the time to make more sense of this than most of his compatriots.8 What he saw was that established retailers were adding a substantial cost to the sale of furniture in Sweden, and, perhaps more importantly, that buying from them meant that the range of products depended on the retailer’s physical capacity and inventory, which tended to restrict selection. In other words, he saw that consumer value laid in a combination of cost and convenience, not one or the other. The amazing success story that is Ikea, a small-town Scandinavian furniture supplier that became one of the world’s most prized consumer retail brands relied on its ability to offer both low cost and convenience in its business model. Ingvar surmised that bypassing the retailers would be possible if he could go directly to the customer with a mail-order format, eventually the famous Ikea Catalog, where many

7Stenebo, J. (2010). The Truth about IKEA: The Secret Success of the World’s Most Popular Furniture Brand. London, UK, Gibson Square. 8See INSEAD cases: Huy, Quy and Micheal Jarrett. (2015). “How IKEA’s Strategy Was Formed.” INSEAD Case 01/2015-5833; Huy, Quy, Micheal Jarrett and Lisa Duke. (2015). “IKEA: A Furniture Dealer.” INSEAD Case 01/2015-5831.

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products could be listed and displayed. Not long thereafter, he added an open and simple showroom concept, so that people could freely examine the products before ordering, but without the costly bells-and-whistles of traditional retailing, with elaborate displays and showcasing—people were happy just to feel and flop on a bare mattress covered in a simple fitted sheet. He also realized that homemaking is an integrated affair, that needs run across specialties (kitchen, bathroom, bedroom, etc.), that people may enjoy some thematic unity to their homemaking, and that providing economies of scope was valuable to consumers. It worked, and it worked so well that not even years of hostile actions from established retailers, and targeted jokes and teasing by the media, could kill this value proposition. Scanning and Sensemaking is about capturing signals early enough and then interpreting them accurately. It is about connecting the dots, exactly what Kamprad did. It involves processes that amount to a spider’s web—the ability to rapidly capture bits of information and collectively (or centrally) deciding what that data means. Entrepreneurs are effectively defined by this capacity—or rather the few entrepreneurs that actually survive and thrive, and which we academics may be guilty of turning into ex post, rationalized rules of success. It’s at least safe to say, then, that “successful” entrepreneurs, like Kamprad, did well to see the challenge and opportunity in this marketplace. But what about established companies? How can they continue to track developments and make sense of the marketplace? IKEA has had some success here as well. It turns out that some of that curiosity had found its way into organizational process. Entering the US market, IKEA found that what worked well in Europe (bed sizes in cm, smallish drinking glasses) did not work so well there. Designers, however, ventured to see how people lived and discovered not only, for example, an untapped and large Hispanic market, but also that decorative tastes would need to be adjusted (e.g., brighter palettes), which they did.9 Although learning came later rather than sooner, at least it happened, and quickly enough to make a difference. Crafting and nurturing these processes are especially important today. Companies operate in ecosystems, and these ecosystems are less like quiet meadows than fast moving rivers. New technologies, new tastes, and new competitors emerge with increasing frequency. Leaders need to develop systems to track these changes, to see the storms before they become hurricanes, to see the opportunities before others do. Effective leaders must manage to maintain a balance between honing the ruthless efficiency of daily operations and harnessing the unchained curiosity and interpretative spirit 9Huy,

Quy and Michael Jarrett. (2015). “IKEA: A Furniture Dealer.” INSEAD Case 01/2015-5831.

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of a super sleuth. This chapter will explore these and other key activities leaders need to be aware of and adept at in developing scanning and sensemaking capabilities in their organizations: • Casting a wide net—or spider’s web—to create a comprehensive search map for detecting threats and opportunities. • Gaining tolerance for living with some amount of confusion—to live inside the pressing questions so as to go from scanning to conceptualizing. • Becoming skillful at making distinctions and avoiding the disasters that come from mashing up rich detail into monochrome viewpoints. • Tracking and staying attentive to deviations from “normal” or commonly accepted dogma and doing the scut work of sifting through boring noise to find the “signal”. • Developing the long-term viewpoint of “Horizon thinking” that allows you to break free from stale strategic goals or frameworks and innovate for the long term: for the planet, for the people who make up the company, and for the product or service. • Building time for scanning and sensemaking into the daily work schedule. • Capturing a diverse array of viewpoints. • Learning from your “soon-to-be noncustomers” and other outsiders. • Aligning scanning and sensemaking closely to the strategic ­decision-making process to create a channel for execution.

Chapter 3—Building and Locking in Commitment to Strategy Capturing and interpreting new information are not enough—it would be like having an amazing defensive capacity in sport but not enough attacking action. To play with this analogy, consider Arsenal Football Club, perennially one of the top 4–5 clubs in English club football. Arsenal’s style or strategy of play has long been the “possession game”—basically, this means being greedy with the ball, controlling most of the possession, and so being cleverly defensive; the opposition cannot score if they don’t have the ball. Arsenal, however, is criticized for not doing enough with the ball, for taking possession during long periods of the game. In this way, they accumulate insights on the other team’s defensive play and weaknesses, but they don’t capture enough of the scoring opportunities that should emerge when you have the ball for so long. Hence, at some point you have to go on the offensive and pursue decisive actions. Building commitment to strategic action is

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essentially that. It’s about the processes that help take the ideas that you have collected through scanning and sensemaking and then making sure you have your organization behind you, in order to enact a new strategic path, and to move firmly onto the offensive. There are many approaches available to leaders when it comes to this process, which come down to four basic ones: (1) open, fully democratic mode; (2) procedurally just, although not entirely democratic mode; (3) soft power and influence mode; and (4) autocratic mode. The chapter on building commitment to strategic action will focus on types 2 & 3. This is for the simple reason that, on the one hand, a pure open and democratic mode is just not realistic in hierarchical business organizations particularly when it comes to strategic issues, and, on the other hand, a pure autocratic mode is almost certainly suboptimal given the complexity of most business contexts and the ongoing, deeper trend to temper hierarchy and engage employees. This leaves us with the two middle, and more realistic, processes, one more focused on democratic “pull” in enacting new strategies and the other more focused on moments where “push” and active shepherding may be necessary. Ikea’s story of commitment building is unusual in this instance because it involved relative outsiders, although they were vital for the early survival of Ikea. The furniture retailing distributors placed tremendous pressure on Ikea, partly by restricting Ikea’s access to the furniture fairs but mostly by threatening manufacturers if they worked with Ikea. Still, Kamprad managed to build enough of a coalition of suppliers to keep his business model alive, eventually expanding into Poland and heavily investing there to establish even more committed suppliers. Maintaining loyal suppliers in this environment would not have been an easy task, and almost certainly some level of cooperativeness and trust-building would have played a part. Building the kind of commitment to a business direction that can withstand centrifugal forces that may tear it apart takes a commitment building process that contains a great deal of procedural justice. But Kamprad, according to his former assistant, also wielded power from the top with profound effect, leveraging his detailed knowledge of Ikea products and operations and his unflappable public demeanor and ability to argue to get his way10: If someone sits tight and is difficult to convince he puts the questions directly to different people, depending on area of responsibility. Once he gets going Ingvar can keep a discussion going for hours. People look as if they are about 10Stenebo, Johan. (2010). The Truth About IKEA: The Secret Success of the World’s Most Popular Furniture Brand. London, UK, Gibson Square. Chapter 2 (Loc367 Kindle Book).

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to faint, need to go to the bathroom, perhaps want to eat. Not Ingvar. He stands in the middle of the group of people, with his hands together under his stomach and with an unmistakable smell of snus [Swedish dry snuff tobacco] around him. Only his thumbs move in circles. He listens, asks, argues, turns things around.

While these particular tactics are not necessarily to be condoned or disavowed, they confront us with a simple reality of leadership: wielding hard but also soft power is a fact of life in mobilizing new directions. In general, this chapter will offer two processes for mobilizing commitment to new strategic directions, one emphasizing the value of democratic “pull” while the other acknowledging that there are moments in the life of strategy that requires relatively more “push.” And you’ll come away better-versed in the following ways to accomplish the backstage political work of leadership: • Driving commitment to a strategic shift throughout the organization. • Working along the continuum of decision-making—to make decisions that are aligned with democratic processes and leadership on the one hand and a more autocratic context on the other. • Using a “Creative and Fair Process” to bring teams or entire organizations to commitment in fast but implementable ways. • Carefully diagnosing organizational problems. • Creating creative options collectively. • Using a “Courtroom model” to stress test ideas and winnow the good from the bad. • Knowing the difference between “decision-making” and “decision-taking” and how, as a leader, to do each effectively. • Using narrative and storytelling to deliver news of organizational change, bad news or unpopular decisions. • Paying attention to the social landscape of your workplace. • Finding “bridges” who straddle diverse disciplines and who naturally bring people and processes together.

Chapter 4—Handling Contradictions: The Structural Work of Leadership An Ikea store is a strangely seductive experience, something that many love to hate, finding themselves coming back again and again to move zombie like through a maze despite its “heaviness” and totality, the closet thing in retail

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to Disneyland. The model works exactly like this (and not “something like this” but pretty much exactly like this): stores are massive and with generous parking space; stores have a playroom for children near the entrance; customers walk through different home “lands” on display as they wind their way through the store, such as living rooms, bedrooms, kitchens, bathrooms and offices, at moments desperately glancing for the “short-cut” paths through the lands; at the end is a giant flatpack warehouse storing items in boxes ready for assembly where customers can use a hand truck to load up on products; an in-house, reasonably priced cafeteria style restaurant is found somewhere in the middle of this journey, as well as a small food specialty store featuring Swedish delicacies near the entrance/exit. Readers from any part of the world who have experienced an Ikea store will find themselves nodding with familiarity, and perhaps a bit of resignation. You could be parachuted to any store in the world and find the same model. As much as some enjoy ridiculing that long march through Ikea, the model is remarkably resilient and attracts people again and again. The company conducts commercial audits regularly on all the major parts of the store in order to ensure that best practices are followed.11 In other words, to make a strategy work requires a great deal of integration, focus, and commonality. Valuable customer experiences require preservation, and this requires a great deal of integrative work in the background. But the Ikea store concept may not have thrived if there wasn’t also room for some experimentation and autonomy—and here’s where the structural work of maintaining contradictions comes in. The rise in online retail, and particularly of giant Amazon, is threatening big-box retailing, and Ikea is the biggest “box” of all, with its 300,000 square foot stores. One of the biggest draws of online shopping is convenience, yet Ikea still offers that ­all-important customer experience. The thing is, time-conscious shoppers, especially in urban areas, were less likely to make day trips out to the suburban Ikea store to sit on that Ektorp sofa or see how that Docksta table looks in the living room. CEO Jesper Brodin had to think about how to retain that balance between the Ikea store experience and convenience. It was a bottom line imperative, too; between 2017 and 2018, Ikea saw a 40% drop in profits. Jesper Brodin, who took over as President of the Swedish retailer in 2017 also saw a gap between the company’s market share of 10% and its much higher brand awareness. Convenience and relevance were two foci in terms of filling that gap. The company announced the biggest restructuring in its history, which included laying off 7500 jobs and, vitally, opening 30 small city-center stores 11Ibid.,

Chapter 2.

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that are more like showrooms, in which a bed can be ordered, delivered, and assembled on the same day. The focus on home delivery added both delivery and assembly jobs, and Brodin’s Ikea also made assembly more convenient by purchasing online service provider TaskRabbit and acquiring a share in Traemand, which installs kitchens in North America. However, most important of all Ikea got serious about its online sales and launched a “Super App” in 2019, one that finally allows customers to purchase furniture online, something none of the company’s other apps would do (which did things like grab bar codes in stores or preview furniture in your home). With the focus on the addition of small urban stores and the development of an all-purpose shopping app, Ikea is declaring that both the in-person store experience, which makes consumers so in love with the brand, and the convenience of online shopping are important.12 Ikea found a way to balance what seem to be contradictory modes of operating: massive scale and local speed and flexibility. The processes for doing this are what Chapter 4 will be all about. Nonetheless, one must understand that doing “both” does not mean a 50/50 balance. Customer experience and customer convenience, autonomy and integration or the elements of any key contradiction, such as the short-term versus the long-term perspective, or a focus on exploration/ ­ innovation versus efficiency/exploitation, may have to shift in their relative importance as business conditions change. They have to be revisited from time to time and justified by the circumstances, and this means that avoiding dogma and ideologies to arise about “autonomy” or “integration” or substitute any element here being best is important. Handling a host of other contradictory forces may also require softer, behavioral work to allow these two modes to live in peace within any organization. This chapter will explore: • Untangling the dynamics of hierarchical and “near-decomposable” organizational subsystems and how to exploit the upside of hierarchies. • Discovering how backstage leaders successfully develop their organizations into “adaptation machines”—never freeing them from contradictions but resolving them. 12Chaudhuri, Saabira. (2019). “Inside IKEA’s Strategy to Stay Relevant as Consumers Change.” The Wall Street Journal, February 22. Retrieved August 26, 2019. https://www.wsj.com/articles/inside-ikeas-strategy-to-stay-relevant-as-consumers-change-11550852828; Kwun, Aileen. (2018). “5 Retail Lessons from IKEA’s Wild Year.” Fast Company, December 28. Retrieved August 22, 2019. https:// www.fastcompany.com/90281245/5-retail-lessons-from-ikeas-wild-year; Wilson, Mark. (2019). “IKEA Is Launching a New Superpowered Shopping App This Year.” Fast Company, May 29. Retrieved September 10, 2019. https://www.fastcompany.com/90355507/ikea-is-launching-a-new-superpowered-shopping-app-this-year.

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• Figuring out your organization’s time horizon—do you crave urgency over stability? Long-term views over short-term business rhythms? • Balancing collectivism and autonomy to further the goals of your particular organization. • Becoming an “ambidextrous” leader who can create equilibrium between exploration and exploitation activities. • Creating the shared senior leadership team vision that is necessary for spurring employees to both explore nascent opportunities and threats and to successes at hand. • Linking employee reward to encourage ambidexterity in them as well as senior leadership. • Shaping the workplace context so people can make better decisions about whether and when to focus energies on incremental gains or future opportunities.

Chapter 5—Harnessing the Silent Power of Culture and Norms The first three processes track the life of strategy in more or less a chronological order, as we might find them in cycles of strategic development: from dealing with the outside world and exogenous information (scanning and sense-making), to dealing with the focal ideas that emerge and building commitments around strategic directions (the commitment process ), to dealing with the key contradictions over the course of a strategy’s life, such as balancing autonomy and integration, or the balance between big, disruptive innovation and focused incrementalism (the structural work ). The next two processes are about the deeper background work that is necessary for sustainable strategic development. This is foundational work because it deals more closely with the soft tissue of any organization, the humans that work there, the ideas that they hold, and the skills and behaviors they develop. While this discussion will be more abstract, we will not lose sight of practice and application. The intent is still to establish practical actions and adaptiveness in organizations. It’s just that adaptiveness requires a better understanding of some fundamentals of human behavior. Chapter 5 will cover the ultimate foundation to any organization is its culture, the most silent and seemingly invisible stuff of which companies are made of. It’s important to keep in mind that organizations do not “have” culture as much as they “are” cultural. Companies are working assumptions and symbols whether they like it or not—the bigger question is always whether those assumptions work in support of the strategy or actively work against it, and how leaders leverage the good while exorcizing the bad.

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One of the lovely quirks about culture is that it can come from some of the most arbitrary and strategically innocuous places. Ikea’s famous first store in Almhult contained something that has nothing to do with furniture design or display whatsoever, a quirk of local culture and basic hospitality but that was to seed a wonderful part of the Ikea experience— somehow when the first store opened they arranged to have coffee and local buns available for the shoppers on the upper floor. Probably no one at the time thought of this as a maneuver to have shoppers stay longer or spend more money, and no one could have foreseen the way this simple hospitality measure would morph into the self-service restaurant concept that is famously part of the Ikea store model. This simple hospitality measure contains the seeds of customer-centric values, long before “customer-centric” became part of the management lingo. This idea—placing a focus on the customer experience and, literally in Ikea stores, their journey—appears to be a cornerstone of Ikea’s way of doing things and how it tries to add value. It is certainly “strategic.” The question is how can leaders get their hands around organizational culture, simply to understand it when cultures contain so much noise among some powerful cultural assumptions? Moreover, how can they change culture, how can they craft new assumptions and ways of thinking and that will remain in place over time? This chapter will provide insights into this abstract, but vital, puzzle of strategic development, a look at some of the most important ways in which the backstage and seemingly most “indirect” work of leaders shapes the organization. • Using Edgar Schein’s powerful three-layer approach for effectively dealing with the abstract conceptual territory of organizational culture. • Becoming an “anthropologist” of your organization and digging for the right “artifacts” in order to grasp the culture—from brand and image, to incentives and metrics and the nature of your organization’s physical space. • Courting and incorporating valuable outsiders’ viewpoints. • Surfacing the implicit, unspoken but evident assumptions that are key leverage points in organizational life. • Applying a “valence filter” for sensing what company artifacts have positive and negative implications for your organization’s competitive advantage. • Making the distinction between universal core culture values and ones that align with your organization’s strategies.

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• Choosing the levers that will shape behavior and experience, from compensation, sanctions, and meeting rules to financial reporting, training and development and leadership communications. • Spurring cultural disruption with symbolic acts and by targeting and replacing specific habits and routines.

Chapter 6—Developing Talent and Capabilities The “Model Lovet” was a small triangular, leaf-shaped table sold by Ikea in the earliest days of its catalog. One day a young advertising draftsman by the name of Gillis Lundgren, who had been photographing the table for the catalogue, had a dilemma.13 He had to return the table to the manufacturer, but there was no way to squeeze the table into the boot/trunk of the car. He decided to saw off the three legs and place them under the table, so that the table could be packed flat into the boot. Rather than firing Gillis for sending back the “Model Lovet” in pieces Kamprad saw genius in the works—the leg-cutting idea morphed into flat-packed furniture designs, a cornerstone of Ikea strategy. Moreover, and much more importantly, Lundgren continued to build the Ikea legacy, managing a design team that was responsible for the famous line of “Billy” bookshelves, a widely popular Ikea item, and the Ikea “Klippan” sofa. Kamprad didn’t just find and retain a talented individual—someone who was competent in core tasks, inventive at times, and hopefully disciplined in conduct. He found someone who could give Ikea an edge in developing the strategy, someone who could shape the future and develop further capabilities inside the organization. In another example, consider one of the most powerful industrial designers alive today, Sir Jonathan Paul “Jony” Ive. Unless you’re a tech or Apple geek, Ive’s is not a household name; yet, many households across the world contain one of the products that he helped design— the iPod, Macbook, iMac, iPad, and the ubiquitous iPhone (which in Q1 2015 captured 92% of the world’s smartphone profits).14 Ive was a part of

13Huy, Quy, Michael Jarrett and Lisa Duke. (2015). “How IKEA’s Strategy Was Formed.” INSEAD Case 01/2015-5833 (p. 4). 14Ovide, Shira and Daisuke Wakabayashi. (2015). “Apple’s Share of Smartphone Industry’s Profits Soars to 92%.” The Wall Street Journal, July 12. Retrieved December 10, 2019. http://www.wsj.com/articles/ Apples-share-of-smartphone-industrys-profits-soars-to-92-1436727458.

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Apple’s design team in the mid-90’s and nearly left the company prior to Steve Jobs’ return in 1997. His boss Bob Rubinstein gave him a pep talk, raise and promotion, so Ive was retained and promoted to senior VP of Industrial design.15 Like Lundgren, Ive was tapping into the future and an area around which a major strategic capability could be developed. In Apple and Ive’s case, the future was the central place of design in the product strategy, and particularly designs that were clean, simple, and aesthetically pleasing, candy to the mind. Jobs may have seen in Jony Ive a like-minded individual, or, more likely, “spiritual partner,” but he was to become much more than that, the seed of capability development that is important for strategy development. This chapter will examine processes for not only recognizing and developing top talent, but also developing top talent that help build the strategy and provide a capability base for the future. You will encounter such topics as: • Learning how global brands like Barcelona FC and Microsoft succeed, stumble, and pick themselves up when it comes to the backstage work of capability development. • Developing strategic jobs rather than superstar talent. • Keeping unspoken management biases from influencing key hiring decisions that will help your organization achieve its performance goals. • Co-owning the talent-development system rather than handing it off to HR. • Shaping the networks of your managers and budding leaders. • Banking on three qualities that distinguish the new, huge crop of millennial employees from other generations.

Chapter 7—Back to the Front: Foundational Leadership Traits and Skills Let’s consider a little further one of the great contributions of Ikea to retail—the “some assembly required” flatpack designs. As a business proposition, this proved to be huge: space saving due to better inventory optimization, convenience as customers hefted their own boxes into cars or even those gargantuan, durable blue IKEA bags, and almost immediate

15Fiegerman, Seth. (2013). “10 Things You Didn’t Know About Apple Design Chief Jony Ive.” Mashable, November 6. Retrieved December 10, 2019.

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gratification (albeit, with some time spent twisting the screwdriver and turning the Allen key). But what we have to remember is that back in 1953, when the flatpack concept was launched, this was a scary thing to consider. It was not at all certain that customers would want this, or that Kamprad would tolerate this. It was, in its essential form, a question of fear and risk-taking as much as anything else. The fact is that some companies, or rather leaders, are simply better at creating the emotional foundations for adaptive work and positive strategy building; others are decidedly not. This final chapter will consider some of the “direct,” mid- if not frontstage work of leadership. That is, once we have gained some safe distance from the familiar harbors of traditional leadership models over the last century (traits, styles, personality factors, etc.,) and considered the various backstage processes that leaders need to develop, nurture, and manage, it may be “safe” to draw attention to the more direct, psychological and emotional, work of leadership. I want to emphasize once again that frontstage leadership is not “wrong,” only that it needs to be balanced with backstage, indirect leadership work, for which not enough credit or foresight has been given in the management literature. If you spend too much time frontstage, you may become intoxicated with that presence and overly focused on issues of style. Similarly, if you spend too much time backstage, you may become camera shy and overly focused on issues of process, falsely believing that you can run an organization much like a marionettist runs a puppet show. In this final chapter, the idea is to look at a few of the emerging powerful ideas that are most relevant to effective direct leadership behavior and its development. More importantly, what I will show you is how some of the most powerful “front stage” leadership traits are actually vital and supportive of backstage leadership.

The Leader’s Real Work With so much focus on broader processes in what we have described above, especially as we progress from external-focused process work to building deeper cultural foundations, it’s perhaps easy to lose sight of the leader. Once again, leadership is vital in this work. It is vital because the work of “corporate plumber” is no easy task. This is because these processes are not conventionally associated with the job of the heroic business leader at the front of the stage, but rather this is about work that focuses on the “background” and which is often one or two steps removed from the things commonly associated with “real” senior leadership, such as financial statement screening, setting ambitions, dealing with investors and analysts, vision

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setting and public speaking. The cynical view of this conundrum—being absorbed by frontstage work to the detriment of the organization—is well captured by the comical quip someone once made about the executive career track—As people rise up through management, they know less and less about more and more, and then when they become the CEO they know almost nothing about absolutely everything. It doesn’t have to be this way. Some leaders, even while doing the frontstage work of business leadership, are mindful of the background processes that make their organizations function, and they have an uncanny ability to maintain, develop, and most of all leverage these processes in the service of building a sustainable strategy. Such leaders are part psychologist and part sociologist because they are able to see things deeply in their organizations that have a bearing on their strategy, and while this ability is not magic it relies on a special appreciation of their immediate world, a knowledge and skill that is no less valuable than being a visionary in the realm of technology, economics, and broader cultural development. Certainly, the world needs visionary leaders, but like the entrepreneur and co-founder of INSEAD, General George Doriot, once said, “Without action, the world would still be an idea.” It’s a short quote, which has remained a tagline for the business school, but what Doriot recognized was the importance of organizational processes in developing those ideas and strategies, processes which we can consider to be the most valuable of leadership “actions,” the things business leaders must truly understand and develop in order for organizations to have a chance of thriving. Plumbing work is not always exciting, but it is vital, and when done well, actually a bit magical.

References Dahlvig, A. (2011). The IKEA Edge: Building Global Growth and Social Good at the World’s Most Iconic Home Store. New York, McGraw-Hill Education. Galunic, C. (2008). “Leadership, Culture Change and Transformation at AVIVA: Norwich Union Insurance.” INSEAD Case 03/2008-5502. Huy, Q. and M. Jarrett. (2015a). “How IKEA’s Strategy Was Formed.” INSEAD Case 01/2015-5833. Huy, Q. and M. Jarrett. (2015b). “IKEA: A Furniture Dealer.” Insead Case 01/2015-5831. Litterick, D. (2003). “Vivendi Snatches Record for French Losses.” The Telegraph. Lizzy, D. (2010). “Former Vivendi Boss Messier Admits Making ‘Mistakes’ as He Faces Fraud Trial.” The Guardian.

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Pascale, R. T. and E. T. Christiansen. (1989). “Honda A and Honda B.” Harvard Business School Case Study. Stenebo, J. (2010). The Truth About IKEA: The Secret Success of the World’s Most Popular Furniture Brand. London, UK, Gibson Square.

2 Scanning and Sensemaking

Despite the important role of organizational processes and behavior (OB) to this book, we have to come clean from the start with a basic truth: Even good OB won’t save bad strategy. The links between the two are so strong that the converse is true: A great strategy is likely to be undone and proves unsustainable by terrible OB. We will leave aside for the moment many of the detailed implications of this connection—not least that OB comes in more flavors than “vanilla” and organizational design decisions need to take into account the nature of the strategy. Yet, one useful starting point that might sound like a Zen koan or riddle is that every competitive undertaking requires a good “starting point,” a good strategic direction and that a poor strategy may not survive even in a vibrant, growing industry. This was far from obvious not so long ago—there is a long tradition of Industrial Organization (I/O) Economics research that pointed to significant differences in performance and profits purely because of the structure of the industry (e.g., level of competition or concentration, barriers to entry, etc.), never mind the quality of the managers. But the view today is much more balanced—we recognize the importance of business-level conditions, and this includes the quality of the strategy. You could have the finest managers available on the market, and an amazing market full of growth opportunities, and still fail. For example, trying to compete with better handset mobile devices—as Nokia did—when the key category of distinction became superior software and platform thinking was going to lead to disappointment, and this despite the fact that the smartphone industry in the mid-2000s was set for an amazing, out-of-this-world growth

© The Author(s) 2020 C. Galunic, Backstage Leadership, https://doi.org/10.1007/978-3-030-36171-6_2

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period. Failure also came despite the ability to hire the “best of the best” managers, as Nokia almost certainly could in the run-up to the smartphone boom.1 So, while this relationship is not unidirectional and a great strategy can unravel with bad OB, let’s start with the premise that there are better and worse strategies, and that this makes a big difference to performance— it’s not just the industry and not just the quality of daily management.

What Is “Good” Strategy, Really? Fortunately a former colleague Richard Rumelt has spent a good deal of time discerning good from bad strategy.2 At the risk of oversimplifying, Rumelt says that bad strategy amounts to impressive statements of ambitions and goals, but little else. It’s what happens when strategy is reduced to financial or market objectives and packaged mainly for external consumption—“our strategy is to be the market leader and most trusted brand for our customers, to deliver superior products, excellence, and outstanding value, to grow to new heights and produce sustained shareholder value. Simply put, our strategy is to be Number 1 in the core markets that we serve.” Although exaggerated, some version of this strategy statement is probably familiar to you, a superlative-laden but no less generic and vacuous strategy script that could apply to many settings. We could take a step further and give this statement some flavoring—and strategies for a long time have come not in one but two flavors, chocolate (“we will offer the best quality and technical performance”) and vanilla (“we will offer the lowest price”). But even with these flavorings, these statements tell us little about the real strategy. What is a good strategy then? Once again, at the risk of oversimplifying the thoughtful work of Rumelt, I will focus on one aspect in particular. A good strategy has a generous articulation of the context, of the perception of value in the market segment being targeted and the scope of games that can be played in order to deliver that value. Bad strategy statements, on other hand, are ones which are ultimately of little conceptual worth, and this is mostly because they are relatively context-less. They provide no good read on the sources of value and the nature of advantage. 1Vuori, T. O. and Q. N. Huy. (2015). “Distributed Attention and Shared Emotions in the Innovation Process: How Nokia Lost the Smartphone Battle.” Administrative Science Quarterly 61(1): 9–51 (p. 29 footnote). 2Rumelt, R. P. (2011). Good Strategy Bad Strategy. New York, Random House.

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Let’s look more closely at what Rumelt calls the kernel of a good strategy, which he boils down to three main elements3: – “A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical. – A guiding policy for dealing with the challenge. This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis. – A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy.” These form the “kernel,” because they are the central players in the construct we call strategy—there are other parts (mission, vision, scope, objectives, etc.), but ultimately these rely upon the presence of an energy source, the thoughts and arguments that lay bare the actual value and advantage to be had. Rumelt used the example of 3-D graphics chipmaker Nvidia as a company that went from laggard in 1995 to market leader a dozen years later by embracing each of these key elements of good strategy. Nvidia’s simple diagnosis was “We are losing the performance race,” so the CEO JenHsun Huang’s guiding policy for dealing with this situation was to “release a faster, better, chip three times faster than the industry norm.” The coherent actions Nvidia took to bring the guiding policy to fruition included forming three chip development teams with overlapping schedules and investing in huge, efficient facilities fabricating chips and software drivers. Nvidia overtook competitors Intel and 3Dfx to be named “Company of the Year” by Forbes in 2007.4 Think of a sci-fi film in which these giant intergalactic spaceships and stations are ultimately fueled by some tiny, glowing precious object in the center of the ship. Like these sci-fi radiating energy sources, we have the kernel of a strategy—they pretty-much fuel the rest. In the above definition from Rumelt, the italics are in the original, but I have underlined portions to highlight the kernel within the kernel, namely a deep read and appreciation of context. This context includes the “aspects of the situation,” which create the potential for value creation, the methodology or “overall 3Ibid.

(Chapter 5: TITLE AND PAGE #s). Richard. (2011). “The Perils of Bad Strategy.” McKinsey Quarterly 1(3): 1–10, June. Retrieved August 19, 2019. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/ our-insights/the-perils-of-bad-strategy.

4Rumelt,

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approach” that must specifically tackle those “obstacles identified,” which we sometimes call customer pain points, and, ultimately, the “coordinated” actions that must work together to deliver and capture the recognized value. Doing this involves looking outside the organization, but it includes making the connection to the inside, to the possible actions an organization can connect and carry out from bringing core processes, such as this first one, scanning and sensemaking, to bear. Today more and more leaders are starting with a careful, critical, and creative read of the strategic context, but they are not necessarily leaders of incumbent firms. The leaders who “get” context are more likely to be associated with what we colloquially call “disruption,” in the form of new companies, or companies not traditionally associated with an industry. Disruptors sense something different in that industry, a new potential for value creation. Consider two examples, both in old-school, well-established industries, one in entertainment services, and the other in automobile manufacturing. Netflix invents Binge-watching—Netflix is a massive video entertainment company, and yet it owns no conventional movie-making or distribution infrastructure (e.g., cinemas). It recognized earlier than most not only that technology would soon be available to comfortably stream large video files to people’s homes, but, perhaps more importantly, CEO Reed Hastings and Chief Content Officer Ted Sarandos identified an inefficiency when lining up programming and considering short self-contained sit-coms vs. hour long dramas with seasons’ long story arcs. For the latter they realized viewers found linear TV watching annoying—patiently waiting during the week for a favorite TV show or film to be broadcast and then hoping to get to the TV in time to watch, then sitting through a dozen or more minutes (for a one hour show) of commercials, most of them seeming to have little to do with you. And in fact this realization has a lot to do with one of the tenets outlined in the by-now famous Netflix “Culture deck,” created by Hastings and Chief Talent Officer Patty McCord, that stipulates Context vs. Control, particularly apt for the scanning and sensing backstage leader. McCord says that learning how to “set context” for people is one of the most effective leadership traits. The more you see yourself as a teacher rather than a teller or permission-giver, the more effective your team will be. The idea of context is really, really important. Who are our competitors? Where are we at? …What feedback are we

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getting from our customers? Who are they? How do we stay in touch with them? How do we send out involvement? Just constantly keeping people informed.5

Netflix employees sensed that the confluence of technology and consumer behavior was ripe for a new way to access our favorite programming by having it available to stream all at once. Its algorithms also help viewers discover other, related content they may enjoy, including new content they are now developing. In this way, the company recognized consumers’ new appetite for “binge-watching” TV series that they may have missed the first time around. For instance, Netflix realized that becoming the streaming syndicator for the once big-hit Mad Men and past seasons of similar shows solved the inefficiency of TV watching and was a boon to consumers who wanted to “catch-up” in a hurry. Binge-watching took off; during peak times, Netflix can account for about 1/3rd of all Internet traffic.6 Tesla Model 3 Overtakes Luxury Rivals—Tesla still manages to be the darling of the automotive world, despite production and delivery setbacks with most of their models. That it still captures so much attention and goodwill is a testament to the strength of its vision and insight into our love affair with “cars”—not transportation, not things green, but cars. Deliciously designed, heart-poundingly accelerated, cars. Early founders Martin Eberhard and Marc Tarpenning were “looking for a problem,” as Marc Tarpenning described it when speaking to one of my executive classes. The problem was our world’s over-reliance on fossil fuels and the negative environmental and political spillovers this created. Their painstaking research and reasoning eventually brought them to the realization that lithium-battery power was moving in the right direction, at the right speed, and would be a viable source of energy for cars, providing impressive ­“well-towheel” efficiency compared to not only fossil fuels but also other rising alternatives, such as ethanol, fuel cells. Plus car manufacturing had developed into a staggering ecosystem—there is very little of the various parts that go into a car that could not be purchased through this global supply chain.

5Kruse,

Kevin. (2018). “Netflix Culture Deck Co-Creator Says Leaders Need to Explain Context.” Forbes, February 19. Retrieved August 21, 2019. https://www.forbes.com/sites/kevinkruse/2018/02/19/ Netflix-culture-deck-co-creator-says-leaders-need-to-explain-context/#bb3528b590c2. 6Nocera, J. (2015). “Can Netflix Survive in the New World It Created?” The New York Times Magazine. New York Times (New York), June 15. Retrieved December 10, 2019. https://www.nytimes. com/2016/06/19/magazine/can-netflix-survive-in-the-new-world-it-created.html.

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Beyond the technology, however, they noticed something else. Electric cars, while being offered in 2003, were targeted to technology and environmental enthusiasts, and some of the designs and performance were truly awful. So while many more drivers than just enthusiasts would be interested, or at least curious, in a purely electric vehicle, they were not willing to give up on style and performance. The market was ripe for an electric car that wasn’t in a separate category to, say, BMW, Mercedes, Lexus, or Cadillac, but that did the things these cars do using clean, recharge-over-night, ­gasoline-free technology and with the bonus of a no-haggling, transparent online sales process. Eberhard, Tarpenning, and soon afterward Elon Musk sensed these forces. His strategy, as he says all along, was to enter the market at the high end, at which customers are happy to pay a premium, and then, with each successive model, push for higher unit volume and lower prices. Musk accomplished this strategy with the Model 3 by hiring ever more workers, going through what he called “production hell,” and incurring massive losses, but he created what is a historic moment in automotive transportation. Tesla’s Model 3, the company’s first car midsized car and its first targeted at middle- and upper-class families with a price tag of $35,000, outsold luxury competitors in 2018, including BMW, Mercedes, Audi, Lexus, Alfa Romeo, and Jaguar. The electric car industry is, however, still in its infancy and there have also been some storms for Tesla of late-the next part of their story is far from clear, and the entire industry is being challenged, but we should at least expect Tesla to continue to reach toward disruptive ideas (big improvements in autonomous driving, Internet of things connectivity within the vehicle, etc.).7 Netflix and Tesla are just two of the companies that have managed to scan and sense new opportunities in the environment. Here are others that have been heralded for throwing out the gossamer strands of their scanning spider webs and capturing previously unexploited opportunities: Airbnb—the other iconic story in disruption is this leading accommodation provider (without the real estate) that saw that many of our properties are underutilized resources and that with the rise of the sharing economy, we would be willing to rent from each other. Rent the Runway—also capitalizing on the dwindling lack of cache in ownership, Rent the Runway bet that consumers would rather not shell out 7Baer, D. (2014). “The Making of Tesla: Invention, Betrayal, and the Birth of the Roadster.” Business Insider, November 11. Retrieved December 10, 2019. https://www.businessinsider.fr/us/tesla-the-origin-story-2014-10; Dans, Enrique. (2018). “Tesla, The Model 3…And the Market.” Forbes, August 4. Retrieved December 10, 2019. https://www.forbes.com/sites/enriquedans/2018/08/04/ Tesla-the-model-3-and-the-market/#1cc6906577ed.

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$1200 to own a Christian Siriano dress but rent one for $150, make a fab impression, and send the dress back in a prepaid envelope three days later. The Harvard grad founders have since expanded to curated capsule collections from 39 brands—why not rent your wardrobe?—and home goods as well. WhatsApp—now owned by Facebook, this international messaging app found opportunity in tapping mobile data channels, instead of expensive SMS, for peer-to-peer messaging, and with easy onboarding, security, and no advertising. Duolingo—once the standard of achievement for mastering English as a Foreign language the TOEFL test has been disrupted by Duolingo, a language learning app that offers online instruction in 30 languages for free, including English, and the replacement of the costly $250 TOEFL test with one that costs only $49 and has won acceptance by top universities and institutions.8 BlaBlaCar—while ride-sharing companies like Uber and Lyft have garnered attention, French long-distance ride-sharing company BlaBlaCar scanned its environment long before them to solve the “empty seat problem,” for Europeans commuting long distances, often between different European cities. In 2003, three co-founders launched a platform that would allow cash-strapped young people to share rides securely. Unlike with Uber and Lyft, BlaBlaCar drivers don’t make a profit and are discouraged from doing so; they recoup their costs, nothing more, while BlaBlaCar takes an 11% cut of amounts paid, and BlaBlaCar passengers pay 79% less than a rail ticket for the same trip. In 2018, it had over 50 million users.9 Who knows where these companies eventually end up? Exogenous shocks will emerge, presenting new challenges-like the Coronavirus, which may create greater uncertainty around the “sharing” economy. Yet, what is undeniable is that they have developed strategies because of some penetrating insights into the context—the markets, technologies, and consumer behavior around them. 8CNBC.

(2019). “Meet the 2019 Disruptor 50 Companies.” May 15. Retrieved August 19, 2019. https://www.cnbc.com/2019/05/15/meet-the-2019-cnbc-disruptor-50-companies.html. 9Gannes, Liz. (2013). “Europe’s BlaBlaCar Has Created the Purest Version of the Sharing Economy So Far—And It’s Working—All Things D.” The Wall Street Journal, December 2. Retrieved December 10, 2019. https://techcrunch.com/2018/09/24/BlaBlaCar-is-on-the-path-to-profitability/; More on BlaBlaCar: Brewis, Kathy. (2017). “Harnessing the Winds of Change: BlaBlaCar.” London Business School, July 17. Retrieved December 10, 2019. https://www.london.edu/lbsr/ iie-harnessing-the-winds-of-change-BlaBlaCar.

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Dynamic Capabilities and Scanning To recap, I have argued so far that (a) good versus bad strategies are more important than we may acknowledge to performance, (b) the “kernel within the kernel” of a good strategy is seeing novel sources of value within a strategic arena, and (c) the leading disruptive companies of our times seem to have done this well. The rest of the chapter will examine what this means for incumbent companies, and for incumbent managers, who have daily duties that capture their attention and energy. After all, established managers simply do not have the time to work in a purely free-wheeling, entrepreneurial fashion, yet, all the same, they face the key issue of tracking storms and finding the next opportunity. Let’s look at some foundations in management theory and research to this scanning work. There has been a lot of ink and pixels spent on the topic of “dynamic capabilities” in strategy and organizational academic circles in the past two decades. The search term produces over two million hits in Google, about three times more than “cheap flights to vegas” and roughly the same order of magnitude as “The Big Lebowski.” David Teece defined the concept in 1997 as, “the firm’s ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments.”10 The basic idea of dynamic capabilities is simply to “do stuff that creates new competitive advantage,” but the devil is in the details, as we will see. Organizations are full of routines—repetitive sequences of thought and action that get work done within organizations. You know these well and use them every time your company holds a committee meeting, fulfills a purchase order, hires an employee, merges two departments, and so on. For our purposes, there are three things to note about routines. First is that they are the cornerstone of productivity because they are fundamentally about specialization. By definition, they are things that we do repetitively and so, normally, we should gain proficiency through repetition. The first time a manager holds a brainstorming session incorporating design-based thinking or agile teams, for example, may feel awkward and clunky, but by the 100th time it should feel more natural, work faster, and basically be more efficient. Second, they involve groups of individuals. The most interesting routines are ones that connect various pieces of ­lower-order work—not less important work, but work that forms a building block for larger processes.

10Teece, David, Gary Pisano and Amy Shuen. (1997). “Dynamic Capabilities and Strategic Management.” Strategic Management Journal 18(7): 509–533.

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Product development is a good example of a very large “meta” routine that is made up of many smaller routines; they’re modular. Finally, routines can also involve “not-so-routine” work, such as change, innovation, discovery, exploration, and so on. So, we can distinguish ordinary routines, which tend to have higher frequency and more to do with maintaining, or incrementally improving, the way things work, from higher order routines.11 Dynamic capabilities are about these higher order, innovation-oriented, transformative, and future-proofing routines that happen less frequently and are fundamentally about substantial dynamism and change. The irony, and the fascination, of dynamic capabilities is that firms can have enduring, repetitive, systematic routines for the express purpose of generating something with value that will inevitably have an expiry date, is a unique outcome (i.e., a once-off creative path), and requires big doses of creativity. That successful, innovative firms have these “dynamic capabilities” is generally an accepted fact by now, and so when we consider what is probably the poster child for a resilient, re-inventive organization—Apple— it is safe, and easy, for academics and journalists to assume that Apple has some enduring, repetitive, systematic behaviors and thinking which allows it to disrupt and not be disrupted. But the problem has always been to define these dynamic capabilities more precisely, to move from abstract, ­“they-must-be-there-because-we-can-see-their-shadows” thinking to actually articulating the building blocks of these routines. It is, in many ways, the search for the fountain of youth within strategy and organizational research. After all, what business leader would not want to attend a course or read a book on “Everything you wanted to know about keeping your company relevant and successful forever!”? The good news is that coherence has been accumulating as to what dynamic capabilities actually look like, and the most coherent yet concise description I can offer is that dynamic capabilities have a lot to do with recombinant thinking, that is the capacity to reuse existing resources but in novel ways, to meet new and emerging needs in the marketplace.12 In fact product development engineers and researchers Jacob Goldenberg and Rom Y. Schrift studied past product launches in multiple 11Teece,

D. J. (2007). “Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance.” Strategic Management Journal 28(13): 1319–1350; Teece, D. J. (2012). “Dynamic Capabilities: Routines Versus Entrepreneurial Action.” Journal of Management Studies 49(8): 1395–1401. 12See Galunic, D. C. and S. Rodan. (1998). “Resource Recombinations in the Firm: Knowledge Structures and the Potential for Schumpeterian Innovation.” Strategic Management Journal 19(12): 1193–1201; Galunic, D. C. and K. M. Eisenhardt. (2001). “Architectural Innovation and Modular Corporate Forms.” Academy of Management Journal 44(6): 1229–1249.

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industries to reveal that 70% of successful innovations followed one of five distinct patterns and less than 20% of failures contain them. They advise thinking “inside the box,” rather than outside; these patterns or templates spring from looking closely at components and attributes of existing products to come up with new ones. For example, by multiplying components of an existing product, in this case Gillette’s disposable razor, the company created the Trac II razor in 1971, showing how one blade lifts the hair, while the second blade cuts it. They multiplied existing components again in 1998 to create the Trac III, the world’s first triple-blade razor. This time the first blade lifted, the second cut, and the third cut even closer, giving the company a reputation for giving consumers the “closest shave.”13 There has been some good conceptual work done on describing the practical foundations of dynamic capabilities,14 but I don’t think we will ever be able to refine dynamic capabilities into a simple recipe. There will always be the need for managerial discretion and judgment, but also wading through a diverse set of underlying routines and thinking, in other words a good deal of complexity. There is also the inherent tension between dynamic capabilities—doing the right things—and ordinary routines, which are about doing things right. These activities are in enough opposition that the job of making the company successful in the short-run acts as a brake on making the company successful in the long run, but maintaining that balancing act is inherent to successful backstage leadership work, a key theme for our chapter on managing contradictions (Chapter 4) and one that we will return to.

Spinning Your Spider’s Web One of the bedrocks of dynamic capabilities is the capacity for scanning. In most models of dynamic capabilities, it is the starting point. Scanning is the equivalent of a spider’s web—multiple vectors of inquiry (listening and engaging) that capture strong but also weak signals in the environment about the future. The key issue is the ability to sense weak signals, the signals that are not obvious and that others are likely to miss. Spiders, with notoriously poor vision, don’t rely on sight but on sound and vibration frequencies to 13Goldenberg, Jacob. and Rom Y. Schrift. (2018). “Go Forth and Multiply: Unlocking Successful Innovation.” Columbia CaseWorks Case: 190501. 14Eisenhardt, K. M. and J. A. Martin. (2000). “Dynamic Capabilities: What Are They?” Strategic Management Journal 21: 1105–1121; Teece, D., M. Peteraf and S. Leih. (2016). “Dynamic Capabilities and Organizational Agility: Risk, Uncertainty, and Strategy in the Innovation Economy.” California Management Review 58(4): 13–35.

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detect movement changes as fine as 1/1000th the width of a human hair.15 Presumably, there is very little that happens within a spider’s web that the spider would not detect. Scanning requires, then, managers to craft search maps and ongoing routines for enquiry and the detection of possible novelties (threats and opportunities). You will not be performing classic “R&D” work because scanning tends to involve cultural and behavioral trends and is rather more inductive rather than deductive. It clearly has something to do with what we defined as the “kernel of the kernel” of good strategy, which is the ability to unpack and understand your strategic arena. Where to begin, then? Here are some basic scanning steps managers can take from the backstage: 1. When you develop a comprehensive search map, you should cut a wide swath and include many categories, such as: • Science institutions (universities, labs); • Customers (from extreme to average users, in shops or on social media); • Competitors; • Trade associations and conferences; • Analogous organizations/substitutes (i.e., noncustomers); • Suppliers; • Regulators; • Demographics; • Political and public policy changes. 2. Make a judgment call on the frequency of engagement across the different categories in your search map (yearly, monthly, weekly, daily—because you cannot afford to be in “pure” entrepreneurial mode in all areas at all times) and build a process that duly links these enquiries back to your strategic decision-making. Good scanning is notoriously difficult and for the same reasons that forecasting and human decision-making are notoriously difficult and prone to failures. This was the case for Nokia, which certainly did scan the environment and would have been at least aware of the software and

15Arnold, Carrie. (2014). “Spiders Listen to Their Webs.” National Geographic, June 5. Retrieved December 10, 2019. https://news.nationalgeographic.com/news/2014/06/140605-spiders-silk-webspluck-string-vibrations/#close.

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platform-thinking storm that was building in Silicon Valley and yet that wasn’t enough.16 Mastering scanning routines in fact have less to do with the act of scanning per se and more to do with other topics in OB and its related kin, such as decision sciences and forecasting. The most important topic, too often disconnected from the work of scanning, is the field of sensemaking.

Combining Sensemaking with Scanning to Track Trends and Occurrences Let’s take a short step back and consider the ultimate question behind this chapter—the sourcing of new strategies. One line of academic thinking that is seldom spoken of in polite executive circles is that, actually, there is very little management choice involved, that leaders are almost completely constrained by the ecological forces surrounding their industries, or as one study summarized this view: “managers matter only as seamless conduits of plans based on matches between organizational capabilities and environmental conditions.”17 This view posits managers are “rubber stamps” with their new market entry decisions completely guided by some powerful matching logic, namely the match between the capabilities of the company and the nature of the threat/opportunity, along with some pretty basic and widespread motivations, such as to foil rivals. This may feel insulting to practitioners, being reduced to a mere clerk caught within evolutionary forces, but it’s not so crazy if we think of the vast multitude of strategic decisions that companies have made over their lifetimes—not just the headline-grabbing ones that make it to the press—and so Honda, which has a core competence in engine design, has naturally entered many markets that require combustion engines, everything from small inline 3-cylinder engines for light vehicle duty, to powerful V6 and V8 IndyCar series engines, to engines for motorcycles, ­all-terrain-vehicles, watercraft and marine vehicles, even a light business jet engine and an engine for lawnmowers. Honda’s strategic logic could be seen to be driven by its core (legacy) capabilities. If we take this viewpoint seriously, we have now reduced the entire scanning process to a mere economic matching algorithm, a supply-demand calculation. 16Vuori, T. O. and Q. N. Huy. (2015). “Distributed Attention and Shared Emotions in the Innovation Process: How Nokia Lost the Smartphone Battle.” Administrative Science Quarterly 61(1): 9–51. 17Eggers, J. P. and S. Kaplan. (2009). “Cognition and Renewal: Comparing CEO and Organizational Effects on Incumbent Adaptation to Technical Change.” Organization Science 20(2): 461–477.

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But considerable research tells us that this way of thinking is simplistic and imprecise. It turns out that how managers “think,” how they interpret and make sense of the conditions that they scan, matters a lot to this process of sizing-up their different contexts and making strategic bets. Let’s take a famous example from this literature, the case of Polaroid.18 Polaroid was synonymous with instant photography and an iconic design, with the photograph emerging from the front of the camera ready to go— with the image developing in front of your eyes over the course of a minute or so, the process was as fascinating and delightful as the image itself. Founder Edwin Land launched his first “Land” camera in 1948 and developed multiple iterations of his camera and film while running the company, until he stepped down in 1981. Polaroid was technologically advanced, with Land earning hundreds of patents and developing strong pillars not only in areas such as optics and electronics, but also in manufacturing, which were brought in-house, allowing Polaroid to become exceptional at assembling precision parts, and distribution; Polaroid understood early-on that mass market retailers, not speciality shops, would extend the reach to consumers, as long as the cameras continued to deliver Apple-like simplicity to users. As one executive said of the Polaroid culture “What we are good at was major inventions. Large-scale, lengthy projects that other firms would hesitate to tackle.”19 During those golden days, Polaroid enjoyed an average compounded sales growth of 23% per year. By the mid-1980s Polaroid’s inventiveness tapped a new arena developing in the electronics age and with obvious ties to its core business: digital imaging. True to its strong technological roots and capabilities, Polaroid approached this space with commitment and fascination: The new CEO was dedicated to the cause, they formed a separate group, and they invested tens of millions in capital and an operating budget, they hired new experts in micro-electronic R&D work, and within 10 years Polaroid achieved a patent for a digital camera system with an accompanying printer. The resulting technologically impressive design was such that Polaroid’s sensors could achieve over three times the number of pixels of resolution compared to the majority of the competition. Eventually, they provided a marketing, not just technological, emphasis to this emerging unit, and so the unit’s leaders could begin to conceive of the digital imaging experiencing in a new way. Polaroid 18[An excellent research paper on this story] Tripsas, M. and G. Gavetti. (2000). “Capabilities, Cognition, and Inertia: Evidence from Digital Imaging.” Strategic Management Journal 21(10/11): 1147. 19Ibid., p. 1151.

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should have been set-up for an incredible future. Remember, this is about 10–15 years before the smartphone revolution in the early to mid-2000s, a revolution that included the realization that digital imaging (and storage and sharing, not just printing) was big sources of happiness in consumer electronics, something people would love to see available in any “gadget” that accompanies them through daily lives. It’s no wonder one of the big selling features of each successive launch of the iPhone or Samsung Galaxy is the power of the camera and beauty of the images. In fact, who’s to say that the gadgets we call today “smartphones” could not have been called “smartcameras?” In that world, the core technologies around imaging, including presenting that image on some sort of smartscreen, are eventually joined by calendars, PDA elements, telephony, and of course messaging. But that world didn’t happen, and it has a lot to do with managerial cognition, how the senior leaders at the time made sense of the world around them. The story of Polaroid’s eventual demise goes like this. Senior leaders conceived of a business model for this new technology that emphasized “instant print,” meaning that the whole point of digital imaging, while it simplified image taking by having no film in the camera, was that it had to result in instant, high-quality physical images. These, in turn, would result in the sales of photo paper, ink, and similar consumable materials. The money, they believed, would be in the consumables, not in the hardware, what is commonly known as the “razor/blade” business model (sell the razor cheap, make money on the blade). This was a fundamental and strong assumption in Polaroid senior ranks, what one employee called “an ontological truth.”20 It also happened to be wrong, or least missing the real changes underfoot in our digitizing world—we started to care less about physically printing an image if that image was accessible digitally wherever we go. But that logic was at the core of their thinking, influencing how they made sense of the world around them. This emphasis on making real money on the blade, not the razor, also meant that Polaroid did not take several important investment paths that would have been required in a world that eventually emphasized the “razor.” They missed the boat on digital technologies for sharing images, low-cost manufacturing, faster new product development cycles, and marketing to this particular emerging world. Polaroid Corporation would eventually unwind its digital imaging research capability, and of course eventually face bankruptcy, and this despite having a truly impressive lead in digital imaging technology, and a popular name brand. 20Ibid.,

p. 1154.

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So sensemaking matters profoundly to the scanning and strategy development process. Even what seem like “no brainer” contextual signals may be conceived of in very different ways and with serious implications for strategic decisions. This was the finding of a large sample, longitudinal study to investigate when and why telecom companies entered the fiber-optics market.21 Clearly, prior R&D into optics would be a plus as would the level of general sales in each company in the build-up to a strategic decision. But despite various controls for what might predict market entry decisions, the “attention” of the CEO mattered significantly. Specifically, CEO’s who were relatively more attentive to existing technologies—that is, where there was substantial CEO inertia in thinking on existing methods for delivering communication solutions—were significantly delayed in market entry decisions, and this despite the organization having a build-up in capabilities, as was true in the case of Polaroid. Moreover, CEO’s who were more focused on the affected industry, effectively on the value sensibilities of customers, were more likely to push forward with market entry. This is partly why Corning, a company once known most for its heavy white casserole dishes, became a first mover in fiber-optic cables, the absolutely pure glass cables that transmit light over thousands of miles without the need for any boosting mechanism or without losing any of the information encoded within them. A team of Corning researchers invented the first low-loss optical fiber in 1970. Like Polaroid, Corning invented a radical technology years before the company had any customers for it, but, perhaps unlike Polaroid, Corning developed its technology in wide-ranging partnerships with other companies and labs. Corning was already vertically integrated with Siemens in the 1970s through a joint venture called Siecor, so they were able to seamlessly become the manufacturing arm for fiber-optic cable once it became clear that telecom consumers needed to surpass copper’s ability to transmit information over more miles and with less loss. Gino Cattani describes some of the elements that contributed to Corning’s unique scanning and sensemaking abilities: Corning’s senior researchers were encouraged to visit research labs and customers, attend conferences and so on. Moreover, one to three senior researchers who were well-known in the scientific community were selected as Corning’s R&D ambassadors. This role of ‘technology scouts’ – somehow akin to that

21Eggers, J. P. and S. Kaplan. (2009). “Cognition and Renewal: Comparing CEO and Organizational Effects on Incumbent Adaptation to Technical Change.” Organization Science 20(2): 461–477.

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of gatekeepers…– was intended to facilitate the acquisition and diffusion of critical knowledge, both technical at the market level. This practice permeated Corning’s search behaviour and enhanced its ability to develop new technologies internally building on existing core technical competencies.22

What’s important to note here is the additional and independent predictive power of managerial sensemaking when it comes to figuring out strategy. This effectively boils down to figuring out the wider market and its technological, cultural, or other contexts. Let’s look more closely then at sensemaking.

How Sensemaking Has Its Roots in Leadership Sensemaking is essentially scanning with mindfulness, that is with deep, reflective thought.23 Before getting into the practical details of how to do this from the backstage, it helps to appreciate three points about the sociological and philosophical roots of sensemaking, and what it has to do with leadership. (1) In many ways, the essential work of business leaders is to conceptualize. Business leaders don’t clean the offices, code software, handle heavy machinery, or tackle after sales support questions. What they do is conceptualize—invoke frames, categories, schemas, and many other cultural elements—for the purpose of understanding but also constructing the world around them. This is not so hard to accept once we have already accepted that everything from “money,” to “companies,” to “nations,” to “marriage,” to “bank holidays,” to “street fashion,” to “glam rock,” and many more concepts, are all things we humans make up. They only exist because we say they do, because we have used our capacity for thought and communication and cooperation—and other conceptual building blocks— to make them real and, more or less, shared mental constructs. The CEO is effectively the Chief Elucidation Officer. This was effectively what Steve Jobs did within Apple in his second stint at the top—as he renamed it just “Apple” from “Apple Computing” and pushed it into the 22Cattani, Gino. (2008). “Leveraging In-House R&D Competencies for a New Market: How Corning Pioneered Fibre Optics.” International Journal Technology Management 44(1/2): 28–52; [on Fiberoptic cable] Crawford, Susan. (2019). “How Corning Makes Super-Pure Glass for FiberOptic Cable.” Wired, January 8. Retrieved August 21, 2019. https://www.wired.com/story/ corning-pure-glass-fiber-optic-cable/. 23Weick, K. E. and K. M. Sutcliffe. (2006). “Mindfullness and the Quality of Organizational Attention.” Organization Science 17(4): 514–524.

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“consumer electronics and services” space and away from being just a “computer maker.” Of course, reconceptualizing does not always pan-out. This is what The We Company co-founder Adam Neumann tried to do with the co-working company that has expanded to include co-living dorms and private K-8 schools that emphasize entrepreneurship. When he and co-founder Miguel McKelvey founded what was then called WeWork in 2010, they essentially were leasing real estate, chopping it into co-working spaces for entrepreneurs and freelancers to rent. Neumann billed the company as a “community” and a force for bringing people together to change the world. WeWork attracted members (they never call them “tenants”) by instituting attractive, hip design, creating intentionally narrow hallways and offices that forced co-workers to interact in shared office spaces, providing free-flowing craft beers, kombucha and hosting pop-up events geared to entrepreneurs. The company was able to raise billions in venture capital from funders who valued it as a virtual community, a tech company.24 However, the conceptualizations outstripped reality and the company has floundered badly.25 Reality ultimately needs to factor into our wild imaginations. Conceptualization requires imagination and intuition, but also a grounding in reality. (2) The work of conceptualization is very different from the mere fact of holding or reaching conceptions. The stuff of conceptualizing is alertness, perception, playfulness, abstraction, elevated awareness, and perhaps most of all a tolerance for living always with some amount of confusion.26 This is not easy to do for the simple reason that we crave certainties. We like to simplify life and fast. We only have to consider the power of stereotypes—our proclivity to quickly place people or things into demographic boxes or categories—our confirmation biases—the way we interpret and recall information in a way that confirms what we already believe, rather than question it. For example, my colleagues in the decision sciences like to play a little game in class. Students are shown a number sequence, say “3-6-9” and are asked to guess what is the underlying rule for the sequence, which is hidden from them. The students can only guess the rule once, but they can offer as many numbers next in the series as they like, say “12,” to which the professor responds with either “fits the rule” or “does not fit the rule.” 24Ulaga, Wolfgang, Joerg Niessing, and Nancy Brandwein. (2019). “WeWork—Service Excellence Through Business Model Innovation: Creating Outstanding Customer Experiences by Leveraging Data, Analytics and Digital Technologies.” INSEAD Case: #TK. 25https://www.theguardian.com/business/2019/dec/20/why-wework-went-wrong (The Guardian Online, Mathew Zeitlin, December 20 2019). 26Weick, K. E. and K. M. Sutcliffe. (2006). “Mindfullness and the Quality of Organizational Attention.” Organization Science 17(4): 514–524 (p. 515).

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That is, they can test what they believe the reality to be and based on those tests, and when they are confident of having discovered the rule, they can try to generalize and solve the puzzle, but only once. So what typically happens? A student will say “12,” and my colleague will answer “fits the rule.” Then they will try “15,” and once again my colleague will say “fits the rule.” Now, it doesn’t take long for them to try a solution: “the rule is to add 3 to the previous number.” To which my colleague says “wrong” with some amount of smugness. Eventually, someone will try a slightly different path. They may start with numbers such as 12 and 15, but may then try 16 and 37, to which the professor will also say “fits the rule.” More importantly, they then suggest, say, 21, to which the professor will say “does not fit the rule.” Eventually, they will see that the rule is simply that “the next number in the sequence is higher than the previous one.” What the students are eventually forced to do is to search for counterexamples to the rule with which they began. This game is a nice example of confirmation biases and how quickly we latch onto them; they are one of the biggest hobgoblins to effective scanning and sensemaking. Confirmation biases show how our minds look first to confirm the ideas or theories that we have with the common strategy for students being to look for confirming evidence of the idea that they held in their head. It isn’t until the students realized that they had to try to disconfirm what they believe that they made real progress on discovering the actual rule, to try numbers that go against the logic-in-residence. There is an efficiency to our search, to collect as little as possible to justify what we believe. The opposite of this and the truest guide to effective sensemaking are to remain in the questioning state of mind and feeling comfortable doing so, rather than the reaching for the easy certainty of a preconceived conception. It’s not that reaching a conception is bad—we would otherwise accomplish nothing—only that alone it is prone to major errors, not the sort of thing you want while forming new strategies. (3) Sensemaking with mindfulness is about making distinctions or looking for contrasts or special cases.27 It is about the ability to avoid homogenization of the context, to avoid mashing-up of any rich detail into a monochrome viewpoint. Under the steamroller of organizational inertia and blinkered executive perspective, everything can become normalized and blended into “the way things are now.” A famous and tragic example of

27Weick, K. E., K. M. Sutcliffe and D. Obstfeld. (1999). “Organizing for High Reliability: Processes of Collective Mindfulness.” In R. I. Sutton and B. M. Staw (Eds.), Research in Organizational Behavior, Vol. 21 (pp. 81–123). Elsevier Science/JAI Press.

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homogenization of rich detail is the Challenger Space Shuttle disaster and the subsequent analysis by Diane Vaughan.28 The Challenger Space Shuttle broke apart about a minute after its launch in January 1986, ending the lives of all seven crewmembers, an event that will be etched in the minds of millions as it was televised and the first catastrophic failure in the popular Space Shuttle program. The wide media coverage of the disaster and the investigative aftermath also meant that many adults today are strangely familiar with the obscure term “O-rings.” A joint on one of the gigantic solid rocket boosters, which are really multiple cylinders joined together, upon which the Challenger was strapped had failed—the pressurized burning gas escaped from this joint and the boosters eventually began to tear-apart, leading to the break-up of the spacecraft. The speeds with which the Space Shuttle leaves the atmosphere means that it must have finely tuned aerodynamics to withstand the substantial air resistance and turbulence closer to earth, and so clearly anything that may disrupt that very short launch process is considered critical and taken very seriously. The reason the joint failed was that the rubber O-ring seals were not able to withstand the particularly cold temperatures that were present at launch. Investigation revealed, however, that these O-rings had a troubled past. It was known years before that serious erosion of O-ring seals was taking place, mostly to the first of the two O-ring seals but eventually also some erosion to the second O-ring. In fact, over half the missions in the few years before the disaster showed O-ring problems. The obvious question is how the documented problems with O-ring seals would be interpreted over time and whether they would be enough to curtail a mission? In other words, how do we make sense of these deviant observations? The answer was “normalization.” O-ring problems over time, that is direct and repeated evidence that the O-rings were not working as they were supposed to, were confronted with the fact that the ships had successfully launched in the past, and that they were generally classified as redundant safety measures. As mission followed mission, the O-ring erosion and the risk of an O-ring failure were deemed acceptable. It’s important to keep in mind that this is not a mathematical or ­algorithmic outcome—something that we can conclude on the basis of a calculation, which in this case signaled risk—it is a sociological outcome, that is an emerging, shared perception of what came to be considered normal risk

28Vaughan, D. (1996). The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA. Chicago, University of Chicago Press; Vaughan, D. (1997). “The Trickle-Down Effect: Policy Decisions, Risky Work, and the Challenger Tragedy.” California Management Review 39(2): 80–102.

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for this space program. And when things are normalized, we no longer see them as distinctions, nor do we take immediate corrective actions. As physicist Richard Feynman, the lead investigator in the Congressional Rogers Commission to look into the disaster’s causes wrote in Appendix F of the report: “When playing Russian roulette the fact that the first shot got off safely is little comfort for the next. ”29

What the Financial Crisis of 2008 Teaches Us About Sensemaking The opposite of normalization is to be aware of discriminatory details, to track and stay attentive to the deviations from what is “normal” or commonly accepted interpretation. Some profound works of Science have been the result—not least perhaps two of the biggest of all time, the realization of Copernicus that the Earth is not the center of the solar system, and the painstaking work of Darwin on natural selection and evolution (the writing of which caused Darwin literal pain and illness, as he made sense of something so radically different to what his “normal” beliefs prescribed). Attention to discriminatory detail is also of big benefit to business people, and probably the biggest and most recent example occurred during the build-up to the global financial meltdown in 2008. It involved some impressive sensemaking by a small number of individuals. For a long time, home property markets worked normally, i.e., people bought homes so that they and their families can live in them. They bought homes that they could afford, meaning homes where the interest and principal could be paid gradually from actual income streams over, say, a period of 10–30 years. Banks accepted only creditworthy buyers, verified creditworthiness, and required a standard percentage down payment. And if those mortgages were packaged into bonds (mortgage-backed securities), which by the way was not a new practice but one invented several decades before, lenders would be clued-into the quality and nature of those underlying assets. Regulators, or in this case the rating agencies such as Moody’s, Standard and Poor’s, and Fitch, would rate a security “AAA” only if it was a truly high quality, and therefore very safe, asset. This was “normal” practice for a long time.

29Feynman, Richard. (1986). Report of the Presidential Commission on the Space Shuttle Challenger Accident (In compliance with Executive Order 12546 of February 3, 1986). Appendix F. Washington, DC, July. Retrieved December 10, 2019. https://science.ksc.nasa.gov/shuttle/missions/51-l/docs/rogers-commission/table-of-contents.html.

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But something was definitely not normal in the build-up to the financial crisis of 2008, the core mechanisms of which we are by now well familiar and involved three main actors: buyers, lenders, and regulators. Buying a home had morphed into buying an “asset”, an act of investment rather than just one of consumption. The value had less and less to do with the comfort of owning “my own castle” than the pleasure of making a killing “flipping” homes, or if you weren’t actively flipping you were at least much more conscious of the price movement of what you now considered your asset and were open to making moves in the property market. I recall friends and relatives during those days admiring peers who were clever and entrepreneurial, who had enough ambition to enter the property market in this much more active and business-like way—and feeling like underachievers and dupes if you didn’t. Eventually, and as we now know, this became an act of more or less pure investment and speculation for a growing segment of the population, and extended much further down the socioeconomic ladder than ever before, and, hence, stories emerged in the aftermath of the financial disaster of people who could barely make ends meet owning multiple properties. This was made possible by the actions of some dodgy lenders and at two levels. On the frontline were the mortgage sellers. Incentivized to sell more mortgages, this is of course what they did, but with increasingly tricky and misleading terms. Lenders offered so-called teaser rates, temptingly low rates of interest for the first few years but that obfuscated the dramatic interest jumps thereafter. Eventually, mortgages were sold that were interest-only, but where those payments themselves could be rolled back into the principal—in other words, you paid nothing for the loan, you just had to worry about the timing of your exit from the property and how much profits to capture—or else cough up the value of the rapidly mounting principal. This ploy was designed for the home flipping market—clearly, the bet you took was that the value of the property would rise faster than the level of your debt. Finally, there were of course the major and trusted banks, the lenders who orchestrated this process, packaging these various mortgages into securities and selling them on, and on, to eventual lenders who, it turns out, knew very little about the underlying assets that they were buying. All they really knew, if even that, was that trusted rating agencies stamped the bundled assets as safe—and presumably they may not have known that some of these rating agencies may have been doing commercial work by these same banks. Clearly, something very abnormal was happening in the home property market, but at the time no one detected the anomalies. The underlying assumptions—“property values over time march steadily upwards,”

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“any corrections are temporary and never systematic, impacting the entire home market at once,” and “a collapse in mortgaged-backed security values is no longer possible with modern finance”—were effectively scripture for the construction of that world. But, and as made (in)famous in Michael Lewis’s engaging book The Big Short and the Adam McKay movie based upon it, a few people saw the signs early, including medical-doctor-turned-investor Michael Burry and equity-analyst-turned-financial-markets-skeptic Steve Eisman. While what they detected, and we briefly described above, were flagrant anomalies in the mortgage and related bonds market, we have to remember that at the time these things ran completely counter to the normal dogma about the property and mortgage-backed-securities market. Keep that fact in mind—many very clever, very well paid analysts had no clue what was happening in the mortgage and bond market. So what can we learn from Eisman and Burry about sensemaking? What did they do that allowed them to scan the same socioeconomic environment as millions of investors and, instead of going long on those markets, go not only short but with near certainty that a massive hurricane was bearing down on the global financial markets? First, they seemed to be naturally wary of “normal” things, of financial and mortgage dogma, the types of individuals who developed habits of mind that always left some reflective time and space for new conceptualizations of the things around them. Lewis captured this perfectly when he wrote that Burry’s, “… job was to disagree loudly with popular sentiment.”30 Eisman and Burry, then, felt personally empowered and free to try different conceptualizations of the world. This may have been partly because as financial analysts and investors, it is essentially their job to reconceptualize value, that is to figure out how much a company is actually worth, and this means having some level of doubt about normal or standard opinion— after all, it’s hard to make money as an investor otherwise. But in Eisman and Burry’s case, their degree of freedom with reconceptualizations seemed particularly strong. Second, they had an incredible capacity to “stay in the question” for long periods of time. Eisman was particularly good at following a simple script— he would stay in questioning mode a lot longer than people were comfortable with, as one of his close associates explained: Steve’s fun to take to any Wall Street meeting…Because he’ll say ‘explain that to me’ thirty different times. Or ‘could you explain that more, in English?’

30Lewis,

M. (2011). The Big Short: Inside the Doomsday Machine. New York, W.W. Norton (p. 46).

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Because once you do that, there’s a few things you learn. For a start, you figure out if they even know what they’re talking about. And a lot of times they don’t!31

This takes courage, not because you may be breaking social norms of politeness but because it is not easy to admit to yourself that you may not truly understand what is going on around you, even in a context where you believe you are an expert. It takes courage to test a dogma that you yourself probably hold. Burry’s script was even more painstaking. He completely immersed himself in understanding this market and its instruments, and this included something other people were simply not doing: He actually read mortgage bonds, a brain-freezing and tedious task. But it was through this careful, questioning, investigative work that he first started to notice a major anomaly—the quality of the underlying assets was rapidly declining in the mid-2000s, specifically “interest-only” loans were a much bigger part of the mix, and these were more likely to be time bombs. Yet, lenders were more than willing to pile into the market, to give ever-increasing amounts of credit to increasingly risky buyers. In other words, Burry saw the seeds of the disaster, and just as important, he didn’t try to explain it away in some fashion. For example, one could have reasoned as follows “well, yes, bonds were starting to accumulate more interest-only loans, but that risk could be diversified away by ensuring constant FICO (consumer creditworthiness measure) scores on the overall bond—discrepancy solved, the normal logic holds.” Instead, as Lewis lays out in his book, Burry would dive deeper, untangling the FICO score itself, for example, and realizing that the variance of FICO scores in a bond, which could indicate risk, is not the same things as just their average. Finally, notice that this didn’t come about because Eisman and Burry, although clearly clever and gifted, possessed some magical, sixth sense for investing, but because they had a process, and that process was fundamentally about digging, and testing, and examining. It is true that such sensemaking was put to use in shorting the housing market, and so allowing some to benefit from others misfortune and the corruption of a market, but the same sensemaking approach is required to fight the trap of normalization and to see (destructive) anomalies before they can do real harm. Sensemaking is a field of study of some size by this point, and so about a lot more than what I have just outlined above. It also includes reflections about the self, that is your identity, and often in relation to the organization

31Ibid.,

p. 22.

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within which we exist and do our work.32 For our purposes, however, there are three main insights to gather from sensemaking in trying to build effective backstage scanning processes: (1) accept that an important part of your work is (re)conceptualization, (2) stay with the question and in the problem, and (3) look for anomalies and opportunities to test beliefs rather than quick paths to normalization. Before we turn to the practical implications for scanning, however, it is useful to look more closely at the organizational context and recognize what we are up against, why mindful scanning and sensemaking may not come very naturally, and so why crafting and actively managing this process is important.

When Scanning and Sensemaking Meet Dogma Dogma is principles or doctrines that are believed to be unquestionably true and backed by some authority. We normally associate dogma with autocratic regimes, where leaders are not to be questioned and believed to be the holders and protectors of true wisdom—not with contemporary business management. Mostly, we make fun of dogma today, as in the noir-comedy film “The Death of Stalin,” which offers dark but hilarious portrayals of dogmatic moments. For example, in the film’s eponymous scene, Stalin collapses in his office, only to be discovered hours later. Gradually, the members of the central committee arrive, but no one dares to call the doctor for fear of making some mistake on “protocol” in this situation, and certainly not before all members have arrived and a discussion and consensus decision can be reached. By the time they reach a decision in the safety of wider protocols, Stalin’s condition clearly worsens, and he eventually dies. It’s a light, comic example but one that well illustrates how dogma is often the enemy of free, creative thinking. Hence, it is also the most formidable enemy of scanning and sensemaking. While a “Death of Stalin” situation is unlikely to happen in a truly entrepreneurial company, there are several ways in which organizations create dogmatic situations. Let’s begin with the top of the organization. Top leaders will follow career paths that take many years to establish, and which will pull them into strategic topics and areas (financing, legal, etc.) and away from the frontline work and direct interface with the marketplace. This is 32Weick,

K. E. (1995). Sensemaking in Organizations. Thousand Oaks, Sage.

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a natural career progression, and so it is also natural for top leaders to lose track of micro-developments in the marketplace and to rely instead on the principles that they believe to be fundamental to the company’s success during their own march upward. This makes gaps likely between what they believe to be the best modus operandi on various dimensions and organizational routines and the needs and projections of the marketplace. We have already seen a classic example of how dogmatic thinking can prevent creative scanning and sensemaking—Polaroid’s early lead in digital imaging, but thereafter its inability to craft novel business models because of a dogmatic belief by top leaders in the “razor-blade” revenue model. Louis Gerstner faced similar dogmatic forces at the top of IBM when he took over its leadership, discovering formal and internally focused dress codes, presentation formats that favored unidirectional transmissions over candid moments of open dialogue, and executive and political processes that were rituals worthy of Kremlinology studies and that prevented pathbreaking thinking. Fortunately, outsider Gerstner was able to break through the hidebound culture and thinking that had set IBM on a losing path to producing computer devices. For instance, he found areas where practices were at loggerheads with goals, such as IBM priding itself on its teamwork while compensating mostly on individual performance. Gerstner went on to break down those fiefdoms and compensate employees based on company performance. Also, by rewarding people for getting things done fast, he cut through what he called the company’s “obsessive perfectionism” and its tendency for “studying things to death.” He pushed IBM several steps further away from just hardware production to computing services and solutions (a vector IBM continues, and needs to continue, to this day).33 Next we have middle-to-senior management layers, including those who have substantial product, service, or business-level responsibilities, and who may suspect flaws in the dogma but are constrained by short-term metrics and needs. Here it’s not necessarily a cognitive constraint that limits their ability to scan and make sense but simply a structural one. You know you have truly reached middle management ranks when every last available moment for free and creative thinking is absorbed by the immediate demands of quarterly earnings, administrative deadlines, and other, numerous, usually short term, KPI’s and reporting duties. The result is that middle management ranks have very little precious bandwidth to do the sort of contemplative and futuristic work of scanning and sensemaking. 33Gerstner,

L. V. (2002). Who Says Elephants Can’t Dance? New York, HarperCollins.

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They often have few incentives as well. Take, for example, Havas, the global advertising company, who has been shifting its business model toward digital technologies and methods. Several years ago, they acquired a groundbreaking young advertising company by the name of Victor & Spoils, groundbreaking because they relied on crowd-sourcing and a platform strategy to generate their proposals for clients, a massive savings in cost while expanding the potential pool of creatives.34 Unfortunately, this new model did not take off the way Havas hoped. For example, Havas didn’t know how to incentivize existing, mostly local, business units to support the revenue growth of its small sibling. Presumably, worried about fulfilling its own P&L requirements left little time to worry about this futuristic project. Finally, let’s consider organizational members that are nearer entry ranks, but include not only younger talent but also those who are immersed in specific technical tasks and projects and which may include middle-level managers. On the one hand, and on the back of having the most recent educational and development experiences, they may have the best purview on the gap between dogma and market and technological possibilities. This is something many companies are experiencing today in the pursuit of digitization of their business models, as they hire “digital natives” with data management and analysis skills. They may also be free of the KPI and reporting overload of their seniors. On the other hand, they are in the worst authority position to do much about whatever gap that they recognize. Moreover, the forces of socialization and a natural desire to fit in and get along mean that they may fear challenging the established dogma. This is basically what happened at Nokia, accounts of which a few of my colleagues have written.35 In short, engineers and project managers at Nokia recognized the true size of the challenge in front of them as they scanned and made sense of the software developments in mobile phone devices that were emerging out of Silicon Valley, a mecca for software development. They understood the advantages that a platform like iOS contained, and they recognized the weaknesses of the Symbian OS (Nokia’s operation system). However, fear of speaking the truth to their seniors meant that the size of the real gap

34Lakhani, K. R. and M. L. Tushman. (2014). “Havas: Change Faster.” Harvard Business School Case Study. 35Vuori, T. O. and Q. N. Huy. (2015). “Distributed Attention and Shared Emotions in the Innovation Process: How Nokia Lost the Smartphone Battle.” Administrative Science Quarterly 61(1): 9–51; Doz, Y. L. and K. Wilson. (2018). Ringtone: Exploring the Rise and Fall of Nokia in Mobile Phones. Oxford, UK, Oxford University Press.

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between them and the software-based smartphone model was never properly revealed. For example: Fearing the reactions of top managers, middle managers remained silent or provided optimistic, filtered information. One middle manager told us “the information did not flow upwards. Top management was directly lied to…I remember examples when you had a chart and the supervisor told you to move the data points to the right [to give a better impression]. Then your supervisor went to present it to the higher-level executives. There were situations where everybody knew things were going wrong, but we were thinking, “Why tell top managers about this? It won’t make things any better.” We discussed this kind of choice openly.”36

In sum, dogma is most likely to start at the top and be fiercely guarded from the top; middle and senior managers are most likely to be so immersed in the daily grind of meeting short-term targets that they have scarce time for scanning and sensemaking activities; and frontline ranks, while often in a good position to see gaps emerge, may lack the nerve to speak truth to power. Sadly, organizations are probably much better at preserving dogma than challenging it. Add to this the silos that tend to emerge in organizations, along with the vertical divisions, and that prevent the sharing of perspectives on the wider context and environment that is necessary for recognizing dogma, gaps and new opportunities. All things considered, it paints a grim image of modern organizations in their struggle to avoid disruption and capture new vectors. It also urges us to consider why it’s all the more important that managers actively and successfully manage backstage processes to ensure the all-necessary scanning and sensemaking takes place.

Putting Scanning and Sensemaking into Practice As already mentioned, your starting point would be to develop a search map (a list of various actors and institutions with which you need to interact or track) and make some judgment call on the frequency of interactions, their timing, and how they will be tracked. The ideas below are meant to deepen that basic process and hopefully increase its usefulness. They are certainly not meant to be exhaustive, and adaptations are always possible. 36Huy, Quy. (2015). “Who Killed Nokia? Nokia Did.” INSEAD Knowledge, September 22. Retrieved December 10, 2019. https://knowledge.insead.edu/strategy/who-killed-Nokia-Nokia-did-4268.

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Develop Horizon Thinking Let’s start with an obvious task. Scanning and sensemaking should be easier if a long-term viewpoint is developed, that is a sense of strategic intent and ambition that extends across the horizon rather than being fixed on some specific point in time, typically some 5-year window. This is important because the short term, and even the medium-term, is well defined with various metrics and targets, and so is likely to get all of the attention. It’s important to raise people’s heads from the daily grind so that they have a beacon for creative thought and sensemaking. Take for example the work of Pepsi Co.’s former CEO Indra Nooyi. Effectively from the start of her term, she has pushed Pepsi toward an unusual direction, what she called “Performance with Purpose.” The horizon is defined by three elements: the planet (reducing the environmental impact of Pepsi Co.’s operations), the people (promoting human rights, diversity, and helping emerging regions and communities develop socially and economically), and the products. The work around the “the products” must have generated some internal ­eyebrow-raising, as Nooyi wanted the company to consider a horizon where they are producing healthier and more nutritious snacks and drinks—unusual because Pepsi made money by fulfilling our craving for fat and sugar. She summarized the predicament in an interview. PepsiCo’s business is three pieces. It has fun-for-you beverages and snacks: Pepsi, Mountain Dew, Lay’s, Doritos, Fritos, Cheetos … I could go on. All the ’tos. [Laughs] The second is what I would call better-for-you: Diet Pepsi, Baked Lay’s, Baked Doritos. And then there’s the good-for-you piece: Quaker Oats, Tropicana, Naked Juice. We are trying to take the fun-for-you portfolio and reduce the salt, sugar, and fat. I didn’t create Pepsi Cola. I didn’t create Doritos or Fritos or Cheetos. I’m trying to take the products and make them healthier. And guess what they tell me? “Don’t be Mother Teresa. Your job is to sell soda and chips.” So this is not being disingenuous. We are trying to take a historical eating and drinking habit that has been exported to the rest of the world and make [it] more permissible.37

The Performance with Purpose horizon was created in 2006. Yes, Pepsi Co. still produce plenty of sugary drinks today (although 7UP has about 1/3

37Safian, R. (2017). “How PepsiCo CEO Indra Nooyi Is Steering the Company Toward a ­Purpose-Driven Future.” Fast Company. Fast Company Innovation Festival, January 9. Retrieved December 10, 2019. https://www.fastcompany.com/3066378/how-pepsico-ceo-indra-nooyi-is-steering-the-company-tow.

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less sugar), but they have managed to develop businesses like the Everyday Nutrition Business, which focuses on simple “positive” nutrition categories, such as whole grains, fruit and veg, proteins, dairy and hydration, and delivering them through various products. This is clearly a long-term endeavor, and the jury is still out how far Performance with Purpose will go, but what Nooyi managed to see in 2006 was a disruptive force that seems to be building with time: People are demanding more nutrition from food companies. The relationship between people and food is mediated by massive companies, with substantial marketing budgets, and so with the power to direct consumers, particularly kids, toward “fun” but not nutritious products. This is a disruptive force, because consumers can rapidly turn against brands and companies that they feel may be doing more harm than good. By taking a long-term view—reaching out to the horizon—she has helped guide and encourage the scanning and sensemaking work of various people within Pepsi, from people in Pepsi labs to marketers. The general point is that developing a horizon, that is a ­long-term view, without necessarily “pinpointing” or over-defining it, should help raise people’s heads and benefit the scanning and sensemaking work within the company. Another leader that has been recognized for her horizon thinking is Ginni Rometty, who became the first woman to run IBM, taking the helm from CEO Sam Palmisano in 2012 and stepping down in early 2020. Rometty generously credits both Palmisano and his former CEO Lou Gerstner, with teaching her the value of reinvention. “No matter what,” she says, “you’ve always got to focus on reinvention, right? Never love something so much that you can’t let go of it. And you have to reinvent.”38 And, with that horizon view in mind, Rometty has been actively trying to reinvent IBM during her tenure, pushing the firm further into services. Forbes recently named her one of its “Power Women” for “heralding IBM’s transition into a data company, pushing its cloud and analytics products to counteract a decline in the demand for legacy software products.” Under Rometty’s leadership fully half of the company’s 2017 revenue came from those emerging cloud and analytic products, and Rometty put the strategy front and center by purchasing open source cloud software business Red Hat in 2018 for $34 billion, which put the company in a better position to compete with Microsoft and Amazon in cloud

38Huey, John. (2012). “Transcript: IBM’s Ginni Rometty on Leadership.” Fortune, October 2. Retrieved August 17, 2019. https://fortune.com/2012/10/02/transcript-IBMs-ginni-rometty-onleadership/.

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computing.39 Once again, it is hard to predict if these moves will have been fast enough to push IBM nearer to the front of the cloud pack, and the proverbial jury is still out, but Rometty has at least attempted to create some horizon thinking.

Build Scanning and Sensemaking Activities i nto the Everyday Do enough people have time allocated in their workdays to scan and make sense? Don’t underestimate the pull of short-term goals and projects, since people tend to give the most attention to those things that are immediate and measured action items (despite our moments of delightful procrastination). The most creative companies and today’s tech disrupters budget time for such creative scanning work into every employee’s schedule and that time, importantly, includes permission to fail. For example, 3M is probably the poster child for innovative companies and includes some creative and powerful structures and processes, such as: managers (called “inventors”) can seek seed funding from business unit leaders, an internal network exists that matches entrepreneurial ventures to talent, creative types have a dual career track that allows them to keep a hand in innovation even as they advance in management.40 But a cornerstone of this approach to innovation is time. 3M has a 15% rule that states employees are expected to spend 15% of their time on whatever they choose, but generally looking at weird and wonderful new opportunities or issues, and so when employees from the d ­ isease-prevention unit explored Bluetooth technologies, they built these technologies into electronic stethoscopes, allowing doctors to transmit data in real time to servers for deeper and quick analysis. Without the 15% rule and a tolerance for human failure, presumably, such heralded 3M inventions as reflective traffic signs, Scotchgard fabric protector, Post-Its and Scotch tape would not have their prime place in our lives and drive billions in sales for 3M.41 We need to be careful, however, about reducing this to simply time management. Google also has its own skunkworks policy for individually 39Kuehner-Hebert, Katie. (2018). “How CEO Ginni Rometty Is Reshaping IBM.” Chief Executive, March 26. Retrieved September 22, 2019. https://chiefexecutive.net/ceo-ginni-romettyreshaping-IBM/. 40Govindarajan, V. and S. Srinivas. (2013). “Innovation Mindset in Action: 3M Corporation.” Harvard Business Review, August 6. 41Weis, Dusty. (2018). “Giving Employees Permission to Fail is a Formula for Innovation at 3M.” Association of Equipment Manufacturers, June 21. Retrieved August 20, 2019. https://www.aem.org/ news/giving-employees-permission-to-fail-is-a-formula-for-innovation-at-3M/.

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directed projects called the 20% rule, and it has been credited with such inventions as Google News, Gmail, and AdSense. However, there is dissenting opinion about how well, or how clearly, this works within Google.42 First, it seems that employees, even at Google (!), are constrained by the near-term goals of existing products and projects, and to such an extent that the “20% rule” is more like a 5% rule, or a 10% hope. The reality is that as long as you do the formal task for which you have been hired, you can spend the extra time on special projects. Marissa Meyer, Google’s 20th employee who went on to become CEO of Yahoo!, said, when asked why she didn’t institute Google’s 20% policy at Yahoo!, “I’ve got to tell you the dirty little secret of Google’s 20% time. It’s really 120%.” Meyer went on to explain that the 20% was usually added on to time spent doing required tasks.43 Of course, Google hires some very capable people, and so they are more likely to finish their normal work in less than 100% of their time. Writers on innovation also say that big new ideas often occur when working in concert with others, on daily jobs, and not in some lone corridor where creativity is supposed to flourish. What’s more important, they say, is ensuring that employees who do happen to come up with a novel idea—whether on their own time or during the middle of an Agile stand-up meeting—have the backing and encouragement to pursue it. It’s clear there needs to be active managerial oversight on whether that rule is being followed or used. Google is fortunate in that it has by now a strong and natural proclivity for disruptive thinking and invention, a disruptive culture embedded in the normal, but many companies don’t have this. In those cases, offering both the time for active scanning and sensemaking but then also watching and managing that process by encouraging failing paths as much as promising ones, is an important aspect of backstage leadership.

Decentralize Your Scanning Activities The single most vital ingredient for scanning and sensemaking would have to be capturing a diversity of viewpoints, and in the context of a business organization this means capturing insights up and down the corporate 42D’Onfro, Jillian. (2015). “The Truth About Google’s Famous ‘20% Time’ Policy.” Business Insider (France), April 17. Retrieved December 10, 2019. http://www.businessinsider.fr/us/google-20percent-time-policy-2015-4. 43Hill, George. (2019). “The Myth of Google’s 20% Time.” Chief Innovation Officer (Innovation Enterprise Channels). Retrieved August 20, 2019. https://channels.theinnovationenterprise.com/ articles/the-myth-of-google-s-20-time.

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hierarchy as well as outside, and triangulating data in order to develop intuition. It is a process that needs to be done proactively. Consider the following study of how the scanning process leads, or doesn’t, to new innovations.44 The target population were executives from 22 metal-casting firms in the United States—not your usual Silicon Valley disruption behemoths, but therefore a great place to look at how well scanning activities can nudge some old and highly institutionalized practices. The study looked deeply at the scanning and knowledge use of these organizations, over several months, and also at the subsequent innovation outcomes. One of the differences the study established was between adaptive innovation outcomes (“tweaking” a standard technology) and more disruptive outcomes (more “radical” innovation outcomes). What were the drivers of the more disruptive innovation outcomes? First, more disruptive innovations began with executives generally emphasizing broader, technological understanding and not simply operational efficiency, that is they sought an “outside-in” viewpoint that struck at the technological foundations of the firm, rather than one that focuses on reexamining and altering the way things are done internally already. To be sure, those who innovated incrementally did exhibit intense scanning, but it was not comprehensive and external “outside-of-the-box” thinking or particularly proactive. Also, executives in the incremental innovation camp tended to believe in the superiority of their own skills and knowledge, rather than being more proactive among peer organizations, suppliers, and industry workshops in seeing what is new. In other words, there is a good deal of humility in scanning. Another telling aspect of the study is that firms in the sample that displayed little uncommon knowledge use and innovation—tending to focus on maintaining responsiveness to current customers and infrequent and passive scanning— also believed that worker’s knowledge is limited. This seems like an excellent recipe for inertia: Focus only on what your current customers want and ignore letters from the frontlines. Second, and particularly relevant here, more disruptive innovations came from companies where inputs from lower-echelons were taken more seriously. In those more radically innovative companies, there was a strong belief that workers are capable and knowledgeable. This helped foster a working environment where initiative and experimentation were more widespread, the sort of engagement that can help move mere whims into actionable ideas

44Nag,

R. and D. A. Gioia. (2012). “From Common to Uncommon Knowledge: Foundations of Firm-Specific Use of Knowledge as a Resource.” Academy of Management Journal 55(2): 421–457.

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and eventually projects. The successful innovators in the study watched out for and did not put on the blinders of organizational dogma, the belief that hierarchy is the best predictor of scanning and sensemaking capability, that those lower in the organization should focus on execution and leave the creative scanning work to “those who know what they are doing.” In sum, the study strongly suggests that sort of thinking is likely to be the enemy of capturing a diversity of viewpoints so crucial to decentralized scanning. All in all, this study supports well the idea that diversity of viewpoints— up and down the hierarchy and status ladder—should help a firm discover more disruptive or innovative pathways. Yes, some firms may prefer a highly centralized scanning process. Take, for example, Ikea, whose massive size and scale means that changes must be gradual and well planned, with a long time horizon—after all, if Ikea decides to shift even one factor, say from pine to birch in its wood selection for coffee tables or bookshelves, this may require enormous investments in birch forests, logging contracts, etc. The consequence of which may mean that scanning itself may tend to be more centralized, and, according to a former Ikea manager, this is why local store managers at Ikea are focused on moving merchandise out the door, not worrying about scanning for fashion. But most companies are not the size and scale of Ikea and should consider a decentralized backstage scanning process. Having scanning occur through a single, typically senior, committee, or possibly single individual, is likely to leave a lot of valuable insight locked away in some corner of the organization. Thus, create backstage scanning processes that are decentralized, that look widely within the company for ideas and viewpoints.45

Bring Outsiders In It’s not only important to emphasize the value of looking to outsiders, people who are not core players in your industry, but also to find ways to bring their outsider viewpoints inside. Sometimes even many insiders do not see the external threats and opportunities. For example, another of the early detectors of opportunity within the 2008 subprime mortgage chaos was Greg Lippmann, a trader with Deutsche Bank who had been placing bets against this market despite his superiors becoming very nervous with the

45Teece, D. J. (2012). “Dynamic Capabilities: Routines Versus Entrepreneurial Action.” Journal of Management Studies 49(8): 1395–1401.

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gamble. What he could not understand was why the market continued to roll on and up despite the quality of the loans becoming progressively worse. What he discovered, however, was that the closer you were to this market— literally the people who ran the funds that traded on mortgage bonds—the less likely you were to see that anything was wrong. It seemed that insiders reached a point beyond “irrational exuberance,” a sort of religious belief in the underlying logic of their business model. Eventually, Lippmann had to seek the sanity and help of relative outsiders, for example, stock rather than bond investors with enough exposure to falling home prices that they could be convinced of the need to hedge against the market’s collapse. This eventually led him to Steve Eisman and his team, a team of “outsiders” who shared the same dim view of the mortgage-backed securities market.46 The view of considering users that are not yours, that are so-called noncustomers, was popularized by my colleagues Kim and Mauborgne in their work on Blue Ocean Strategies.47 They point to three tiers of noncustomers, tiers that gradually move away from your core users group: *soon-to-be noncustomers—those who interact with your products or industry only until they find something else, for example, busy professionals who would go to sit-down restaurants for lunch only until ­fast-but-healthy food options appeared on the scene in city centers; enter British chain Pret-a-Manger with restaurant-quality sandwiches prepared fresh every day and offered at faster speed than sit-down fast-casual chains and fast-food restaurants. *refusing noncustomers—people who refuse to use or cannot afford the current industry offerings, such as the expensive billboards that get questionable traction for advertisers anyway. JCDecaux, a French vendor of outdoor ad space, gained the eyeballs of refusing noncustomers for billboards when it developed outdoor advertising on what it called “street furniture,” bus stops and benches in downtown locations. *unexplored noncustomers—those customers or needs that seem very distant from your marketplace, such as person-to-person or small merchant transactions in the credit card world, a big market that credit card companies have ignored, and which opened an opportunity for a company like Square. Another example is tooth whitening services. Oral care companies that offer toothbrushes, toothpaste, and dental floss always considered tooth whitening the purview of dentists until they explored noncustomers 46Lewis, 47Kim,

M. (2011). The Big Short: Inside the Doomsday Machine. New York, W.W. Norton (p. 90). W. C. and R. A. Mauborgne. (2005). Blue Ocean Strategy. Boston, MA, HBS Press.

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and realized they could get in on this lucrative market with products like tooth-whitening strips.48 Unfortunately, many attempts to engage external contributors fail—and despite growing access to some powerful online idea solicitation tools, such as the “Fan Machine” of advertising firm Victors & Spoils, which leverages Facebook Fans of brands to solicit new product/service ideas. So while research has shown that scanning and suggestions from outsiders are useful if not critical to innovation of various sorts,49 companies have struggled to make this work. We have to wonder if new digital tools would make this easier and more effective. After all, there are only so many people-hours that you have, for networking, visiting, exploring, with outside bodies, and so turning to digital tools would make sense. A few scholars have looked into this problem recently, including Professor Henning Piezunka: what can leaders and organizations do to ensure outsiders contribute views and suggestions, and in particular with digital tools?50 Piezunka’s research taps the experiences of over 23,000 firms and their use of a special software that embeds suggestion boxes onto the firm’s website. It captures not only successful companies and campaigns but also the unsuccessful ones, so that a proper comparison can be made. The main outcome that they were observing is the volume of suggestions that companies can solicit. Keep in mind that getting outsiders to offer any suggestions for product/service development is difficult. In fact they found that responses in general were very rare; the median firm only received about one response per month, and you have to go to the top 1% of companies to see roughly one response per day. So what separated the successful from unsuccessful companies? Proactive engagement by insiders is useful. Firms that seeded posts and suggestions from insiders, particularly in the early stages, were much more likely to see outsiders join in. Outsiders are more likely to take your scanning quest seriously if they see that you yourselves are engaged. Also, responding actively to contributors is important. More suggestions emerge as firms were seen to engage with contributors and especially newcomers to the scene. Again, outsiders want to see that their time is being taken seriously. In sum, outsiders 48Kim, W. Chan and Renee A. Mauborgne. (2015). “3 Types of Noncustomers and How to Sell to Them.” Hubspot.com, March 11. Retrieved August 21, 2019. https://blog.hubspot.com/sales/ types-of-noncustomers-and-how-to-sell-them. 49Danneels, E. (2008). “Organizational Antecedents of Second-Order Competences.” Strategic Management Journal 29(5). 50Dahlander, Linus and Henning Piezunka. (2014). “Open to Suggestions: How Organizations Elicit Suggestions Through Proactive and Reactive Attention.” Research Policy 43(5): 812–827.

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should be a key target in scanning, and this will of course require you to map, network and build relationships and taskforces into various corners of your ecosystem. Digital tools, however, can also be effective, but they require some sensible backstage processes, such as active seeding and attention from insiders, preferably early in the process.

Aggregate, Align, and Take Deep Dives So far, we have seen that (1) scanning can be helped by lifting people’s gazes and building horizon thinking, (2) scanning not only requires time and resources but active oversight, (3) capturing a decentralized, diversity of viewpoints is valuable, and (4) tapping enough “foreigners” in the scanning process is key—especially noncustomers. However, all of this work can amount to very little if you don’t have an aggregation process, a way to allow the sensemaking to properly take place. Scanning, especially when decentralized, needs to be aggregated, and another way to think about sensemaking. It needs to be linked-up to the strategic decision-making process and to create a channel for execution. Consider the experiences of a former student of mine who is an executive at a multinational banking and financial services company, a bank that is very mindful of fintech, digital technologies in banking such as automated, algorithm-driven robo-advisors like Betterment and Wealthfront that can provide clients with investment advice and portfolio options, and the threats that they pose to conventional banking. He is engaged in the sort of scanning activities that make good sense—for example, having dedicated fintech teams explore technological possibilities not just from other banks but from technology companies (i.e., outsiders). But that is not enough. These scanning moments are of little use if they are not somehow aggregated, linked back to the core strategic planning process, as he explains: The scanning is done in a way that we have [at] the level of the CEO office, and on the level of the top executive committee, we have kind of a standard strategy review process. So, we always go through our strategy, what has changed, what has worked, what do we have to adopt, and on the parallel side we’re following like a scorecard where we have all the trends…we really try to follow the trends and we more or less put them into an order, saying, ‘Okay, how big is the potential that this actually comes through…’51

51Galunic, C. (2017). “Digital Journeys: 10 Checkpoints in Building a Digital-Ready Company.” INSEAD Case 11/2017-6349.

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By linking the scanning process back to a decision-making body, and one in this instance that can obviously impact strategy and make things happen, the scanning process is more likely to come full circle and have impact. This sort of aggregation needs to be analytical, leaving enough time for creative brainstorming and interpretation, to revisit and update prior assumptions about products and services and what’s on the horizon. This is what the global design company IDEO calls a “deep dive,” a full immersion into the problem at hand. Another former student of mine seems to understand this well. Goran Westerberg is CEO of Swedish-based Rusta, a growing home and leisure products company catering to the Scandinavian market. Take two examples, the first involving something as mundane as a tea kettle. First, Rusta’s range team closely follow and aggregate information and viewpoints from various sources, including social media trends and inputs, product fairs across the world, discussions with producers and inventors, and close looks at competitors like giant Costco. What they found when it came to the boring water kettle is that this item is particularly price sensitive. What they also discovered is that there was room in the marketplace for even greater value in something so mundane, that the prevailing assumption about the low-end price point may not be correct and needs to be updated: It’s not like it’s a new invention, it’s been around for donkey’s years, and there is a fair amount of competition for this product. But that is an item a lot of people want to buy, and we have seen that volumes go up quickly, very very quickly, when we reduce the price. So we worked with various producers and designers around the world and we told them that if you succeed in reaching a certain price point, we will give you huge volumes…so it was a good looking stainless steel kettle, but simple, we reduced the number of parts, we looked at thickness, every component…a similar [most] inexpensive product sold for about 10-15€, we managed to come-up with a product that looks great and sells for about 5€! And we make a profit…The first day we sold 10,000 kettles in one day!

Rusta’s general strategy is a volume strategy, to look for items that will move quickly and in great volumes, so they are not discovering a new strategy per se, but their scanning and aggregation process helps them to discover value in places that others may have stopped looking, such as in a simple— but high usage—kitchen instrument. “What we try to do is stay close to the common person…and it’s fun!” he went on to say.

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Westerberg gave another example, one with a body mist, a more ­ op-culture oriented product and one associated with a large popular brand, p Victoria’s Secret. First of all, what his team had noticed was that, until a few years ago, there were no stores in the Nordic region for people to get their hands on Victoria’s Secret products, even though there was growing consciousness of and yearning for the brand in the Nordics. Hence, this Victoria’s Secret body mist became, essentially, a luxury item in Sweden, even though the brand is generally a mass market brand in the United States. This helped Rusta recognize an opportunity: So, on the high street, the hairdresser, for example, would take some of these samples and sell them for ridiculous prices, and in the US they would be a fraction of that. We identified that. How did we do that? We looked at our own kids, I regularly asked my own kids, we looked at social media, etc. And then we started to scan the market to see if there were any stock lots available. There were not. We continued to search and search and search, and in the end we found a ‘middleman’ that connected us to production in the US. We managed to get our hands on over 700,000 bottles. We put it on our front page- the going rate in Sweden was about 299 kroner, and we put it out there at 99 kroner. And we had a healthy margin. We sold out in two weeks! We crushed the market.

Westerberg went on to reveal a more important part of their sensemaking opportunity and decision logic. The [important] thing that this does for our brand is, #1, we are bringing in tons of young people, who will talk about this, who will spread it on social media, who will say ‘what, you got that for what price?’ And that was exactly what happened! It just exploded. And it really underlined our low price position…Our value proposition for customers is lower price, but two more things: one, a joyful hunt for bargains!…two, we look for arbitrage opportunities on what are perceived as luxury items [but can be delivered for a lot less].

For Westerburg, this was less about simply moving a product in volumes, and with a healthy margin; it was more about the branding opportunity and especially among tomorrow’s consumers. For him and his team, they saw this as a great vehicle to underline the purpose of the Rusta brand—low cost and relevant—aligning the scanning work with the company strategy. That word “relevance” is key to Westerberg’s alignment of sensemaking with strategy. The main question he asks himself and his team is, as he puts it, “Do we have relevant offers—if we don’t have relevant offers for our customers and fulfill our customer promise, then we are nothing. It doesn’t matter what

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channel we use, whether physical or online, if we don’t have a relevant offer, nothing else matters.” Westerburg went on to quote something to that effect from a Rusta founder. In other words, it’s not only that Westerburg did the work, but also that he represented the implicit logic behind the brand, and elements of the corporate culture, to make sure that ideas that were being aggregated—bubbling up through the process—met those fundamental criteria. Yes, the elements of the logic may have to be revisited from time to time (as Polaroid failed to do), but you are more likely to capture their lack of fit if you have an open, honest, and ongoing debate about the nature of the threats and opportunities at hand and remain closely in touch with the data and the phenomena around you. Westerburg’s role essentially boils down to facilitating that process and guarding its honesty and integrity. Finally, keep in mind that there is no magical “insider’s” view when it comes to scanning or forecasting of any sort, no secret code that you are trying to break, but that the process is about gradually refining your intuition, over thousands of data points, looking for causality and implications for your strategy and business. Every sweep of scanning and the sensemaking activities that follow are opportunities to update, to improve, your interpretation about what is actually going on in the market. What is real? What are duds? What should we continue to follow? What can we scrap as a mere fad? What you are trying to do is construct a process where your guesses—your approximations—get a constant workout, are constantly challenged and refined until the moment where there is enough confidence that you are seeing the emering reality appear, the true signal and not mere noise. (for more on forecasting and statistics, see Nate Silver’s (2012) “The Signal and the Noise”, Penguin.)

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CNBC. (2019). “Meet the 2019 Disruptor 50 Companies.” May 15. Retrieved August 19, 2019. https://www.cnbc.com/2019/05/15/meet-the-2019-cnbc-disruptor-50-companies.html. Crawford, Susan. (2019). “How Corning Makes Super-Pure Glass for Fiber-Optic Cable.” Wired, January 8. Retrieved August 21, 2019. https://www.wired.com/ story/corning-pure-glass-fiber-optic-cable/. Dahlander, Linus and Henning Piezunka. (2014). “Open to Suggestions: How Organizations Elicit Suggestions Through Proactive and Reactive Attention.” Research Policy 43(5): 812–827. Danneels, Erwin. (2008). “Organizational Antecedents of Second-Order Competences.” Strategic Management Journal 29(5): 519–543. Dans, Enrique. (2018). “Tesla, The Model 3…And the Market.” Forbes, August 4. Retrieved December 10, 2019. https://www.forbes.com/sites/ enriquedans/2018/08/04/Tesla-the-model-3-and-the-market/#1cc6906577ed. D’Onfro, Jillian. (2015). “The Truth About Google’s Famous ‘20% Time’ Policy.” Business Insider (France), April 17. Retrieved December 10, 2019. http://www. businessinsider.fr/us/google-20-percent-time-policy-2015-4. Doz, Yves L. and Keeley Wilson. (2018). Ringtone: Exploring the Rise and Fall of Nokia in Mobile Phones. Oxford, UK, Oxford University Press. Eggers, J. P. and Sarah Kaplan. (2009). “Cognition and Renewal: Comparing CEO and Organizational Effects on Incumbent Adaptation to Technical Change.” Organization Science 20(2): 461–477. Eisenhardt, Kathleen M. and Jeffrey A. Martin. (2000). “Dynamic Capabilities: What Are They?” Strategic Management Journal 21: 1105–1121. Feynman, Richard. (1986). Report of the Presidential Commission on the Space Shuttle Challenger Accident (In compliance with Executive Order 12546 of February 3, 1986). Appendix F. Washington, DC, July. Retrieved December 10, 2019. https://science.ksc.nasa.gov/shuttle/missions/51-l/docs/rogers-commission/table-of-contents.html. Galunic, Charles. (2017). “Digital Journeys: 10 Checkpoints in Building a D ­ igitalReady Company.” INSEAD Case 11/2017-6349. Galunic, Charlies and Kathleen M. Eisenhardt. (2001). “Architectural Innovation and Modular Corporate Forms.” Academy of Management Journal 44(6): 1229–1249. Galunic, Charles and Simon Rodan. (1998). “Resource Recombinations in the Firm: Knowledge Structures and the Potential for Schumpeterian Innovation.” Strategic Management Journal 19(12): 1193–1201. Gannes, Liz. (2013). “Europe’s BlaBlaCar Has Created the Purest Version of the Sharing Economy So Far—And It’s Working—All Things D.” The Wall Street Journal, December 2. Retrieved December 10, 2019. https://techcrunch. com/2018/09/24/BlaBlaCar-is-on-the-path-to-profitability/. Gerstner, Louis V. (2002). Who Says Elephants Can’t Dance?: Inside IBM’s Historic Turnaround. New York, HarperCollins.

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Goldenberg, Jacob and Rom Y. Schrift. (2018). “Go Forth and Multiply: Unlocking Successful Innovation.” Columbia CaseWorks Case: 190501. Govindarajan, Vijay and Srikanth Srinivas. (2013). “Innovation Mindset in Action: 3M Corporation.” Harvard Business Review, August 6. Hill, George. (2019). “The Myth of Google’s 20% Time.” Chief Innovation Officer (Innovation Enterprise Channels). Retrieved August 20, 2019. https://channels. theinnovationenterprise.com/articles/the-myth-of-google-s-20-time. Huey, John. (2012). “Transcript: IBM’s Ginni Rometty on Leadership.” Fortune, October 2. Retrieved August 17, 2019. https://fortune.com/2012/10/02/ transcript-IBMs-ginni-rometty-on-leadership/. Huy, Quy. (2015). “Who Killed Nokia? Nokia Did.” INSEAD Knowledge, September 22. Retrieved December 10, 2019. https://knowledge.insead.edu/ strategy/who-killed-Nokia-Nokia-did-4268 (p. 515). Kim, W. Chan and Renee A. Mauborgne. (2005). Blue Ocean Strategy. Boston, MA, HBS Press. Kim, W. Chan and Renee A. Mauborgne. (2015). “3 Types of Noncustomers and How to Sell to Them.” Hubspot.com, March 11. Retrieved August 21, 2019. https://blog.hubspot.com/sales/types-of-noncustomers-and-how-to-sell-them. Kruse, Kevin. (2018). “Netflix Culture Deck Co-Creator Says Leaders Need to Explain Context.” Forbes, February 19. Retrieved August 21, 2019. https://www. forbes.com/sites/kevinkruse/2018/02/19/Netflix-culture-deck-co-creator-saysleaders-need-to-explain-context/#bb3528b590c2. Kuehner-Hebert, Katie. (2018). “How CEO Ginni Rometty Is Reshaping IBM.” Chief Executive, March 26. Retrieved September 22, 2019. https://chiefexecutive.net/ceo-ginni-rometty-reshaping-IBM/. Lakhani, Karim R. and Michael L. Tushman. (2014). “Havas: Change Faster.” Harvard Business School Case Study Multimedia/Video Case 615–702, September. Lewis, Michael. (2011). The Big Short: Inside the Doomsday Machine. New York, W.W. Norton. Nag, Rajiv and Dennis A. Gioia. (2012). “From Common to Uncommon Knowledge: Foundations of Firm-Specific Use of Knowledge as a Resource.” Academy of Management Journal 55(2): 421–457. Nocera, Joe. (2015). “Can Netflix Survive in the New World It Created?” The New York Times Magazine. New York Times (New York), June 15. Retrieved December 10, 2019. https://www.nytimes.com/2016/06/19/magazine/can-netflix-survivein-the-new-world-it-created.html. Rumelt, Richard. (2011a). Good Strategy Bad Strategy: The Difference and Why It Matters. New York, Crown Business. Rumelt, Richard. (2011b). “The Perils of Bad Strategy.” McKinsey Quarterly 1(3): 1–10, June. Retrieved August 19, 2019. https://www.mckinsey. com/business-functions/strategy-and-corporate-finance/our-insights/ the-perils-of-bad-strategy.

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Safian, Robert. (2017). “How PepsiCo CEO Indra Nooyi Is Steering the Company Toward a Purpose-Driven Future.” Fast Company. Fast Company Innovation Festival, January 9. Retrieved December 10, 2019. https://www.fastcompany. com/3066378/how-pepsico-ceo-indra-nooyi-is-steering-the-company-tow. Teece, David, Gary Pisano and Amy Shuen. (1997). “Dynamic Capabilities and Strategic Management.” Strategic Management Journal 18(7): 509–533. Teece, David, Margaret Peteraf and Sohvi Leih. (2016). “Dynamic Capabilities and Organizational Agility: Risk, Uncertainty, and Strategy in the Innovation Economy.” California Management Review 58(4): 13–35. Teece, David J. (2007). “Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance.” Strategic Management Journal 28(13): 1319–1350. Teece, David J. (2012). “Dynamic Capabilities: Routines Versus Entrepreneurial Action.” Journal of Management Studies 49(8): 1395–1401. Tripsas, Mary and Giovanni Gavetti. (2000). “Capabilities, Cognition, and Inertia: Evidence from Digital Imaging.” Strategic Management Journal 21(10/11): 1147. Ulaga, Wolfgang, Joerg Niessing and Nancy Brandwein. (2019). “WeWork— Service Excellence Through Business Model Innovation: Creating Outstanding Customer Experiences by Leveraging Data, Analytics and Digital Technologies.” INSEAD Case: #TK. Vaughan, Diane. (1996). The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA. Chicago, University of Chicago Press. Vaughan, Diane. (1997). “The Trickle-Down Effect: Policy Decisions, Risky Work, and the Challenger Tragedy.” California Management Review 39(2): 80–102. Vuori, Timo O. and Quy N. Huy. (2015). “Distributed Attention and Shared Emotions in the Innovation Process: How Nokia Lost the Smartphone Battle.” Administrative Science Quarterly 61(1): 9–51. Weick, Karl E. (1995). Sensemaking in Organizations, Vol. 3. Thousand Oaks, Sage. Weick, Karl E. and Kathleen M. Sutcliffe. (2006). “Mindfulness and the Quality of Organizational Attention.” Organization Science 17(4): 514–524. Weick, Karl E., Kathleen M. Sutcliffe and David Obstfeld. (1999). “Organizing for High Reliability: Processes of Collective Mindfulness.” In R. I. Sutton and B. M. Staw (Eds.), Research in Organizational Behavior, Vol. 21 (pp. 81–123). Elsevier Science/JAI Press. Weis, Dusty. (2018). “Giving Employees Permission to Fail is a Formula for Innovation at 3M.” Association of Equipment Manufacturers, June 21. Retrieved August 20, 2019. https://www.aem.org/news/giving-employees-permissionto-fail-is-a-formula-for-innovation-at-3M/.

3 Building and Locking in Commitment to Strategy

Driving Fresh Commitments Is a Must Apple unveiled the now ubiquitous iPhone on January 9, 2007, in San Francisco, during one of their cult-like Macworld gatherings. Jobs actually played a little joke on the Moscone Center’s packed audience in the unveiling. After some build-up, he announced “here it is” and then showed an image of a clunky, white iPod with an old-fashioned spin-dial mechanism attached to the front, like traditional telephones that were once-upon-a-time attached to the kitchen wall. The audience laughed (a bit nervously), and then Jobs nonchalantly pulled out the iPhone from his pocket, as though he was pulling out a comb or his wallet, a simple enough first exposure to what was hardly the first entrant in the smartphone category. Competitors would also laugh. They laughed at the short battery life; they laughed at an imperfect touch-screen keyboard; and they howled hysterically at the price tag. But within a year, no one was laughing. The iPhone would go on to become probably the most iconic technology gadget in history—what the popular techie blog Gizmodo called “the true Jesus phone”1—and certainly the profit leader in the massive smartphone industry for several years to come. It would also force some rapid redirection in strategy for the world’s leading mobile phone makers for whom the question was twofold: Did they sense

1Lam,

Brian. (2006). “The Pope Says Worship Not False iDols: Save Us, Oh True Jesus Phone.” Gizmodo, December 26. Retrieved December 10, 2019. http://gizmodo.com/224143/ the-pope-says-worship-not-false-idols-save-us-oh-true-jesus-phone.

© The Author(s) 2020 C. Galunic, Backstage Leadership, https://doi.org/10.1007/978-3-030-36171-6_3

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the threat and perceive the changes in time, the focus of our previous chapter on scanning and sensemaking? But also, could they build commitment to a new strategic direction, seizing upon just-gleaned insights and commit the organization to a new path? The process of solidifying commitment to a new strategy or shift in direction is at the heart of this chapter.

The Cautionary Tale of Blackberry In the hazy dawn of the iPhone, perhaps no company feared it less than the mighty producer of the Blackberry, then called Research in Motion (RIM). This Canadian company, based in modest and unassuming Waterloo, Ontario, had produced an iconic, breakthrough product. Sales of the Blackberry phone in 2007 were still rocketing upwards: the company was adding over a million subscribers every three months, the stock was perpetually being split as investors made multiples on their early investments, their consumer-based phone—the Pearl—would sell an impressive 6.4 million units in 2007. In this important consumer category, The Pearl was touted as the future for Blackberry, and unsurprisingly the company was the darling of mobile phone operators, with foreign operators lining-up to sign contracts.2 They were the undisputed top-of-the-charts in the mobile smartphone category, a category that was only getting bigger. While co-CEO’s Mike Lazaridis and Jim Balsillie respected Apple’s capabilities, they did not see the immediate threat of a phone that wasn’t secure, had a clumsy virtual keyboard, and bled batteries at an alarming rate, at least for anyone who relied on true mobility in telephony.3 To Blackberry’s credit, most of the world’s mobile phone producers also failed to see this shift coming. The question then becomes simpler, more singular: as the threat became clearer, could they move the company to a new strategy in time? From the vantage point of the present, we cannot fully appreciate how much the iPhone actually changed the way mobile communications worked, and more or less from the beginning. In brief, mobile telephony prior to the iPhone was driven by conservative corporate functionality. The idea was to build a better workhorse. This meant more than the popular marketing feature of a long-lasting battery—the entire design of the phone innards, both hardware and software, needed to be efficient, and work economically 2McNish, J. and S. Silcoff. (2015). Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of Blackberry, p. 133. New York, NY, Random House, Business and Economics. 3Idid., Chapter 10: The Jesus Phone, pp. 130–138.

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with the prevailing network infrastructure of the access providers. Telecomm players had to ensure that e-mail was both secure but also reach you instantaneously, that calls would not be dropped, meaning that they needed to use the scarce bandwidth and investments being deployed for voice and data extremely efficiently. In fact, Blackberry’s early success was not least because of the efficient way in which their devices worked with the existing network infrastructure. But all of these features mattered more in the corporate world than in the emerging world of the bandwidth-gobbling consumer Internet. Away from the workplace and the standardizing force of corporate IT departments, the same people who tapped frantically at their Blackberry devices behaved differently. They wanted to browse the Internet in their leisure time, including when they were on the go, not just when chained to their homes by their desktop computers and cable or ADSL Internet connections. Once they had the come-to-Jesus moment of seeing or holding an Apple iPhone, they wanted that browsing experience to be authentic, not some grainy, summarized version of a Web page. They were, in fact, happy to bypass the browser altogether and have easy and immediate access to important and fun information (“apps” for weather, traffic, social media, and games). They wanted to access bulkier digital images, too, like photos from friends. And perhaps most of all, they wanted to carry with them something that was beautiful, more a statement of fashion or lifestyle than just a “cell phone.” Design began to matter, and the consumption and behavioral patterns of people in their leisure time became important. In order to succeed in the new era, smartphones would have to be designed first with them in mind and not as an afterthought. All of these changes required considerable strategic redirections and fresh commitments at Blackberry—with wrenching changes to the organization and its core technologies. Blackberry did respond to the iPhone, and with reasonable speed, launching not only its latest classic Blackberry device in 2008, the Bold, but also its answer to the iPhone, the Storm. This was their first touch-screen device without a physical keyboard and with an ingenious “haptic” touch screen, a series of little motorized “bumps” that let you know when you just hit a key, and now commonplace. The problem was that the Storm was a dud—it worked poorly. The browser was slow, it was prone to freezing-up, and, ironically, the company best known for the way they perfected physical keyboards on what are ultimately miniature computers created a virtual keyboard that just didn’t work well enough. The media critics were venomous, famously bashed by actor-and-tech-blogger Stephen Fry: “Watching someone writing an email on a Storm is like watching an antelope trying to open a

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packet of cigarettes.”4 One other major problem loomed—unlike the iPhone, the Storm had a limited App universe. The app store at Apple was launched several months before the Storm, in July 2008, along with a much-improved iPhone (3G), and within 6 months the app store would experience over 500 million downloads. Without apps, the Storm had little hope of surviving the onslaught of the iPhone. In the end, Blackberry could not make the transition. The problem at Blackberry was that the company required a significant strategic shift to remain viable in the then-burgeoning smartphone industry. The Storm, much like previous Blackberry devices, was developed on a platform—an operating system called Java—that, while great for the previous phoneand-e-mail-focused corporate universe, was simply not suitable for a ­graphics-heavy smartphone world,5 one where the telephony element is secondary to the computing, messaging with attachments, and entertainment features of smartphones. Blackberry needed a new operating system, a new platform, but such a change is monumental for a phone producer. It could mean everything from new technologies and coding languages to new people and talent—at least if the change is to be done with speed, which Blackberry eventually opted to do, buying a software company in 2010 to accelerate the platform redesign. But it doesn’t stop there. A redesigned software platform will have implications for the hardware, not least if new hardware has to be fitted to accommodate the graphics-heavy world, all of which require dealing with new suppliers, integration issues, and quality-testing (for starters). It also meant a new business model, for example, Blackberry had to ask itself: How can we deal with the reluctance of consumers to pay additional charges for Blackberry e-mail, or the rampant demand for app(s)? How do we construct a community of developers? What do we do ourselves? How do we distribute? How do we price or capture value? It also meant changes in marketing. I remember taking my teenage daughter to purchase a smartphone around 2010 at the local and leading mobile phone operator, which ran a reasonable selection of smartphones. When asking the merchant about the big selling features of the Blackberry brand, the first and only thing that he touted was the “really secure email” service, and for an additional monthly fee at that. The fact that adolescents and young adults were moving away 4Fry, Stephen. (2008). “Gee, One Bold Storm Coming Up….” StephenFry.com, December 11. Retrieved December 10, 2019. http://www.stephenfry.com/2008/12/11/gee-one-bold-stormcoming-up/. 5McNish, J. and S. Silcoff. (2015). Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of Blackberry, p. 171. New York, NY, Random House, Business and Economics.

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from e-mail in droves, let alone the irrelevance of James Bond-level e-mail encryption for a teenager, seemed lost on the salesperson. The market was moving on, and the branding would have to as well. These are all substantial moves, and they amount to a new strategic direction. Gifted, brilliant entrepreneurs and technologists like Lazaridis and Balsillie could understand these changes, and much more quickly than just about anyone else on this planet. But that wasn’t the only challenge. The real challenge in front of them was not only to change their own mind-set and thinking but to rally an entire and still rapidly growing organization behind a new strategic commitment. Blackberry broke-down around the inability to drive commitment to a strategic shift through the organization. The final years of Blackberry’s empire were furiously busy, with enormous energy, dedication, and passion, but they could not rally around a common strategic commitment—a common view on the future, what final strategic decisions to make and how they would be executed in time to save the company. The inside story is well described by reporters McNish and Silcoff—camps formed around Lazaridis and Balsillie, who, like warring parents, were growing apart, with each camp holding alternative ideas for resolving the strategic dilemmas, effectively creating “splintered squads of finger pointers.”6 “Commitment” in this case may have been difficult not because people did not want to become dedicated to a cause but because of the implications for subsequent freedom: if you didn’t get your desired direction, then you become obligated to follow the direction of a rival camp. Building commitment, as we shall see, is fundamentally a political, not just a cerebral, process. In the end, Blackberry would lose both of their CEO’s and founders, and the company would join the likes of Nokia, Palm, Handspring, Motorola, etc., in the smartphone world. This chapter will look at the political processes of building strategic commitment. We will see the leader slip back-and-forth between the background and foreground during these processes, at times only guiding and shaping the activity of others, and at times taking a more active hand in building strategic commitment. The difference, that is the balance of background vs. foreground activity, will depend upon how complete is the strategic vision or commitment. Specifically, we need to distinguish between moments when there is relatively more ambiguity about a strategic direction—and so the leader needs to keep the process as open and innovative as possible, without 6Ibid.,

p. 221.

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dragging the organization further behind the pace of the industry—and moments where there is reasonable clarity and conviction for the strategy, but with the ideas and momentum needing to spread to more than just the leader and a chosen few around her.

Better Decision-Making: A Look Backstage and Behind the Scenes If there is a single, distinct activity that is core to this chapter it is the process of decision-making, something we are all familiar with and that managers do in relation to work on a fairly frequent basis. Yet, the distinguishing feature of the processes relevant to effective backstage leadership is that the collective must somehow get to a decision, even while being led. This may seem obvious—aren’t leaders, among all the many things that define them, fundamentally responsible for decision-making? Don’t they just make a decision—certainly on something as “big” as a strategic direction—and then sit back and watch as everyone below falls into place, aligning themselves with the decision? This is of course naïve. Unless you live in a dictatorship, it does not work this way in just about any context with which we are familiar. Even when there is a large gap in power between leaders and followers, effective leaders cannot rely on autocracy, not least because there is a difference between getting people to simply “comply” with a strategic direction and having them truly “commit” to that direction. Our goal, then, is to consider processes for building authentic and collective commitment to a new strategic direction. Let’s start with a few assumptions, to narrow down the scope of this work. 1. We will focus on what we can call “strategic decisions,” essentially those, like in the case of Blackberry, that amount to setting, redirecting, or at least substantially impacting the strategy of the company. These decisions don’t have to be bet-the-company type decisions, about the entirety of a company’s strategy. Organizations rarely face such massive decisions. However, there are numerous smaller but important decisions that do shape the strategy of a company in some significant way. For example, one or two times a year Apple and Samsung launch the next installment of core products, BMW, Mercedes, Audi, and Lexus announce their new line-up of cross-competing cars, and fashion houses reveal their seasonal collections. These decisions are regular, and a firm channels much of its creative energy into this process. Even though these decisions are not sweeping strategic redirections, they are important to the strategy of the company (whether

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affirming, evolving, or transforming). The processes we will describe are accommodating, mindful of a reasonable range of such strategic decisions. 2. Stakeholders will hold different views about strategic choices and directions. While there are bad choices and directions, there is no such thing as a perfect or best strategy; most environments are robust, accommodating multiple ways of competing to solve the same market problem or demand, whether taking people from London to Paris (EasyJet, Air France, or Eurostar) or having them enjoy a hamburger (MacDonald’s, Wendy’s, or Five Guys). Even within what seems a narrow technological or market space, where outsiders to the market may see few real differences, those actively participating within that market will see important, not subtle, differences (BMW 5-series, Audi A6, Lexus GS, or Mercedes E-Class). The point is that there is potential for substantial creative variance, difference of opinion, and conflict over strategic direction. This is important because it is a key reason why strategic commitments will, naturally, be prone to politicization. To deny this is to pretty much deny human nature. To ignore this also risks failing to tap important sources of creativity. 3. New strategic directions are always uncertain. We cannot definitively see what will work or be best and what will fall flat. There is no foolproof heuristic, formulae, methods, or machine learning algorithms that will determine the true viability of a strategic move before we make it. The fact is that strategic decision-making—although not without plenty of analytical aids—is, at its core, a constant negotiation, something that is always being constructed by some sort of political process. People have to find their way through this process by argument, framing, trial-and-error, and negotiation, and this, as we will argue, needs to be carefully managed backstage by the leader.

A Continuum of Strategic Decision-Making To simplify how this works, or can work, let’s take a basic continuum in thinking about strategic decision-making. At the extremes are democracy and autocracy—and let’s consider them momentarily in their pure forms (Fig. 3.1).

'HPRFUDWLF$872&5$7,& Fig. 3.1  A continuum of commitment modes

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Neither is, in its purest form, suitable. A true democratic process would amount to one-person-one-vote. This is not likely to work for multiple reasons, the leading one of which is that business organizations are still fundamentally hierarchical, and with a greater burden of responsibility placed on senior leaders over strategic decisions. For all the talk about organizations wishing to become flatter, non-hierarchical, and open, the basic reality is that they are still comprised of ranks. This difference of responsibility, and the related differences in status, and power, have implications for how groups learn. Research bears out that lower ranks are less likely to heed institutional goals when it comes to learning processes.7 For instance, imagine applying a true crowd-sourcing model for strategic decision-making, as is in-vogue these days for consumer and product research (e.g., AnheuserBusch used this method in developing a new lager). While crowds do have wisdom, and something we need to leverage, giving everyone a vote on the strategic direction may sway those in the lower echelons, of which there are more people, to not take the longer, and perhaps more painful and disruptive, institutional view. By the way, this is at least partly the fault of senior leaders themselves, who may not create enough of the psychological safety to overcome the status-divide and fear of how higher-ups may respond to bold ideas—precisely a reason why these processes should be guided and nurtured by leaders. Autocracy, extreme centralization of command, is not suitable either, and this is a more understandable position. We only have to look at the failures of the highly centralized economies of the twentieth century for evidence. But this may not be so obvious as we turn to business organizations. Don’t we often read of “genius” leaders in the business media, people who seem to have single-handedly crafted the strategy and success and of their companies? For example, The Telegraph wrote “Who Is Elon Musk? Tech Billionaire, SpaceX Cowboy, Tesla Pioneer—And Real Life Iron Man. ”8 It seems that actor Robert Downey Jr. even consulted with Musk in 2008 to base the Tony Stark Iron Man film character on elements of Musk’s leadership style and

7Bunderson, J. S. and R. E. Reagans. (2011). “Power, Status, and Learning in Organizations.” Organization Science 22(5): 1183. 8Smith, Andrew. (2017). “Who Is Elon Musk? Tech Billionaire, SpaceX Cowboy, Tesla Pioneer—And Real Life Iron Man.” The Telegraph, May 24. Retrieved December 10, 2019. https://www.telegraph. co.uk/technology/0/elon-musk-tech-billionaire-spacex-cowboy-real-life-iron-man/.

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operations.9 It’s hard to imagine a more loner genius figure than action-hero Iron Man, who builds a technological empire out of his one-man lab, albeit complete with special robot. It’s a tricky conundrum. We know that extreme centralization is foolish in the age of market economies and complex organizations, and yet we still like to read stories about solo, genius leaders (even though we also know that, say, Tesla’s founders were a team of individuals). The reason may be that top leaders of course do have a substantial impact on the strategic commitments of their organization in the area of motivation and inspiration—it would be as naïve to think that this was not true as it would be foolish to believe in the loner genius myth. As with most things, the truth rests in that gray zone called “the middle.” Leaving aside these two extremes in the continuum, we’ll focus on two processes for achieving strategic commitments that occupy this middle ground. The first, Creative & Fair Process, is about pulling in people, views, and interpretations in order to reach a decision, not necessarily a consensus. While it is more democratic, it is not a pure facilitation exercise—the decision still rests with the leader. The second, Mobilization, is more about pushing and, hence, is about selling a more or less “clear” direction to the organization. In order to avoid autocratic mobilization, leaders must consider elements of fairness here as well. The reality is that some strategic directions may be relatively clear and/or the context critical—such as a very short timeline—necessitating a relatively closed rather than open process. The wisdom is knowing the difference: when to adopt Creative & Fair Process vs. Mobilization. In other words, when to adopt relatively more “pull” versus “push” in building strategic commitment.

Creative and Fair Process John Rawls is not a household name in strategic management, but he should be. Far from the business world, Rawls was an American moral and political philosopher who lived during much of the twentieth century, and mostly as an academic, serving a three-year period of military service, during World War II. But his contributions to political theory—a branch of thought that is natural to consider when examining any human process that involves a negotiated order—were immense, who some consider to be the most important political philosopher of the twentieth century. 9Vance,

Ashlee. (2015). “The True Story of Elon Musk, Robert Downey Jr. and Tony Stark.” Linkedin, June 19. Retrieved December 10, 2019. https://www.linkedin.com/pulse/ true-story-elon-musk-robert-downey-jr-tony-stark-ashlee-vance.

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In brief, Rawls was troubled by the inherent contradiction in two fundamental values that drive social outcomes or social justice: Liberty and Equality. If we truly value people’s freedom, and especially the freedom for self-determination, isn’t inequality of outcomes virtually guaranteed? And if we truly value social equality in the world, won’t this naturally impinge upon our liberties? Rawls genius was in turning the focus away from social outcomes to process. At the risk of over-simplification, Rawls argued that in setting-up the rules by which society operates and that determine social outcomes, we need to devise a process that is fundamentally fair. In this case, the r­ ule-makers must step behind Rawls’ famous “veil of ignorance,” behind which they cannot see on what end of the prosperity spectrum they will end-up. The key insight for our purposes is that justice lies in the fairness of the process, not just of the outcomes. How we make the decision or “procedural justice” matters, not just “distributive justice,” who gets what, or, in our case, whose strategic views prevail.10 While it may not seem to relate at first glance, all of this has a great deal to do with strategic commitments in business organizations. If strategic commitments are negotiated social orders—which is more likely the higher the uncertainty about what, exactly, the firm should be doing—then the process by which we achieve those commitments is crucial. This is not least because not everyone will get their way (distributive justice) and so having a process that they find fundamentally fair is vital. It may mean the difference between the eventual success and failure of those ideas. So, we have to build-in fairness into these processes, a view touted by a few management scholars working on procedural justice or “fair process leadership” in the business context, such as my colleagues Ludo Van der Heyden, Chan Kim, and Renee Mauborgne, and upon whose work I am building.11 But there is more to consider than just the fairness of the process; we also have to consider its creative potential. Consider the most common application of procedural justice or fairness in the world today: the courtroom. While it is clearly important to build a fair and transparent process for listening to opposing sides in a legal dispute, it is less clear that the courtroom 10Rawls,

John. (1971). A Theory of Justice. Oxford, Oxford University Press. Fair Process Leadership Model can be found in the following citations, great additional material for learning about this approach, especially in the work of Prof. Ludo Van der Heyden. My approach here is to focus relatively more on the creative aspects: Van der Heyden, Ludu, Christine Blondel and Randel S. Carlock. (2005). “Fair Process: Striving for Justice in the Family Firm.” Family Business Review XVIII; Van der Heyden, L. and T. Limberg. (2007). “Why Fairness Matters.” Springer International Commerce Review 7(2); Kim, W. C. and R. A. Mauborgne. (1998, April). “Procedural Justice, Strategic Decision Making, and the Knowledge Economy.” Strategic Management Journal (Special Issue) 19(4): 323–338. 11The

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analogy will introduce much collective creativity into the process. When was the last time you have seen opposing sides in a trial brainstorm their differences and find an innovative solution, at least inside the courtroom? Building strategic commitment in a business context, and especially under considerable uncertainty, requires some amount of creativity. Leaders who bring their organizations to a Strategic commitment need to consider not only the inherent fairness of that process but also its creative potential. Creativity will be particularly good to have in this first process of building strategic commitment, where the starting position is relatively more uncertainty about what exactly the firm should be doing in resolving its competitive problem. We will therefore call this momentum and commitment process Creative & Fair Process. To recap, the purpose of Creative & Fair Process is to bring the team/ organization to a new Strategic commitment (1) in a fast but implementable manner, where commitment to the direction is as high as possible, and crucially (2) with adequate creativity, to boost the chances of finding the most effective direction under uncertain circumstances. Compared to mobilizations, this process will be relatively light on foreground activity by the leader but heavy on background activity, in order to ensure that the process is working properly. What follows are the essential elements of this process, although there is plenty of room for local tinkering in how things are operationalized, since cultural contexts may differ and require local adaptation (Fig. 3.2).

Comprehending the Problem Within a Context of Uncertainty There are few sectors of our global economy that combine great importance and incredible uncertainty to the same degree as the telecommunications equipment manufacturing sector. They are responsible for building the infrastructure of the Internet and all—and truly all—telecommunications in the world. Every time you download a file, stream a video, browse the Internet, or simply make a phone call you are using this equipment although you never see it, and if you counted the amount of time people are doing this every day across the globe it would certainly be a substantial fraction of the total time that we humans spend awake. And that fraction will only get bigger. You would think that being in such an important sector would afford some amount of stability for the firms who are able to overcome the substantial

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Fig. 3.2  Creative and Fair Process

barriers to entry and then design decent equipment. But the pace of consolidation and turbulence in this sector has been dizzying. In recent years, consolidation from the ten or so behemoths has resulted in four primary players: Huawei, Cisco, Nokia, and Ericsson. This has been accompanied by constant divestment of consumer, handset, and enterprise units into many “new” companies: Belkin, Avaya, A ­ lcatel-Lucent Enterprise, BenQ, Gigaset, Unify, Microsoft, Lenovo, Motorola Solutions, Sony, and Mitel. For instance, Nokia sold its handset business to Microsoft, and then Nokia Siemens acquired the Motorola wireless networks which became Nokia again shortly after. Similarly, Ericsson won an auction to purchase Nortel assets in 2009 and then Avaya won an auction for Nortel’s Enterprise Solutions–nonstop motion.12 Now consider Alcatel-Lucent. Prior to their merger in 2006, they were giants in the French/European and American markets respectively, Lucent being the core remains of American giant AT&T. But by the end of 2015, in less than ten years, they were just one part of a company that would include 12Bilderbeek, Pam. (2015). “How Apple, Cisco and Huawei Disrupted the Telecom Equipment Market.” The Metis Files: Source to Success, April 15. Retrieved December 10, 2019. https://www.themetisfiles.com/2015/04/how-apple-cisco-and-huawei-disrupted-the-telecom-equipment-market/.

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six others or their parts (Alcatel, Lucent, Nortel component, Siemens, Motorola, and Nokia, which is the owning entity—at the moment— not to mention numerous other smaller acquisitions along the way). Therefore, when Michel Combes stepped into the CEO job of badly ailing ­Alcatel-Lucent in April 2013, he needed to understand not only what was happening with this company but also what was happening to this entire industry. On the verge of bankruptcy, Alcatel-Lucent needed a new strategic direction and fresh commitments, but Combes knew that many capable people attempted to run this company before him and yet it was failing. It is likely, of course, that he had some ideas on what might have to be done before he arrived, but he was adamant that the first step to a successful strategic redirection was a careful understanding of the problem. He lays out his reasoning:13 Until there is something really going wrong and you understand why and where it’s going wrong, it is difficult to call for action. Sometimes, in order to grow fast, people go directly to the call for action. For me the sequence of the diagnosis is extremely important to create buy-in to the call for action. If you do the diagnosis without bias, taking the right amount of time to do it properly, if you do it by interviewing the stakeholders of the company in a very transparent manner, benchmarking against others, if you all agree on the diagnostic findings, then it is much easier to get buy-in to the strategy and action plan that you are going to provide. If you don’t have a core understanding of the problem, then it is very difficult to get the endorsement of the people for what you are trying to achieve. Michel Combes, CEO Alcatel-Lucent 2013–2015

The best way to accomplish this first step of Creative and Fair Process is to remain in questioning mode for as long as possible, and doing this early enough before people lodge themselves into positions on the issue. As a group exercise, consider performing the following steps: i. Begin with symptoms: Symptoms are either what the customer sees or the financials, or both. Ensure that everyone understands and agrees on the symptoms first, without trying to delve into the causes too early. ii. Create a rich description: The temptation is to jump too quickly with causal drivers, without look closely at the data. Take the time to collect data on the key processes that are likely sources of the problem. But ask 13Galunic, Charles, Javier Gimeno and Lisa Duke. (2016). “Alcatel, Lucent…Nokia: On the Road from 3 to 1: The Leadership Challenges of Strategic Change.” INSEAD Case Study, February 24, p. 13.

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for input broadly at this stage. Don’t assess just the usual suspects. Fairness but also creativity requires that you cast the net widely at this point. iii. Interpret causal drivers: Only after the group has adequate data at hand should you go for the next key step. Begin to interpret the data. This means making causal inferences between what you are seeing on the ground and the symptoms. The goal is to produce rich narratives and frames which explain how the organization’s routines and decisions result in the outcomes that you see. iv. Check your assumptions: Each causal narrative is inevitably built with the aid of assumptions. This is simply because data, no matter how rich a description it creates, will never be perfect. As you consider the causal chain sequence, look for the assumptions in your narrative. The idea is to test and challenge those assumptions, to make sure they hold water before you allow them to be the basin for your ideas on the problem at hand. There are few companies that we know of who excel in understanding the issue at hand as well as IDEO. Famous for designing the first Apple mouse, The Palm V PDA and Stellcase’s iconic office “Leap Chair,” IDEO is a design company that helps its clients create new products and services. Its design process emphasizes what we could call “little” data but what the company calls “deep data,” not just what is popularly called today “big” data. Big data is very broad in its reach but not necessarily very deep in its understanding; you have to know what to look for in all that data, what questions to ask. David Thomsen, who worked as an IDEO designer for ten years before going on to become Executive Vice President at Wanderful Media, says that if you’re struggling to come up with ideas or stuck in a rut on product development, you’re probably asking the wrong questions: For example, at IDEO I worked with a traditional telco that shaped its strategy by asking questions like, “How can we raise our customer’s average monthly bill by 10 percent?” and, “How can we minimize our customer service call times?” Needless to say, business was stagnant at best. When we re-framed the problem in human-centered terms by asking questions like, “How can we help busy families to stay connected?” and “How can we reward our most loyal customers?” suddenly our formerly reticent client team was bursting with ideas and infused with a newfound sense of optimism.14

14Thomsen, Dave. (2012). “Why Human-Centered Design Matters.” Wired, December. Retrieved August 27, 2019. https://www.wired.com/insights/2013/12/human-centered-design-matters/.

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Our understanding can also be substantially improved by staying naïve about the issue at hand and so focusing, at least for a time, on raw, basic data—this is one way in which we can go more “deeply” into a problem, i.e., spending time on fundamentals. Take, for example, a recent exercise enjoyed by one of our executive classes when we visited IDEO at their Palo Alto California labs. The group was divided into small subgroups, each given the task of trying to quickly come up with some business model innovation in a specific industry, such as airlines, hotels, and restaurants. Teams generated ideas based entirely on their experiences. Next, each team was given a series of “ethnographic” photos of some person or family living their lives, depicting the normal experiences and routines of these individuals over some short time frame, going about different tasks and interactions, all possible customers for each of those industries. They were then asked to redo their efforts, based on these insights. To our surprise, their ideas did change, their interpretations now richer—more “leads” were generated on what might drive real value for people. Of course, the point is not to rely on a “sample of one” to frame an important strategic issue, and I understand that many rich samples may have to be gathered and interpreted. But staying on the surface of the problem is not conducive to interpretation and learning either. Ultimately, we need both “big” (broad) and “little” (deep) data to help us build compelling, creative, narratives about the strategic issues that we face. One more IDEO example of the “deep dive.” In order to help retail giant eBay glean more about how its customers use the site and shop, IDEO drew on both big data and customer stories, drawn from scores of in-depth customer interviews, to ultimately build an app that gives eBay employees deeper insights into how and why customers use the site. The insights generated by the app were so compelling that they spurred the company to revamp its website for a fresher, more human-centered appeal.15

Creating “Creative” Options Collectively Gaining understanding is a relatively lengthy process, but if it is done well there are economies to be gained in the creation of options. If people have access to rich data, they are more likely to have the materials at hand for creative suggestions. This is because innovation is, fundamentally, about

15IDEO. (2012). “Putting a Human Face on Big Data”. Retrieved December 10, 2019. https://www. IDEO.com/case-study/putting-a-human-face-on-big-data.

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“recombinations.” We don’t so much invent completely new things as take existing ideas, or pieces of ideas, and recombine them in novel and interesting ways. The first step is about making sure people have the raw materials—and good, diverse and relevant, raw materials—from which to form options. We would emphasize two things about this creative process. The first is that it is done collectively not via subgroups in which people privately develop options and formal pitches that they then showcase in the broader group. The problem with the latter is that it is too easy for people to become attached to just their group’s idea, and the process becomes politically charged from the beginning. What is then missing is a creative and collective sounding-board—essentially a brainstorming element. But brainstorming may not necessarily work either, which brings us to the second emphasis. The second thing we would emphasize is that doing this creative process collectively doesn’t just mean as a group. By collectively we mean that there is an uncompetitive and supportive spirit in the room in which people are actively encouraged to stay positive and build-upon the suggestions of others, and pulling in a diversity of views from that group, even wild ideas that may challenge existing dogma. This is not how things tend to work, of course. Groups are prone to status and hierarchical differences—this can mean that the “alpha” individual in the group speak with the greatest authority and can, early-on, shape the direction of the group, but without much creative/diverse thinking taking place. The searchable space becomes only the zone of comfort of the alpha(s) (and/or the group leader). And, where people do offer their opinions, it may be largely to please the “alpha,” shaping their “creative” suggestions to fit the agenda of the alpha. Such a process is not really creative nor fair (because the alpha’s source of authority usually does not entitle them to be the sole source of strategic direction). Think about the waste—a company invests heavily in hiring and developing its top talent, and then, because of the micro-dynamics and politics of groups, all of that potential creative input and diversity gets reduced to one or a few alpha individuals. The invisible element in this process is the psychological safety that is felt by the group members.16 By psychological safety, we mean that the group members feel legitimacy in the group, as bona fide members, and that they feel enough respect that they will venture in risk-taking thoughts and behavior. This is important because creative ideas in a group context place 16Edmondson, Amy. (1999, June 1). “Psychological Safety and Learning Behavior in Work Teams.” Administrative Science Quarterly 44(2): 350–383.

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individuals at risk—of ridicule, of censure, of rejection. If this is missing, truly novel ideas may not come forward, ideas that may have important consequences for strategic direction. Ultimately, it is the leader’s responsibility to help group members feel like bona fide members and conduct strategic group processes in an inclusive manner. The case of pioneering computer industry company Hindustan Computers Limited (HCL) brings this point home. HCL was one of the early pioneers in personal computers. When Vineet Nayar came in as president in 2005 the company had dropped in its industry, and he immediately set out to create a culture of collective creativity in which the company could draw on everyone for turning its fortunes around. He did this in a very hierarchical business and country, India, that had a set notion that junior staffers should treat senior staffers deferentially. Nayar began by reaching out to an unexpected group, the young frontline employees, in order to invert the HCL pyramid and make the company’s success hinge just as much on those closest to the customer as those furthest. Nayar got the young staffers to leverage the company intranet and launch a new campaign called “Employees First, Customers Second.” They created new platforms that now enable all of HCL’s 140,000+ employees to share and support each other’s ideas. By spurring thousands of people to make both incremental changes and breakthrough innovations, Nayar actually changed how managers saw their jobs—from issuing directives to empowering employees. The change had bottom-line results, too: From the time Nayar took the helm in 2005–2013 HCL’s revenues increased sixfold, and the company expanded to 32 countries.17 Nayar encouraged the psychological safety of the young frontline staff members, who were not used to having their opinions solicited. When the opposite of psychological safety is present—fear and hierarchy—the consequences may be grave. This was part of the explanation of Nokia’s demise in the cell phone industry, another victim, like Blackberry, of the iPhone’s disruption and success.18 Nokia had enjoyed success as a mobile phone producer for much longer than Blackberry, but this didn’t mean they were any better shielded from disruption. In fact, as we noted in

17Kenny, Brian. (2014). “Collective Genius.” HBR Newsroom, September 12. Retrieved August 27, 2019. https://www.hbs.edu/news/articles/Pages/linda-hill-collective-genius.aspx; Swetzoff, Jen. (2015). “Linda A. Hill on the Creative Power of the Many.” Strategy + Business, March 16. Retrieved August 28, 2019. https://www.strategy-business.com/article/00315?gko=f6c22. 18Vuori, Timo and Quy Huy. (2015). “Structures of Attention and Shared Emotion in the Innovation Process: How Nokia Lost the Smartphone Battle.” Administrative Science Quarterly, 1–43.

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Chapter 2, top leaders saw the threat from Apple, and reasonably early, and appreciated the importance of such things as a touch-screen interface and an Internet-friendly operating system, but had to translate that threat—a component of which was fear—to the Nokia developers and middle managers. Unfortunately, that translation process failed to adequately focus Nokia developers on external threats and bold leaps; rather, they were more preoccupied with internal tensions and fears, and a focus on developing “newand-improved” versions of the existing technologies instead of taking bolder leaps into operating system development, even if it required a dramatic overhaul of Nokia capabilities. As one Nokia employee noted: The pressure was not personified in any one [person], but came from the whole executive group. … For me personally and my team, the pressure was the message that “we need these phones, we need those phones, we have to have releases in such and such a time.” [referring to new models of existing Symbian-based Phones]

In summary, creative leaps benefit from collectivity, both in the sense of an open group brainstorming process but also the establishment of psychological safety in that group, to bring out the innovator in all of us. If the essence of the previous step is “stay in the question,” the essence of this step is “stay positive and supportive.”

Critiquing: Putting the Courtroom in the Company Strategic ideas, at some point, must be stress tested by the group. Getting to the strategic options is only half of the work. The creative work is not over once you consider strategic options. There must also be some competitive process in place to winnow out the better ideas from the simply good ones. While I believe that process of creating options and the process of critiquing them should be separated across time (even if overnight), at some point it will be necessary to apply a more critical tone to the panoply of options. How can you do this without sacrificing some of the openness established in the previous step? Fairness here is particularly important, and for that we turn to a useful analogy: the courtroom and the role of the judge. The legal and courtroom narrative is familiar to us all, although it’s unlikely we have thought about it in a business context. Yet, recent work has suggested that this may be a useful way to approach the strategy debating process, mainly because it is designed to be, once again, fundamentally

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fair.19 First, it makes sense to think of strategy as “law.” Both are relatively high-level rules of conduct. Law does not necessarily tell people exactly what to do but sets boundaries and limits, and it also contains a “spirit” of interpretation that goes a long way toward showing how the law is to be enacted. So does strategy, but, most of all, there is probably more good than harm in adopting this analogy for business organizations. There is potential harm if organizations lose flexibility because of “law-like” rule following in the execution of strategy—think mindless minions unable to react to urgent threats or opportunities. But there is less risk of that, we believe, than the opposite condition with which organizations today suffer: of people not really taking the strategy seriously, of the organization not being aligned with strategy, and, hence, of business leaders not really knowing how well a certain course of direction is working. So how would this work? Here are several ways in which the courtroom and legal metaphor can be used to conduct constructive debate in the middle stages of making strategic commitments. i. Start with expert opinion—use the natural tensions that exist in functional perspectives. There are healthy differences in perspective between Marketing and Engineering, between Operations and Finance, and so on. These are classic tensions. Instead of trying to kill differences—usually in the name of avoiding parochial thinking and politics—embrace them (for a time). Depersonalize the perspective taking by asking executives to raise the pros and cons of different strategic directions from their functional perspective. After all, these are the functional areas that have the depth of view to offer real insights. Note that the idea at this stage is not for an area to become an advocate for a direction, but only to offer their expertise on a direction or option, and to do so from both pro and con angles. Reach further down in the organization to get the most expert views. Memory devices should be established to keep people straight—if a “court appointed expert” offers views that tend not to panout, this should be remembered when it comes time for future strategic discussions. One can even reach outside for experts to facilitate the conversation and break down functional silos. When its marketing and sales group’s

19Galunic,

Charles and Jacques Neatby. (2013). “Order in the Strategy Court.” Harvard Business Review, November 26. Retrieved December 10, 2019. https://hbr.org/2013/11/order-in-the-strategy-court.

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history of miscommunication and conflict was creating obstacles, Moët and Hennessey España, the champagne and spirits distributor, engaged two enologists, wine experts, to coordinate its marketing and sales groups. The enologists could relate to both groups, speaking to marketers about the emotional aspect of the brand while also giving salespeople details on concrete features products needed to have to win over the retailers. By brokering discussion, the enologists removed the conflict from the two functional areas while allowing a full airing of views from both groups.20 ii. Stage debates and mock trials, with the company as the point of reference. Among the options available, let each side or viewpoint have a time in “court.” Here, it may be necessary to appoint advocates for the option under discussion, and others to argue against. Whether natural advocates exist or not, consider randomly appointing debating positions, the idea being to depersonalize the discussion and remove some of the relational stigma of arguing with your teammates. This is really what you are aiming for—people who are teammates but who can manage a good, strong, open, and honest debate. iii. Operate using strict rules of engagement. One of the reasons legal courtrooms don’t perpetually unravel into chaos is that there are strict rules of comportment and conduct. There have to be formal and strict rules given the severity of what is typically being discussed and debated. Although executive team meetings don’t require all of the formal dressings of a courtroom—“your Honour” would be a step too far—the quality of discussions boils down to the quality of the process and how seriously people take the proceedings. The leader’s role is as judge, the person who ensures that the rules are both known and followed. The leader’s role is not prosecutor nor defense attorney nor witness. Here is an example of some basic rules you might lay out: • People are expected to be prepared for the discussion and be on time. • People are expected to be polite and courteous with one another (e.g., not reading their smartphone while someone else is speaking).

20Casciaro, Tiziano, Amy C. Edmundson and Sujin Jang. (2019). “Cross-Silo Leadership.” Harvard Business Review, May–June. [TK] Retrieved August 28, 2019. https://hbr.org/2019/05/ cross-silo-leadership.

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• During debate no one should shout or talk over other people, and all should agree to some simple debating formats where counter-opinion can be offered (“cross-examination”). • Being particularly conscious of the business setting means everyone needs to be mindful of, and speak to, the “data” or “facts,” avoiding lose argumentation based on personal whims, hearsay evidence, making stuff up as you go, etc. • Advocates need to connect their arguments to collective, ­company-level benefits, avoiding parochial positioning and claims.   These are just a sample of the kind of “rules of engagement” you might want to consider. You’ll likely find other rules that make sense within your particular organization’s culture. iv. Take on the role of leader-as-judge The most important thing the leader-as-judge has to keep in mind is that there is a difference between decision-making and decision-taking. Decision-“making”—which is about your own process for coming to a decision—comes first, and it is here still a collective process. The leader’s role is to protect the process. It is also to keep an open mind and really listen to the views being expressed, taking the time after hours to sift through the reasoning and data. This doesn’t mean that the leader-as-judge cannot be proactive and intervene, but those interventions should be inquisitive; you are asking new and better questions, drilling down into the argumentation, exposing unacknowledged assumptions, and challenging those assumptions. The leader-as-judge does have to guard for bias, or the appearance of bias. All of this work in decision-making cannot work if the judge is fundamentally unfair.

Committing to the Verdict Decision-taking is the next step—deciding on the verdict. This may not seem like a big deal—until it is. If you have gone through a fair process up to this point, shouldn’t it be self-evident what the decision and direction will be? The answer is no, not necessarily. The process we have described above is about trustworthiness and acceptable/implementable decisions, ones to which the collective is more likely to be committed; it is not about giving selfevident answers, like some sort of strategy-making algorithm. Decision-taking means that among plausible alternatives, given the state of uncertainty, risk, and resources, some final judgment is required. What the process above can

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help you do is to make sure that as much of the supporting material is not only available to you but will also provide context to key stakeholders and participants. But a final verdict is required. Before you move from decision-making to decision-taking, here are three things to keep in mind. i. Decisions require explanations. People who hide behind their authority and are unwilling to explain their decisions are typically embarrassed by some motivation for those decisions, something parents may be able to get away with from time to time but, ultimately over time, at the cost of lost trust, and something adults will probably seize upon faster than kids. If you can’t explain your decision, could it be that you are making it with flawed assumptions and motivations, and this is a way for your unconscious self to protect you? Good explanations require you to deal with the difficult tradeoffs, to lay out the main competing views and explain, on balance, why you have made the judgment that you have. This is important not only for the sanctity of the decision itself—as is true in major legal decisions which are evident from any high court system—but also in order to provide a working model of executive thinking; key stakeholders in the company can learn the reasoning process and mental connections made by the leader. It may be human nature to do the opposite—to hide behind the obscurity of unexplained decisions, keeping people guessing and so having a source of flexibility if conditions change and you have to reverse or adjust positioning. It may also be wishful and immature thinking, wanting “all things, all directions” and so avoiding some of the tough, trade-off questions that will be in peoples’ minds. The trouble is that you may also be weakening the decision itself, that the same obfuscation in the decision-taking and explanation may result in doubt and second-guessing of the strategic direction. There is also a lost opportunity for collective learning and enhanced future decision-making lower down. By having a clearer map to your thinking, managers may be in a better position to make decisions themselves, instead of pushing-up decisions because of doubt. One of the main things people in our classrooms suggest when we discuss “great leadership” is the ability to make tough decisions clear. It takes courage and practice. ii. Deliver a decision as part of a compelling narrative. People seem to better grasp information presented as a story, and narrative is fundamentally about storytelling. Good stories have some simple ingredients: a past or historical context, a present around which there is some conflict or tension to be resolved, and a sense of the future—of course there is the occasional hero and nemesis or anti-hero, and we will explore this later in the book. When decision-taking, think about how to deliver your chosen direction and

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decision as a narrative. How does this decision connect with the history of the company? What does it leverage from the past? What does the decision want to distance itself from? How does this decision see the present? What is the current stage upon which you are playing? How does this fit into the future? What is your take on this future, and how do you see the company in the evolving landscape? The idea here is to turn a decision into something more “3-D,” creating additional, layered meaning by making connections back and forward in time. This process of sensemaking through narrative can be a powerful way to format a decision. Storytelling doesn’t have to come from the leader and nor does it have to happen as a one-time event, but it can be a process in itself. In 2007 pharma giant Pfizer underwent a massive restructuring effort, and the company found storytelling could be more effective coming from the ranks of those most affected by organizational change. Rather than having a ­top-down approach to storytelling, the company engaged ten employees, each with a different role in the newly re-organized company, to tell their stories. Pfizer gave each one a video camera and told them to document their experiences, good and bad, and present those video diaries over a period of three months. Pfizer employees were reassured that their peers were traveling the same rock-strewn path they were, and the videographers became internal celebrities. Surveys reported an uptick in employees’ general level of confidence in the future restructured company. Of course, this was in the days of CDs and DVDs—and that’s how employees received the diaries, but you can imagine the potential in the era of Internet streaming or whatever new social media technology comes along.21 Finally, decision-taking is partly symbolic. Making strategic decisions is about more than where to place the company cafeteria. They are meant to be significant decisions and sometimes to have them taken seriously there may need to be some appropriate symbolic aspect to that decision-taking. This can be done in many different ways, but normally it requires some physical event with the attendance of all key stakeholders. This kind of event provides a clear decision point but, just as importantly, it provides closure. This doesn’t yet mean a “roadshow” and communication campaign, which may come next, but it does mean that there is a closure event for the key stakeholders in the deliberation process, both out of respect for their involvement and to give them time to marshal their own thinking and key contacts in preparing the hive mind for the next steps. 21Clayton, Sarah. (2015). “Change Management Meets Social Media,” Harvard Business Review, November 10. Retrieved August 23, 2019. https://hbr.org/2015/11/change-managementmeets-social-media.

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Communicating: From Backstage to Frontstage Finally, some form or wider communication is now necessary to embed the strategy within the company. Consider again Alcatel-Lucent and the work they did to communicate the shift plan throughout the organization22: The Shift Plan was announced on June 19th with execution timed to start on July 1st. The communications effort was planned to the last detail, with different sessions for each audience: investors and the financial markets, employees, customers, industry suppliers, stakeholders, and government. With the diagnostic findings already shared, the call to action was widely accepted. Employees had a dedicated website with the message that included the names of the leadership team, the principles of the operating model, the new organization chart with clear matching between the old and new, so that employees could understand where they were in the new structure. By September, everyone would know where they would belong and the cost centres. There were three roadshows for analysts in London, the US and Paris. The message was consistent with what the media were told. … Considerable credibility was built in the first two weeks, based on data and facts about what was going to happen. To each challenge there was an ­evidence-based response.

There are several things to note from the Alcatel-Lucent example: the rapid cascade of information, the involvement of multiple audiences in a coordinated fashion, a dedicated website for employees where details can be gleaned and feedback provided, and a physical roadshow to take the message directly to key locales. But the possibilities are endless when it comes to communication. The point, however, is not just “communication” but the perception of justice in this the final stages of committing the organization to a new direction. As this example highlights, three things, in particular, are important: i. The momentum of ideas is important to the commitment process. No one likes feeling like they are “the last to know,” as rumors start to swirl. There is also the problem that the rumors are likely to be full of misinformation, damaging the commitment process from the start.

22Galunic, Charles, Javier Gimeno and Lisa Duke. (2016). “Alcatel, Lucent…Nokia: On the Road from 3 to 1: The Leadership Challenges of Strategic Change.” INSEAD Case Study, February 24, p. 13.

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ii. It is important that leadership speaks as one voice even though there are various channels of communication. A lack of consistency can kill momentum. We will come back to consistency and its importance in the chapter on culture. But it is critical for the fairness of strategic decision processes. iii. The central leader’s continued involvement is crucial as is the movement of that leader into more of a frontstage role. Regarding this key third point, consider the findings of a recent and related research study I co-authored.23 This study measured to what extent employees in a large global media corporation both understood but also “accepted” or liked their local company strategy, that is why do some units or employees “get” their business unit strategy but others do not? The question was how do companies embed their strategies into the organization. Our source was the corporation’s massive employee survey database, and we analyzed three possible drivers of strategic embeddedness: job conditions, the quality and engagement of direct supervisors, and perceptions of trust and bidirectional communication from top management (i.e., top leaders in each company or unit, the key strategy makers). First, job conditions did matter, and particularly training and development opportunities—what we believed was going on was that where employees find a clear development path and education opportunities that typically are linked-up to strategy, they are more likely to understand and accept the strategy. The general lesson here is that local structures are a possible source of communication—we believe that to do this work they need to be linked-up to the strategy, and so be constant reminders of the strategy. Surprisingly, direct supervisors played no direct role in how well employees understood or accepted the strategy. It didn’t matter if your supervisor was a “high-engagement” type or not—there was no impact on your connection to the strategy. The general lesson is that we may be overestimating the power of strategy cascades—just dumping the strategic message to the next level down may not be enough. Instead, and the main finding of the study, senior management was shown to have had a powerful impact on how well employees knew and supported strategy, the magnitude of this effect being substantial, which was a surprise. The general lesson for our purposes is that at times the “invisible” leader must become visible and move to the frontstage, playing an important role in the wider

23Galunic,

C. and I. Hermreck. (2012). “How to Help Employees ‘Get’ Strategy.” Harvard Business Review, December, p. 24. Retrieved December 10, 2019. (Research Briefs). https://hbr.org/2012/12/ how-to-help-employees-get-strategy.

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communication of strategy, and the decision-making process. We learned that you can never underestimate the symbolic power of the top position in the company, and the broader understanding of people in that position. There is seldom anyone better placed in a company to explain a novel strategic direction and why the organization should be behind it. In fact, this is probably the most important moment when senior leadership needs to become very visible and appear frontstage. Finally, as you transition from Communicating to Comprehending the Problem in the subsequent decision cycle, the first part of that “Com­ prehending” work should take some time to debrief and explore what has already been done on the issue. This means (A) recognizing the good work that has been done and then also (B) reviewing the problems and failures along the way, in the spirit of improvement, a tolerance for failure, and a willingness to learn. Here’s the entire Creative and Fair Process again, but this time with a rough approximation of how much backstage work versus frontstage work is expected (Fig. 3.3). Notice the substantial amount of time spent working on the backstage, that is facilitating, orchestrating, preparing, etc. Yes, the process we suggest does require you to make a transition to the frontstage, but too often we

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perceive effective leadership to be mostly or all about that frontstage work. It is not. In fact, and particularly in the case of this core process for building commitment, the quality of the backstage work will largely determine how easy your job is when it comes time to move to the frontstage.

Mobilizing the Multitude: From Pull to Push The process we have described for building strategic commitment is, on balance, quite democratic and open to creative influences and ideas. It’s worthwhile emphasizing that it is not this way for ideological reasons but practical ones—it happens to be a superior way to ensure not only more implementable strategic decisions but also more creative and clever ones, tapping into a collective intelligence and not just the leader’s views. For practical reasons, however, it is worthwhile to consider a different path to strategic commitment. This is simply because the environment may not be as friendly to a democratic process. Consider the following conditions: • Extremely siloed, tribal, organization, with deep biases in choosing strategic options; • Flaming performance issues, requiring rapid decision-making; and • Tough, and evident, but “unpopular” direction is required. Situations like these, particularly when all conditions exist at the same time, may require more mobilization from the top leader to set the company on a different track, a tougher hand at building commitment. But we need to be careful at this point and briefly pause. We think it’s just too easy for a leader to read these conditions into their context and so sidestep the relatively “harder” work and facilitation that we described previously. “Yes! My context has all of these things: silos, visible performance issues, tough calls to make. Show me the nuclear option!” The first point to make is that it’s vital to have an honest assessment of the situation at hand, keeping in mind that the conditions we outlined are extremes—i.e., not just silos but full tribalism at work. For example, one reading of the Alcatel-Lucent case could have been that Michel Combes had the grounds for an autocratic process—the company was on the verge of bankruptcy, there was a strong history of silo’d thinking, and tough restructuring was very likely to be part of the rescue plans. And yet the executive office chose a relatively open process given the context. Second, mobilization is not about Machiavellian tactics, the sort of conduct you are likely to see in an episode of “Game of Thrones” or “House of Cards,” with almost magical results in those fictional context. Mobilization also requires

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fairness to work well; it just happens to start further downstream when it comes to the strategic direction or decision itself. It presumes that the “best” path is fairly clear, at least in terms of the institution’s needs, but that it now requires the organization to get behind it, to become committed to that path. Thirdly, it also requires you to commit a good deal of time to the backstage. A substantial literature is devoted to this general topic area, and MBA courses on “power and politics” tend to be popular and well-resourced with cases and reading materials.24 Writing about mobilization could fill-up several chapters, if not books, and I can’t possibly do justice to this topic here. But my goal is not to be comprehensive with respect to “power and politics” but only to suggest things that leaders should know or do which can support the building of commitment among employees to a new strategic direction. This is different from simply “winning” a political fight, which is not our goal here. The goal is to orchestrate commitment to difficult strategic paths. Of course, the prior process also does exactly that. Here we are simply complementing that process, and particularly in the final two stages (4 and 5 in Fig. 3.3), presuming that a leader has relatively more work to do selling the idea if there is limited amount of work done on stages 1–3, in the build-up to any decision. With these caveats in place, we will focus on 5 ideas for effective mobilization. These ideas simply acknowledge the “realpolitik” of modern organizations, that sometimes a particular kind of force or compulsion is needed to move an organization to an implementable decision. In general, the essence of that force is that it is social in nature.

Recognizing That Authority Is Neither the Problem nor the Solution The conventional wisdom for mounting a change drive is to build an authoritative guiding coalition. That usually translates into tapping the heavyweights in the company, the most senior, powerful, “alpha” figures you can find, and then let the steamrolling begin. These events can easily morph into an ego trip and status display by the 3-star and 4-star generals in your organization. This logic is not ridiculous—if you associate the new strategic direction with visible power and authority, you will get the ideas more easily through the organization. And you would be right, but you would also be missing the point of what is at stake. The goal is not to just get the ideas through. For that—and 24See in particular the large body of work by Jeffrey Pfeffer, on working with power in business organizations.

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because the natural audience for this book are people who are already at the higher ranks in their business, and who really don’t need a lot more “authority”—you already have the rank to compel change. That would be fine if your goal was compliance. This is the equivalent in wrestling of twisting someone into such a position that they start to tap the mat and yell “Ok, ok, I give in!” You will get your way, but they won’t appreciate it, neither you nor what you have coerced them to do. This is problematic for many reasons, but mostly because new strategic directions require, more than anything else, commitment, not just compliance. People have to be willing to engage with the new direction, and that requires commitment. Remember, our goal in this chapter is to commit the organization to a new strategic path, not to coerce it. The key insight is this: commitment needs to be collective—you need to build a common perception of the strategic direction, but also a common “volume” of belief. This is best done harnessing social forces. The first point is simply to avoid seeing authority as a problem or solution. Yes, you may need to build strong coalitions and allies, but the goal is not simply to get compliance but to ensure longer standing commitment to a new direction.

Understanding the Social Landscape If we asked you to provide a map of people in your organization, you would probably produce something like Fig. 3.4. And it wouldn’t be wrong—after all, rank and area of responsibility are certainly two ways by which we come to navigate our way through organizational space and get things done. While it wouldn’t be wrong, it also wouldn’t be complete. Another way to see organizations is shown in Fig. 3.5. Let’s assume this is one department, roughly 40 people in size. What we see are ties between individuals—in this case not “reporting” relations but “social” relations. For example, this map could be a map of technical ŝŐŐĞƐƚ ŽƐƐ ŝŐŽƐƐ ŽƐƐ:ƌ͘

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interests, showing how expertise or knowledge areas overlap in this department. You could argue that this is something that is also covered by deep, rich organizational charts. But this map could also be a map of friendship ties, such as who likes to socialize with whom, with the thickness of the ties representing the strength of the relationships, or common hobbies—think gym rats, wanna-be musicians, theatergoers, etc.—or all sorts of demographic similarities and interests that may pull pockets of people together, into more frequent communication and interaction. Work may be done along the lines of the previous graph, but information also flows along the ties of this second more informal mapping. But something much more important flows within the ties of the second mapping: trust. While we know that trust is partly based on the raw competence and expertise of people—and this will overlap with things like rank or positioning in the formal hierarchy—we also know that trust is relationally based, built from the interpersonal, social relations and understandings that flow through the second mapping. We will talk about how to apply this mapping for mobilization and without being too intrusive in the working and social lives of employees in the next point, but the main thing here is that knowledge of this second universe of activity is important. Some leaders are too busy on the frontstage to notice this landscape, more focused on doing than sensing and learning, another reason backstage, invisible moments of leadership matter so much.

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Employing the Bridges A powerful theory in network research—with considerable empirical evidence—is called “structural holes.”25 Having “holes” in just about anything except cheese is normally not a good thing, but in this case it is generally a very good thing. Holes in your network technically mean that the people you know tend not to know each other, or at least not very well, but what it really means is that the knowledge and information that you gain— that surrounds you—is more likely to be non-redundant, diverse, clarifying, and so useful. Will, in the figure above, knows a lot of people who all know each other—and so the “same old” is likely to circulate around and around. Tess, however, is linked to people who do not know each other. Her network effectively gives her the advantage of brokering—she can connect other people, ideas, and projects, but as she sees fit. Because brokers can also come with costs if they choose to wield their position for personal gain and politics, we will use a modified term and focus of mobilization—“bridges.” Bridges are people who also (structurally) straddle very different areas, interests, and groups within an organization (once again, Tess in Fig. 3.5), but we will add one further criteria—their disposition is “positive” and communal, and they have a tendency to integrate, to share, and to add value to the people around them. They combine the power of distinct knowledge with the power of trust (which Will’s network affords him), a potent formula for mobilizing an organization to commit to an uncertain path. They are also likely to be good sounding boards for ideas, both because their creative capacity to stress test ideas will be higher and also because they are more likely to be trusted to give fair, unselfish feedback. At French chemical giant Rhône-Poulenc, former CEO René Fourtou saw that the company’s scientists were stimulated to do their best work by people outside their own particular discipline. He noted biochemist Alex Zaffaroni as an exemplar not only of one of these “bridges,” but also someone uniquely suited to see other bridges. A former subordinate says of Zaffaroni, “He is reading and thinking very widely. He is totally unafraid of any new technology in any area of human creativity. He has wonderful contacts with people in many different areas, so he sees the bridges between otherwise disparate fields.”26 The bottom line is that mobilizing people to a new direction will be easier if that direction is shared by the bridges in your organization. The 25Burt,

Ronald. (1992). Structural Holes. Cambridge, MA, Harvard University Press. Ronald. (2004). “Structural Holes and Good Ideas.” American Journal of Sociology 2(110): 349–399. 26Burt,

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implication for leaders is that they need to locate and solicit the support of the bridges in the organization.

Communicating at Different Altitudes Senior leaders are responsible for providing a “high-level” or integrative perspective on the organization and its developing strategy, but this doesn’t necessarily mean that they provide a balanced or rounded perspective. Mobilization, however, may require just such a balanced view. By balanced, we specifically mean a viewpoint that covers the vertical spectrum. Let’s divide-up the vertical spectrum as follows: View from space—this is “the big picture,” the broadest viewpoint, and what is commonly associated with providing a “strategic” picture, capturing the organization in its widest context. This is the stuff of client or customer segments and the value proposition and meaning of the product or service, of the ecosystem of partners, suppliers, and competitors, or government regulation, and so on. View from the top floor—this is the institutional viewpoint, of how the focal business unit fits into the overall corporate operations and business model. It’s about helping people see the corporate implications of a new strategic direction (i.e., how we will work with other entities in the organization going forward, what it means for our organization structure, and so on). View from the office—this is the viewpoint of the workforce, of the people who have to cope with the new strategic direction and somehow adjust their work, and often private, lives to fulfill that strategic direction. It is the most micro and personal viewpoint. Mobilization for a new strategic direction means always understanding that the viewpoint of the recipients of a new strategy—much like the viewpoint of the customer—shouldn’t be forgotten. Take the case of Chris Johnson at Nestle, who was called upon to lead a major new IT and enterprise management project called “Globe.”27 Chris moved from his post in Taiwan, where he was the market manager, to Nestle headquarters in Vevey, Switzerland, building a sizeable team of professionals and consultants who were dedicated to the Globe project. It didn’t take long for the larger framework and 27Killing,

Peter. (2003). “Nestle’s Globe Programme: Globe Day Case C.” IMD Case Study.

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implications of the project to come into view, including centralized purchasing, fewer IT centers, common product codes, and decision support tools. However, at his first plenary meeting with all of the other market managers worldwide—the target group for the change efforts—and with the project now well past the first-year mark, what became painfully obvious to him was how disconnected the market managers personally felt from the project— what it would mean for their jobs—and how little had been done to consider the implications of their “local” viewpoints in this new strategic direction for the company. It was a painful start to the meeting, as Chris noted28: It was not a great beginning. My pattern of response, which I maintained all morning, was not to be defensive, but to answer where I could, ask questions for greater clarification, and basically accept what they were throwing at me. My thinking was that this whole initiative had basically been shoved down their throat and this was their chance to get some of their frustration out. If I had still been running the Taiwanese market my reaction might have been much the same.

The good news for Chris Johnson was that he learned from this experience and was much more effective at empathizing with and preparing for the core audience in the subsequent meetings. Mobilization is better done when leaders put themselves into the shoes of the people on the ground floor and then consider the types of questions that they are likely to have. Having answers to those questions—not just the questions of investors and analysts—is important to getting people behind the project, and especially if they could not be involved in the decision-making process itself. And to do this well requires developing the ability to speak “at different altitudes” of the problem or situation.

Uniting Front and Back via the Top Team Finally, the conduct of the top team is important, setting an example for the rest of the organization—loyalty, unity, positivity. Political cracks can appear throughout an organization, but they will become worrying fissures if the top leadership team responsible for the strategy redirection becomes divided. Because we are talking about new directions that may have to be pushed from above, resistance and politicization of the change are more likely, and naysayers will be looking carefully for cracks to appear first and foremost in the top team. If the top team is not united, the logic goes, why should the 28Ibid.,

p. 2.

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rest of us really commit to this change? All of us understand this logic from childhood—citing divisions among one’s parents is the surest way to scupper and protest a new demand. We learn early-on how to conquer by dividing. Countering this human tendency requires both frontstage unity—managing what happens when everyone is watching—and, but just as importantly, backstage unity, what happens when they see each member of the top management team in daily life, what happens when they are off-camera (because the microphones may still be on). This was a major challenge for one of my clients, a large company in their industrial sector. Public discussions of new strategic directions with top leaders and managers went well enough. Agreements were reached and it always seemed the company could move forward and mobilize the implementation efforts. But often the process would break down and stall. The problem was off-stage chatter, cynicism, and divisions. Instead of maintaining loyalty to the top team cause, the top leaders, once out of earshot of the rest of the team, found it socially easier to allow or encourage divisions. It’s human to suddenly feel isolated and anxious—or possibly just “uncool”—when forced to single-handedly defend an institutional strategic direction to your local tribe. There is also the game theory aspect of the challenge—if I keep the party line and unity with my top teammates, will they also do the same when I’m not looking? Or will they sell the project short, in which case I’m a fool not to do the same!? But without this unity, the initiative is almost certain to fail. The opposite is also true. If the top group can maintain loyalty to one another and the chosen strategic decision, it generates a powerful symbolic message about the cause. It will not only blunt destructive political forces, it will increase the credibility and respect of the mission. We have come full circle in this chapter when pointing out that this was sorely missing in RIM. Blackberry’s chances of a timely strategic redirection went way down as soon as cracks in the leadership team appeared in how exactly to confront the divided views on the growing threat of smartphones. In summary, building strategic commitments requires plenty of backstage processes and work. It starts with figuring out where on the Democratic— Autocratic scale your commitment process lies and what is really required to move strategy along. It means carefully developing the supporting microprocesses and understandings to execute either a Creative & Fair Process commitment strategy that requires relatively lots of “pull” or a Mobilization strategy that requires more selling of your direction or “push” (and you might just need both strategies on tap). With the former, you’ll bring the procedural justice of the courtroom into the business arena. With Mobilization, you’ll

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harness the social forces and roles (bridges) in your organization to push organizational change. At the heart of both strategies is the act of getting a collective to agree upon both “making” and then “taking” a strategic decision—and feeling good about it. And, finally, to do this, you will need to develop the capacity to move seamlessly between the foreground and the background in your leadership work.

References Bilderbeek, Pam. (2015). “How Apple, Cisco and Huawei Disrupted the Telecom Equipment Market.” The Metis Files: Source to Success, April 15. Retrieved December 10, 2019. https://www.themetisfiles.com/2015/04/ how-apple-cisco-and-huawei-disrupted-the-telecom-equipment-market/. Bunderson, J. S. and R. E. Reagans. (2011). “Power, Status, and Learning in Organizations.” Organization Science 22(5). Burt, Ronald. (1992). Structural Holes. Cambridge, MA, Harvard University Press. Burt, Ronald. (2004). “Structural Holes and Good Ideas.” American Journal of Sociology 2(110): 349–399. Casciaro, Tiziano, Amy C. Edmundson and Sujin Jang. (2019). “Cross-Silo Leadership.” Harvard Business Review, May–June. [TK] Retrieved August 28, 2019. https://hbr.org/2019/05/cross-silo-leadership. Clayton, Sarah. (2015). “Change Management Meets Social Media,” Harvard Business Review, November 10. Retrieved August 23, 2019. https://hbr. org/2015/11/change-management-meets-social-media. Edmondson, Amy. (1999, June 1). “Psychological Safety and Learning Behavior in Work Teams.” Administrative Science Quarterly 44(2): 350–383. Fry, Stephen. (2008). “Gee, One Bold Storm Coming Up….” StephenFry. com, December 11. Retrieved December 10, 2019. http://www.stephenfry. com/2008/12/11/gee-one-bold-storm-coming-up/. Galunic, C. and I. Hermreck. (2012). “How to Help Employees ‘Get’ Strategy.” Harvard Business Review, December, p. 24. Retrieved December 10, 2019. (Research Briefs). https://hbr.org/2012/12/how-to-help-employees-get-strategy. Galunic, Charles, Javier Gimeno and Lisa Duke. (2016). “Alcatel, Lucent…Nokia: On the Road from 3 to 1: The Leadership Challenges of Strategic Change.” INSEAD Case Study, February 24, p. 13. Galunic, Charles and Jacques Neatby. (2013).“Order in the Strategy Court.” Harvard Business Review, November 26. Retrieved December 10, 2019. https:// hbr.org/2013/11/order-in-the-strategy-court. IDEO. (2012). “Putting a Human Face on Big Data” (Case Study from IDEO’s Own Web Site). Retrieved December 10, 2019. https://www.IDEO.com/ case-study/putting-a-human-face-on-big-data.

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Kenny, Brian. (2014). “Collective Genius.” HBR Newsroom, September 12. Retrieved August 27, 2019. https://www.hbs.edu/news/articles/Pages/linda-hill-collective-genius.aspx. Killing, Peter. (2003). “Nestle’s Globe Programme: Globe Day Case C.” IMD Case Study. Kim, W. C. and R. A. Mauborgne. (1998, April). “Procedural Justice, Strategic Decision Making, and the Knowledge Economy.” Strategic Management Journal (Special Issue) 19(4): 323–338. Lam, Brian. (2006). “The Pope Says Worship Not False iDols: Save Us, Oh True Jesus Phone.” Gizmodo, December 26. Retrieved December 10, 2019. http://gizmodo.com/224143/the-pope-says-worship-not-false-idols-saveus-oh-true-jesus-phone. McNish, J. and S. Silcoff. (2015). Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of Blackberry. New York, NY, Random House, Business and Economics. Rawls, John. (1971). A Theory of Justice. Oxford, Oxford University Press. Smith, Andrew. (2017). “Who Is Elon Musk? Tech billionaire, SpaceX Cowboy, Tesla Pioneer—And Real Life Iron Man.” The Telegraph, May 24. Retrieved December 10, 2019. https://www.telegraph.co.uk/technology/0/ elon-musk-tech-billionaire-spacex-cowboy-real-life-iron-man/. Swetzoff, Jen. (2015). “Linda A. Hill on the Creative Power of the Many.” Strategy + Business, March 16. Retrieved August 28, 2019. https://www.strategy-business. com/article/00315?gko=f6c22. Thomsen, Dave. (2012). “Why Human-Centered Design Matters.” Wired, December. Retrieved August 27, 2019. https://www.wired.com/ insights/2013/12/human-centered-design-matters/. Vance, Ashlee. (2015). “The True Story of Elon Musk, Robert Downey Jr. and Tony Stark.” Linkedin, June 19. Retrieved December 10, 2019. https://www.linkedin. com/pulse/true-story-elon-musk-robert-downey-jr-tony-stark-ashlee-vance. Van der Heyden, L. and T. Limberg. (2007). “Why Fairness Matters.” Springer International Commerce Review 7(2). Van der Heyden, Ludu, Christine Blondel and Randel S. Carlock. (2005). “Fair Process: Striving for Justice in the Family Firm.” Family Business Review XVIII. Vuori, Timo and Quy Huy. (2015). “Structures of Attention and Shared Emotion in the Innovation Process: How Nokia Lost the Smartphone Battle.” Administrative Science Quarterly, 1–43.

4 Handling Contradictions: The Structural Work of Leadership

The Sun may look like a single, giant ball of fire, but it is not. It is a complex structure with multiple layers of activity that allow it to function as it does, in equilibrium and over billions of years—and that allow us to function as we do on Earth. At the center of the Sun is the thermo-nuclear core, the explosive furnace at the very center of our solar system where vast amounts of hydrogen gas experience nuclear fusion and are spectacularly fused into helium atoms, releasing outwards massive amounts of energy and particles, some of which fuel our world. At its core, the Sun and all stars contain these explosive, expanding forces. As those new vectors make their ways outwards, however, they are wrapped up and tamed by another powerful force in our universe: gravity. Think of gravity as a contracting force that pulls things together, that abjures autonomy and prefers collectivity, a sort of synergy. This solar “plasma” is lassoed back toward the dense and massive core because of these gravitational forces (and fortunately for Earth), pulling in the vast amounts of hydrogen in the Sun toward the core where it becomes thermo-nuclear fuel. An equilibrium is reached in the Sun’s outer core(s), where the expanding forces are in balance with the contracting forces of gravity and what was once that initial, star-forming collapse of interstellar gases that created the Sun. The Sun and every star in the known Universe rely upon these contradictory forces to be in balance—outward expansion and inward contraction. Without an explosive, “entrepreneurial” core—and one that is sufficient in power and size—the materials of the Sun would eventually collapse, falling-in further on themselves (as they will one day, once the Sun’s hydrogen is depleted), and the Sun’s equilibrium would be destroyed. Likewise, without the force of gravity pulling materials back in (bear in mind that over 99% of all matter in our © The Author(s) 2020 C. Galunic, Backstage Leadership, https://doi.org/10.1007/978-3-030-36171-6_4

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solar system is being contained in the Sun) the integrity of the Sun—and its ability to function as a constant, continuous, steady source of energy—would be impossible. To simplify, our middle-aged, modest-sized Sun has two essential processes being played out and which remain in balance. Hence, life on this planet is bound up in paradox, in this strange balance between apparently contradictory forces. Too much in either direction, and we are toast. By analogy, at any one time there are also two fundamental motors powering different functions and features within organizations—contradictory and paradoxical forces that organizations need to stay alive and relevant for longer. Of all the backstage work that organization leaders need to understand and keep in balance, managing contradictions is perhaps the trickiest to get right, require adaptive shits and multiple lenses and ways of working. These basic, and correlated, contradictions with which managers must contend can take many forms: long-term view versus the short-term, autonomy and loose coupling versus synergy and collaboration, decentralization versus centralization, loose rules and understandings versus highly formalized systems, and, perhaps the main paradox, what we call “exploration” mode versus “exploitation” mode. However, there is much in common to managing any of these contradictions, and this is why this chapter is more generally about managing contradictions rather than specific forces at play. Unlike the Sun, where there is no central controller maintaining the balancing act, human organizations require leadership to ensure some form of equilibrium. Organizations can suffer from giving excessive weight to one of two opposing forces very easily. For example, there are a multitude of young, entrepreneurial start-up companies born every year that will never sufficiently balance their entrepreneurial routines and early “start-up” identity with repetitive, scalable, efficiency-seeking, what some call boring routines. The best of these start-up failures—those with great, marketable ideas but that become operational failures—may be fortunate enough to be acquired. Think of it as a sort of Peter Pan syndrome for companies—they never quite manage to grow up and scale, their leaders never quite manage to build a sustainable, repetitive business model, although the reasons may be complex. Consider Tutorspree, a company started in 2011 that was hoping to become the AirBnB of tutoring, connecting students with tutors through the Internet. An intriguing idea, assuming a channel can be developed that gets you high-quality tutors and trusting users—trust being critical because parents need to be willing to put their child’s educational development in the hands of some unknown person on the Internet, clearly a sensitive combination in today’s world. Early users may be willing to take more risks, desperate to have young Suzie learn calculus, but eventually, to scale and move

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to the mass-market, you need to develop channels and a business model that secures high trust. However, as one of the founders thoughtfully explains in a post-mortem,1 Tutorspree was born with a single-focus on search engine optimization (SEO) marketing, but failed to adequately develop and scale other conventional, targeted channels for its service. SEO is basically about finding a way to improve your position in Google’s search engine rankings. SEO is great because it is almost free, that is in comparison with paid, more targeted ads or other marketing operations that allow you to more carefully segment your market and build trust. The trick is to get users and other websites to link to your website. But when Google tweaked its ranking algorithm, Tutorspree traffic was cut by 80% overnight. Tutorspree was a young firm intent on continuously improving its clever service but it had not developed other channels to exploit the potential market and drive higher volumes of traffic. Hence, the fledgling company never fully recovered and was unable to make the full move into more of an “agency” model (think “higher trust AirBnB”) and was eventually acquired by competitor Wyzant, which, fortunately, found a more comprehensive way to scale. Also, as we’ve seen in this book so far, companies also fail—or fade away— for being too focused on exploiting their current product or service offering and not managing to further explore and innovate their core fast enough. The list of companies here would be quite long: Blockbuster, Blackberry, Kodak, Sears, Toys-R-Us, Yahoo, etc. But even young firms can suffer from a lack of balance of these two opposing forces. Webvan is a start-up that can be said to have placed inadequate emphasis on the exploration side. A much-lauded dotcom company that wanted to revolutionize grocery shopping, Webvan wanted to provide online shopping access to a vast multitude of grocery items that would be delivered to your home. The trouble was that they focused on building an expensive, high-scale operational model when they may have done better with a more targeted, “minimum viable product” type approach, continuing to explore and test before they invested too heavily in a scalable system.2 Some companies, of course, find a way to reach a happy equilibrium over time, and perhaps one of the best examples we have today is Amazon. The online giant has produced some powerful and market-leading

1Harris, Aaron. (2014). “When SEO Fails: Single Channel Dependency and the End of Tutorspree.” AaronKHarris.com, 6 January. Retrieved December 10, 2019. http://www.aaronkharris.com/ when-seo-fails-single-channel-dependency-and-the-end-of-Tutorspree. 2Techcrunch.com. (2013). “Where Webvan Failed and How Home Delivery 2.0 Could Succeed.” September 28. Retrieved December 10, 2019. https://techcrunch.com/2013/09/27/why-Webvanfailed-and-how-home-delivery-2-0-is-addressing-the-problems/.

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innovations—such as its Amazon Web Services, a major player in cloud computing—while at the same time honing and improving its core online shopping service (think Amazon “prime,” same-day delivery model, etc.). I chose the word equilibrium and not “balance” on purpose, because achieving a perfect 50/50 balance is not necessarily the goal. As we shall see later in this chapter, there are likely to be moments where a leader needs to turn up the volume on one set of forces and diminish the other, and hopefully in such a way so as not to extinguish the flame of that other force. Amazon’s profitability was notoriously low for much of its existence, as it plowed money back into developing and extending its product concept. At least in their first decade or so of existence, it is fair to say that Amazon’s equilibrium was skewed toward rapid exploration. Or think of it this way: Amazon could simply have stopped at “online book seller” as its core business model and purpose, and focused on doing that extremely well. Many of us, certainly younger readers, will forget that Amazon’s initial big splash was in online book sales. They did not sell shoes, coffee machines, gift baskets, and millions of other things for which they are used today. If they did focus only on “exceptional online book seller,” chances are we would not be talking about them today, at least not as more than a historical footnote, as an adventurous pioneer in the early days of the Internet. Like Amazon, all companies have to cope with contradictions. They need to be managed in a way that aligns with an ideal equilibrium given their context, times, and peculiarities. To be sure, of all the work of backstage leadership, this is perhaps the hardest one to boil down to some framework or toolkit—it will feel more like alchemy than engineering at times. But there are resources available in how we think about this fundamental problem, as we will examine in this chapter. We will start with some brief background on why organizations are naturally full of contradictions or trade-offs before exploring three layers of trade-offs, running from micro- to macro-phenomena: time perspective, team or group interaction, and finally larger structures. The heart of the chapter, however, will examine ideas for leading through skillful navigation of contradiction.

Our Hierarchical and “Near-Decomposable” Organizations As a manager, you are probably all too aware that your organization, and those for whom you have worked in the past, are full of contradictions. You can sense it in your gut and frayed nerves if not rationally as you are confronted daily by competing demands:

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• Marketing takes a long-term view and wants to develop a brand new feature and push product variety, believing this will outflank a competitor’s offering; • Engineering wants to improve upon the existing product design and invest in evolutionary upgrades; • Finance likes neither Marketing nor Engineering’s ideas, because there’s a short-run cash flow issue and dividend impact, and they don’t want to spend much in this coming year, and they are terrified of investor sentiment; • Regional sales offices laugh at all three, happy to be removed from “HQ” and believing that they support the whole show, and should be left to get on with the most important work of local sales and support, believing their human touch is the key competitive advantage of the company. And then Product Management wants…you get the picture. But what may not be so obvious is that organizations are naturally prone to contradictions, in the sense that contradictions are a normal part of remaining adaptive in a complex environment and should be seen as such. By complex environment, I mean one that is changing and uncertain and requires responses. So it is impossible to say definitively that long-term views are better than ­short-term views, that it is always better to explore than exploit, that synergies are always better than autonomy, that offering customers one dimension of value is always better than offering another or vice versa for any of these situations. Even if the environment becomes stable and predictable, we know that this is not likely to last. There are so many moving parts in our modern economy that somewhere, something is going to change/ develop/advance/collapse and trigger a cascade of changes elsewhere. Modern organizations have coped with this complexity by becoming themselves “complex,” a sort of ecological matching of the economic world around them, ideas perhaps explored most poignantly by a great organizational scholar, Herbert Simon.3 Simon, among other scholars,4 recognized that organizations, among other systems, have two qualities which allow them to cope with complexity in the environment, rendering themselves also

3Simon,

Herbert A. (1962). “Architecture of Complexity.” In Facets of Systems Science. Boston, MA, Springer, 1991. 457–476; Simon, Herbert A. (2002). “Near Decomposability and the Speed of Evolution.” Industrial and Corporate Change 11(3): 587–599. 4Ethiraj, Sendil K. and Daniel Levinthal. (2004). “Bounded Rationality and the Search for Organizational Architecture: An Evolutionary Perspective on the Design of Organizations and Their Evolvability.” Administrative Science Quarterly 49(3): 404–437; Weick, Karl E. (1976). “Educational Organizations as Loosely Coupled Systems.” Administrative Science Quarterly 21(1): 1–19.

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more complex. The first is hierarchy, not just in the sense of “everyone has a boss,” and certainly not simply as the condition of “fiat,” but more in the sense that organizations are subsystems, cascades of units of activities, within units of activities, and, yes, with nested decision rights, so that those “on top” have some decision rights over those “on bottom.” Often, we approach hierarchy at this point as all about the decision rights others have over that subsystem from the outside—from above, and the important coordination this provides, which we will come back to—but the other story of hierarchy is the decision rights within that subsystem, that there are local, autonomous decision rights that belong to that local unit alone. This produces a sortof-magic in that it renders the system more adaptable, allowing that local unit or function to search and explore and optimize locally with much less disturbance to or interference from the entire system. In the same way that hierarchical systems such as cells, tissues, organs, each with their own hierarchies and demands, have helped in human and biological evolution, Simon argued that hierarchical systems are also crucial to human organizations, for their growth and performance, and evolution. The second quality, which organizational scholars call n ­ ear-decomposability, is very similar to hierarchy in that it emphasizes specialization of purpose/ function of those subsystems. That is, organizations can be decomposed into subsystems, but they are not likely to be “perfectly” decomposable and at the same time co-evolve. Remember that we, as consumers, as the “selective force” for business firms, are ultimately concerned only with what the entire company can do with its various pieces. We don’t care about the fights between marketing, engineering, sales, or manufacturing units, only that the product or service at least fulfills our expectations. We either buy the phone, the car, the meal, the shoes, or we don’t. Selection pressures apply to the entire system, which is what ultimately lives or dies. This is why organizational subsystems are near decomposable—they are independent but not perfectly so. Near-decomposability takes more seriously the interaction dynamics between the subsystems. Hierarchy leverages the power of specialization, which brings us both wonders in innovation and efficiency, but if you make enough changes in the subsystems over time, other subsystems will have to adapt and have to be coordinated, with some forced to adapt and change more than others. That entire patchwork of interactions—their strengths, implications, dynamics—is also what we mean by near-decomposability. Eventually, those subsystems have to produce order and stability at the level of the entire system, and this may require coordinated, hierarchical action in the traditional sense (i.e., top-down decisive action). Sometimes the coordination that hierarchy can provide is invaluable. You probably never thought about hierarchy as a good thing. Hierarchy is much maligned, a term that symbolizes regressive, not progressive

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organizations. And yet it is incredibly useful in the functioning and development of complex human organizations. Even in the case of ­ultra-modern, age-of-disruption, super-digital organizations. Take, for example, the San Francisco-based company GitHub, a new millennium software company founded in 2007 that focuses on a platform for collaborative software development.5 GitHub has allowed millions of users to co-develop tens of millions of software projects using its coordinating platform. It was particularly famous for its new-age organizational design, which emphasized open allocation so that employees can join projects of their choosing, the ability to select your own job title (think “Developer Superhero”), no formal hierarchy, conflict resolution through consensus and basics rules, informal hiring and performance management, etc. However, around 2014, GitHub was embroiled in a claim of gender-based harassment by one of its female employees. The situation quickly grew conflictual and out of control. At that point, the company brought in an outside firm to conduct an investigation. While the investigators did not conclude that there was evidence of genderbased harassment, they did conclude that poor divisions of personal and professional boundaries inflamed the conflict and did not give the claimant a clear way to get help. With roughly 250 employees that year, the company began adopting clearer human resource procedures, including leadership training programs. In addition, the company carved out distinct managerial positions with a hierarchical structure and reporting procedures. The Wall Street Journal reported, “Indeed, at GitHub’s cavernous headquarters, a company that once prided itself on lack of hierarchy is having to grow up.”6 The adoption of a hierarchy surprised many observers, given that GitHub was a bit of a poster child for new millennium organizations. But given the incident, basic facts of life were becoming difficult to manage under the freewheeling start-up system: how to resolve conflict that cannot be pre-determined and resolved through rules, how to then change and shape the rules that shape the coordination, how to coordinate company growth and scale with speed, and how to better use resources and reduce inefficiencies. In a resource-rich, stable, non-competitive world, I could imagine GitHub never having to change its once-wonderful idyllic start-up organizational design.

5Burton,

Richard M., Dorthe D. Håkonsson, Jackson Nickerson, Phanish Puranam, Maciej Workiewicz and Todd Zenger. (2017). “GitHub: Exploring the Space Between Boss-Less and Hierarchical Forms of Organizing.” Journal of Organization Design 6(1): 10. 6Rusli, Evelyn. (2014). “Torment Makes GitHub Grow Up.” The Wall Street Journal, July 17. Retrieved October 15, 2019. https://www.wsj.com/articles/harassment-claims-make-startup-GitHubgrow-up-1405639553.

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But the ultimate arbitrator of organizational design is what will survive in an environment that punishes slowness, a lack of scale, inadequate rules and structures, and profligacy. The lesson to be drawn here is not that the “winner” is a more coordinated, top-down, synergy model. In fact, I suspect that GitHub still operates with a lot less formal hierarchy than we find in many organizations. But the point is that it could not live with zero formal hierarchy, that some balancing was necessary. More importantly, we have arrived to an important viewpoint on the contradictions that confront organizational managers on a daily basis: they are fundamentally “ok” if not “good.” They are necessary to the survival and development of an organization, a part of coping as an organization in our modern times. Even as the environment is uncertain and dynamic, so it will raise directions and forces that are contradictory to the established order or to other forces, and the complexity with which we have constructed modern organizations tries to match that complexity, and so introduces contradictions and “tough” decisions in our lives. But without them, without engaging in managing through contradictions, our organizations would struggle to cope. Show me an organization that is wrapped in Teflon and craves only stable equilibrium above all else, and I will show you an organization that is not likely to stay around, or intact, for long. Most of the time, then, hierarchy and near-decomposability work wonders. However, as with all things, there is a cost. The major part of that cost is first of all recognizing the nature of the contradiction in front of you— that is what are the real trade-offs you are facing, which we will look at next—and then what to do about it. In turn, there is also the cost of leading/designing organizations in such a way to help you cope with those issues over time. It would be straightforward if the environment could be read easily. But the environment can throw up many different alignment scenarios that sound perfectly reasonable. Resolving them through a singular algorithm is out of our reach as yet. Still, decisions have to be made, effort has to be expanded, trade-offs have to be considered, and, perhaps most of all, explanations and narratives have to be constructed about what the organization has to do next. And human leaders, not an AI program (yet), are the ones who have to do this. Turning from these theoretical notions: How is it that some organizations can develop into adaptation machines, not so much freed of contradictions but able to resolve them? What makes some organizations more robust when confronting such contradictions? And what is it that leaders need to consider and do? Before we get there, let’s first explore three different types or dimensions of contradiction. Each one operates at a slightly different level of

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analysis, beginning with the most micro and moving to the most macro, and most complex.

Time Horizons: Past, Present, or Future? Urgent or Cautious? Time horizons, or what we can call temporal focus, can differ vastly within companies and across people.7 First of all, we have many time-cycles operating in a company: information can run in seconds and minutes, routines and meetings run in increments based on the hour, most projects run on weeks and months, budget and reporting cycles are annual, career tracks run on years, and assets (planes, buildings, heavy machinery) may have a time horizon of a decade or more.8 But people and organizations may also have different perspectives on time. They are either more focused on the future, using long-term thinking, or on the present, with short-term thinking. Individuals and organizations may even exhibit “backward” thinking, a focus on the past. Trouble arises when one view is idolized and another demonized. Clearly, the more popular choice is the long-term viewpoint. But taking the long-term view while ignoring the past or present is not necessarily optimal. For example, I have worked with a company that held a long-term view on many things, including business models and investment horizons. This sounds like a very good thing—aren’t investors and business leaders supposed to be long-term minded? But in this particular case, they held on to a business model for too long and failed to respond adequately to “short-term” cues, or at least that were interpreted as such, which would have led them to pivot away from this business model much sooner. I could see the energy ebbing away from middle managers over time as they remained wedded to a business model that was fast losing relevance, a model that was a bit of a relic from years gone by. I can only imagine that finding the best talent proved to be more and more difficult for this business segment, and so a self-fulfilling prophecy may have been set in action. Eventually, the business segment had to be sold, but with years of pain in the wake; more attention should have been paid to the here-and-now. Of course,

7Kunisch,

Sven, Jean M. Bartunek, Johana Mueller and Quy N. Huy. (2017). “Time in Strategic Change Research.” Academy of Management Annals 11(2): 1005–1064. 8Economist. (2018). “A Minute of Your Time.” The Economist, July 21–27 (Business Section).

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the business world has no lack of examples of quarterly reporting obsessed managers who are overzealous with short-term corrections. In this particular case, the future viewpoint and the past viewpoint were probably correlated, a correlation suggested by research.9 Business leaders were no doubt constrained by the deep roots of this business segment in the corporation, a deep legacy business for this company and an important part of their history, and so reluctant and slow to change the model, as research supports.10 Believing in an “age-old recipe”—such as Polaroid’s belief that real profits were mostly generated by selling film, not the camera—can powerfully direct business development. But attention to the past is not always bad. After all, we venerate scholars of history, an entire academic field that is devoted to exploring the past. We also have pop culture sayings that extol learning from the past, such as, “Those who don’t learn from history are destined to repeat it.” And with respect to corporate innovation, research shows that past experience can create momentum and consistency in useful ways, such that innovation over time neither accelerates nor decelerates, as is often presumed to be the norm, but remains stable, allowing a business to build more careful and well-honed innovation routines.11 Hence, there is no such thing as the single “best” temporal focus in management, despite the business world preferring to emphasize the benefits of the ­long-term view. Contradictions to do with time can also take a slightly different form than with respect to temporal focus (past, present, future) and have more to do with leadership styles. We call this characteristic urgency, and it has to do with the volume of activity in a given time period. A leader dominated by urgency also prefers to start earlier rather than later and exhibits a hurriedness to life, always trying to do more sooner. There is much to like about being a more urgent leader. It is associated with positive outcomes in change management, driving attention, increasing energy levels, and entrepreneurship levels within a company. Surely, being a more urgent leader is a great thing? Not so fast. Other research suggests that such increases in pace and timeliness (i.e., less time within which to do more) can also lead to lower performance, as corners are cut and less time is taken to coordinate and

9Kunisch, Sven, Jean M. Bartunek, Johana Mueller and Quy N. Huy. (2017). “Time in Strategic Change Research.” Academy of Management Annals 11(2): 1005–1064 (p. 1038). 10Bluedorn, Allen C. and Gwen Martin. (2008). “The Time Frames of Entrepreneurs.” Journal of Business Venturing 23(1): 1–20. 11Turner, Scott F., Will Mitchell and Richard A. Bettis. (2013). “Strategic Momentum: How Experience Shapes Temporal Consistency of Ongoing Innovation.” Journal of Management 39(7): 1855–1890.

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synchronize across the company.12 Once again, what we are left with are contradictory operating modes. So while popular business culture may push hard on “long-term” view and “urgency,” we know from research, and more than a little common sense, that these contradictory perspectives on time need to remain so, that we cannot resolve that contradiction. The goal, then, is alignment and dynamic balance. This begins with an honest assessment of where you are at: Are you and your organization more prone to one-time horizon or another? Do you push urgency above all else, even in situations that require more thought, engagement, fair process, etc.? Do you lionize the long-term and crave stability? Or do you shift too easily and cope only with short-term business rhythms? What is the assumption your organizational culture has about time? A good starting point is to be better aware of both your personal and organizational tendencies when it comes to temporal dimensions. Leaders also need to be mindful of their context—competitors, positioning, and customer trends—and make a judgment on the relative balance of, in this case, longer-term and shorter-term perspectives, projects, and messages in their narrative. Strictly speaking, this is not a perfect balance between the long and the short, between being more or less urgent. Firms in expansionary phases of their business life cycle, say sustainable energy sectors, may need somewhat more long-term than short-term project and routine horizons (years and decades), while firms in contracting business life cycles, such as printing services, may wish to think about near-term efficiencies, economies of scale, and M&A activity (months and years). The point is that the balance should be dynamic and aligned with the times.

The Collaboration Spectrum: Autonomy Versus Synergies Having “near-decomposability” means that organizations and their leaders face another fundamental trade-off: How coordinated should an organization become? How much autonomy should be allowed? How much synergy should be pursued? I chose the word “allowed” on purpose, to point to the natural state of things for many organizations. Most subunits and their leaders, when it comes to “headquarters,” have an attitude that borders on movie

12Kunisch, Sven, Jean M. Bartunek, Johana Mueller and Quy N. Huy. (2017). “Time in Strategic Change Research.” Academy of Management Annals 11(2): 1005–1064.

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stars’ attitudes to paparazzi—they want to be left alone. Forces for autonomy in organizations may be the equivalent of entropy in nature, a tendency toward disorder, in the sense of individual units doing their own thing. In one corporation with which I’ve worked, that natural inclination is so strong that, ironically, the most common cultural assumption in the corporation— the tacit, and made explicit, value which they share more than any other and that, binds them together—is independence, that the different units want to be left alone. But headquarters and management thought leaders have other ideas. The mantra is about collectivity, collaboration, integration, and the holy grail of modern corporate management, synergies. This is the belief that 1 + 1 can equal 3, that joining forces and cooperating will always make you more creative, stronger, and more efficient/less redundancies. Who could argue against that?! When it comes to business life, isn’t entropy ultimately “bad”? Don’t we want our organizations to be “joined up,” “synchronized,” and “tightly integrated,” to list just a few buzzwords and phrases I’ve heard from company leaders. Certainly, the socially desirable outcome in t­ wenty-first-century organizations—the thing that tends to be at the forefront of popular opinion in the management world—is for more cooperation and collaboration, not less. But let’s start with some research, and research on a conservative test of this presumption in favor of the desire for more collective and integrated teams. Surely, if there is any level in a firm where we would expect more cooperation and collectivism to be a good thing, it would be working teams, units of activity that should have much less “decomposable” tasks, and so a greater need for collective action. Yet, research shows that performance can be significantly hampered, not helped, by greater collectivism. Consider performance in the sense of creativity. The arguments in favor of more individualistic teams (where there is more focus on individual work and contributions rather than collective work) being more creative are that members will be less constrained, more likely to think freely, and so generate more novel ideas. In contrast, highly collectivist teams may find that their cohesiveness spills over into greater conformity. But what if we played a trick on this conformity norm and specifically asked these collectivist teams to “be more creative?” Couldn’t we leverage the power of collectivism to actually accentuate creativity beyond what’s possible with individualistic teams? Shouldn’t more collectivist teams always be simply “better” at stuff than individualistic teams, even when that stuff has to do with creativity? I think this is part of the appeal of collaboration in management today, the deep belief that it can handle any situation. This clever manipulation of collective values was the subject of research study, and the answer was no, collectivist

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teams are not more creative.13 In fact, on various measures of creative performance—number of ideas generated, divergent ideas, and the rated creativity of ideas—even when specifically instructed to push for more creative ideas, collectivist teams were less, not more, creative than individualistic teams. The authors went on to conclude14: Our results raise concerns about whether collectivistic cultures are best suited for contemporary organizations. Although collectivistic cultures may improve some aspects of organizational life (such as helping behavior and interpersonal cooperation), such cultures may also inhibit creativity. This is somewhat ironic, since the reason often cited for adopting collectivistic practices is their ability to bring greater innovation to the organization…

In another study, researchers looked further at when, then, would conformity pressure impact creativity, and particularly where more individualistic norms are prevalent.15 Can we ever “induce” or push innovation, and especially in settings where those forces of autonomy are strong? The results were mixed—in general, and similar to the previous study, individualistic groups did better, and conformity was typically bad for creativity, but there was an exception. Groups that were low in creativity did see creativity boosted through conformity pressure, although highly creative groups experienced lower creativity performance. This means that we cannot dismiss centralizing, coordinating, synergy-seeking forces, at least not when it comes to creativity and innovation outcomes. But nor can we fully embrace one viewpoint when it comes to the autonomy versus collectivity divide. With a deeper look at the human element, another set of studies looked at narcissism and the connection to creativity.16 Think of narcissists as the ultimate individualists, technically someone who pays too much attention to, or takes too much interest in, themselves. But could that natural drive to be superior that also push narcissists to think harder, work harder, and

13Goncalo, Jack A. and Barry M. Staw. (2006). “Individualism–Collectivism and Group Creativity.” Organizational Behavior and Human Decision Processes 100(1): 96–109. 14Ibid., p. 106. 15Goncalo, Jack A. and Michele M. Duguid. (2012). “Follow the Crowd in a New Direction: When Conformity Pressure Facilitates Group Creativity (and When It Does Not).” Organizational Behavior and Human Decision Processes 118: 14–23. 16Goncalo, Jack A., Francis J. Flynn and Sharon H. Kim. (2010). “Are Two Narcissists Better Than One? The Link Between Narcissism, Perceived Creativity, and Creative Performance.” Personality and Social Psychology Bulletin 36(11): 1484–1495.

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generate more breakthrough ideas, be beneficial to their groups? Well, at least this study found that, while narcissists may believe themselves to be more creative, they actually are not. Ideas by narcissists were no more or less likely to be rated as creative. However, when they pitch ideas, they tend to be perceived as more creative, and, more importantly for our purposes here, having a few narcissists in a group increased the creativity of the group outcomes and process. This occurs because narcissists are more likely to ensure there is a sufficient flow of ideas and open/free exchange in that group. Because the lifeblood of creativity in groups is the circulation of ideas— upon which members can build—narcissistic behavior can actually enable, not deter, creativity in a group. They do this naturally through their desire to be heard and be superior, which may stimulate the competitive juices of a group, and so stimulate idea generation. Narcissists may even make the exchange process more productive through their tendency to “butt-in” and not wait patiently for long-winded contributions, and so, in a strange way, make the group more efficient in the exchange process. But, alas, there is a catch, and it’s consistent with the message of equilibrium promoted in this chapter. There are diminishing returns from having narcissists in a group. This particular study found that, eventually, more narcissism in a group defeats creativity, because such extreme individuality generates competition to such a level that the level of conflict in a group is raised to the point where the group can no longer synthesize ideas effectively and reach closure. Once again, we see the need for discernment and leadership, not an ideological claim that “autonomy is best” or “synergy is everything.” Once again, we see that managing a twenty-first-century business means living through contradictions and developing heuristics, contingency-based decision paths, for decision-making. My colleagues and I recognized this years ago when it comes to this particular issue of synergies and collaboration, encouraging managers to avoid fanatical takes on collaboration and synergy and at a time when this was the consensus view in the management world, and providing some specific frameworks for dealing with this divide.17 This means avoiding a leadership style or identity that believes “autonomy is the only thing” or “synergies and greater collaboration are always better.” It means accepting contradictions in backstage leadership work.

17Eisenhardt, Kathleen M. and Charles Galunic. (2000). “Coevolving at Last, a Way to Make Synergies Work.” Harvard Business Review 78(1): 91–101; Hansen, Morten T. (2009). “When Internal Collaboration Is Bad for Your Company.” Harvard Business Review 87(4): 82–88.

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The Business Development Quandary: Exploration Versus Exploitation We now come to the mothership of contradictory forces in business development, and which in some ways captures the other elements, and a lot of other structural stuff, in organizational life. It is the ongoing battle between forces identified as exploration and exploitation, and which have become the central players in the notion of “ambidextrous” organizations—effectively, organizations that can both explore new opportunities for business development and exploit the resources in hand. But let’s take a closer look at how these concepts developed. Professor James March is one of the key developers of modern organizational theory, as close as this field—a very broad field—comes to having a founding figure. Unfortunately, I didn’t know that much about him when I walked into his PhD seminar on organizations at Stanford University. After a brief introduction, he introduced the class to what is essentially a bingo or lottery drum, with various small balls inside, each one with a unique number. Before telling us what the bingo drum was all about, he explained that we students would be expected to open up a discussion on each research paper. But the decision of who opens what paper was problematic—there were far more students than papers per session, and simply assigning a few papers in advance to each student, across the course, could create problems on days someone was missing or, most problematic, once a paper is assigned to someone, there is the temptation not to pay close attention to the other papers. It was a complex problem—how do you ensure a simple structure for paper assignments over the length of the course that can handle “sick days” while ensuring that students have all read each paper and are ready to contribute? Professor March proceeded to give each one of us a number, corresponding to the numbers on the balls. He explained that during each session and for each paper, he would spin the drum, reach inside and pull out the number of the student who would present that paper. After each spin of the drum and draw, the ball chosen would be placed back in the drum for the subsequent paper. It was a simple method, both for ensuring the presenter would always be in class and for lowering the risk of unprepared students. Looking around in this very intimidating class in which I was junior to just about everyone else in the room, I thought this method was a gift— statistically, the odds were well in my favor, that I would not be called to speak out first, or at all. The first ball drawn, however, was my own—I could see the relief, and pity, in the faces of some of my classmates. I stumbled my

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way through that first paper, but read each paper much more carefully for the remainder of the course. I always thought it was a clever solution to a complex problem. This story tells you something about the mind of James March, someone who liked to explore complexity and try to unpack it. During those same years, he wrote a highly influential paper in our field, entitled Exploration and Exploitation in Organizational Learning.18 The basic idea is that organizations face a complex problem in that two necessary modes of operating are, by definition, incompatible. On the one hand, there is exploration mode: searching, experimenting, playing, discovering, creating, and risk-taking. These are routines, behaviors, and attitudes with a strong focus on future innovation and adaptation. On the other hand, there is exploitation mode: execution, repetition, efficiency, refinement, incremental learning, that is routines, behaviors, and attitudes with a strong focus on near-term productivity and harvesting. Clearly, if you do too much of one, you are at risk, and this will be true whether we are talking about individuals, groups, or entire organizations. Too much exploration may mean that you don’t get enough done in the short run to survive and compete; too much exploitation and you lose the handle on the future, eventually becoming out of step with the environment. Again, conceptually, these are contradictory ways of operating—literally that means that, for any non-trivially divisible unit (a person, small team, or even a highly focused business operation), you cannot do them both at the same time, just as, say, a carpenter cannot be building office furniture using traditional methods while at the exact same time taking a course on how to operate a new 3-D computerized lathe. Now, most of us will quickly think “Well, of course! But we just have to do this at different times.” That is, every so often life tips us into frenzied moments of adjustment, just like nature tips the biological world into dramatic changes through punctuated processes—a geophysical event, like a meteor plunging into Earth or massive volcanic activity, can create very different selection pressures on a species and favor some unusual traits over mainstream traits and tendencies. Similarly, organizations may face threats and so be forced into punctuated change.19 What’s the big deal? Isn’t the solution simply about more or better scanning and sensemaking

18March, J. G. (1991). “Exploration and Exploitation in Organizational Learning.” Organization Science 2(1): 71–87. 19Gupta, A. K., K. G. Smith and C. E. Shalley. (2006). “The Interplay Between Exploration and Exploitation.” Academy of Management Journal 49(4): 693–706.

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(Chapter 2), and making fast sequential changes and adjustments? A little exploration, then a little exploitation-done! However, it’s not that simple. Exploration can be very time-consuming and involve foundational capabilities—things that you have to learn before you can learn new things. It may require building core competencies or platforms before additional exploration can be effectively done, and that can be very off-putting. Moreover, exploitation can be extremely enticing and satisfying! People and firms may love that feeling of accomplishment and instant gratification and gain that comes through exploitation mode and not want to change—Blackberry was enjoying massive sales and growth even while the iPhone threat was launched and apparent, a high that may have dulled urgency if not simply stolen the time and focus of many managers. There is also the problem that exploitation is not without innovation and learning. There can be plenty of it, in fact, as systems are refined and productivity is improved, and so the Blackberry platform no doubt continued to get better and better at what it was trying to achieve. The trouble is that this form of learning and innovation can actually detract from bigger, more riskier bets, either because there are not enough resources to effectively do both or because we are lulled into a false sense of security, that “we are innovating and adapting,” a belief that fails to appreciate the relativity of that learning—whether the correct reference point is our legacy systems or the movements of external markets and technologies. This is probably why March’s relative short academic paper attracted so much attention—it is not an easy problem to crack in reality, although the solution conceptually may seem obvious. The exploration vs. exploitation battle is such an important management issue, however, that it has spawned a sizeable literature stream and a good deal of scholarly attention. In fact, research on this problem has become associated with an entire organizational form, a form that represents a possible solution to this complex problem. That form of organizing is called “Ambidextrous.” The name comes from the word ambidexterity, which means the ability to use both your right and left hands equally well, with identical skill, so that you could not tell if that person were right or ­left-handed—think of an artist who can paint equally well with either hand. In one sense, it is an appropriate name, the connotation being that there is an organizational form where exploration and exploitation can be balanced. It is also fitting because I believe it captures better what organizations are aiming for today in an age of disruption. They are aiming for the right balance, not a singular focus on exploration. The danger of the “disruption” frame is that it has placed public attention exclusively on innovation and risk-taking. So while disruption mania naturally places

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emphasis on the management of scanning and sensemaking (Chapter 2), and the corporate world may be guilty of not having done enough of that in recent years, ambidexterity research reminds us that ultimately “too much” exploration will be debilitating and value destroying. It reminds us that the goal is ultimately to build a well-balanced organization. What may be true is that the ends of that continuum now look different, in terms of the levels of each required to be a high performing organization today. Graphically (Fig. 4.1): The depth and quality of exploration and exploitation may be increasing over time, rather than a singular focus on one or the other. So, while our current focus on disruption pushes firms into larger, more radical business model innovations, and especially in the face of digital technologies, the competitiveness and cost-pressures do not go away. If anything, there is a greater need to achieve economies of scale faster and at less cost. But we have already learned this lesson the hard way. The Internet bubble of the late ‘90s saw companies and entrepreneurs pushing hard to launch new offerings in the wake of Internet technologies, and the dotcom bust of the early ‘00s revealed the fragility of business development that ignores cost and scale realities. Ambidexterity is useful precisely because it does not emphasize one or the other but seeks some sort of balance. As with most management concepts, there are caveats and questions. The trouble with the notion and naming of ambidexterity, however, is that it is also a false hope, a bit of a holy grail. I do not believe that a perfectly balanced, equally left and right-handed, organizational form exists, or at least not in the sense of some textbook organizational solution that you can implement like a technical or structural solution, the equivalent of an SAP implementation or a matrix structure. For one thing, there are many ways in which to interpret what that ambidexterity really means. It is a nested concept, touching things up and down an organization, and it is less about an identifiable “turnkey solution” than an assortment of management initiatives and behaviors. For another, the analogy with physical ambidexterity is misleading in that it suggests that exploration and exploitation need to

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be perfectly balanced. But we know from research that this is not necessarily desirable, that dynamic balance, over time and with different emphases may be better.20 In fact, the amount of balance may need to shift depending on the nature of the context. Sometimes it takes a unifying goal to shift the equilibrium. In 2009, Jeff Davis, NASA’s director of health and human performance, wanted NASA employees to explore more, to push beyond boundaries and generate new knowledge through the mechanism of collaborative cross-firm and ­cross-disciplinary research. Yet over 18 months Davis encountered scientists guarding their turfs and their reputations as individual researchers. It was frustratingly ironic for Davis that the more technologies enabled collaboration, the more NASA scientists dug in their heels and sought recognition for their individual achievements. It’s not that individual work was not needed—both collaboration and individual research were important for NASA—but the two presented contradictions for NASA’s organizational culture at the time. Finally, Davis wore down scientists’ protests by redefining the directorate’s goal as “We aspire to keep astronauts safe in space.” If their work was in the service of safety, a traditional goal, tradition-bound scientists could better understand the value of using more open, collaborative methods and reignite exploration.21 One recent study that sheds light on this dynamic balance looked at global insurance companies over 15 years. The insurance industry is an excellent industry to examine longitudinally because of the periods of relative calm mixed in with turbulence from regulation shifts, demographic changes, financial market swings, and so on.22 They found that in times and environments where there was stability, managing for relative balance between exploration and exploitation was a good thing in that firms who did so performed better. However, in contexts or periods

20Brown, Shona L. and Kathleen M. Eisenhardt. (1997). “The Art of Continuous Change: Linking Complexity Theory and ­Time-Paced Evolution in Relentlessly Shifting Organizations.” Administrative Science Quarterly 42(1): 1–34; Cao, Qing, Eric Gedajlovic and Hongping Zhang. (2009). “Unpacking Organizational Ambidexterity: Dimensions, Contingencies, and Synergistic Effects.” Organization Science 20(4): 781–796. 21Smith, Wendy K., Marianne W. Lewis and Michael L. Tushman. (2016). “‘Both/And’ Leadership.” Harvard Business Review, May. Retrieved September 19, 2019. https://hbr.org/2016/05/bothand-leadership. 22Luger, Johannes, Sebastian Raisch and Markus Schimmer. (2018). “Dynamic Balancing of Exploration and Exploitation: The Contingent Benefits of Ambidexterity.” Organization Science 29(3): 449–470.

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of sharp inflections and turbulence, trying to manage for balance was a bad thing—those firms did significantly worse. This outcome is powerful because it shows us that inertia can develop not only in firms doing more exploration or more exploitation but also in firms trying to force a perfect balance when the environment requires more of one or the other. Once again, this boils down to better backstage leadership, of (re)crafting these processes. It’s time to take these reflections and research on contradictory forces and paradox in organizations and look at some practical ideas for managing through these contradictions. From here through the end of this chapter are five ideas for managing contradictions in our disruptive times. It is a sketch—not a photograph—of what it means to manage with ambidexterity in mind. Ambidextrous organizations are like holy grails—a symbol and reminder, and in this case of the importance of managing contradictions, rather than an actual and specific organizational form. Ambidexterity tends to focus more on the exploration vs. exploitation contradication, but that contradiction type has some overlaps with the other contradictions (i.e., exploration tends to overlap with longer run horizons and autonomy, while exploitation with shorter run horizons and synergies, although the alignments are not perfect). Still, we will focus on ambidexterity given the volume of work on this topic.

Managing Contradictions and Ambidexterity Building the Mind-Set of the Ambidextrous Leader When we say that managing through contradictions is a nested phenomenon, we mean that there are various levels within the organization where routines, structures, and behaviors can be impacted in order to embed ambidexterity. But the best place to start is the mind-set of the leader. Simply put, if a leader cannot cope with contradictory forces, it is unlikely that the organization will have much of a chance. The mind-set and mental processing of leaders are foundational to coping with contradictions and managing for ambidexterity. The cards are stacked against leaders, simply because we are human and have brains. Humans do not naturally like contradictions. Many people are familiar with the psychological phenomenon of cognitive dissonance. The key issue in cognitive dissonance is that once confronted by opposing thoughts

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(“smoking is really bad for you” and “I like to smoke in social gatherings and after meals,”) we feel really uncomfortable, and that we naturally try to alleviate that contradiction, often by taking sides, at least to some extent. (“I will stop smoking in all situations, but only once I have children” or “I will start smoking lighter cigarettes.”) Managing for exploration and exploitation, or long term and short term, or through competitiveness and cooperation can surface many uncomfortable moments and situations. More than a few leaders have experienced this situation: they face one group of stakeholders or reports which suggest that the company must react to the competitive costs pressures of a giant competitor and push hard on efficiencies and bloated processes, and then they face another group of stakeholders who claim that the soul of the company is in long-term innovation and big, over-the-horizon projects—this is exactly a debate I witnessed among senior leaders, in the same room, of a large industrial company. It is hard enough to resolve this situation “outside,” but it seems hopeless if holding both of those thoughts is impossible on the “inside,” that is not being able to “stay in the problem/contradiction” within one’s own mind. This does not mean that—for a time, for a context, in some manner—one end of that spectrum cannot be given greater attention, but it shouldn’t be by letting go of the fundamental contradiction or weakening each side of the contradiction with qualifications. 1. The beginning of managing through contradictions and ambidexterity is to embrace and tolerate paradox and contradiction. A good starting point is to consciously acknowledge and re-articulate the prior arguments of this chapter—that contradictions such as short versus long term, local/competitive versus collective/cooperative, exploration versus exploitation contain elements that are both valuable and necessary to well-performing organizations. It means acknowledging the “big picture” around paradoxes and their value, and creating a place in your mind where you can retreat to and remind yourself of that basic value and logic. It might not be a bad idea to list the contradictory forces we’ve been discussing on a whiteboard in your office. Every time you see that list, you’ll be reminded of the contradictions, and seeing the list will reinforce that “safe space” where contradictions can exist within your mind, instead of being banished! This exercise also points to the value of abstraction as you think through strategic development problems, that is moving from the trees to consider the whole forest, the bigger picture. It seems that true experts do this more naturally than novices, moving quickly from details and local optima to larger issues and functions, a condition, as one study argued, that should be no less

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important for expert strategists and managers as it is for expert mathematicians or software developers.23 2. Some self-reflection and self-knowledge are invaluable. How managers process and understand these tensions and contradictions will vary, and of course it will impact whether they embrace them or are derailed by them.24 But our processing will be impacted by our biases and socialization over the years as managers. Specifically, some managers may be prone to explorative thinking while others may be partial to exploitation thinking. How well do you know yourself? How have your experiences in management and business shaped your thinking? To be clear, it’s not that you should not have natural preferences but that you should notice if those preferences are so strong that they amount to dogma and ideology, which may be problematic. It may be worthwhile to take stock of your own experiences and preferences, to at least be aware of your natural filters, when you deal with situations that require paradoxical thinking and patient reflection. Interestingly, there may be a brain chemistry source to our preferences for exploration and exploitation. In a brain imaging study of practicing managers with at least four years of experience making managerial decisions, researchers found that distinct regions of the brain were activated for thought processes involving exploration versus ­exploitation.25 While lying inside of fMRI scanners, managers were asked to play competitive slot-machine-like games that required decisions on whether to follow exploitative paths, familiar options, or explorative ones, new options in hope of bigger payoffs, all the while the fMRI scanners took thousands of images of their brains. The result was that exploitative choices were much more likely to trigger regions in the brain associated with reward anticipation—basically a pleasant release of dopamine associated with the immediacy of accomplishment, or that nice feeling you get after you’ve accomplished that check list of Saturday morning chores. On the other hand, exploration choices tended to activate the attention-control and executive functioning regions

23Eisenhardt, Kathleen M., Nathan R. Furr and Christopher B. Bingham. (2010). “CROSSROADS— Microfoundations of Performance: Balancing Efficiency and Flexibility in Dynamic Environments.” Organization Science 21(6): 1263–1273. 24Smith, Wendy K. and Michael L. Tushman. (2005). “Managing Strategic Contradictions: A Top Management Model for Managing Innovation Streams.” Organization Science 16(5): 522–536. 25Laureiro-Martínez, Daniella, Stephano Brusoni, Nicola Canessa and Maurizio Zollo. (2015). “Understanding the Exploration–Exploitation Dilemma: An fMRI Study of Attention Control and Decision-Making Performance.” Strategic Management Journal 36(3): 319–338.

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of the brain—basically the regions that help us get through the anxiety of uncertain choices and novelty, and so go beyond the scope of automatic stimulus-response processing. Search induces anxiety, and we need some higher-order cerebral functions to help us cope. The key finding, however, was that people who are better able to activate the attentional-control regions of the brain, a region of the brain associated with the ability to switch between modes (e.g., from exploitation to exploration), are more likely to perform better in these games, which required some combination of exploitation and exploration. They show greater mental flexibility from which there is apparent advantage. That some mental flexibility is a source of advantage is perhaps not a surprise, but the bad news may be that while some of us may be wired for easier attentional control, and so more cognitive flexibility, some of us may not. The good news, however, is that the cognitive processes associated with attentional control—and so greater cognitive flexibility—can be learned and improved. 3. Apply more than one frame to a situation. By frame, I mean a logic or mental template or approach when thinking about a situation or problem, such as an exploration frame and an exploitation frame. One study advocates actively using these paradoxical frames when addressing development needs, allowing them to both surface and find an appropriate level of impact on decision-making—they point to Toyota’s famed and successful just-in-time production system as an example where paradoxical frames are allowed to co-exist—high efficiencies, yet fast and adaptive reactions—in the construction of routines and processes.26 Cognitive variety is a key ingredient for enjoying the stew of contradictions. Moreover, it can also be a source of recombinant innovation across the frames, or as one study argued “cognitive variety creates a greater repertoire of potential solutions derived from diverse templates to apply to a given problem.”27 Once again, this is hard to benefit from unless you actively engage and surface both ways of thinking. 4. Use divergent and convergent thinking to juggle competing dimensions.28 Divergent thinking means dedicating time to a “deep dive” on the exploration logic and the exploitation logic, separately and with focus.

26Smith, W. Kathleen and Michael L. Tushman. (2005). “Managing Strategic Contradictions: A Top Management Model for Managing Innovation Streams.” Organization Science 16(5): 522–536. 27Eisenhardt, Kathleen M., Nathan R. Furr and Christopher B. Bingham. (2010). “CROSSROADS— Microfoundations of Performance: Balancing Efficiency and Flexibility in Dynamic Environments.” Organization Science 21(6): 1263–1273 (p. 1269). 28Smith, Wendy K. and Michael L. Tushman. (2005). “Managing Strategic Contradictions: A Top Management Model for Managing Innovation Streams.” Organization Science 16(5): 522–536 (p. 527).

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Effectively, it means not allowing either logic—for a time—to shackle the other. A good example of this was the reaction of some newspapers to digital and online technologies, and specifically how to explore this space.29 The more successful ones, like the New York Times, not only framed it as an opportunity but also explored ways of reaching greater differentiation from their print businesses; the less successful ones framed it as a threat and tended to focus more on innovations that were on a tighter leash to existing competencies. Then, take some time to consider convergence—overlaps, integration, and synergies across these different logics. The goal is to look for paths and resource strategies that allow you to maintain both directions with as little cost, conflict, or confusion as possible. The New York Times has had more success building its digital subscriber base than probably any other publication. In 2010, the paper made about $200 million in digital revenue, which came almost solely from ad revenue. By 2016, digital revenue was more than double at almost $500 million, but almost all the gains came from digital subscriptions—the paywall—not from advertising. But that success has been hard won. In 2014, the Times put together its famous “Innovation Report,” a copy of which was leaked famously on BuzzFeed. An internal assessment, the 97-page Innovation Report detailed the paper’s digital efforts to date; it included damning findings about the newsroom, that they reacted defensively to change, that New York Times editors were known for saying “no” to programmers and product designers from the technology group. Even though the leaked report was embarrassing, the public spotlight on the paper’s digital dilemmas turned an internal evaluation into a productive public conversation for all ­old-media papers in the midst of transformation. The thing is, the New York Times went further and faster in making it happen. The hub for all of the New York Times’ digital initiatives is The Beta Group, which has developed some of the Times most successful apps, such as its Crosswords and Cooking apps. It has meant that dyed-in-the-wool journalists suddenly had to work closely with tech people to ensure better convergence between the fast moving digital technologies world and traditional journalism. “Working hour by hour, day by day, with software developers and designers and product managers—to me that was a real revolution, a kind of epiphany,” said Clifford Levy, who had won two Pulitzers before he was promoted to assistant managing editor overseeing digital platforms. “This is standard operating procedure in Silicon

29Gilbert, C. (2005). “Unbundling the Structure of Inertia: Resource Versus Routine Rigidity.” Academy of Management Journal 48(5): 741–763.

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Valley,” Levy admitted, “but it was radical here.” The shift toward naysaying to acceptance and now promotion of pioneering digital strategies is why the Times thinks it can meet its 2020 goals of $800 million for total digital revenue (which it did 1 year ahead of time)—enough to fund the paper’s global journalism operation with or without its print edition.30

Ambidextrous Leadership Skills At the leader level, mind-set is important but so are skills. Of course, not everyone in an organization will have to display ambidextrous thinking, skills, and behavior, but clearly the role of the leader—which is an orchestrating role—is important in this regard. Having different parts of the organization focus on different sides of these contradictions provides structural ambidexterity, a common solution, and yet someone, or a few individuals, need to maintain the big picture and provide appropriate support and inputs. In fact, one or a few individuals can do the vital backstage leadership work to move even complex organizations through these contradictions or paradoxes.31 The leader’s network reach is important, and especially the reach beyond her top management team—with people from different functions, different levels of hierarchy, inside but also outside the organization, such as customers, suppliers, partners, and regulators. This is important because managing the entire organization through contradictions requires building and maintaining a keen insight into where the organization is currently and as a whole, a process that requires sifting through multiple viewpoints and ­aggregating those views into a coherent viewpoint on how things hold together—a gestalt of sorts. That impression building in turn requires intelligence gathering and access to many different viewpoints, which means a rich and extensive network. This will also help the leader to better understand and interpret top management team (TMT) members and their information, information that may be prone to one-sidedness and bias. In fact, one study of CEO’s of SME firms found that the CEO’s network extensiveness had a

30Snyder, Gabriel. (2017). “Keeping Up with the Times.” Wired (San Francisco), 25(3), February 12. Retrieved December 13, 2019. https://www.wired.com/2017/02/new-york-times-digital-journalism/. 31Raisch, Sebastian, Julian Birkinshaw, Gilbert Probst and Michael L. Tushman. (2009). “Organizational Ambidexterity: Balancing Exploitation and Exploration for Sustained Performance.” Organization Science 20(4): 685–695.

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positive impact on organizational ambidexterity, and particularly in the presence of rich communications between the CEO and the TMT.32 In general, good backstage leaders will make sure they are in the nexus of horizontal, vertical, and external information. It’s not about micro-managing; it’s about feeding the brain, about building and updating one’s viewpoint. Transparency about ambidexterity as a strategic goal is also important. That means making sure people understand that both exploration and exploitation are valuable to the firm, although one study found that just talking-up this strategic intention is not enough.33 What seemed more important was strong consensus among the TMT that ambidexterity was important and that there were incentives to promote both of those elements in the firm, such as a common-fate incentive system that rewarded executives only when both parts of the ambidexterity puzzle were being solved. The authors’ point to one firm that maintained such strong short-term financial pressures that focus fell mostly to short-term revenue goals through older products, lacking the sort of focus that newer products and ventures required. Another leadership insight begins with the realization that exploration and exploitation modes are so different that they require requisite, matching leadership behaviors. Leaders may need to shift how they respond and lead contingent on the subsystem or unit that they are trying to influence.34 Key here is how leaders deal with and present an environment under increasing levels of complexity and uncertainty. As the environment presents more complex and faster-changing stimuli, leaders may need to rachet-up exploratory outcomes and so: • Match external complexity with internal complexity by bringing together more diverse sets of people, pushing for diverging discussions; • Bridge these ideas through common values and big-picture goals; • Accept failure and provide more freedom. And as the environment presents less complexity and clearer understandings of value, leaders may need to:

32Cao, Qing, Zeki Simsek and Hongping Zhang. (2010). “Modelling the Joint Impact of the CEO and the TMT on Organizational Ambidexterity.” Journal of Management Studies 47(7): 1272–1296. 33O’Reilly, Chalres A. and Michael L. Tushman. (2011). “Organizational Ambidexterity in Action: How Managers Explore and Exploit.” California Management Review 53(4): 5–22. 34Havermans, Listerole A., D. N. Den Hartog, Anne Keegan and Mary Uhl-Bien. (2015). “Exploring the Role of Leadership in Enabling Contextual Ambidexterity.” Human Resource Management 54(S1): s179–s200.

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• Limit the duration and exploratory nature of discussions, limiting the options that people may have in local decision-making; • Emphasize values related to efficiency and execution and sticking to agreements; • Enforce tighter constraints. Clearly, these are very different management styles. But dealing with contradictions may require leaders to adopt quite different styles with different groups at different times. Knowing when to do so falls back to judgment on reading correctly the environment. Finally, one recent study looked at what leadership behavior is required to have employees practice ambidextrous behavior on their own. Clearly, having some amount of ambidextrous behavior is useful for all of us. Famous athletes, such as Tiger Woods, could enjoy years of exploiting their talent and skills, but every so often larger overhauls may be necessary, periods where we explore ourselves, our work, and look to make bold changes—as Woods has famously done on several occasions in his career,35 including the adjustments he had to make in the build-up to his “come back” victory in a major PGA golf tournament and following painful back surgery.36 A few management scholars have argued and found that employees are more likely to engage in ambidextrous behavior—pushing for efficiency but carving out time for learning and exploration—when their leaders practice something they called “paradoxical leadership,” which is essentially a combination of two things, and two things which on the surface appear contradictory37: (1) setting high performance expectations related to the task and yet (2) providing strong managerial support for experimentation and tolerance for failure. Essentially, this is an attempt to match the contrasting requirements of exploration and exploitation. Presumably, leaders need to use judgment about the combination of these two leadership modes depending upon “who” and “when” they are trying to manage. Notice that it amounts to something that we have already seen—a need for flexibility in leadership styles and approaches. In sum, contradictory modes of work and engagement 35Eden, Scott. (2013). “Stroke of Madness.” ESPN, January 22. Retrieved December 10, 2019. https:// www.espn.com/golf/story/_/id/8865487/tiger-woods-reinvents-golf-swing-third-career-espn-magazine. 36Rudy, Mathew. (2019). “Masters 2019: Tiger Woods Went Old School with His Driver and It Won Him the Masters.” GolfWorld.com, April 15. Retrieved December 10, 2019. https://www.golfdigest. com/story/masters-2019-tiger-woods-went-old-school-with-his-driver-and-it-won-him-the-masters. 37Kauppila, Olli-Pekka and Michiel P. Tempelaar. (2016). “The Social-Cognitive Underpinnings of Employees’ Ambidextrous Behaviour and the Supportive Role of Group Managers’ Leadership.” Journal of Management Studies 53(6): 1019–1044.

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may be more likely where leaders themselves develop flexibility—and most of all discernment—in their leadership behaviors, managing for exploration (at times, with some people or units) and exploitation. One organization that is well known for maintaining a “dynamic equilibrium” of exploitation and exploration is W.L. Gore & Associates, the company associated with the development of “Gore-Tex,” the waterproof, breathable fabric membrane used extensively in all-weather clothing. CEO Terri Kelly, who has been lauded for her skillful paradoxical leadership, says: We have a few paradoxes that we continually try to manage. One is striking the balance between short-term and long-term objectives. Another one is creating the right focus on innovation and at the same time driving improvements in efficiency and effectiveness. A third is balancing what we call the “power of small teams” with the greater needs of the enterprise…

The backstage leadership Kelly employs to make this balancing act happen is in trying to bring these contradictions to the surface and make them explicit, so people must confront them all the time and not think of making a choice between one objective or another—not either/or but both/and. Gore & Associates, then, created different structures for different objectives. Smith says, “… we realize that you need a different management structure for innovating than for managing the day-to-day business…So we establish different organizational structures to manage both, but also create clear linkages such that the teams value each other’s contribution to the whole.”38

Senior Management Team Behavior Managing for contradiction will require some structural complexity, allowing people and units in the organization to go in one direction and others in another, as they’ve done at W.L. Gore & Associates. Someone has to think about that complexity, at least if the goal is to tame it and orchestrate it for the purposes of the organization. In fact, the complexity may become too overwhelming for a single mind; a team effort may be required, and naturally this would fall on senior management teams. But the trouble with teams, in this instance, is that there is likely to be conflict and competing purposes. Senior managers may be called upon to lead very different parts of

38Smith, Wendy. (2016). “Practicing Paradoxical Leadership: An Interview with Terri Kelly, CEO of W.L. Gore & Associates.” Harvard Business Review, May.

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that complexity, with some asked to deliver short-term results as others take on long-term projects. Some may be left alone and sit autonomously, others may need to interact with many other units, and of course some may be in exploratory mode while others asked to be extremely efficient and strictly incremental. This may mean that they—unlike the top leader—have conflict built into their roles. They may be more likely to take parochial views on many things and come into the resource allocation process with their elbows high and swinging. It’s not that senior management teams need a lot of competition built into their roles to behave in conflicting ways—a nascent desire for fiefdom building is, I believe, all too common—but if you add ambidextrous structures and roles into the mix we can end up with strong divisive forces. It should not be a surprise, then, that having a senior leadership team that is cohesive is associated with greater success in managing for ambidexterity. The ingredients of that cohesion include a shared team vision, an agreement on the overarching goals and values of the enterprise.39 More importantly, it’s an invitation to share the top job, to share the responsibility of the senior-most role in the enterprise. This is mostly an unspoken agreement—I don’t know of any CEO who would literally say “hey, I want to share my CEO job with you!” But that sense of shared responsibility can be very real nonetheless. It can also produce the sort of unspoken but palpable kudos, respect, and admiration from employees who regard that senior manager as not just “responsible for part XYZ of the company” but someone who fits into a more abstract category that we simply think of as “the senior collective leadership team.” Being wrapped up in the mantle of “upper authority over the collective” is a strong elixir—it can redirect focus on the whole and inspire collaboration. It is an important feeling to create because it can be the difference between parochial views coming on top or the resolve to get the organization through contradictions. Many of us know this phenomenon from folklore, the legend of King Arthur and the Knights of the Roundtable. This twelfth-century tale has the mythical King Arthur inviting strong local leaders to a leadership table that was round, implying that, because there is no head of the table, they were all equal. Now, clearly, King Arthur was not equal to the knights—at the end of the day, he was King.

39Smith, Wendy K. and Michael L. Tushman. (2005). “Managing Strategic Contradictions: A Top Management Model for Managing Innovation Streams.” Organization Science 16(5): 522–536; Jansen, Justin J. P., Gerard George, Frans A. J. Van den Bosch and Henk W. Volberda. (2008). “Senior Team Attributes and Organizational Ambidexterity: The Moderating Role of Transformational Leadership.” Journal of Management Studies 45(5): 982–1007.

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But making senior managers feel collectively responsible is a matter of degrees, not absolutes. For the top job, sharing the spotlight and having less spotlight on you and your accomplishments, in turn, is a small price to pay for the potential to engage multiple minds in managing through contradictions. Fostering collective responsibility—and reward—has also been found to improve the ability of the top leaders to leverage their networks and reach across the organization in order to improve ambidexterity, presumably because there is more likely to be the sort of free and collective exchange that leaders need to navigate through complexity.40 Another ingredient is more materialistic. Research has shown that organizations will display more ambidexterity where members of the senior team received contingency rewards (e.g., bonuses and profit sharing) based on the outcomes of the whole firm, not just their part of the firm.41 The logic is straightforward—if managing for ambidexterity requires Arthurian collectivity, you need to make sure that the outcomes of that collective effort are reflected in the rewards of those managers. We are only human. A fun legendary story of how collective rewards surpassed individual ones resides with the United States’ Ohio State Buckeyes football team. In 1968, a team coach had the idea of motivating players by putting stickers resembling buckeye leaves on the helmets of those who had exhibited stellar individual performances. The Buckeyes won the national championship in 1968, so football teams all over the United States copied the plan and stickers began appearing on players’ helmets. Fast forward to 2001. The Ohio State Buckeyes no longer dominated the field and had become merely mediocre. Newly hired coach Jim Tressel thought team performance should be rewarded, so every player on the team got a sticker after the team scored more than 24 points—in contrast to an individual getting a sticker for scoring a touchdown. Tressel’s strategy of rewarding teamwork over individual performance is thought to have powered the team to the national championship not only that year but for the next decade; The Ohio State Buckeyes have consistently been one of the winningest teams in US college football.42

40Cao, Qing, Zeki Simsek and Hongping Zhang. (2010). “Modelling the Joint Impact of the CEO and the TMT on Organizational Ambidexterity.” Journal of Management Studies 47(7): 1272–1296. 41Jansen, Justin J. P., Gerard George, Frans A. J. Van den Bosch and Henk W. Volberda. (2008). “Senior Team Attributes and Organizational Ambidexterity: The Moderating Role of Transformational Leadership.” Journal of Management Studies 45(5): 982–1007. 42Van Bavel, J. and Dominic Packer. (2016). “The Problem with Rewarding Individual Performers.” Harvard Business Review, December 27. Retrieved on September 22, 2019. https://hbr.org/2016/12/ the-problem-with-rewarding-individual-performers.

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Finally, it can help to have that senior team be socially integrated, interacting well together informally—basically, that they “get along well.”43 Getting along well means that you are more likely to do many things that can help manage through complexity, from wading through tricky, potentially contentious issues that pop-up to simply working harder to find ways to balance the organization along different dimensions (even ones that do not formally belong to you). In particular, where structure and role differences naturally pull you apart and focus you on your own corner of the organizational galaxy, having a socially integrated team helps. Overall, these three ingredients—shared vision, firm-level contingency rewards, and informal social integration—can help manage through complexity.

Structural Work Probably the central logic in managing with ambidexterity is the ­structural separation of work, meaning that some units are focused on ­exploration— risk-taking, longer horizons, big shifts—and all that it entails while other units are focused on the incremental improvements, efficiency, and ­near-term changes of exploitation.44 The divisions could be multiple, for example, IBM’s work on Middleware, software that connects application software to the core operating system, was done through the creation of three separate units with distinct time horizons: mature products, growth products, and emerging products.45 Structural distinction is a simple and elegant solution, if not blindingly obvious, and it is associated with higher levels of ambidexterity.46 It’s so obvious that it makes us feel uncomfortable—there must be a catch? We will come back to some of the question marks and hiccups, but for now let’s review some of the hallmarks of structural separation in the pursuit of successful ambidexterity.

43Jansen,

Justin J. P., Michiel P. Tempelaar, Frans A. J. Van den Bosch and Henk W. Volberda. (2009). “Structural Differentiation and Ambidexterity: The Mediating Role of Integration Mechanisms.” Organization Science 20(4): 797–811. 44Tushman, Michael and Charles O’Reilly. (1997). Winning Through Innovation. Cambridge, MA, Harvard Business School Press. 45O’Reilly, Charles A. and Michael. L. Tushman. (2011). “Organizational Ambidexterity in Action: How Managers Explore and Exploit.” California Management Review 53(4): 5–22. 46Jansen, Justin J. P., Michiel P. Tempelaar, Frans A. J. Van den Bosch and Henk W. Volberda. (2009). “Structural Differentiation and Ambidexterity: The Mediating Role of Integration Mechanisms.” Organization Science 20(4): 797–811.

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– Physical separation.47 This reinforces the notion that these are such different ways to working and thinking that you do not want any one process contaminating the other. It takes seriously the notion that they are in fact contradictory operating modes. Sometimes we simply need a physical environment that focuses our energy and efforts in one direction. Consider telecommuting, a wonderful invention that has improved the lives of countless individuals and is good for our environment, with polls suggesting labor force uptake somewhere in the range of 3–10% of the workforce. But let’s turn the phenomenon on its head. Given the advantages of telecommuting and how much work today is digital and could be done from home, why isn’t the number over 50%, or at least closer to some maximum based on the type of work that could be carried out remotely? Our physical context plays a more powerful role in shaping our effort, energy, and creativity than we may realize. To wit, the isolating environment of working from home spawned a whole co-working industry. As of 2019, there were over 35,000 flexible workspaces globally, and up until 2022 the annual growth rate of co-working spaces is expected to be 6% in the United States and 13% elsewhere.48 – Integration mechanisms.49 In as much as we build moments of separation and distinction, we need to build bridges and reconnection points— remember, it’s really about finding the right balance in modes, sometimes pushing things out and away, sometimes pulling them back in and reconnecting. Two integration paths in particular can be tried. One is formal and involves cross-functional supports, such as projects/teams and specific roles that act as liaisons between the distinct units. One is informal, encouraging networking at specific times or places between people in the separated units. In particular organizations with strong, dense, internal ties that create bridges across disparate units are associated with greater ambidexterity.50

47O’Reilly Iii, C. A. and M. L. Tushman. (2011). “Organizational Ambidexterity in Action: How Managers Explore and Exploit.” California Management Review 53(4): 5–22 (p. 17). 48Amador, Cecilia. (2019). “40 Stats That Prove Co-working Is the New Normal.” AllWork.com, May. Retrieved September 23, 2019. https://allwork.space/2019/05/coworking-is-the-new-normal-and-thesestats-prove-itt/. 49Jansen, Justin J. P., M. P. Tempelaar, F. A. J. Van den Bosch and H. W. Volberda. (2009). “Structural Differentiation and Ambidexterity: The Mediating role of Integration Mechanisms.” Organization Science 20(4): 797–811; Chebbi, H., D. Yahiaoui, D. Vrontis and A. Thrassou. (2015). “Building Multiunit Ambidextrous Organizations—A Transformative Framework.” Human Resource Management 54(S1): s155–s177. 50Kostopoulos, Konstantinos C., Nikos Bozionelos and Evangelos Syrigos. (2015). “Ambidexterity and Unit Performance: Intellectual Capital Antecedents and Cross-Level Moderating Effects of Human Resource Practices.” Human Resource Management 54(S1): s111–s132.

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Consider a related phenomenon, the post-acquisition integration process, a huge issue for many companies. The knee-jerk reaction is often a formal, structural integration of the acquired unit. This not only can destroy value in the acquired company but also, research has shown, informal mechanisms. Much common ground and understanding between units can serve very well in bridging and coordination between the entrenched and the acquired such that structural integration is not needed, even in situations where there is substantial interdependence in what these companies do.51 – Clarity within type. By this, we mean within the modes of exploration and exploitation themselves. There is the potential for confusion, and wasted resources, if the work within exploration and exploitation modes is not well aligned, clear, and integrated. As one study found, instances of failed ambidexterity included situations where exploratory ventures were split “between two functional heads with the result that effective coordination never occurred and decisions were made slowly.”52 – Temporal structures. This entails building expectations and planning for bouts of decentralized exploratory work, and early, but then active, reintegration moments. Formal modeling has shown that this is a powerful combination in dealing with external shocks, such as new threats and opportunities and especially where a high degree of interdependence is expected between what is explored and the established business.53 To simply summarize this model: creating temporary decentralized structures for exploration (think “speedboats”) and then reintegrating to reap synergies perform better than either a pure centralized structure or a pure decentralized structure over the medium to long term. Taking this last idea further, however, we end up in a zone that is not really what we would call an ambidextrous organization, that is one that is working with both hands at the same time. Instead we get a sequential process or design for the entire unit/organization, one in which you take the organization from moments of relatively greater focus on exploration to periods of

51Puranam, Phanish, Harbir Singh and Saikat Chaudhuri. (2009). “Integrating Acquired Capabilities: When Structural Integration is (Un)necessary.” Organization Science 20(2): 313–328. 52O’Reilly III, Charles A. and Michael L. Tushman. (2011). “Organizational Ambidexterity in Action: How Managers Explore and Exploit.” California Management Review 53(4): 5–22 (p. 16). 53Siggelkow, Nicolaj and Daniel A. Levinthal. (2003). “Temporarily Divide to Conquer: Centralized, Decentralized, and Reintegrated Organizational Approaches to Exploration and Adaptation.” Organization Science 14(6): 650–669.

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intense exploitation focus, a sort of “vacillation” between modes.54 This may be necessary because there may be moments where it may not be sustainable or realistic to keep both exploration and exploitation modes sufficiently focused and integrated enough. This sequential model is also likely when the culture of the organization creates such incredible inertia in one mode of operating that the smaller special unit cannot break-away from the gravity of the “mothership.” It’s then necessary to try to also shift the trajectory of the mothership. Two case studies are particularly useful here, the first a 25-year history of HP’s organizational movements and the second a 20-year history of USA Today’s movement into the Internet space: …the Hewlett-Packard case illustrates that management vacillated about every four to six years between organizational structures focused on generating either exploration or exploitation, but within these epochs Hewlett- Packard experienced periods of …balance in exploration and exploitation. The 20-year assessment of USA Today’s efforts to generate an online business also suggests period of organizational ambidexterity and a similar pattern of vacillation between decentralization and integration…in every instance as managers pursued high performance, they consistently compromised on balance through a structural change that in the short run (or medium term) aggressively promoted either exploration or exploitation, respectively.55

What these examples show is that managers have choices to make, and so while we speak of “balance,” that balance is often achieved over time, with choices forced in any moment. Yes, some may need and can create concurrent structures for both exploration and exploitation, and this is probably more likely in larger, or well-resourced, firms that can afford dual structures. Others may need a more intense and unified focus on one mode over the other, pushing the entire organization at once into that mode, and so may choose a sequential organizational design strategy. A reading of the context is essential here, as it always is for backstage leadership, aligning your internal, organizational actions with the movement of the environment and your strategy. For example, a pure ambidextrous approach may work well in situations where:

54Nickerson, Jack A. and Todd R. Zenger. (2002). “Being Efficiently Fickle: A Dynamic Theory of Organizational Choice.” Organization Science 13(5): 547–566. 55Ibid., p. 589.

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• A firm requires high concurrent levels of both exploration and exploitation; • Senior leaders have strong capabilities in bridging distinct units and operating mode’s; • There are sufficient resources to create enough depth in these unique modes. A sequential, modulating path may be better in situations where: • Subunits with different operating modes cannot be easily carved out because of the extreme interdependencies; • There is powerful cultural inertia in habits and ways of working such that even if you create a distinct subunit, say to explore, it may not really shift to a true exploratory mode but be caught by the past; • The complexity of bridging these modes at another level is daunting. Alas, structural solutions are never perfect—there are always trade-offs to be made. Consider the two structural options we consider: structural separation and reintegration and sequential modes. Neither one lets you achieve organizational nirvana, a state in which your unit or organization is doing both exploration and exploitation at the same time. Perhaps that state does not exist, or it is simply too hard to craft. This has not stopped academics from dreaming about such a theoretical state, or at least the conditions that may help foster such concurrent ambidexterity. But reaching this state may have more to do with how you shape the context than big structural moves or strategies, and we turn to this next.

Contextual Work for Ambidexterity The final area of practical leadership work we will consider in managing contradictions and for ambidexterity is shaping the context of the work environment. “Shaping context” feels very abstract, but there are plenty of practical actions to take. The trouble is that there are so many that it is less about taking a singular approach or model than picking from a loose collection of ideas. Contextual ambidexterity is about shaping the context so that people in the organization can make better decisions on whether they should spend time on exploratory and deeper developmental work or focus on execution, efficiencies, and alignment with what exists. It is quite different from the previous fix, which is a structural move and often involves structural separation, a top-level judgment about where and when we should be exploratory

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versus execution focused.56 It is also different from sequential moves, which emphasize taking the entire organization from one mode to another, but with focus on a single mode over some period of time. Contextual ambidexterity relies on a relatively individual-based notion of ambidexterity, where we are trying to shape the conduct of people in their day-to-day work and over some period of time, to give them essentially some resources, nudges, and implicit rules to influence their decision-making on explore vs. exploit. However, it is also limited in that regard—sometimes we may need bigger, more systemic approaches to exploration and exploitation, requiring large pools of resources and people, and so we need the ideas we explored above. Some of the contextual conditions that can help boost, or harm, ambidexterity are things that we might expect. Let’s start with some macro-factors. For example, the overall centralization of decision-making may make ambidextrous behavior more difficult and less likely to succeed.57 The logic is that in highly centralized companies, where decisions of any significance are strictly the prerogative of the top brass, there is less ­back-and-forth exchange between operating units and individuals. Yet, this type of exchange may improve the ambidextrous judgment and work of lower levels, helping them to discern the strategic ambitions and macro-factors that matter and may help in decisions on how much time to spend on one mode versus another. There is also simply less of a feeling of having discretion to make those judgments yourself—on whether to explore or exploit—and then the delay of receiving feedback from higher ups. In a nutshell, less decentralized decision structures have been found to promote successful ambidextrous behavior because they provide the sort of freedom (and responsibility) required for this local adaptive work. Perhaps it’s no surprise, but resources also help. Scarce financial resources make ambidexterity very difficult for people to think about and execute. This is simply because ambidexterity at this level, in this format, means that you have to fight on two fronts—remember, “exploitation” mode is as much about investments and improvement as exploration mode; it just happens to be about incremental gains in the things that you already do. So without enough financial resources, it’s unlikely people and local units will dream to be ambidextrous. They are much more likely to simply focus on one area, 56Gibson, Cristina B. and Julian Birkinshaw. (2004). “The Antecedents, Consequences, and Mediating Role of Organizational Ambidexterity.” Academy of Management Journal 47(2): 209–226. 57Jansen, Justin J. P., Zeki Simsek and Qing Cao. (2012). “Ambidexterity and Performance in Multiunit Contexts: Cross-Level Moderating Effects of Structural and Resource Attributes.” Strategic Management Journal 33(11): 1286–1303.

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or, probably worse, they may still try to do both (perhaps because of messaging from the top) but do so in a mediocre or slipshod way. Sure enough, research has shown that, in the presence of bountiful resources, ambidexterity attempts lead to higher unit performance. The same research also found that ambidexterity is more likely to lead to higher performance where that local unit is less constrained by interdependencies with other units.58 This is to be expected if, once again, we believe that for such local balancing between these two important modes requires a certain level of freedom, in this case freedom not from tight centralization but from tight horizonal interdependencies. There is also a link between HR systems and effective ambidextrous work, and particularly something known as high-performance work systems (HPWS).59 While not easy to define, HPWS has to do with impacting both the capabilities of people and their motivation, a two-handed approach in improving an organizations performance. It is easier to see its relevance to contextual work if we take seriously the notion that contextual work for ambidexterity is a second-order or indirect way to effect ambidexterity. This is in contrast to what we’ve just discussed: making big structural decisions, parsing out exploring units from efficiency-focused units, or taking an entire company through vacillating episodes of exploration and exploitation. In this sense, it is very much a backstage leadership type of idea or move, as it involves fashioning a context that impacts people, and which in turn impacts ambidextrous conduct. One way to think about HPWS is the extent to which it covers four important contextual components: stretch, discipline, support, and trust. Popularized some time ago by Ghoshal and Bartlett,60 these elements of HPWS are briefly described here: • Stretch is about greater ambition, to go beyond the status quo and make substantial improvements in the way work is done and the height of target levels. Concretely, it includes making sure this ambition is shared and translating this into local, personal commitments. I don’t know if it was deliberate that Ghoshal and Bartlett didn’t choose a word like “dream” or “hope”, which have more of a connotation with bigger exploratory projects (exploration mode). But in the context of research on ambidexterity,

58Ibid.,

p. 1290. Pankaj C., Jake G. Messersmith and David P. Lepak. (2013). “Walking the Tightrope: An Assessment of the Relationship Between High-Performance Work Systems and Organizational Ambidexterity.” Academy of Management Journal 56(5): 1420–1442. 60Bartlett, Christopher A. and Sumantra Ghoshal. (1997). The Individualized Corporation. New York, NY, HarperBusiness. 59Patel,

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it’s more about greater alignment with the market by pushing current systems and products to new levels. In other words, it would be an HR approach and as part of HPWS that would deliver higher levels of efficiency (exploitation mode). • Discipline is about incredible dedication and is perhaps the sine qua non of the exploitation mode, the essential ingredient of making steady, incremental gains and lasting improvement. It’s what is really meant by the notion of “10,000 hours,”61 the idea that to get really good at any field you need about 10,000 hours of dedicated time to perfect that craft or area of knowledge. As an HR system, it would include clear standards and expectations, access to information/resources for that improvement, and enough internal challenge. Stretch and discipline in our usage help shape a strong context for exploitation mode, where the focus is on greater efficiency and steady improvement and excellence. Support and trust are part of the context encouraging exploration: • Support is about providing adequate encouragement, resources, general directions, feedback, listening, coaching, etc., so that people will take risks and make a move on unchartered terrains and ideas. It also includes a tolerance for failure, because risk taking will otherwise evaporate. It also includes a tolerance for being challenged, because more radical departures from what we are doing often start by critical and honest looks at what is wrong with what we are doing. Support in HR systems is therefore a platform for exploration. • Trust is perhaps the hardest to define in this context. We understand this better when we don’t see it in place, and so people don’t make new moves and explore because they, for example, don’t trust that the efforts will be recognized, or that failure that is based on good faith efforts won’t be punished. When it is plentiful, it is probably mostly about honesty and transparency and a sense of fairness, in how decisions are reached and made and how rewards are shared and punishments are meted out. In this sense, it is mostly about an HR system that has solid institutions, the equivalent in larger society of things like property rights (recognition for effort), judicial system (to ensure that rules are formed and enacted), education (training and development), and religion and/or family (a mission which makes being part of an enterprise very special). All of these things in society provide the infrastructure for risk taking and exploration. 61Gladwell,

Malcolm. (2008). Outliers: The Story of Success. Hachette, UK, Little, Brown.

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Support and trust in our usage help shape a strong context for exploration mode, where the focus is on greater risk-taking and bold moves. So do these four elements of HPWS produce greater ambidexterity? In one study of small- and medium-sized enterprises (SMEs), researchers distinguished firms according to how well they did on these HPWS dimensions in aggregate, as a single index for each SME across stretch, support, discipline, and trust, and they found that not only did more intensive investment in HPWS increase organizational ambidexterity, accounting for about 25% of the differences in organizational ambidexterity, but that these HPWS created greater firm growth through ambidexterity, that’s about 10% of variance in firm growth through greater organizational ambidexterity. Similarly, another study looked at a collection of HPWS HR practices such as selective staffing, extensive training, internal mobility, job security, job clarity, results-orientation, incentive rewards, and employee participation.62 What they found, once again, was that firms that created contexts rich in HPWS practices would better leverage their various forms of capital, from human, to social, to organizational, and generate higher levels of ambidexterity. They also found that where ambidextrous behavior was evident, it was more likely to actually generate higher firm performance in the presence of these HPWS’s. In sum, this tells us that leaders are able to impact the context through HR systems that can democratize ambidexterity, making it more likely that ambidextrous behavior will be picked up by individuals and smaller units (albeit, at a local, less systemic level). There is more that we could say about that practice of handling contradictions in modern organizations, but it could easily fill a book itself (or several). Remember that this issue has produced many long journal publications over many years. It is an essential backstage struggle that senior leaders face. What I have tried to share in this chapter are the key ingredients for that work, rather than single recipes. The fact is that many “meals” are possible, many practical ways to develop that ambidexterity, and it will always— always—be up to the thoughtful leader to experiment, adapt, refine, try something that perhaps has never been dreamt of by anyone in business, let alone in your organization. To keep this chapter relatively concise, the ideas require a substantial amount of abstraction, and you do well to struggle with that abstraction. Moving between the abstract to the concrete will always be

62Kostopoulos, Konstantinos C., Nikos Bozionelos and Evangelos Syrigos. (2015). “Ambidexterity and Unit Performance: Intellectual Capital Antecedents and Cross-Level Moderating Effects of Human Resource Practices.” Human Resource Management 54(S1): s111–s132.

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a necessary part of leadership work. If you get anything from this chapter, it will be a willingness to embrace the contradictions within your organization and a more in-depth knowledge of where the scales tilt with regard to time, autonomy and the “mothership” of contradictory forces: exploration vs. exploitation. You should come out of this chapter thinking deeply about • Whether your organization need to embrace a sense of ­ short-term urgency or take the long-term view; • When autonomy or collectivism is working either for or against your strategy; • How “ambidextrous” leaders both explore new opportunities while exploiting resources at hand. This will include (1) working on your ­mind-set, your capacity for coping with contradictory ideas, (2) working on your leadership skills for different modes of work, (3) preparing your team for ambidextrous work, (4) structural changes and experiments, and (5) contextual work, leveraging HR tools. In order to function in a world that keeps pushing for disruption and innovation at the expense of scale and cost economies, you will need to develop the mind-set and self-knowledge of the ambidextrous leader as well as the ability to orchestrate teamwork and structural architecture in a way that balances conflicting and often paradoxical forces—the kind our wonderous Sun manages to do. Only by managing contradictions can the backstage leader maintain an organization that is a living, breathing, entity, one that changes and responds to the environment around it.

References Bluedorn, A. C. and G. Martin. (2008). “The Time Frames of Entrepreneurs.” Journal of Business Venturing 23(1): 1–20. Brown, S. L. and K. M. Eisenhardt. (1997). “The Art of Continuous Change: Linking Complexity Theory and Time-Paced Evolution in Relentlessly Shifting Organizations.” Administrative Science Quarterly 42(1): 1–34. Burton, R. M., D. D. Håkonsson, J. Nickerson, P. Puranam, M. Workiewicz and T. Zenger. (2017). “GitHub: Exploring the Space Between Boss-Less and Hierarchical Forms of Organizing.” Journal of Organization Design 6(1): 10. Cao, Q., E. Gedajlovic and H. Zhang. (2009). “Unpacking Organizational Ambidexterity: Dimensions, Contingencies, and Synergistic Effects.” Organization Science 20(4): 781–796.

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Cao, Q., Z. Simsek and H. Zhang. (2010). “Modelling the Joint Impact of the CEO and the TMT on Organizational Ambidexterity.” Journal of Management Studies 47(7): 1272–1296. Chebbi, H., D. Yahiaoui, D. Vrontis and A. Thrassou. (2015). “Building Multiunit Ambidextrous Organizations—A Transformative Framework.” Human Resource Management 54(S1): s155–s177. Economist. (2018). “A Minute of Your Time.” The Economist, July 21–27 (Business Section). Eisenhardt, K. M. and D. C. Galunic. (2000). “Coevolving at Last, a Way to Make Synergies Work.” Harvard Business Review 78(1): 91–101. Eisenhardt, K. M., N. R. Furr and C. B. Bingham. (2010). “CROSSROADS— Microfoundations of Performance: Balancing Efficiency and Flexibility in Dynamic Environments.” Organization Science 21(6): 1263–1273. Ethiraj, S. K. and D. Levinthal. (2004). “Bounded Rationality and the Search for Organizational Architecture: An Evolutionary Perspective on the Design of Organizations and Their Evolvability.” Administrative Science Quarterly 49(3): 404–437. Ghoshal, S. and C. H. Bartlett. (1997). The Individualized Corporation. New York, NY, HarperBusiness. Gibson, C. B. and J. Birkinshaw. (2004). “The Antecedents, Consequences, and Mediating Role of Organizational Ambidexterity.” Academy of Management Journal 47(2): 209–226. Gilbert, C. (2005). “Unbundling the Structure of Inertia: Resource Versus Routine Rigidity.” Academy of Management Journal 48(5): 741–763. Gladwell, M. (2008). Outliers: The Story of Success. Hachette, UK, Little, Brown. Goncalo, J. A. and B. M. Staw. (2006). “Individualism–Collectivism and Group Creativity.” Organizational Behavior and Human Decision Processes 100(1): 96–109. Goncalo, J. A. and M. M. Duguid. (2012). “Follow the Crowd in a New Direction: When Conformity Pressure Facilitates Group Creativity (and When It Does Not).” Organizational Behavior and Human Decision Processes 118(1): 14–23. Goncalo, J. A., F. J. Flynn and S. H. Kim. (2010). “Are Two Narcissists Better Than One? The Link Between Narcissism, Perceived Creativity, and Creative Performance.” Personality and Social Psychology Bulletin 36(11): 1484–1495. Gupta, A. K., K. G. Smith and C. E. Shalley. (2006). “The Interplay Between Exploration and Exploitation.” Academy of Management Journal 49(4): 693–706. Hansen, M. T. (2009). “When Internal Collaboration Is Bad for Your Company.” Harvard Business Review 87(4): 82–88. Havermans, L. A., D. N. Den Hartog, A. Keegan and M. Uhl-Bien. (2015). “Exploring the Role of Leadership in Enabling Contextual Ambidexterity.” Human Resource Management 54(S1): s179–s200.

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Jansen, J. J. P., G. George, F. A. J. Van den Bosch and H. W. Volberda. (2008). “Senior Team Attributes and Organizational Ambidexterity: The Moderating Role of Transformational Leadership.” Journal of Management Studies 45(5): 982–1007. Jansen, J. J. P., M. P. Tempelaar, F. A. J. Van den Bosch and H. W. Volberda. (2009). “Structural Differentiation and Ambidexterity: The Mediating Role of Integration Mechanisms.” Organization Science 20(4): 797–811. Jansen, J. J. P., Z. Simsek and Q. Cao. (2012). “Ambidexterity and Performance in Multiunit Contexts: Cross-Level Moderating Effects of Structural and Resource Attributes.” Strategic Management Journal 33(11): 1286–1303. Kauppila, O. P. and M. P. Tempelaar. (2016). “The Social-Cognitive Underpinnings of Employees’ Ambidextrous Behaviour and the Supportive Role of Group Managers’ Leadership.” Journal of Management Studies 53(6): 1019–1044. Kostopoulos, K. C., N. Bozionelos and E. Syrigos. (2015). “Ambidexterity and Unit Performance: Intellectual Capital Antecedents and Cross-Level Moderating Effects of Human Resource Practices.” Human Resource Management 54(S1): s111–s132. Kunisch, S., J. M. Bartunek, J. Mueller and Q. N. Huy. (2017). “Time in Strategic Change Research.” Academy of Management Annals 11(2): 1005–1064. Laureiro-Martínez, D., S. Brusoni, N. Canessa and M. Zollo. (2015). “Understanding the Exploration–Exploitation Dilemma: An fMRI Study of Attention Control and Decision-Making Performance.” Strategic Management Journal 36(3): 319–338. Luger, J., S. Raisch and M. Schimmer. (2018). “Dynamic Balancing of Exploration and Exploitation: The Contingent Benefits of Ambidexterity.” Organization Science 29(3): 449–470. March, J. G. (1991). “Exploration and Exploitation in Organizational Learning.” Organization Science 2(1): 71–87. Nickerson, J. A. and T. R. Zenger. (2002). “Being Efficiently Fickle: A Dynamic Theory of Organizational Choice.” Organization Science 13(5): 547–566. O’Reilly Iii, C. A. and M. L. Tushman. (2011). “Organizational Ambidexterity in Action: How Managers Explore and Exploit.” California Management Review 53(4): 5–22. Patel, P. C., J. G. Messersmith and D. P. Lepak. (2013). “Walking the Tightrope: An Assessment of the Relationship Between High-Performance Work Systems and Organizational Ambidexterity.” Academy of Management Journal 56(5): 1420–1442. Puranam, P., H. Singh and S. Chaudhuri. (2009). “Integrating Acquired Capabilities: When Structural Integration Is (Un)necessary.” Organization Science 20(2): 313–328. Raisch, S., J. Birkinshaw, G. Probst and M. L. Tushman. (2009). “Organizational Ambidexterity: Balancing Exploitation and Exploration for Sustained Performance.” Organization Science 20(4): 685–695.

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Siggelkow, N. and D. A. Levinthal. (2003). “Temporarily Divide to Conquer: Centralized, Decentralized, and Reintegrated Organizational Approaches to Exploration and Adaptation.” Organization Science 14(6): 650–669. Simon, H. A. (1962). Architecture of Complexity. Proceedings of the American Philosophical Society. Simon, H. A. (2002). “Near Decomposability and the Speed of Evolution.” Industrial & Corporate Change 11(3): 587–599. Smith, W. K. and M. L. Tushman. (2005). “Managing Strategic Contradictions: A Top Management Model for Managing Innovation Streams.” Organization Science 16(5): 522–536. Turner, S. F., W. Mitchell and R. A. Bettis. (2013). “Strategic Momentum: How Experience Shapes Temporal Consistency of Ongoing Innovation.” Journal of Management 39(7): 1855–1890. Tushman, M. and C. O’Reilly. (1997). Winning Through Innovation. Cambridge, MA, Harvard Business School Press. Weick, K. E. (1976). “Educational Organizations as Loosely Coupled Systems.” Administrative Science Quarterly 21(1): 1–19.

5 Harnessing the Silent Power of Culture and Norms

Connecting Culture and Strategy A manager from a large, global energy company was sharing a “­somethingfunny-happened-to-me-on-the-way-to-work” story with managers from various companies during an executive program. I was driving through our company parking lot a little while back, a little rushed for work, and managed to trigger our speed radar. I guess I was driving fast because I lost my parking privileges for a month.

There was bewildered silence after his story, and then sniggers of laughter. What wasn’t initially clear was why people were laughing? Turns out it wasn’t because of the “speeding” per se, school-age laughter directed at the naughtiness of “going too fast” when one shouldn’t. Rather, the laughter was “at” him—and especially his corporation—not “with” him. People were surprised to hear about a company placing speed cameras in parking lots. Who does that?! Speed cameras in corporate parking lots is weird, and humans tend to laugh at the bizarre. But to our manager, this wasn’t weird at all—what to some may appear like an Orwellian nightmare, with corporate big brother going too far in monitoring and controlling the workforce, was very different to him. He went on to explain that at his company, people took safety very seriously, that they deeply valued the protection and health of employees, and that this speed detection system was a natural, logical part of the “way things worked around here.” In fact, quite the opposite from being a “negative,” to him this was a “positive,” or at least an unspoken and accepted © The Author(s) 2020 C. Galunic, Backstage Leadership, https://doi.org/10.1007/978-3-030-36171-6_5

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norm in his world, something he easily, naturally, lived with every day. It was simply part of his organizational culture. What he could have also gone on to explain was that this safety culture was strategic. The damage done to oil corporations—and society—when safety is not taken seriously is immense, as is evident from disasters like the Exxon Valdez or of course the BP/Deepwater Horizon oil spill in the Gulf of Mexico. Oil corporations, despite their mammoth balance sheets and earnings, simply could not survive if such disasters were not extremely rare events. The legal, regulatory, financial, environmental, and social repercussions are so severe that a safety culture has become a substantial part of their strategies for preservation. Safety-as-Strategy was also used to great effect by aluminum giant Alcoa and former CEO Paul O’Neill.1 Investors and stakeholders were dumbfounded when he made “worker safety” the cornerstone of his strategy in the late-1980s, but the safety culture was not only appreciated by and motivational for workers, it morphed into other habits, such as much more effective feedback and communications throughout the company, which led to greater performance. Culture was, once again, a key component of the strategy. The cornerstone of this chapter is recognizing that culture is strategic, and that developing a new strategy requires careful attention to the culture. This is appreciated well enough by business leaders. But what is not appreciated nearly enough is just how much careful, backstage leadership is required to impact something as opaque and abstract as organizational culture. It may be the most important backstage work that a leader is expected to do. But first, let’s examine the somewhat strange relationship between culture and strategy.

The Culture and Strategy Tango Culture and strategy are related, and whether we like it or not. Let’s think simply, about some very basic routines in organizational life. Every day, people come to work—but are they generally on time, or do they come late…and leave early? Every day, employees need to communicate with one another, discussions in meetings, offering information, returning messages, and so on—but do they do it openly and unselfishly, taking the time to help their peers, or do they do it grudgingly, carefully monitoring their time 1Duhigg,

C. (2012). The Power of Habit: Why We Do What We Do in Life and Business. New York, Random House.

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and internal boundaries (i.e., “it’s not my problem” thinking). Do workers and managers pick up that piece of unsightly (or unsafe) garbage on the shop floor, or do they walk by and do their best to ignore it? Every day, employees make some decision or take some action that has direct or indirect implications for the customer, even if they don’t interact with the customer directly—but do their actions go the extra distance in creating value, or is the mind-set, once again, to do just enough to appear to be working hard, to meet the minimum standards required for the yearly performance review? What I hope these questions surface is the realization that organizations don’t “have” culture as much as they “are” culture. It’s something outsiders experience everytime they engage with that company, whether through products, services, or whatever relations. We will find all sorts of values, beliefs, and assumptions firmly embedded in the back of employees’ minds, doing their silent work of guiding thought and action. But what makes these normal mental processes “strategic” is that they can be important for what the company is trying to achieve and, vitally, that they can be widely shared and create incredible efficiency of thought. First of all, let’s be clear that while some of this culture will be important to the strategy of the company, most of it will not. There is probably little link to strategy and performance in, say cafeteria routines—quick snacking or group lunches?—and in meeting beginnings, a few minutes of small talk vs. right to business? Some of this culture is, more or less, inconsequential for strategy, and we shouldn’t get too hung-up about directing it. It’s like the human appendix— it’s there, fills some space, but doesn’t really do much. However, other habits of thought matter a lot. It matters how seriously managers take “design thinking” in developing their product and services at Apple, or “frugality” at Walmart, “self-determination” in the call centers at Zappos, and “efficient movement” at Southwest Airlines. These are all powerful strategic supports in their respective firms, part of the normal thought routines and conduct in these companies. The impact of these beliefs and assumptions would be limited, however, if it wasn’t for one other feature of human culture—the fact that they can be widely shared and taken-for-granted. If Steve Jobs, during his return to Apple in 1997, didn’t manage to embed the same passion and thoughtfulness for design that he personally held into much of the rest of the company, it’s not clear that Apple would have enjoyed its incredible success in the decades after, as it moved from a computer company to a consumer electronics company, and one that is today largely associated with “design-full” products. Similarly, if Paul O’Neil never managed to spread the “safety” theme in Alcoa, its turnaround may have been a lot less likely. Great beliefs and assumptions will have little to no impact if they are trapped in the mind of one or a few people.

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They will also have less impact, even when widely shared, if they are not deeply and silently embedded. This is trickier to appreciate, but can be best conveyed through sports analogies. Take any sport—say tennis— and imagine one of the key routines—say serving. If Roger Federer had to actively think about his serve every time he stepped behind the baseline, he wouldn’t be able to continue in the ATP circuit, not unless they allowed very, very long game times. The point is that a good deal of our actions is running in the background—albeit after they have been carefully, and painstakingly, developed, as we will cover—and operates as habits, as efficiencies of thought. Without these efficiencies of thought, companies would not be able to survive. Remember that the current standards of living that we enjoy have been achieved through the power of specialization, the fact that companies and individuals do relatively limited things, and do them repeatedly and efficiently enough that those products and services can be extended to many people at affordable prices. We have “culture” to thank in that employees of all sorts—just like tennis players and other athletes—rely on the fact that certain ideas and accompanying routines can operate silently, automatically in fulfilling their work. Even creative work—such as by designers at IDEO or strategy consultants at McKinsey—would not achieve profitable, competitive results for their companies if these talented and “creative” individuals had to actively construct certain underlying and fundamental work routines every time they dealt with a new client or project. The work just wouldn’t get done fast enough. So, some mindlessness, rote conduct, whether we like it or not, is a strategic asset for even sophisticated cerebral work, and this has much to do with company culture. There is a kind of magic to this idea, that from such silent habits comes competitive advantage, but there is something terrifying about it as well. On the one hand, if the beliefs, values, and assumptions promote behaviors that are well aligned with value creation in the marketplace, you are golden. But, on the other hand, if a company’s beliefs, values, and assumptions start to promote thinking that becomes separated from what the marketplace needs and wants, then you could be in serious trouble. The potential for trouble stems from precisely the same reasons that these cultural elements are effective—because they are widespread and silent. It’s the difference between efficiency and effectiveness. Culture makes us incredibly efficient but it does not necessarily make us more effective (putting aside specific values and routines around “quality,” which is a specific cultural value rather than the general statement we are making here about the importance of culture). That these same characteristics are everywhere and lie deeply embedded in

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individual minds makes them very difficult to alter. Think of trying to turn a massive ship once it has achieved a great deal of speed. The inertia and momentum are overwhelming. We can joke that “sacking everyone” would be about the only way to instantly change or disrupt such a culture, but only to make the point that cultural inertia is problematic for aging companies who find that what worked yesterday and made them successful no longer works. What’s more, leaders need methods to realign the culture with the emerging strategy without tossing everyone overboard, but also without ultimately losing the race against competitors either. There are backstage leadership methods to accomplish this, and we will explore them shortly. The main point is that culture cannot be underestimated. Lou Gerstner said it perhaps best, following his turnaround work at IBM2: One of the most fascinating things that I learned in this IBM experience is that culture is not one of the levers that you pull in managing an enterprise— you know, there is marketing, finance, manufacturing, and then you have to worry about the culture, is it healthy or is it unhealthy. Culture is everything.

A Simple Framework for Organizational Culture One of the most elegant models for thinking about organizational culture was developed by distinguished organizational scholar Edgar Schein, a simple yet powerful three-layer approach to dealing with abstract conceptual territory (Fig. 5.1). Artifacts is an unusual word to use in business English, but this is on purpose. The word is more familiar in archaeology, what we call various material objects—such as pots, tools, jewelry, or even furniture—that are uncovered during archaeological digs. More important is the connotation that these physical objects contain cultural insights into historic people and societies. In order to understand how a past human group lived, and without actual historical descriptions about that group, we need to turn to these artifacts. In business organizations, artifacts are the routines, habits, structures, lingo, and symbols that we can see around us. While they are not physical objects, they are the concrete reality of any business organization, for example, meeting routines and discipline, decision-making norms, patterns of dress, and many and various shared stories and expressions. Notice that

2Interview

with Charlie Rose, November 12, 2002.

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Fig. 5.1  Schein culture model (see Schein, E. H. (1999). The Corporate Culture Survival Guide. San Francisco, CA: Jossey-Bass)

we are not talking about “dress codes” or “decision making procedures.” For the moment, it is important to separate the written procedures and codes about organizational behavior from “what people actually do.” This is what we mean by artifacts. Espoused values are the things we like to say about our culture, even the direction we give for our culture. (“Customer-centric,” “Integrity,” “International.”) It is hard to find an organization today that has not produced some type of list of what it stands for, the values that it aims to uphold in the way that it does business. You can sometime see these written on the wall, on a coffee cup, on company swag like Rubik’s cubes or Post-It pads, or simply on some brochures. Assumptions are, for our purposes, the deepest layer of culture. They are the deeply seated premises that we hold and that guide our interpretations and decision-making. They are the reason, coming back to the parking lot speed radar story with which we began, why the executive who was caught speeding and lost his parking privileges reflected on the story with mild embarrassment, for having broken a safety code, rather than indignation and Kafkaesque anguish. The assumption his explanation of the incident revealed was more or less “The safety rules we have in place are good for us—when broken, it is right for there to be sanctions.” There are several insights or implications from Schein’s useful framework that tell us more about the cultural, backstage work of organizational leaders. The first is about the inquisitiveness and humility required to guide organizational culture. This is well captured by the “artifact” metaphor: It effectively means that you should take nothing for granted, observe carefully the real world around you, and update your knowledge about the

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organizational culture that you really have, not just the one that you wish for. In as much as you must strive to scan the external environment for new developments, you must also strive to scan and update your internal environment for new behaviors, routines, lingo, approaches, and so on. Companies conduct financial audits, but why not cultural ones? Always look to the artifacts. Look to what is actually being done, on the ground floor and concerning daily interactions between employees both vertically and horizontally and with outsiders, whether clients, customers, or partners. Always update your own knowledge of the company. This is not easy to do. While we know we cannot control the external environment, we are more likely to indulge ourselves with beliefs of “knowing” our organization. Senior executives who have risen through the ranks over years and decades are simply more likely to believe that they know perfectly well what the company culture is all about, and to take this knowledge for granted, sort of like the contents of a time capsule they themselves helped plant. Yet, this is a fallacy for the simple reason that with time and distance in the journey from bottom to top, our understanding will naturally grow less “perfect.” This is because culture is always changing, often in small steps, perhaps imperceptibly from day to day, but over time the small experiments and tweaks to behavior accumulate and construct new cultural realities. Some of these discoveries may be gems—new ways of doing things that morph into competitive advantage. For example, most people have heard the conventional tale told about the discovery of Post-It notes. Spencer Silver, scientist working for 3M, was trying to come up with a stronger bonding glue but his formulations actually created a very poor glue, that barely stuck to anything at all. Along came Art Fry, a fellow scientist, who saw the consumer application, because he liked the way it held his bookmarks in place in his hymnal, and, presto, 3M created the Post-It brand and phenomena. But this story misses an important interval in the development, and subsequent growth, of Post-Its. What many people don’t know is that the 3M culture (albeit after some internal marketing for the new adhesive glue) took a liking to the Post-It long before it emerged as a business product. It solved local, internal communication needs and created value. Art would leave “sticky” notes for people, who in turn asked for their own sticky notepads, a practice that grew around Art and his colleagues, helping pave the way for the development of the product, and confidence in its eventual value. Even after the product was launched and, after a slow start, started to grow, the company closely observed how the product was being used in homes and offices in order to develop the product. Cultural experiments can be a source of value.

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But some of these cultural “experiments” can also be disastrous if left undetected. This was the situation for Wells Fargo Bank, who has enjoyed one of the best reputations and brand images among large global banks. Following the financial hurricane of 2008, largely blamed on banks and the finance sector, Wells Fargo managed to brand itself as a champion of “Main Street” not “Wall Street”—the hurricane veered well clear of Wells Fargo, and in 2016, it was the largest bank in the world, by market capitalization, bigger than both of China’s massive commercial banks (ICBC and CCBC) and JP Morgan Chase. In 2015, investment research firm Morningstar named its CEO John Stumpf the CEO of the year. A year later, he resigned and left the company. The problem was the creation of false bank and credit card accounts, in the name of retail clients but without their knowledge. The real problem, however, was that this was done some two million times and by over 5000 individuals over what appears to be several years. While this represents a tiny proportion of employees (2%) and a smaller proportion of revenues, it was an ongoing and widely enough shared practice to have repercussions for customer trust. What became clear as the story broke is that it was a cultural problem, stemming largely from the steep sales targets and job security implications for underperformance. In this context, Wells Fargo employees took risks, developing assumptions about what was acceptable behavior, and no doubt “encouraged” by others, numbering in the thousands, who adopted similar practices. Wells Fargo’s initial response was to suggest that this was a bad-apple problem, impacting employees “at the lower end of the performance scale,” and that this was not what the Wells Fargo culture was all about.3 But when such a substantial number of employees invent, utilize, and share a common practice it is cultural. Wells Fargo executives may have been confusing the culture that they wished they had instead of the one that they really have. First of all, practices do not have to be shared 100% to be considered cultural and relevant. No organization, or nation-state for that matter, is a monolithic culture, where all relevant practices are shared. Cultures will always be somewhat fragmented, with various interpretations of common themes. If there are legitimate ways of doing business, adopted by clearly more than “a few bad apples,” and/or if they have real consequences for the organization’s products, services, and overall image, they are relevant cultural artifacts. 3McGregor, Jena. (2016). “Wells Fargo’s Terrible, Horrible, No-Good, Very Bad Week.” Washington Post, September 16. Retrieved December 10, 2019. https://www.washingtonpost.com/news/ on-leadership/wp/2016/09/16/wells-fargos-terrible-horrible-no-good-very-bad-week/.

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The main point is that leaders are responsible for all bits of culture, including the creation of value-destroying practices that, over time, will harm the organization. CEO Stumpf defended himself in front of the Senate ­banking committee by, essentially, distancing company leadership and tools from the harmful practices, arguing that “this is not what we wanted to happen,” meaning this is not how the sales rewards and other performance management systems are supposed to work. But business leaders, whether they like it or not, are responsible for understanding how the management tools and ideas that they create actually work on the ground.4 Otherwise, it’s like saying that business leaders are responsible for only the “espoused values” in the cultural model above—laying out how things are supposed to work via internal communication campaign and procedures, but not how they actually work. But that would make a mockery of what it really means to manage a single, hierarchically bound enterprise. This is the ultimate way in which leaders need to be “invisible,” to be backstage leaders, and not just frontstage players. Managing culture requires a level of behavioral understanding—of those all-important artifacts—that we have not yet discussed in this book. It takes as much effort and attention to carefully understand the organization’s culture as it does to scan the external environment. In a way, senior leaders and lower managers have the opposite problem—senior leaders claim that their employees don’t spend enough time looking outside, at the external world, for threats and opportunities; but it’s also fair to say that senior leaders don’t spend enough time looking inside, at what is happening to the real, not wished for, organization that they are leading. Next, we will share a few ideas for how to handle this investigative work, before looking at the issues of strategy-culture fit and then cultural change and development. But first remember to: • Look to the Artifacts to understand the culture, keeping a close eye on the real behaviors in the organization. At times, you must be the “anthropologist” of your organization. • Recognize that Espoused values are only the starting point, a direction for cultural development, but leadership work does not stop and end there. • Think of Assumptions as key leverage points in organizational life, decision premises that need to be discovered and tested. 4Corkery,

Michael. (2016). “Elizabeth Warren Accuses Wells Fargo Chief of ‘Gutless Leadership’.” New York Times, September 20. Retrieved December 10, 2019. https://www.nytimes.com/2016/09/21/business/dealbook/wells-fargo-ceo-john-stumpf-senate-testimony.html.

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On this latter point, you might wonder why leaders need to push to an understanding of this deepest layer of culture, the assumptions that people hold. Isn’t it enough just to point out the practices and deal with those? After all, leaders can only work on concrete practices and structures, so why bother with these hidden assumptions? Why can’t we only focus on the concrete world? This is a fair question, and one that comes up from students, especially from those that would much rather take a helicopter approach to leadership. But we believe it is worthwhile and important to do so for two reasons: understanding and targeting. Organizations will contain a mountain of artifacts—many behaviors and norms and patterns that are played out and replicated on a regular basis. However, if those artifacts have their seed in a common assumption that, like a gene, is being replicated regularly, then those assumptions are powerful levers in the organization. Assumptions are also useful as guides for cultural work and change. As we will describe below, while there may be many practical actions to take in organizational change and development, that work can be o­ verwhelming and confusing if it does not have some unifying, integrative theme or purpose. Assumptions provide some of that unifying theme. Warning: They cannot be directly implanted, if that were even possible, and as we will examine. They can, however, help us think through the features of the structural work at hand in order to make sure that it is aligned or infused with the meaning intended, that is, that those structures will give rise to the intended behaviors. We have to wonder if this was done when Wells Fargo introduced the sales management scheme that was at the center of attention of the false bank accounts scandal. When a practice like this is introduced, it is important and useful to question and consider the underlying meanings and assumptions that people will hold, as an ultimate “purpose” of that practice and how it links up to the core values and assumptions that you expect people in the company to hold.

Uncovering Culture: Specific Ideas and Tools Discovering the real culture that you have, not the one you just wish for, is, in essence, detective work. Not the “Sherlock Holmes” variety, where a genius mind with an encyclopedic memory and Google-like knowledge base in her head can see into the motives and conduct of anyone near her. Our variety involves more hard work and is interactive, full of questioning. There are various methodologies that could be relevant, including “ethnography,” the system for studying cultural phenomena, pioneered within anthropology

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and sociology. Used today in fields closer to business studies, such as organizational behavior, ethnography offers some interesting perspectives and tools for backstage cultural work by leaders. While organizational ethnographers may frown upon “lay” ethnography, what I share below is definitely not a summary of all the methods at hand; however, they do provide some impetus for investigating organizational culture.

Approach with Humility, Not Certainty Culture is fluid, emergent, nuanced, and complicated, and so cultural analysis will necessarily be full of qualifications, hesitancy, and uncertainty. One of my former colleagues, John Van Maanen, an astute ethnographer, once referred to culture as a “black hole,” presumably meaning that the light needed to see it is sucked deep inside, making detection and measurement ­ roceed-with-caution thinking is not the approach of busitricky.5 But this p ness leaders to most things in their long repertoire of duties. The tale of two corporate ethnographers that were hired to assist a large global company to understand its culture is telling.6 The company managers took an engineering approach to culture, viewing it as completely tangible and, ultimately, readily measurable and changeable, while the academic ethnographers emphasized the inherent paradoxes and conflicts, the smoky side of culture. Business leaders tend to be “doers,” not “describers,” and so they will instinctively try to treat cultural analysis like any other issue of measurement in management work—you simply “count it” or provide some sort of “normative assessment” (in, out, good, bad), and then quickly move on. The problem with this approach is that you are likely to miss important details of how things “really” work around here and their link to strategy or value. In the rush for certainty, details are missed and the wrong interpretations may emerge. For example, these corporate ethnographers pointed to several differences across similar company sites around the globe, but rather than an occasion for understanding the source—and possible value—of those differences, corporate leaders framed them immediately as problems, reflecting their own and powerful assumption that “everything must work the same way for us to be successful,” an assumption that itself merited discussion.

5Van

Maanen, John. (1988). Tales of the Field: On Writing Ethnography. Chicago, Chicago University Press. 6Fayard, A.-L. and J. Van Maanen. (2014). “Making Culture Visible: Reflections on Corporate Ethnography.” Journal of Organizational Ethnography 4(1): 4–27.

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The first point we want to make about better accessing your culture has to do, therefore, with attitude. It is important to begin with an open mind, patience, and most of all a tolerance for ambiguity. Your role at this stage is not to “lead culture” but to understand it, and this means accepting that what you are analyzing will never be understood completely, definitively, and permanently.

Take the Outsider’s Viewpoint Cultural analysis usually works from the “inside-out.” That is, an outsider ethnographer joins, observes, sits, and participates long enough with the “natives” that she develops an insider’s viewpoint on what, exactly, is going on—a view on why people are doing the things that they do, and which can only be truly understood from their viewpoint. But then, that understanding emerges to the “outside” viewer, as an interpretation of what is going on in the inside, often with some form of external referencing to connect non-insiders to the story. This should, in one sense, make lay (leader-led) ethnography easy—don’t they already have that internal viewpoint? Yes and no. To the extent that they have it, it will always be incomplete for the simple reason that business leaders follow career trajectories that never touch every aspect of the business. But more importantly good cultural understanding does not require analysts to go completely native, but rather they require the neutrality of an outsider’s viewpoint and the reference points that outsiders can bring. Good cultural understanding, then, requires some mix of outside and inside. Turning this into a prescription is difficult, but two things come to mind. First, having outsiders assist in this work is a good idea. It does not mean, I believe, that this must be completely outsourced to a consultant, but rather that an outsider’s viewpoint is important to involve in the process. Second, it does imply that business leaders need themselves to adopt a “neutral” stance or process in this work and, additionally, be open to alternative interpretations to how things work. These are “external” viewpoints in at least two senses. One is that they make use of examples and ideas from outside the company at hand. Another is that those viewpoints may be external or alternative to the presumptions the leader herself makes—that the real explanation for how certain aspects of the organization works has little to do with what the leader may have believed coming into the process; alternative forces are at hand. The viewpoint is “outsider” in the sense that it is more likely to capture and/or confront taboo presumptions that may lie several

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layers beneath the surface of acceptable inference and conversation. Indeed, while the task of good ethnography is for the analyst to gain insider knowledge, the task of the business leader may be to find a way to incorporate outsider viewpoints.

Learn from “Undercover Boss” or MBWA There is a popular, primetime Emmy Award-winning reality TV show called Undercover Boss. The ruse is sublimely simple. A senior company executive takes on some sort of disguise and works in one part of her organization undercover, able to observe the things that really happen within her organization. Presumably with some dramatic arrangements by the producers, the boss inevitably is surprised to find the reality doesn’t match her expectations. This has entertainment value for the simple reason that it contains disguise and surprise, a “trick” played on hapless employees, although the ultimate trick is really on the bosses, when they are confronted with the disconnect between expectations and reality. But the raw idea is instructional. As we noted, it is simply a fallacy to presume that business leaders will be intimately familiar with all parts of the organization. In a way, it tempers the concern above that company executives are completely “native” with respect to all parts of the company, and so unable to be, at all, neutral. But it also suggests that there are opportunities for business leaders to spend serious time with different parts of their organization. The problem, of course, is that donning a disguise without the excuse of a popular TV show may be unacceptable and damaging, and without that disguise would employees really behave naturally with the boss around? Probably not, at least not in any reasonable time frame, but, although imperfect, we should not discourage or undervalue business leaders spending appreciable time with ground floor operations. Management by Walking (or Wandering) Around, in which managers regularly spend time walking around various departments of their organization, talking to employees, was a management technique popularized in the 1970s. The term was coined by the founders of printer company Hewlett-Packard, who ran their company this way, and it became the foundation for the best-selling management book, In Search of Excellence by Robert H. Waterman and Tom Peters. While no longer in the current lingo, some managers feel that the advent of technologies like e-mail and slack, a cloud-based team collaboration tool, has made leaders more likely to communicate online and in formal meetings only. MBWA is a good antidote, therefore, to the leader’s isolation to what is really going on in the

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company. CEO of Starbucks, Howard Schultz oversaw more than 23,000 worldwide and nine subsidiaries but he visited 25 Starbucks stores each week to check out the customer experience.7 There is much value in the discussions, interviews, and observations, if not direct participation, that comes with spending real time on ground floor processes, even if not “undercover.”

Go Deep to Describe What You Find We now turn to more specific tools and possible steps in this work, but the segue is one final piece of general guidance: focus closely on description, not evaluation. Remember that the overall task and goal is to surface the implicit, to capture the unspoken but “evident” assumptions that are shared among the group or system being analyzed. This requires us to start and stay with the artifacts and observe what people do, what really happens, not just what they say. The early rules are threefold: describe, describe, describe. It also raises the question of whether or not to use surveys. In general, the use of culture surveys should not be the core exercise. While surveys can help with capturing big themes, they have a tendency to be evaluative, e.g., “My team provides me with a safe space to raise difficult questions and issues- it provides psychological safety: Agree or Disagree on a 5 point scale.” What gets lost is how things actually work. However, neither should they be dismissed. A cultural survey (or even simply the yearly “employee engagement survey”) can be a complement to core cultural work, perhaps tapping into people’s views who, for practical/group size reasons, may not be part of the central process. But the early, core process should involve a solid descriptive phase.

Target the Relevant Artifacts The obvious next question is “what should be the target of this descriptive work?” The targets of analysis are relevant artifacts, and we will provide a specific guide or framework below, but first let’s consider the format. Ideally, this is done in a group work format in which you are soliciting the input of multiple individuals at once as a special event, perhaps facilitated by an experienced 7Rodriguez, K. (2017). “Management by Wandering Around: Leading on Your Feet.” Experteer Magazine, June 6. Retrieved 10 December, 2019. https://us.experteer.com/magazine/management-bywandering-around/.

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outsider. This doesn’t mean all conversations happen as a plenary—indeed, the use of subgroups may be a useful validity check on what emerges, as we will describe, but the core process is best done through the discussion and debate of multiple individuals. I have done this with large groups (40–50) and small (10–15); while large groups may contain more diversity of thought, there is probably enough diversity in smaller groupings, especially if repeated on more than one occasion, with the advantage that they will be more manageable and suitable for deeper, focused discussions. The targets of analysis are relevant artifacts. What makes for “relevance” will partly depend upon what aspect of the organization is under cultural “suspicion”—clearly, leaders will go into this exercise with some general sense of where something is not working the way it should. Table 5.1 contains a general guide on where to look. Not meant to be an exhaustive list of all artifacts, this list is partly based upon a general framework for thinking about organizations, developed for the organizational behavior courses that we teach. Clearly, some part of the group process should be spent examining where to start the dig.

Balance Valence—The Good and the Bad A specific way to approach the selection, but also to jump-start the analysis, of artifacts is to consider “valence.” By valence, I mean the basic question of whether the artifact category sparks “positive” or “negative” advantages for the company. First, a possible filter to sensing which artifact categories above may require closer scrutiny is to ask what general area of company functioning (i.e., from the general categories on the left in the Table 5.1) tends to drive value in the organization. Do people see Brand and Image, or Incentives & Metrics, for instance, as real sources of competitive advantage (i.e., “positive” valence)? Similarly, what artifact categories tend to destroy value, hold us back, and make us less competitive (i.e., “negative” valence)? This allows you to have a more intuitive inroad into exploring the broader artifact space, as well as exploring the differences of opinion, but through careful description of each artifact. This exercise also helps emphasize that you are not just examining artifacts that people “like” or “hate” but ones that have implications for the competitive advantage of the company. Hence, because you can’t completely separate people from “evaluative” filters, it is worthwhile to anchor those evaluations with the company’s competitive advantage and strategy in mind, not the personal whims, likes, and dislikes, of managers. As I try to emphasize when groups present and describe their artifacts, what, and how, does what you are describing have to do with value creation and performance?

The human side

Micro (informal) structures

Macro (formal) structures

Leadership and teams

The external boundary

Individuality vs. collectivity Relationships Status

Change and innovation Discipline Work-life balance Time Dress code Space

Networks

Political process

Linkages Incentives and metrics

Teams and groups Groupings (“Org. Chart”)

Authority/hierarchy Leading

Brand and image Clients and customers Professions

Artifacts

Strategy and purpose

General categories

Table 5.1  Culture analysis aids How do people understand both the general mission of the company and how the company is trying to outcompete others in this market? How are we perceived among key stakeholders? How do we think about our clients and customers? What are the core professional communities to which our member belong, and how do we think about them? How do we think about hierarchy? How are people in authority treated and looked-upon? What does it mean to be a leader in this organization? How does “leading” actually work around here? How does teamwork work around here? How does our formal organizational design actually work? Are groupings and decision rights clear? How do the linkages between the formal groups actually work? Variety? Number? Quality? How does our system of incentivizing behaviour really work? How do the metrics that inform those incentives work? What is the nature of our political process? That is, how are tough, strategic decisions made around here? Who has “real” influence in the organization? How well do we reach agreement? Other than the channels provided by our organizational design (chart), how do people tend to interact around here? How do we approach innovation and change around here? How much discipline do we see around here? (meetings, deadlines, responses, etc.) How does work & life balance really work around here? What does a normal working day look like? Week? How do we treat punctuality? What is it? Does it vary? By day, context, level? What is the nature of our physical space, the “basic geography” of how we do work? Office? Building? City? Region? Globe? How do we approach the individual vs. collective divide? What is the nature of work relationships? Are we “friends & family” or “strictly professional?” What is considered high status around here? What counts as “cool” and impressive?

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A second way to use this filter, particularly when you are trying to be thorough and examine all the artifacts, is to ask people (perhaps in subgroups) to consider each artifact from the two valence perspectives: the “good” and the “bad” viewpoints of each. This will help to ensure that the deep descriptions receive a balanced approach. Or, if you simply start with a d ­ escription of each artifact category, look to balance the viewpoints that emerge by using the valence filter, asking questions that challenge perspectives (i.e., Are we being too rosy about this artifact and avoiding hard questions? Are we being too critical about this artifact and not seeing some of its positive features?). Keep in mind that the point of this “Valence filters” idea is to actually improve the targeting and deepen the descriptions, not in fact to judge or provide a verdict. This type of filter is a tool to help unearth alternative details, and perspectives, on these crucial ongoing routines and behaviors.

Surface the Implicit This is probably the most important but also the most difficult step. It is difficult because it involves interpretation, the construction of meaning and causation, deeper understanding. At some point, you need to move away from the descriptive work and take creative and interpretative leaps toward the underlying assumptions that give power to the observed behaviors. The goal here is to give a name to those cultural forces that work as powerful cultural motors in the company. Perhaps “interpretative steps,” rather than “leaps,” would be the better way to describe it. One of the goals is to make sure that what emerges is grounded in data, so while creative interpretation is required, if it feels too much like a “giant leap” instead of a natural inference it may be inaccurate or half-baked. One tool that helps in this work is to ask people to write or represent underlying assumptions as quotes, that is “rules in the head” that are triggered in an unending tape loop in appropriate contexts and situations. For example, it is likely that Apple employees continue the design-based thinking inspired by Steve Jobs, given clarity and voice by head designer Jony Ive, and continued under the watch of CEO Tim Cook, and so a likely rule-in-the-head is “Design thinking must be a part of everything that we do- it is core to who we are.” Similarly, a shared but much less publically acknowledged assumption within, say, a company like the former Enron would have possibly been “around here, only the fittest survive.” When he was executive director of software engineering at Taiwan-based HTC engineering, executive coach James Pratt noticed a “rule-in-the-head”

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when he was at a “bug triage” meeting in which developers got together to decide which bugs to deal with first. He thought a minor bug could be postponed until a colleague said, “This one is really important. It needs to be fixed now.” Pratt asked why, to which his colleague responded, “Top manager says so.” But there was no inkling as to which manager deemed that bug important. At first, Pratt thought “Top manager” was just an odd translation of Chinese to English for “Senior Manager.” He soon learned “Top manager says so,” was shorthand for saying “someone more senior wants X done.” It was part of HTC culture that you could play this “trump card” of “Top manager says so” when you wanted something done quickly with no questions asked. Pratt said this rule-in-the-head connoted something very important about the culture of HTC, that “within the culture senior people were very valued and that employees were generally expected to do as they’re told.” It was a top-down, hierarchical culture that did not embrace dissension.8

Assess Fit: The Private, The Sacred, and Taboos One of the differences between the assumptions listed for Apple and Enron above is that in the case of the former, we can easily imagine these assumptions being shared in public and fitting the espoused values of the company very well. They are not embarrassing and in fact may be praiseworthy. Moreover, they are assumptions that probably match-up closely with the assumptions that we want or need given our strategy and goals. It is important to point to these well-fitting assumptions. But it is also important at this stage to identify and assess implicit assumptions that do not match the espoused values that we need or want for the company, and to assess their fit. In the case of Enron, the “survival of the fittest, dog-eat-dog” premises were probably not the stuff from which company information brochures and recruitment campaigns were built. In fact, Enron had put out a 64-page manual laying out the company’s mission and its core values, none of which likely included the “creative accounting” that brought down the company.9 Nonetheless, the first point here is that it’s important to look to the private side of organizational life when assessing the implicit assumptions you

8Pratt,

James. (2016). “Part 2: Language Reveals Company Culture.” Reflective Management, July 4. Retrieved September 30, 2019. http://reflectivemanagement.com/language-reveals-company-culture/. 9Burkus, David. (2014). “How to Tell If Your Company Has a Creative Culture.” Harvard Business Review, December 2. Retrieved September 27, 2019. https://hbr.org/2014/12/how-to-tell-if-yourcompany-has-a-creative-culture.

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surfaced in the step above. You’re not conducting a PR exercise but a cultural analysis. And the question to ask now is how well implicit assumptions match-up with what your organization wants, needs, or think they have. Relatedly, have the courage to explore the sacred and taboos. It is hard to know what these look like in advance, although you surely know it when you see it—or don’t see it. But here are two indicators that a topic is being avoided when it may deserve attention. (1) Are people dancing around issues of governance or ownership instead of talking about them openly and plainly? Are there whispers of concern? Are there innuendos, but no clear voice? When there is a topic at the apex of power and control in a company, people may be avoiding it for the “wrong” reasons, not because it isn’t relevant, but because there is too much fear in the room. It may be an issue that needs a good deal of psychological safety and good facilitation for helpful interpretations to emerge. (2) Are people avoiding “massive complexes?” That is, are they avoiding dealing with large, recent or legacy, investments or structures that seem so big and complicated that there is no point even considering them? This is effectively a group avoidance mechanism, where the group tacitly agrees to leave such cultural “taboo” topics alone either out of fear or the discomfort of having to deal with large-scale structural fixes. Again, this may create short-term comfort and a focus on quick fixes, while leaving the deeper, longer-term threats to company survival under-analyzed. At Canadian high-tech company Mitel Corp., a downturn in the company’s fortunes started a crusade to find—and kill—company sacred cows. Founded in 1973, the company pioneered the field of computerized PBXs, private branch exchanges. Based outside of Ottawa, the company grew quickly, went public, and was worth more than 1 billion US dollars. Yet, by the early 1990s, shares that used to trade for $33 were trading for one dollar. The founders were ousted, and the company began some intense soul searching. Stephen Quesnelle, then head of Mitel’s quality programs, made it his business to go after the company’s sacred cows, what Quesnelle called “…the policies and procedures that have outlived their usefulness—but that no one dares touch.” With a life-size wooden heifer inside his office, posters of cows, and cow figurines and mugs and gewgaws covering his office shelves, Quesnelle felt he had to make the quest light-hearted. But there was nothing light-hearted in his determination to go after unspoken, sacred company traditions that were holding it back. Quesnelle and colleagues organized “Sacred Cow Hunts” through Mitel Corp.’s R&D division as well as three-day Sacred Cow Workshops in which employees identified attitudes, rituals, and rules that stood in the way of getting work done faster and that all-important sense of urgency that the company had lost. One example:

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R&D people rarely visited customers to discuss their needs because too many signatures were required to get approval to go on a business trip. And the goal wasn’t just to find the sacred cows, but to kill and replace them. Each participant in the Sacred Cow Workshop had to identify two personal cows and two ways he or she would attack them. The results of a movement that started in R&D and spread out through the company were striking: The company reduced its average time-to-market for new products from 70 weeks to 50, with the ultimate goal of 36 weeks. They almost doubled revenues from 1997 to 1998 and tripled the stock price.10

Do Your Homework The last two points are about practical steps to consider within the group work structure and using the above framework. Consider having the groups do some homework. For instance, if there is time, instead of having the groups just brainstorm independently and then report, consider leaving some time for groups to collect data on the particular artifact(s) that they are exploring. Consider also a range of data, from interviews to observation to, if possible, participation in the activity or area they are evaluating. If these forums are done with relatively senior managers, keep in mind that they may need to spend some time in the field to refine their understanding of what is going on at ground level when it comes to these routines. Surfacing the implicit will be less like guesswork if there is better firsthand data.

Solicit Competing Views Finally, encourage multiple groups to analyze the same things. While that may seem very inefficient, it is a powerful learning and validation tool. If, say, 5 groups all examine and present the same artifacts independently, and they say the exact same thing, it is a useful test of whether something is “real” or not in the culture. If the groups are diverse to begin with, it also means that alternative starting perspectives are pointing to the same common assumptions, again a useful tool for developing meaning and validation. This doesn’t mean that if only 2 of 5 groups surface these assumptions they are irrelevant (keep in mind that some may be braver, or more insightful, than others in raising tricky issues), but it does give a great deal of focus and urgency to the things that are clearly shared and evident in the data. 10Beardsley,

David. (1998). “This Company Doesn’t Brake for (Sacred) Cows.” Fast Company, July 31. Retrieved October 1, 2019. https://www.fastcompany.com/34481/company-doesnt-brake-sacred-cows.

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In summary, cultural analysis is collectively constructed, but through lots of debate, with good data and deep description. It requires patience. It requires a leader who is not only a good facilitator of teamwork but also one who is a good inquisitor, who asks penetrating questions, trying to always see beneath the surface. It takes someone who is able to ask the question “why?” multiple times and in such a way that it peels back another layer of company conduct and thinking. (Edgar Schein’s lifetime of research and work provides excellent tools for those who want more on this topic, including: (Schein 1999)11. The Corporate Culture Survival Guide, (Schein, 2016 5th Edition),12 Organization Culture and Leadership.)

Cultural Universals or Strategic Alignment? During a discussion of organizational culture, David, a manager who had worked for various organizations, in sales and then operations, and who was now running his own company in the financial services area, asked the sort of question a young child might ask—on the surface, rather naïve, but in a way quite sensible: “can you provide a list of cultural traits that is effective in any organization?” David was no doubt thinking about his young organization and how to develop a strong culture, and, with the rational perspective of a financial economist, he would like to see the “catalogue” of universal cultural traits. Implied was that these cultural traits should be “good” ones, things that could help companies to “succeed.” In fact, a recent study I contributed to looked at the values espoused by Fortune 100 companies.13 While not the taxonomy David requested, by any measure, it did provide a look at the values targeted by the world’s more influential companies. Unsurprisingly, some common values were integrity, innovation, community, customer focus, value for the individual, open communication, and so on. But would such a list be instructive or productive for managerial work? Would it make sense to, say, adopt a best practices approach like we see in so many places in the field of management and look at what the “top companies” emphasize these days and then try to graft it to your organization? It would not. This is because some perfect, universal business culture does not exist. Even though there is remarkable overlap between some very different 11Schein,

E. H. (1999). The Corporate Culture Survival Guide. San Francisco, CA: Jossey-Bass. E. (2016). Organizational Culture and Leadership (Fifth ed.). San Francisco: ­Jossey-Bass. 13Jonsen, K., C. Galunic, J. Weeks and T. Braga. (2015). “Evaluating Espouse Values: Does Articulating Values Pay Off?” European Management Journal 33: 332–340. 12Schein,

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organizations—both Walmart and IBM had the same three core values (customer service, excellence, and respect for the individual)—organization culture work does not contain a ranking of “good,” “better,” “best” cultural traits or values. While a list of the two or three dozen values that come up most often may be a useful browse, to just see the variety of values that companies emphasize, it would be, in fact, naïve to “work on” culture in this way. This point is probably obvious to any seasoned manager. But the subsequent point to make is that normative cultural work is about alignment of the organization with the strategy, not universals—and not values that may be great for other companies. Retailer J. C. Penney’s revenues had been sliding for years, and its image was stale and stuffy when it hired outsider Ron Johnson, Apple’s Senior V.P. of Retail Operations, to be the company’s new CEO. Johnson had a stellar track record pioneering Apples’ popular Genius Bars and, before that, at Target, revamping the retailer as “affordable chic.” Johnson came in, bringing Apple veterans along with him, with the goal of totally revamping J. C. Penney’s into a new entity called JCP. And as Johnson transformed the feel and look of the stores, he tried to create a company more aligned with Apple’s core culture than J. C. Penney’s, traditionally a discount retailer, where shoppers love finding a good deal and saving money. Problem was, the new team (including Apple veterans) Johnson had hired may ended-up trying to redirect JCP in a direction that was not a good fit for core Penney consumers, or at least one that would have taken much longer time to execute. Johnson was going directly against the grain of J. C. Penney’s traditional discounting culture and “suburban” (not “city chic”) market positioning, by trying to rejigger the stores as collections of boutiques displaying hip brands, and reducing the sales discounting/couponing practices. He also did this without using a standard practice in the retail business: advance testing. During Johnson’s tenure, J. C. Penney annual sales fell from $17 billion to as low as $11 billion. Johnson moved on to other ventures, and there is certainly appeal to the thinking he wanted to see in retail (transparent pricing, no games), but at least in the time frame in question, the ideas were not for J. C. Penney consumers, who may have enjoyed the hunt for bargains. Again, it’s not about a cultural emphasis being “good or bad,” it’s about fit.14 Let’s explore this issue of alignment more broadly. Some companies may share similar core values (like Walmart and IBM) because some of those general values may be robust, with various ways in which they can be locally interpreted and adapted (such as “excellence”) but the focus of the cultural work, 14Tichy, Noel. (2014). Succession: Mastering the Make-or-Break Process of Leadership Succession. New York, Penguin Random House; Wahba, Philip. (2016). “Ex-CEO Ron Johnson Says J.C. Penney Should Have Stuck with His Plan.” Fortune, May 16. Retrieved September 26, 2019. https://fortune.com/2016/05/16/ ron-Johnson-penney/.

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of course, is in that local adaptation and interpretation. The espoused value is more or less a general guide, but the real leadership work is in the alignment process, creating local contexts that embody the desired cultural attribute in specific ways. Companies may also share similar values because their strategies are relatively similar, and so it won’t be surprising that energy and oil companies place a lot of emphasis on Health & Safety, both for their workers and for communities and society. The key question is whether those espoused values are simply window dressing or whether they permeate the organization. In general, when companies can align cultural assumptions with their strategies, they should thrive. Walmart, whether you love them or hate them, has become a top global retail company because of its razor-sharp focus on thrift at all levels. Managers approach operations and the supply chain looking for savings, gaining savings that the retail giant is able to pass along to consumers (although, as many have argued, not enough to staff); Southwest Airlines provides reliable and timely services on ­ short-haul routes because of the efficient turnaround routines and the supporting employee attitudes it has developed; Zappos is an online shoe provider with a strategy focused on company salespeople (not third-party call centers) actually talking to their mostly repeat customers, and so has invested heavily in a high-touch local culture; and Lincoln Electric, one of the world’s top welding equipment manufacturers in a cutthroat industry, has managed to keep turnover low and productivity high for decades because of the entrepreneurial culture mixed with good company “citizenship” it has managed to instill on the shop floor. In each case, we see companies that have developed, nurtured, hired-for, protected, cultures that support their strategies. In contrast, when companies forget to align their cultures with their strategies—even strategies that, on the surface, should work well—major problems can result: • Airbus launched the much-acclaimed A380 (double-decker) long-haul airplane late, resulting in billions of euros in lost orders and penalties because of some problems in integration and cooperation across operating units involved in the design work—the lack of internal coordination led to prototype snags and thus the bad delays; • SONY, once the leader in the fast-growing consumer electronics sector, was not able to continue their innovation pace partly because of a lack of cross-departmental innovation and development efforts—the culture could not produce enough integrative innovation routines, and a time when the strategic environment was witnessing a convergence of technologies that required exactly such alignment;

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• Nokia lost its place in the mobile phone market partly because of a culture of fear between the hierarchical levels in the company, not allowing the true software challenges of the smartphone market to impact important decision-making—accurate information was not flowing up; • Merck, a leading and innovative pharmaceutical firm, suffered enormous damage to its brand with the Vioxx scandal (a drug whose dangers were not properly detected), partly reflecting a cultural drift away from its focus on helping people “live a better life.” And of course there is Wells Fargo, whose recent fall also reveals serious cultural drift from its focus on serving “Main Street.” It’s important to note that in many cases, these are not “bad” cultures, or at least not experienced as such. Yes, some of the sales target terror felt by Wells Fargo Bankers was certainly “bad”; one banker reported drinking hand sanitizer fluid to reduce the panic attacks she was feeling during her efforts to meet monthly sales targets. Yet, ill-fitting cultures can also feel good, or be experienced as motivating and stimulating—traders in hard-charging Enron or bankers in Lehman Brothers probably felt a rush working in these firms during the glory years that preceded the fall. There have no doubt been many companies who happily danced their way off of a cliff. The implication for leadership is that the task is not to make “strong vs. weak,” or “friendly vs. aggressive,” cultures but to consider the alignment of the culture with the strategy. Finally, let’s also be modest about what culture can accomplish. My approach in this book is to keep a firm link to strategy and its development, which will include many features that drive survival and success such as positioning, technology, and the strength or weakness of competitors. I have tried to be particularly sensitive to how backstage leadership supports the development of the business strategy. Strategy has played a role in everything we have talked about, and so it will play a role here as well. The fact is that a good culture can only help propel a “mediocre” strategy so far. At some point, the strategic fault lines will appear. For example, EADS (Airbus’s parent) has tried to learn from the A380 fiasco and has pushed toward a more integrative and synergistic company, but the A380 is under doubt and a stop in production announced, perhaps because the market prefers smaller, economical planes that serve smaller airports, rather than massive planes that serve a hub-and-spoke model, in which multiple flights are required. In the end, both strategy and culture need to fit the environment of the firm.

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Doing the Backstage Work of Cultivating and Changing Culture Robust, good-fitting cultures that support the strategy look great in retrospect. If we take snapshots of successful firms, it is rather easy to associate the culture that they have with the success that they enjoy. Such an exercise is useful nonetheless, but it is certainly open to conflated thinking. For example, it’s very likely that a firm with skyrocketing performance will, as a result, develop a special vibe, greater collegiality, positivity, and so forth. But we have to go beyond such cultural statics. This final section will have a look at cultural dynamics, including how to shape culture. While the usual caveats apply, there is still much to say about how to shape and guide the development of organizational culture. The caveats: Culture is already changing, long before you “decide” to do something about it; it is constantly inching forward or backward; like a glacier, it may seem monolithic and permanent, but little experiments are happening all the time; “designing” or “engineering” a culture, however, is not easy and can end-up with unintended consequences and setbacks—we should be humble about cultural change. Caveats noted, let’s begin from the middle of the culture model and consider the role of espoused values. The basic issue is this: Does espousing cultural values actually matter? Does it matter if companies write down, communicate, and target a specific set of values? This is the question a recent research project set out to answer.15 This is a good starting point on culture dynamics for the simple reason that talking about the culture you wish you had—you need to have—is a logical step toward shaping that culture, along with the analytical work we discussed above. In short, this study found that listing your corporate values is not enough—companies seem to do better when they use the espousal of culture to actually wrestle with their cultures. A bit of background first. Writing down your corporate values is commonplace. They are mentioned in various corporate communications and easily found on company websites. Strangely enough, we seem eager to tell external audiences about internal values and assumptions. Stating values is also a way to shape internal stakeholders’ understanding of the company—in its best light, a wish list of sorts. Large global corporations with diversified markets and products may find this particularly appealing, to define what is in the glue that holds the company together, to appeal at least to the human need to bond with members of your tribe 15Jonsen, K., C. Galunic, J. Weeks and T. Braga. (2015). “Evaluating Espouse Values: Does Articulating Values Pay Off?” European Management Journal 33: 332–340.

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or group. This study looked at Fortune 100 firms from 2005 to 2008 to determine which values were espoused on their corporate websites, whether they differed from other companies within the same industry and whether they differed from common values among the Fortune 100 companies, and whether any of this was correlated with actual (financial) performance. Additionally, this study looked at whether companies changed their values over a period of time and whether this had any effect on performance. The main findings? a. Be bold, be different. Of the 32 different values in total that were listed, there was not an enormous difference in values expressed across industries (only 7 of 32 differed significantly by industry), but where companies did differentiate themselves from their industry peers, this had a positive effect on performance. The implication is that when actively seeking some uniqueness from the industry norm, even in how they shape their cultures, the firms in question outperformed others in their industry. Wegmans, the Rochester, NY-based family-owned supermarket, dares to be different in shaping its culture around the happiness and expertise of its employees—quite different than other stores in the same category like Walmart or Whole Foods. An example of how far they go to inculcate a culture that values employees above all else: cashiers are not allowed to interact with customers until they have completed 40 hours of training. Wegmans also sends employees on company-paid trips around the United States to gain expertise in their area, whether it is deli meats or fish or baked goods. The privately owned company has not laid off a single employee, has no mandatory retirement age, and reinvests all profits in the company or shares them with employees.16 b. Fine-tune over time. What seems to matter too is that companies who show more dynamism around their values—those that change them over time— outperformed firms who kept theirs stable. We would argue that these firms are seen to be more actively engaged in a conversation about “who” they are, what their culture is and about the direction they are taking their business in, precisely because they are wrestling with their organizational culture in changing it (our presumption). In effect, “tweaking” their values shows that these companies are actively trying to reform and improve themselves, which I believe is connected to their financial performance. The seventh most-visited website in the world, Reddit is an American social news aggregation, content rating, and discussion website. Its VP of People, Katelin Holloway, and the company’s People and Culture Team conduct a periodical rigorous 16Rhode, David. (2012). “The Anti-Wal-Mart: The Secret Sauce of Wegmans Is People.” The Atlantic, March 23. Retrieved September 30 2019. https://www.theatlantic.com/business/archive/2012/03/ the-anti-Walmart-the-secret-sauce-of-Wegmans-is-people/254994/.

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review of Reddit’s values, to make sure they align with the company’s current goals and context. A key consideration in evaluating values is whether they scale. “One of the biggest mistakes peoples make,” says Holloway, “is thinking that values are going to live for the next 50 years. But the reality is that’s not what a company needs. A company may not even be around that long. So start identifying values that are for the now.”17 c. Tune into your culture, Deal with the trade-offs. While it isn’t common for companies to have exhaustive lists of values, what can be seen from these findings is that those companies espousing “a few more” values perform better than those espousing “a few less.” That is, the number of espoused values was positively correlated with performance. We need to be careful here, as it is obvious that simply creating a long list of values won’t do much good, and could cause confusion. Rather, we believe this somewhat strange, sarcasm inducing, result suggests that companies who do more than a bare minimum in value articulation may also be those that are more actively wrestling with the complexity that is an organization culture. That is, business organizations of any size are complex institutions (and especially firms in the Fortune 100, which are more likely to be large and varied), with many things that they would consider important, core, and valuable to their functioning. It’s also likely that not all of these values are in perfect harmony (“Stability” v. “Innovation”, as we examined in the previous chapter), and so listing a bare minimum of values may reflect a lack of adequate attention to the trade-offs inherent in any corporate culture. Grappling with the full set of core corporate values probably reflects a greater willingness to work through the trade-offs, which may be a good thing and help explain these results. The alternative, we can only suspect, is listing the few things that you like, but burying any discussions about the things that you also need but that create complexities and contradictions, an approach that may not be good for generating greater clarity, transparency, and certainty. In the end, it’s a tricky balancing act: avoiding long, dull lists of values, but not avoiding to list (and explain) things that matter and how they can be reconciled. Wrestling with your culture can be a valuable exercise and is the real value behind espousing corporate values. Fit is dynamic. Full fitness with your strategy is probably impossible to achieve, but the key seems to be constant consideration and tension. 17Cothran, Jeremy. (2017). “Don’t Be Afraid to Change Your Company Values.” Small Improvements Blog, December 1. Retrieved September 30, 2019. https://www.small-improvements.com/blog/ changing-company-values/.

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This brings us to probably the trickiest questions of all: how do you shape culture? How do you go about directing the development of culture, so that it doesn’t change in ways that are counter to your strategy? What does it really mean to wrestle with culture? This last question is the particular bane of maturing organizations. Once the creative, entrepreneurial period is complete, and the company rapidly professionalizes—or, worst case, bureaucratizes and freezes—key routines and habits, how can you consciously nudge that culture into new ways? Here are some ideas.

Leave Enough Time and Make Your Strategy Crystal Clear This is so basic you’d think it goes without saying, but it’s surprising how few people heed this key fact: Cultural change will take time. It is a gradual process, rather than a “flip-the-switch” process. Socializing people to new behaviors takes time for the same reason that it takes people time to change habits. Humans like routine and habitual behavior, despite how much we may complain about it. This is simply because our brains, programmed over many thousands of years of evolution, prefer to conserve energy. Our brains prefer to go into autopilot mode when they can, allowing external cues to trigger automatic responses so that we get through the task as simply, as easily, as possible: combing our hair, brushing our teeth, climbing stairs, even driving the car are all comprised of simple routines. Do you remember what it was like learning to drive? Probably exciting but also ­nerve-wracking. If you were like me, it was also exhausting, as you had to actively, consciously figure out how much pressure to apply to the accelerator so that the car wouldn’t lunge, or stall if you drove stick shift, how hard to tap the breaks without risking a “head-banger” moment, how actively to steer the car in order for it to follow a straight path and not appear jerky, and so on. Years after learning to drive, however, you could probably do very long, even winding, stretches without feeling very tired at all. In fact, our cars are already “self-driving” if that means that active, conscious thought and decision-making is, remarkably, hardly used. Charles Duhigg, writing about the efficiency of habits, summarizes MIT experiments on rats, who were learning a new maze in order to reach an award (chocolate).18 In the early runs, the rats’ brain activity was very high—processing was constant as learning was taking place. During this period, the rat brain was on “full alert,” using the bandwidth to explore options and make decisions. But after the learning was over and the best path 18Duhigg,

C. (2012). The Power of Habit. New York, Random House.

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had been internalized, brain activity went way down—the brain was effectively resting, riding upon the habit that had been developed. Similarly, in companies we have many such routines and ones that use familiar assumptions. This is all the more important to our sanity because unlike brushing our teeth or combing our hair, organizational work is interactive and interdependent. The common, shared assumptions help us to navigate the day, the week, the year efficiently. We would go a little mad otherwise dealing with the complexity that interdependence brings. But this is all the more reason why changing those economies of thought and action takes time. It is simply too tempting, too easy, for us to invoke the familiar ways of working. Building new routines, based on new or newly highlighted and prioritized assumptions, takes time because it takes energy and additional thought and discipline. It is like asking someone who owns and zips around a congested town in an automatic mini to learn to drive a pickup truck (with stick shift), even while they are free to use the mini. It is an energy, time, and emotion consuming enterprise. So the first point is not to expect too much too soon, to leave enough time for change. Culture, like personal habits, can take time to change and we need some patience, and determination. Another simple-but-underappreciated point is that change will be easier if the strategy is as clear as possible. Because we have argued that the “best” cultures are those that fit well the strategy of the company, it follows that the clarity with which the strategy is understood is important. There are probably many recipes for making strategy clearer, but we will suggest three things. First, don’t confuse ambition with strategy. As Richard Rumelt points out, this is a major failing of business leaders when it comes to strategy making.19 Business leaders too often think they are dealing with and communicating strategy when they talk about “revenue targets,” “market capitalization,” and “market share.” But how big and profitable you want the company to be, and in what time frame, is about the ambition of the firm, not the strategy. For example, a global insurance company not long ago described their strategy for their core market as follows: to grow long-term savings new business sales at least as fast as the market, while at least maintaining margins, thereby retaining a leadership position in its home market

This was a part of a larger effort to double the value of the company. While an ambitious stretch goal, and one that perhaps speaks to investors, the problem is that there is very little clarity about the strategy. As we have 19Rumelt,

R. (2011). Good Strategy Bad Strategy. New York, Random House.

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noted, strategy is about the logic at the core of the competitive advantage that a company seeks—it is about identifying the factors that will favor success in any competitive situation and then providing some sort of plan or map for how to make them happen. Because there are causal implications when you properly communicate strategy, is more likely to link-up with the culture. Consider the strategy Lou Gerstner had pushed through IBM, during his notable turnaround of the world’s IT giant. Gerstner emphasized global services, recognizing the fragmented, frustrating, and expensive nature of IT life in many large companies. This was not a new strategy for IBM, but it was one that they were moving away from during their near downfall, as pressure mounted to split the company apart. Gerstner made it clear very early that this would not happen, that: (1) the future was in global services, (2) that this meant IBM’s advantage was precisely in the fact that they were global and contained a massive portfolio of IT products and capabilities, and (3) that to fulfill this strategy required an integrated organization, a team, that would work well and quickly together.20 Providing even this much strategic clarity will provide meaning and insights for developing the culture, even before embarking on a cultural campaign and policy for action. The point is that when carefully crafting and communicating a strategy, you are also providing insights for the culture. It is an important moment in backstage leadership work.

Shape Culture Indirectly What is even more remarkable about Gerstner’s work is that he was able to see more clearly than most executives how that cultural change occurs. Writing some 15 years after he left IBM in good shape, and reflecting on his work, he noted the following: What is critical to understand here [writing about cultural development] is that people don’t do what you expect but what you inspect. Culture isn’t a prime mover. Rather it is a derivative. It forms as a result of signals employees get from the corporate processes that structure their work priorities.21

What Gerstner realized is that culture is not created directly, but indirectly. That is, to shape culture you need to shape what you can actually 20Gerstner,

Lou V. (2002). Who Says Elephants Can’t Dance? New York, HarperCollins. Lou V. (2016). “The Culture Ate Our Corporate Reputation.” Wall Street Journal, October 4. Retrieved December 10, 2019. https://www.wsj.com/articles/the-culture-ate-our-corporatereputation-1475445084. 21Gerstner,

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touch—those same artifacts that began our discussion of culture. For the same reason that we have never seen a value, only it’s expression, we also cannot directly implant a value. What would changing culture directly even mean? Short of the absurd, of replacing all of the people with people who contain just the right assumptions and work habits, changing culture directly would be the equivalent of preaching. It’s what we do when we tell our kids “don’t wait for the last minute to do your homework” or “wait for everyone to reach the table before you start eating” or even what we do when we write down those espoused values and embed them on corporate mugs, t-shirts, or mouse pads. Unfortunately, such “direct” cultural work, if done in isolation, may have about as much chance of having an impact as does our pleading with our kids—it seems necessary at the time but it is far from sufficient. To be clear, talking about your culture and what your organization represents is important. Discussing, debating, writing down those core values is a part of culture work. But there is more to it. If there is any “secret” to cultural work, it is that you need to work on the context, which, in turn, will shape the habits that people follow on a regular basis. The insight here is that people often form their personal beliefs by looking at the rearview mirror, that is by looking at what they have done or experienced. I’m not sure who said this first, but the idea is akin to saying “How will I know what I believe until I see what I have done?” In organizational settings, there are many levers that can shape such behavior and experience. Consider these, for a start: • Compensation—what do we reward? • Sanctions—what do we punish? What are the sanctions? • Promotion and Performance reviews—what do we measure and who do we promote? • Selection—what type of people do we hire? • Informal Recognition—who/what gets praised most vividly? • Meeting Rules—do you even have any? What are they? • Financial Reporting—what do we really look at, and how closely? What time horizon? • Decision Rights and Structure—who holds power to make key decisions? Who is regularly consulted and has an active voice in the process at hand? • Training and Development—what do we emphasize? Who attends? What methods do we use? • Physical Space and Virtual Systems—what interactions and working style does the workplace design and your online presence and systems encourage? • Leadership Communications—what is normally talked about?

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Many of these could be further broken down into micro-contextual policies and rules/norms. Collectively, these are the places and moments where people’s attention and working assumptions start to get redirected. Shaping culture, then, is really about shaping the context within which people work.

Embed Consistency and Repetition This act of shaping context requires a grander scheme of sorts. You may never be able to design just the right culture, but it makes good sense to have those core values in mind as a target for how the contextual features must operate, what meaning they are supposed to produce. There should be some unity, some consistency, in how your actions on all of those features above appear or work—from selection to rewards to structure. The litmus test here is whether people just see a lot of different and disconnected activity on various contextual fronts (i.e., what may appear to them as noise) or whether they see some unity, some consistency in those actions. Looking at all of the activities that Gerstner instigated in reshaping IBM, the impression that comes to mind is that while he did “many actions” he only did “one thing.” There may have been “thousands” of activities, tweaks, speeches, rules, rights, and so on, but there were only a few things he really “did” or truly focused on. He simply repeated them over and over again, but in different ways, in different places in the corporation. Let’s assume that the strategic implication for some cultural shift or refocus is to be more cooperative and swifter. The consistency we are looking for amounts to stressing the following in each and every contextual feature: • Compensation—are we rewarding cooperation and speed? • Sanctions—are we calling-out the opposite of cooperation and speed? • Promotion and Performance reviews—do we adequately measure cooperation and speed? • Selection—are we hiring people who are inclined to work with cooperation and speed? • Informal Recognition—are we praising people who work with cooperation and speed? • Meeting Rules—does our teamwork and our meeting times exemplify cooperation and speed? • Financial Reporting—do our reporting structures truly encourage cooperation and speed? • Decision Rights & Structure—do we give power to those people and units who can improve our ability to provide our customers cooperation and speed?

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• Training and Development—do we train for greater cooperation and speed? • Physical and Virtual Systems—does our physical space and virtual systems encourage cooperation and speed? • Leadership Communications—do our leadership communications hit upon cooperation and speed with enough frequency and importance? Do our leaders and stars act as role models for cooperation and speed? We therefore come back to those same espoused values that we like to ridicule, the target values that would make for an effective strategy if they were true. But don’t misunderstand the playful cynicism. Once again, it is not that they are useless to have—and quite the opposite is true—but only that we are fooling ourselves if we believe that just by codifying these values, sharing them by preaching and imploring and plastering them on mouse pads, that this will be enough to shape culture. As we have argued, and as Gerstner stresses, you need to consistently embed those values in the working context of people in the organization. And be prepared for repetition. Dr. Reddy’s is a company that has embraced the act of using consistency and repetition to embed values in the company culture. This 33-year-old global pharmaceutical company has seven distinct business units operating in 27 countries to produce affordable generic medications. With 20,000 employees spread out across the globe, decision-making had become cumbersome and convoluted with 20,000. The sign-offs and procedures for accomplishing anything were slowing the company down. Hence, CEO G. V. Prasad and his team worked with global design and innovation company, IDEO, to shift the company to be more nimble, more ­customer-centric and innovative. Using the ethnographic techniques mentioned earlier in this chapter, Prasad and his team fanned out among the units to learn about everyone’s needs and reframe the company’s purpose, which they distilled down to the patient-centric “Good health can’t wait.” Yet, rather than exhorting this slogan in top-down meetings and communiqués and plaster it on mugs and mouse pads, Dr. Reddy’s leaders—hard at work backstage—began using this purpose to guide every decision. Across all the channels, the team chose projects that would emphasize customer centricity, agility, and innovation. Dr. Reddy’s redesigned medication packaging to be more ­user-friendly and increase compliance. The sales representatives in Russia changed roles from product pushers to knowledge resources for physicians. After the leadership team instilled projects with the new purpose, Dr. Reddy’s spread the word both internally through company meetings and externally with a new website, brand identity and two new innovation “studios” in Hyderabad and Mumbai. The consistent hewing to the new purpose filtered down to all employees and changed the culture, as Prasad attests:

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After we introduced the idea of “good health can’t wait,” one of the scientists told me he developed a product in 15 days and broke every rule there was in the company. He was proudly stating that! Normally, just getting the raw materials would take him months, not to mention the rest of the process for making the medication. But he was acting on that urgency.22

Similarly, the importance of repetition was also captured by Patrick Snowball when he reflected back on changes at Norwich Union (Aviva Plc), the turnaround story we began with in Chapter One and that was also a cultural change story. In that work, the painstaking part was making sure that the daily interventions, however modest in size, were consistent with the central cultural message and brand23: It’s keeping a single direction but reinventing and reiterating on a constant basis… The main message has to be simple to explain to people, but done in multiple local ways. And you have to ‘hammer it’, repeat it at every meeting.

Find Ways to Spark Cultural Disruption Consistency in developing new habits and routines may need to be aided by something a little more pushy, a little more disruptive. This is because in attempting to establish new habits we have to confront old ones. Keep in mind that people may not be resisting the new logics because they don’t like them; they are probably resisting the new logics and assumptions because they find meaning and stability and comfort from the existing ones24. There are different ways this can be accomplished. One way is through symbolic acts. Gerstner, for example, went against the IBM dress code of that era. Instead of the dark suits, white shirts, black hosiery, and conservative shoes that were part of the IBM “uniform,” Gerstner started to dress differently, and expected executives to also drop the dress code, a practice which would of course cascade down. He was, in essence, attacking something sacred in order to establish a mind-set of disruption—symbolically, this told people that if he was willing to touch the sacred dress code of IBM, people should prepare for “real” change, for 22Walker, Bryan and Sarah A. Soule. (2017). “Changing Company Culture Requires a Movement, Not a Mandate.” Harvard Business Review, June 20. Retrieved September 30, 2019. https://hbr. org/2017/06/changing-company-culture-requires-a-movement-not-a-mandate. 23Galunic, Charles and ­Anne-Marie Carrick. (2008). “Leadership, Culture Change and Transformation at AVIVA: Norwich Union Insurance.” Insead Case 03/2008-5502. 24Kegan, R. & Lahey, L.L. (2001)“The Real Reason People Won’t Change,” Harvard Business Review (November).

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deeply seated habits and routines to change. It was a symbolic act that probably had little to do with specific processes or improving product quality, but it was a disruptive event, a shot across the bow of leadership and managerial behavior that caught people’s attention. The way that he did this, however, contains a nugget of wisdom. Instead of attacking the dress code per se, he reminded people that the founder of IBM, Thomas Watson, in establishing a dress code did not establish the dress code that had been ingrained in IBM culture but rather a principle: dress the way that your customers do. He was saying to people that IBM should look back and adopt the original meaning of the dress code idea—not to wear a particular look that IBMers liked but rather to dress for the customer. The wisdom in this framing is that it connects the organization to its cultural past, rather than trying to embarrass its cultural present. It’s saying to people “we had the right idea, but we have just lost our way, let’s find our way back again” making the medicine of cultural change a little more bearable to swallow. Sometimes, however, symbolic acts need to be more explosive, challenging, and disruptive. This may require some drama and theater. There are few more vivid examples than Samsung’s famous technology bonfire. CEO Kun-hee Lee was embarrassed by acquaintances when they returned the ­ mobile phones he had sent them as 1995 New Year’s gifts because the phones did not work. This eventually led him to realize that Samsung needed a dramatic change in the quality of its products and image, a company that, up to that point, was fighting at the lower end of the technology status spectrum. What he orchestrated later that year was a now-infamous bonfire at Samsung’s largest factory in Gumi, South Korea. Lee directed employees to gather a pile of 200,000 devices in a field outside of the Gumi factory. There was plenty of drama: More than 2000 staff members wearing headbands that said “Quality First” gathered around the pile, and some employees were instructed to let sledgehammers rain down on products that, in some cases, these employees had only recently assembled. Then, of course there was the large fire that engulfed all the smashed up products (hopefully, our environmental sensibilities would not allow this today and we would find another route). After the flames died down, as if the bonfire wasn’t enough to send a message, bulldozers razed the remaining refuse. CEO Lee and the executive team were all part of the scene. Chairman Lee is recalled as saying to the assembled crowd, “If you continue to make poor products like these, I’ll come back and do the same thing.” While this happened in 1995, the lesson regarding intolerance for poor quality stuck. Three weeks before Samsung’s new Galaxy S III was due for release in 2012, a customer complained to the company that the back covers for the new phone looked cheaper than the ones on demo models clients saw earlier. Global Marketing Chief of Samsung’s mobile division,

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DJ Lee concurred. “The grain wasn’t as fine as on the later models.” He had all 100,000 of the inferior covers destroyed and replaced.25 While acts like these do little to normal, daily routines, they provide a powerful, and in both cases, cathartic moment, a sort of group confessional where apologies are made for the past and commitments are made to the future. The Samsung 1995 bonfire is certainly extreme when it comes to symbolic action, but sometimes disrupting patterns of learned, repeated, takenfor-granted behavior requires a disruptive, symbolic act. Never underestimate the human need for ritual, ceremony, or some form of shared public display that makes a sharp collective statement about the past and the future. Cultural disruption also means targeting and replacing a specific habit or routine. To disrupt the ongoing negative routine, it is often necessary to consciously replace it with another positive routine. To break this down further, Charles Duhigg has said we can think of a habit cycle as having some sort of trigger or cue, the routine itself, and then often some consequence or reward.26 One way to disrupt this pattern is to actively enforce or enact a new routine. This is one of the logics used in AA programs to help alcoholics. Having a “rough day”—and after a while every working day may start to appear rough—may be the cue for a cocktail once at home, followed by many more, the reward being the escape and anxiety reduction that intoxication brings. AA programs, in brief, try to replace the alcohol habit, once cued, with social and peer support, which are structured in order to have the same consequences or rewards (anxiety reduction, relaxation, and so on) but through a different pattern of behavior. They try to replace one habit with another. Duhigg has pointed to the business example of Alcoa, which was mentioned earlier as consciously instituting a culture of safety. Former CEO Paul O’Neill, who later went on to be USA Secretary of the Treasury, deliberately created a new habit designed to raise the consciousness of worker safety at the company. The cue: Anytime someone at the company got injured. The routine: the unit vice president had to write an injury report within 24 hours of the event, explaining why the injury happened and what would be done to prevent such events in the future. The reward: The only people who got promoted within Alcoa were ones who took worker safety seriously,

25Sullivan, Mark. (2016). “Samsung’s Chairman Lee Ordered a Bonfire of Defective Phones in 1995.” Fast Company, October 14. Retrieved October 1, 2019. https://www.fastcompany.com/4021992/ Samsungs-chairman-Lee-ordered-a-bonfire-of-defective-phones-in-1995. 26See Duhigg’s book for more examples of the habit loop at the personal level. Duhigg, C. (2012). The Power of Habit. New York, Random House.

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meaning those who filed injury reports both timely and completely or those who contributed to the required reports in a fast, helpful manner.27 As another example of targeting and replacing items in the habit loop, I was helping a large Australian services company work on its culture. One of the specific routines leaders in this company detected as problematic was the “back channels” culture of the post-decision-making process. While projects were discussed openly and decisions were made and supported in public, it followed that unhappy players cynically tore through these very decisions in private. With humor as a foil, often over drinks and socializing they would occasionally use back channels to scupper implementation. The consensus was that this process was hurting the company, causing damaging second-guessing of publicly supported decisions and policy. The triggers for this behavior were official meetings and pronouncements. Almost immediately afterward, the “back channels” routines would begin. The rewards for partaking were various—partly it was the association of “rebelliousness” with being “cool,” but partly it was that even the senior managers were willing participants and so provided moments of bonding and satisfaction. One of the key things that had to happen to change this harmful loop was replacing the enabling senior management reaction to that undermining, seemingly humorous, banter with something different. The CEO rallied the senior managers and had them commit to actively discouraging cynical back channel banter and/or replace it with constructive dialogue or simply social time. The goal was to still create a bonding social moment (the reward) without the cynical talk. It’s also important to notice that this habit change at the Australian company was accomplished through collective and public commitment. Literally, this meant that the CEO asked and received commitment from the top management team in a public manner. This meant that there could be no mistake made in the (common) understanding of the problematic routine and the expectations for future, collective management behavior. This is a lesson seen in other reform programs, such as campaigns to get people to reduce energy consumption or the prevention of speeding—public commitments can promote desirable behavioral change.28 27Fox,

Justin and Charles Duhigg. (2016). “Habits: Why We Do What We Do: An Interview with Charles Duhigg.” Harvard Business Review, December. Retrieved September 30, 2019. https://hbr. org/2012/06/habits-why-we-do-what-we-do. 28Abrahamse, W., L. Steg, C. Vlek and T. Rothengatter. (2005). “A Review of Intervention Studies Aimed at Household Energy Conservation.” Journal of Environmental Psychology 25(3): 273–291; Delhomme, P., K. Grenier and V. Kreel. (2008). “Replication and Extension: The Effect of the Commitment to Comply with Speed Limits in Rehabilitation Training Courses for Traffic Regulation Offenders in France.” Transportation Research Part F 111: 192–206.

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Build a Cultural Narrative Finally, let’s build upon a tool I mentioned in a previous chapter—the power of narrative. A narrative is a story, and it’s a powerful way for the human brain to remember things. The fact is we simply remember stuff better if we can organize that stuff into stories. This is equally important when it comes to culture. Or another way of putting it is that the narrative that you are developing about the strategy and the organization would not be complete without including the culture. What is the story of your culture? What are its roots—what are the inspirations for the values and assumptions that you hold today? What is its current state—and how does this link-up to your strategy? What is its potential—how will this story unfold? What’s the consistency or red thread that can be seen running through your past, present, and future? Invoking culture is powerful for any story teller because it gives you access to valuable concepts and ideas—symbols, values, meanings, beliefs, logics, community, heros, villains, and more. Again, the narrative around the culture could include these 5 key components (Fig. 5.2): • Past—what are the most important things about our history, about what we have done? Focus first on concrete things rather than just values and abstractions about your identity. Point to key moments in the company’s journey. Ground your story in fact, in other smaller stories. • Present—where are we today? How is our culture still relevant and supportive of what we need to compete today? How is our culture holding us back? Again, link this part of the story to things outside—customer tastes and needs, competitor reactions, new substitutes.

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5  Harnessing the Silent Power of Culture and Norms     185

• Future—How will the future be any different from today? What does that mean for how we have to behave? What does that mean for our culture? How do we get there? • Heroes—Who are the people or events that we most look up to? How is their experience relevant? Why are they important parts of our story? • Villains—Less about people, more about events and problems that have derailed us. What are our demons, the things about our culture and story that keeps setting us back? Can you share examples? Finally keep in mind that this is not meant to be a long, rambling story, but rather a fairly concise story. Parts can be expanded, but it’s the sort of story that can be easily told over a speech or address, and circulated in easy to digest formats. We have covered a lot of terrain in this chapter, and if you reached this point, well done! You’ve learned that culture and strategy are inextricably linked, and using the Schein framework of organizational culture, you are well prepared to put on your pith helmet and do some archeological digging (or hire someone else to dig) for the artifacts, espoused values, and assumptions that make up your organization’s culture—going from the thin outer layer of artifacts, like your company’s brand communications and its decision processes, deeper into what your company communicates about its values and then, really digging in, to the shared assumptions and deeply seated premises that really guide life around here. The backstage leader as ethnographer takes nothing for granted, using the various techniques outlined in this chapter to surface implicit beliefs and assess the fit between culture and strategy. Finally, your role in the cultural realm hasn’t really begun until you begin the work of shaping and guiding the development of organizational culture—whether your digging has revealed that the culture is misaligned to strategy, or disruption in your field means you need to shift your culture—and fast. Patience, however, is needed—the structural work of culture change takes time—and so is clarity in communicating your strategy, the logic at the heart of what gives your company a unique competitive advantage. While many associate cultural change with “front stage” leaders holding company-wide events and brandishing new slogans, as you’ve hopefully seen, the main work of cultural change is indirect (and backstage), pushing the various levers that shape the habits you want ingrained in employees’ daily lives. As with shampoo, though—lather, rinse, repeat—you’ll find that all the multiple daily interventions need to be repeated again and again, in different ways depending upon the context within your organization. And hopefully with care and consistency.

6 Developing Talent and Capabilities

In the pantheon of business clichés, the top spot surely must be reserved for “people are our greatest asset.” Aside from its literal meaning—human capital trumps all other capital the firm may own, and which is simply not true for many firms, such as Exxon (oil reserves) Louis Vuitton or Disney (brand), Coke or, better still, Chartreuse liqueur (the secret formula)—this statement is really meant to convey business humanism, that business organizations are there not just to make profits or famous products but provide caring employment. If we add a pinch of cynicism, it can be seen as simply blatant flattery for the purposes of having employees stay longer, work harder, and do more. Of course, some companies actually mean it, and they may follow through with love and perks, and in this sense, nurture their talent. All very well, but this is not the focus of this chapter. That is, while it is wonderful to consider how companies can authentically make employees love their work environment and feel super motivated, it is a different issue than how companies can develop talent—and the context to support it— in such a way that they are building key capabilities for their strategy and survival. In a sense, I’m taking the word “greatest”—and the attempted flattery— out of the cliché above and taking seriously the notion that human talent is a valuable source of capability. By capability I mean a significant source of advantage, something that makes you better able to perform than your competitors or substitutes in whatever arena you find yourself. I don’t mean that human talent is the only or greatest capability, only that it is an important one. If so, managing human talent in the sense of capability development

© The Author(s) 2020 C. Galunic, Backstage Leadership, https://doi.org/10.1007/978-3-030-36171-6_6

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is an important part of the process of managing the strategy of the company, which is the central process behind this book, and something with which leaders therefore would naturally be concerned. I may be accused of reducing humans to simply resources, but that is not the intent—there is nothing wrong with companies loving their employees simply because they are people, and lists of “The Top 100 Places to Work” are to be applauded because they encourage such humanism. It is praiseworthy. But I leave that issue to one side. The puzzle to crack in this chapter is what can leaders do to develop strategic capabilities in the way that they think about, and work specifically on, talent development. Capability development is also another good example of a backstage leadership issue. In an organization of any size, it’s simply not possible for leaders to purely manage this from “the front” or directly, which I suppose would amount to coaching and communicating. Rather, the goal is to consider some special touch points—aside from the classic HR touch points such as selection, pay and conditions, development, and retention—along with ideas for backstage work in using talent development as capability development. Before we get there, let’s look at some general examples of what this is all about.

A Tale of Two Organizations and Talent Development Barcelona FC In professional sport, there are few brands as famous as the football club Barcelona. They are a colossal success story in a sport that has several ­mega-teams and fans that are not easy to impress. Their 100,000-person stadium, one of the largest in the world, is frequently near capacity. They hold over 70 domestic titles (a record) and some 20 European and worldwide titles; they are a cornerstone to the success of Spanish football on the world stage, a team that won the World Cup in 2010 sandwiched between two successive European Championships, and a club that has had a player on the Ballon d’Or (best footballer in the world) shortlist every year since 2004. They are simply one of the most winningest clubs in recent sports history. Barcelona’s achievements are remarkable because of the consistency of success, a level of performance that is virtually unmatched in major sports. So while major sports have their periods of dynasties (Chicago Bulls in the NBA, Dallas Cowboys in the NFL, New York Yankees in MLB), but which are

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relatively short lived and fade, Barcelona is practically unmatched in the consistency of its success, for example, it has won La Liga championship half the time in the last 20 years, and victories stretching out over that entire period, not clumped in one corner or run. This is a very difficult thing to accomplish in Sport but especially in sports where (1) there is a narrow window in the peak performance of most players; (2) one has to coordinate the peak performance of numerous players; and, perhaps most importantly, (3) player positioning, role, and interactivity on the pitch is a massive component in success. These conditions in combination mean that talent development will be closely tied to capability development for team success—the team strategy or playing style must be carefully matched-up to the way that talent is developed. Barcelona FC has a unique playing strategy. In fact it is so distinct that it even has its own name, colloquially called “tiki taka,” two words, when repeated, meant to express the constant passing of the ball from player to player to player. The core of the strategy is possession football: You only score when you have the ball, and the longer you have the ball the better your chances of creating opportunities to score. The idea is to be really greedy with the ball. If you don’t have the ball, it is impossible to score or to create scoring opportunities. What’s less appreciated about Barcelona is that this strategy cannot be easily replicated in the short run. Teams try, but it takes players who (a) are chosen because they have amazing ball handling and dribbling skills, (b) refine and develop these skills over time, (c) get to know their teammates in order to better predict movement and coordinate action. In other words, the “tiki taka” capability cannot really be built through downstream processes alone, through “front stage” efforts to make players play that way. Saying to players “we are going to play deep possession football” and then coaching them conceptually and tactically on this format is not enough, or rather it will only get you so far. It must be built “upstream,” in how they source and develop raw talent. Barcelona does this through their famous, and highly desirable, youth academy, La Masia, which 70 young players call home. It takes care of their educational and living needs, and of course they play a lot of football. But it also now extends to cover hundreds of possible stars but who may not take up residency at the facility. For all the youth, the program is a 360 concept, meaning that it extends beyond just football and tries to develop the whole person1: 1Fahey,

Jamie. (2018). “Eat, Sleep and Respect the Ball: Inside Barcelona’s Modern La Masia.” The Guardian, August 15. Retrieved December 10, 2019. https://www.theguardian.com/football/2018/ aug/15/Barcelona-la-masia-messi-xavi-iniesta.

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The club’s commitment to its Mes que un club [more than a club] philosophy is clear. The 360 programme focuses on the whole child and is up front about the psycho-social characteristics required to make it at Barça: humility, effort, ambition, respect, teamwork.

But most of all at an early age La Masia hones, through peer bonding and understanding, the capabilities needed to play exceptional possession football. As the head coach of education at La Masia explained: “For us behaviour is very important. You have to win by respecting the opponent, the referee and the rules of the play,” says Carmona [head coach of education]. “But also by respecting our three big treasures in football, the three Ps: possession of the ball, position of the ball and pressing after losing the ball. This is our way to understand football. This is clear from watching any Barcelona game.”

This statement is a perfect summary of what La Masia is trying to achieve, a deep capability development through human talent development. What it also shows is the strong connections that Barcelona managers and leaders make between strategy, capability development, and talent development. The lesson for backstage leadership is that deep connections and threads need to be established between these three fundamental processes: Talent development ←→ Capabilities & Advantage ←→ Strategy

When this is not the case, problems can arise. The next story is about Microsoft, and how they lost—then found—these very important capability development connections.

Microsoft in the Internet Age—Act I Microsoft’s entry into the twenty-first century was bruising in a way one couldn’t have foreseen back in the mid-1990s. The dawn of the Internet age spawned Microsoft Inc., a company synonymous with “software” itself and, at $501 billion, the most valued company in the world by the end of the twentieth century. Microsoft’s Office and Windows products were on practically every personal computer in the world. Most importantly, Microsoft was a hot company to work for, attracting many clever and talented young people because of their status, prominence, and impact. Yet, by the end of the first decade of the new millennium their market cap would be about half

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of what it once was, and their leading position in the technology space overtaken by Google, Apple, Amazon, and Facebook. They made these major technology and platform mistakes in the twenty-first century2: • Well ahead of its time, Microsoft conceived of a touch-screen e-reader that was meant to work with a finger (sound familiar?) and could have developed into something pre-empting the iPad by almost a decade. Yet, the company never fully developed it, apparently because it just wasn’t Windows. • They missed the burgeoning market in messaging when its MSN messenger never really took off. Later known as Windows Live, the service was discontinued in 2012. • Zune, their MP3 player, also failed, as did the music service behind it. It is not only gone but was a laughing stock in the hipster techie world. • Vista, their long-awaited Windows operating system revamp, created to deal with Apple’s OS-X resurgence, was a fiasco and was quickly replaced with Windows 7. Like Zune, it was also a laughing stock but in the more grown-up IT world. It was also a serious blow for the company and the confidence of its talent pool, or as one Vista developer said when he saw the latest Apple release (OS-X Tiger) and realized MS was now trying to simply play catch-up with MacOS “It’s fucking amazing- It is like I just got a free pass to Longhorn land today”3 (Vista was called Longhorn internally). • Bing, the search engine, has never really taken off and presents no real challenge currently to Google. • Windows Mobile and then Windows Phone (WP) were not sustainable and eventually were tied to Nokia and their Lumia brand, which was discontinued. • The Microsoft tablet, Surface, at least in its early iterations, did not draw positive attention, although it has done very well since then. By 2012, one Apple product would be producing more sales, and plenty of margins, than all of the products of Microsoft put together. This was not where anyone thought Microsoft would be heading, with its substantial cash coffers and, most importantly, access to some of the best and brightest

2Eichenwald,

K. (2012). “Microsoft’s Lost Decade.” Vanity Fair, July 24. Retrieved December 10, 2019. https://www.vanityfair.com/news/business/2012/08/microsoft-lost-mojo-steve-ballmer. 3Ibid. (E-mail by one of the developers of Longhorn).

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technologists in the world. How could that possibly have happened? There is no simple answer to that question, but an important part of the story was how Microsoft’s talent began to be shaped by their internally focused environment, and how this inward focus then eroded their capabilities to produce cool technologies. Remember that in this industry the quality of that talent and how it is used is essential to producing great products, that the company must have a continuous cycle of breakthrough innovations and deep focus on the environment, latent client needs, and the emergence of supporting technologies. Let’s start with basic motivation, and let’s assume that Microsoft could hire people who had above average desire as well as above average capability to produce cool technologies. During the mad growth years of the 1980s and 1990s, motivation included getting richer on the back of Microsoft options.4 But as the dotcom burst turned into bust, that promise of wealth evaporated. It divided the organization, between the Haves (“tenured” employees who rode-up with the company and amassed some amount of wealth) and the Have Nots (the rest), the latter now having to be motivated by climbing the corporate ladder. While most corporate people in this world have “corporate-ladder-climbing” as a big part of the motivation scheme, the trouble with this scenario was that this wasn’t the implicit deal that many of these techies signed-up for in the first place. Imagine a jaundiced, perplexed talent pool who may have been wondering “what just happened?” Having a psychological contract broken raises feelings of injustice and indignation. If not recognized and dealt with, it can breed resentment and undesirable departures. How leaders react is important. So how did Microsoft react? It seemed they doubled-down on the internal, ladder climbing focus. They implemented a system known as “stack ranking,” which basically forced leaders to distribute employees into five different performance categories, from top performer to poor performer, and the lower categories could not be left empty. Some form of bell-shaped distribution would be forced. Forced performance distributions can actually have the opposite effect from what is desired. They are often unable to really differentiate work, with people across neighboring categories possibly being virtually indistinguishable in reality. They also don’t necessarily motivate people to do better, because there’s the sharp sting of humiliation from not being in the top category—remember, we are talking about some very

4Duke, L. and Q. Huy. (2018). “Enhancing Innovation Through Organizational Learning and Empathy Culture.” Insead Case ­03/2018-6393-U.

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accomplished individuals, who may be disappointed not to be top, let alone placed in bottom categories.5 But what was more worrying in this case is that when you apply this system to very capable individuals with a lifetime of successful competition, they may also get brutally competitive, to the detriment of the firm. Microsoft’s talent also doubled-down and became more aggressive, but with each other, as one engineer said6: People responsible for features will openly sabotage other people’s efforts. One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to ensure that they didn’t get ahead of me on the ratings.

So now we have this treasure trove of capable, young talent being refocused on internal politics. Inevitably, they will form coalitions and build their power base, turning the organization into an internecine battleground for supremacy, or as one former Microsoft executive wrote in the New York Times7: At Microsoft, it has created a dysfunctional corporate culture in which the big established groups are allowed to prey upon emerging teams, belittle their efforts, compete unfairly against them for resources, and over time hector them out of existence. It’s not an accident that almost all the executives in charge of Microsoft’s music, e-books, phone, online, search and tablet efforts over the past decade have left.

This context was deadly for the sort of capability development Microsoft desperately needed at the time and given its n ­ ew-technologies-and-expansion strategy to lessen the dependence on Windows/Office. Microsoft needed cooperation across the internal platforms in order to build great products faster. The internecine warfare ensured that Microsoft could not be competitive enough, given the pace of change at Apple, Google, Samsung, Amazon, etc. For example, the same executive went on to write8:

5Pearce,

J. L. (2009). Organizational Behavior: Real Research for Real Managers: Individuals in Organizations. Irvine, CA, Melvin & Leigh; (Chapter 5). 6Eichenwald, K. (2012). “Microsoft’s Lost Decade.” Vanity Fair, July 24. Retrieved December 10, 2019. https://www.vanityfair.com/news/business/2012/08/microsoft-lost-mojo-steve-ballmeribid. 7Brass, D. (2010). “Microsoft’s Creative Destruction.” New York Times, February 12, New York. Retrieved December 10, 2019. https://www.nytimes.com/2010/02/04/opinion/04brass.html. 8Ibid.

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When we were building the tablet PC in 2001, the vice president in charge of Office at the time decided he didn’t like the concept. The tablet required a stylus, and he much preferred keyboards to pens and thought our efforts doomed. To guarantee they were, he refused to modify the popular Office applications to work properly with the tablet. So if you wanted to enter a number into a spreadsheet or correct a word in an e-mail message, you had to write it in a special pop-up box, which then transferred the information to Office. Annoying, clumsy and slow.

The result was a badly underutilized talent pool, and the departure of great talent to organizations that could better harness their skills, cleverness, and core desire to make great products. Act I in the new millennium was clearly a disappointment for Microsoft, despite having achieved incredible sales and profit numbers through their legacy Office and Windows products. Yet, some wise people knew that something different was needed for the company to succeed in Act II—or to even have an Act II.

Microsoft in the Internet Age—Act II By the close of the 2010s, Microsoft had managed to turn things around. They are now safely among the top 4 most valuable companies in the world (Amazon, Microsoft, Alphabet (Google), Apple), the ordering changing now and then, but with a sizeable gap between them and the next 4. They are back with the elite, and more importantly they are “cool” (enough) once again to spark interest in the best new talent. The leader behind the change is Satya Nadella, a thoughtful, oracle-like and less colorful or charismatic CEO than his stage-pounding predecessor Steve Ballmer. Nadella took over in 2014 as only the third CEO in the history of Microsoft and orchestrated what is to this point a successful turnaround of the world’s most famous software company. He did this more or less in three ways. First, he refocused the strategy on platforms and productivity rather than gadgetry. Microsoft’s doomed purchase of Nokia mobile phones was too little too late in the fickle smartphone marketplace, and although hardware development is a part of Microsoft’s strategy (tablet computers, Xbox, augmented reality lenses), it is not the focus. It was an expensive lesson, a writeoff of nearly $8 Billion. Adventures like this require a very strong earnings platform, and one that is safer than Windows (because operating systems today are generally free) and Office (which required a new business model). Instead, Microsoft is determined to lead in cloud services, where it is in the top 3 providers in the world, including its Office 365 suite (a cloud-based

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subscription model for its most popular product), Internet of things supporting software and integration, artificial intelligence, blockchain applications, etc. This seems a good place to create a strong home base, from which it can compete with the other majors across related segments, all occupying some unique space that offers them an earnings machine. Nadella redirected Microsoft to focus on unmet customer needs, to thinking ahead of the curve of cultural change and tap into latent needs, all around the theme of making people more productive and in greater command of their time and lives.9 Second, he took time to define the capabilities that the company would require to accomplish the new strategy. In fact, from his own words, capability development is a close partner to the formation of a sound strategy10: [After strategy refocusing] Then you have to ask, What new capabilities do I need? What new partnerships? Some will be organic capabilities that you will build, and some will be developed with partnerships…So that’s the second thing, the capability building.

These capabilities centered around innovation and collaboration. Microsoft simply wasn’t creative enough in the productivity and platforms space. But to build this space, you had to create a more collaborative culture for the simple reason that these technologies required many moving parts to properly work and the different parts needed to work closely with one another, as this extended quote from Nadella captures11: One of the things that we have grown up with inside the software industry is to think about the software stack in layers. Ultimately, the layers of the stack come together in products, but there are people who are working on the kernel, people who are working on the user experience, people who are working on chip design… They all have different capabilities—you may even have them working in different structures and orgs—but in the end, they all have to work together. For innovation to succeed in the digital age, you need a culture that allows you to break organizational silos…You need that same kind of cultural setting for the digital world. Any top executive must take a systems approach. They must think about what the key initiatives are; how they are going to get the necessary capability, including with smart partnering; and

9Euchner,

J. and S. Nadella (2018). “Navigating Digital Transformation.” Research-Technology Management, July–August. 10Ibid., p. 12. 11Ibid.

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what sort of cultural transformation will be needed in order to go bring all of the necessary elements together. That’s what’s going to separate winners from losers.

Nadella’s statement captures well his thinking on the sort of cultural capital or capability that you need to make it as a sophisticated, multi-product, integrated solutions provider in the cloud and mobile space. This is still not obvious to many companies struggling with the digital age. Or rather, managers may pay lip service to collaboration and integration, but they don’t always touch enough of the structure—the piping in the place—to make a real impact on integration and collaboration. Finally, and perhaps the hardest work, you need to shape talent development and behavior to make all of this actually work. This started with the introduction of a big theme: growth mind-set. By growth mind-set Nadella did not mean sales or profit growth (perhaps the downside of using “growth” as a turnaround chant) but a more personal and philosophical take on growth—developing a sense of curiosity, taking more risks with concepts and products, and continuous learning and updating. Nadella initiated a big campaign to push this new theme to Microsoft talent, and not only through high-level concepts but with a translation process that filtered down to core behaviors, such as these three pillars12: Customer obsession. We need to obsess about our customers. At the core of our business must be the curiosity and desire to meet a customer’s unarticulated and unmet needs with great technology. This was not abstract: We all get to practice each day. When we talk to customers, we need to listen. We need to be insatiable in our desire to learn from the outside and bring that learning into Microsoft.

This is particularly necessary in companies that have been self-obsessed for too long, more focused on internal turf battles and following company rituals than what is relevant and possible in the marketplace. Diversity and inclusion. We are at our best when we actively seek diversity and inclusion. If we are going to serve the planet as our mission states, we need to reflect the planet. The diversity of our workforce must continue to improve and we need to include a wide range of opinions and perspectives

12Ibarra, H. and A. Rattan. (2018). “Microsoft: Instilling a Growth Mindset.” London Business School Review, 3, London.

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in our thinking and decision-making. In every meeting, don’t just listen – make it possible for others to speak so that everyone’s ideas come through. Inclusiveness will help us become open to learning about our own biases and changing our behaviors so we can tap into the collective power of everyone in the company. As a result, our ideas will be better, our products will be better and our customers will be better served.

Note that this is not a call just for diversity but tolerance. Diversity ­without tolerance and open mindedness is very hard to assimilate. One Microsoft. We are one company, one Microsoft – not a confederation of fiefdoms. Innovation and competition don’t respect our silos, so we have to learn to transcend those barriers.

And here we see, for good measure, the theme of tolerance and c­ ollaboration is repeated—if you want people to take real note, sometimes you have to repeat yourself. That is, if you want people to take real note, sometimes you have to repeat yourself. Now, all of this well and good, and this is the sort of work that gets highlighted in the popular press in their reporting of Nadella’s work. But it’s not enough. Recalling the previous chapter, like culture development, talent development needs to be made concrete. Leaders need to do more than simply create inspiring themes, constructs, and visions. Backstage leadership means orchestrating how this gets embedded into the context that shapes the routines and thinking of employees in a more concrete way. This is where Nadella and his team needed to spend time and energy as well, and these were the sorts of things that they did13: • Senior leadership team focused more on cross-functional issues and role modeling collaborative behavior. • Senior management conference included the heads of newly acquired companies (all quite lower-level than the Microsoft elite) in order to mix knowledge from the old guard and the new kids in town and who were closer to the pulse of modern culture. • Customer visits were organized and insights shared, and these were mandatory for senior leaders.

13Duke, L. and Q. Huy. (2018). “Enhancing Innovation Through Organizational Learning and Empathy Culture.” Insead Case 03/2018-6393-U; Ibarra, H., A. Rattan and A. Johnston. (2018). “Satya Nadella at Microsoft: Instilling a Growth Mindset.” LBS Case Study CS-18-008, June.

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• New metrics were created to measure new behaviors from the talent pool, and the forced ranking system was scrapped. This included a software dashboard to track how much time people were spending “inside”—the internal world of Microsoft politics—versus “outside,” such as visiting customers or third parties. • Yearly Hackathons are now held, in which the objective is to crack a big issue in society, using cross-functional teams comprised of some 12,000 people from 83 countries. • Dream Forums were created, using “the Garage,” a public website, where Microsoft teams could quickly test their ideas with customers and pull in vital early feedback. The new attitude at Microsoft is epitomized by an early failure, rather than a success story. Microsoft is heavily targeting the artificial intelligence space, which is likely to be a major source of productivity gains and, hence, consistent with Microsoft’s strategy. Microsoft created a chatbot called Tay, basically some sophisticated online software that allows us humans to have a meaningful conversation with the computer code. Tay, however, was programmed to learn from the conversations it was having online, and so depending upon what us humans were feeding it online, it could morph its vocabulary and understandings, sort of like us real people except without the deeper childhood conditioning to societal norms, mores, and filters. Without some of these filters, however, the experiment went downhill quickly. Microsoft had to suspend Tay within a day of releasing it. As we might have guessed, there are some naughty humans out there who chose to feed Tay some distasteful, and in some cases racist and sexist, ideas. It’s unclear if they were pranksters, trolls, or much worse, but Tay started to communicate in some strange and unacceptable ways.14 Such an embarrassing event in the old Microsoft may have seen multiple heads roll and the project quickly suspended. However, Nadella’s reaction was, on the one hand, to apologize and minimize the public damage, and then also to encourage the team working on this venture to “keep pushing” and use this event as a learning opportunity. Leadership reactions to failures speak loudly, and this event must have told Microsoft talent that we are serious about

14Bass, D. (2016). “Clippy’s Back: The Future of Microsoft Is Chatbots.” Bloomberg Businessweek, March 26, New York. Retrieved December 10, 2019. https://www.bloomberg.com/features/2016microsoft-future-ai-chatbots/.

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taking risk and learning through mistakes and difficulties. Tay was improved with a new version called Zo, and which was up and running for three years (Autumn 2016–Summer 2019), collecting valuable data for Microsoft’s AI efforts. These actions also did one very important thing—without exception, they all lifted the gaze of Microsoft employees from the internal, political world, to the external, customer-experience world. Of all the things that Nadella needed to do to build the capabilities required to support the growth mindset and strategy, this shifting of attention is key. Notice that this was done with many, small and big, consistent actions that all pointed to the same core concept, a growth mind-set. A narrative also emerged among the speeches, conferences, and interviews, about where Microsoft had been, where it was today, and where it had to go in the future. So there are parallels to the things we already talked about in the culture chapter, although now with a specific focus on developing employees’ mind-set, skills, and behaviors. Through doing orchestrated, connected, and thoughtful ­backstage leadership work, you can generate a few key capabilities that will, in turn, support the strategy of the company.

The Talent Puzzle of the Twenty-First Century Before we look at some key ideas for talent development in the sense that I’m presenting it here, let’s take a moment to look at the problems associated with talent development in the twenty-first century. At first glance, it’s not clear why there should be any problems. The global education system is more developed today than at any point in human history. It produces a huge diversity of skill sets—from liberal art majors with a deep understanding of, say, art history and film studies, to chemical engineers who can make an impact on plastic recycling, to give just one example. The level of specialization is incredible, a treasure trove for recombinant business model development. It is a global system, with people from a large number of countries studying across borders, and it produces talent at different levels—from undergraduates with more general degrees and diplomas to graduates with more advanced but narrower interests. You can choose from among talent at different “price points,” from elite, world-class centers of research, to solid colleges and universities and technical schools, and even those who have taken online courses and certificate programs. And the market naturally “recycles,” with talent generally free to leave and join different organizations. In a short space of time, a company could find and relocate someone working

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in Kiev or Kyoto to offices in Fontainebleau, Madrid, or Toronto. Think back just 100 years ago, when most of the talent you could recruit would need to be found within a very limited radius. The market for talent is much more global, diversified, and mobile than at any point in human history. But there are problems, today and on the horizon. Let’s deal first of all with an uncomfortable issue, the fact that having a skillset doesn’t mean that the skillset is performed with quality. There is a good deal of variance in the performance, quality, and level of skill among that talent pool, and especially once you factor in that you need more than a skillset, you need to also creatively apply those skills and knowledge in unusual and unforeseen ways. Immediately, this narrows the availability of the most sought after talent. But this supply-side problem is dwarfed by the demand-side issues. The fact is that we are in a period of historic global development, as regions of the world that contain the vast majority—roughly 76% of the human population, Asia, and in particular China and India, and Africa—are trying to rapidly modernize their economies, regions that were relatively underdeveloped in the last century. This means a major pull on all sorts of industries and services. Some of this will be abetted by the wonders of scale—makers of, say, Ray-Ban sunglasses can enlarge production facilities and run closer to capacity, and they can make more use of their existing channels for distribution. But entirely new puzzles may emerge—expanded sourcing for raw materials, discovering better local methods for distribution if retail stores or optometrists cannot be developed in time, modified designs to connect with local cultures, expanded M&A activity, etc. Much of this requires talented individuals and creative work on an unprecedented scale. The McKinsey Global Institute calculates that for China to achieve modest levels of c­ ollege-skilled talent in the workforce (under 20%), it would need upwards of 85% of the Chinese high school grads to enter and complete a college education.15 In advanced economies, employers will need tens of millions more college-educated workers than will be available in 2020. In a recent Gartner survey of the biggest emerging risks facing organizations, as indicated by senior executives, the number one risk factor was talent shortage, up from position 3 in the prior survey.16 But the story gets worse.

15Dobbs, R., S. Lund and A. Madgavkar. (2012). “Talent Tensions Ahead: A CEO Briefing.” McKinsey Quarterly 4(4): 92–102. 16Lavalle, Justin. (2019). “Gartner Survey Shows Global Talent Shortage Is Now the Top Emerging Risk Facing Organizations.” Gartner, January 17. Retrieved December 10, 2019. https://www.gartner. com/en/newsroom/press-releases/2019-01-17-gartner-survey-shows-global-talent-shortage-is-now-thetop-emerging-risk-facing-organizations.

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Not only are business organizations in need of talent with established skill sets, like that chemical engineer, they are in need of people with either entirely new skill sets or existing skill sets but slightly morphed and in unprecedented volumes, skills that are emerging because of our digital times: blockchain specialists, big data specialists, programmers and with expertise in the emergent computer languages and tools (Python—a programming language popular for accessing data on websites, R—a powerful data manipulation and analysis tool) and which did not exist or were not particularly popular at the turn of the new millennium, expert statistical analysts, and so on. One calculation suggests that after 2030, kids who are in elementary school today will work in professions that have not been invented yet. Who knows what the reality will actually be—doomsayers are often wrong, or exaggerate, but even if half of this is true it will create a substantial and extremely challenging talent puzzle for companies. Keep in mind that this is relevant because of the causal chain above— all that talent, all those skill sets, are sources of capabilities and competitive advantage, which in turn are the foundations for strategy. If you don’t attract the talent, you will miss out on capability development, or at least with any speed, and which in turn will impact strategy. But it’s about much more than attracting or sourcing that talent. No single company will have any appreciable impact on the sourcing problem (i.e., the mismatch between supply and demand), nor is it wise to have a talent strategy entirely focused on sourcing. While getting the best people you can requires a good recruitment program and investments, I believe there is much that companies and backstage leaders can do through their development process to ensure they have the capabilities in place to support strategy. So here are seven core ideas for developing talent and capabilities.

Seven Core Ideas for Developing Talent and Capabilities Building Around Stars or Strategic Jobs? There is some debate in the talent development arena—do you focus on getting the very best people, “unusually gifted,” and then giving them creative space and free reign, or do you focus on identifying the most important jobs and what that work entails, what is really strategic to the company and future oriented, and then carefully develop systems to attract and keep

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such talent, but talent that is “good enough,” not just the A-players?17 As with many management situations, there is no simple correct answer. I don’t believe one strategy will always be the best way forward in every situation. The answer will depend on things like industry and context.

Building Your Galaxy Around the Stars Let’s start with the “capture the shooting star” thinking. On one level, it makes sense. We all know that there are larger-than-life, six-sigma individuals out there, who are super smart and super quick, possess uncanny vision and insight, and are passionate and focused, or possibly all these attributes in combination. People like Steve Jobs at the turn of the millennium, or Tesla, Edison, Bell in previous epochs, come to mind, individuals with a special combination of gifts for doing great things. The trick is how to spot these people before they become household names or local icons in their own industry or organization. This viewpoint or talent strategy believes it is possible, and that great bosses are able to spot them, and even nurture them to greatness, creating capabilities and possibly new strategies.18 First of all, the trick seems to be not to look for just the standard credentials, such as smarts, creativity, and hard work ethic, but to spot the unusual talent and to connect this thing that is special to the strategy, or the future, that is to see in that talent’s special features the capabilities that unleash novel strategies and exceptional value. Let’s look at a few popular examples, beginning with a name familiar to everyone who has any connection to modern music, Bob Dylan. Dylan won the Nobel Prize in Literature in 2016, an unusual achievement for a musician, in fact a first. There is probably no greater accomplishment for a musician than to have your songs and narratives be so influential, lasting, that they are considered “literature,” and award-winning literature at that. Although many may disagree, Dylan’s voice itself is not exceptional, or better put it’s not as exceptional as his status. When we think of male vocalists with an uncanny singing ability, he would probably not be in the same league as Freddie Mercury, George Michael, Frank Sinatra, or even someone who comes closer to his artistic type, David Bowie. Also, and although many may once again disagree, he didn’t have the

17Minbaeva, D. and D. Collings. (2013). “Seven Myths of Global Talent Management.” International Journal of Human Resource Management 24(9): 1762–1776. 18Finkelstein, S. (2016a). “Secrets of the Superbosses.” Harvard Business Review 94(1): 104–107.

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classic good looks of rock/pop stars of that era, certainly not teen idols like Elvis Presley, Jim Morrison of The Doors, The Who’s Roger Daltrey, or, once again, David Bowie. What he did have, and which was rare for music of that era, was the ability to dissect culture and the times with a critical view and voice, and craft powerful and meaningful lyrics. For example, have a read of his iconic anthem, “The Times are A-Changin,” which, in 1964, captured well the 1960s that were to come. While some questioned his Nobel Prize in Literature (namely people who write literature for a living), many understood his influence perfectly well, for example, writing in the New York Times, US poet laureate Billy Collins wrote19: Most song lyrics don’t really hold up without the music, and they aren’t supposed to. Bob Dylan is in the 2 percent club of songwriters whose lyrics are interesting on the page even without the harmonica and the guitar and his very distinctive voice. I think he does qualify as poetry.

Dylan originally started in folk music but saw the potential for pop music’s reach, and apparently tired of the clichéd left-wing views of the folk music scene where he started his career, writing early protest songs of that genre. Moreover, music critics of the times saw his potential and novelty early and began to put him forward as someone in the tradition of folk music great, and left-wing enthusiast, Woody Guthrie, but with a distinctly modern and, well, unusual touch. He came to the attention of a Columbia Records producer, John Hammond, who signed him to a record deal. The first album’s sales were disappointing, and Hammond’s peers were suggesting that Columbia should drop Dylan, calling him “Hammond’s folly.” But Hammond saw the rare potential and kept Dylan’s career going at Columbia. Soon afterward, manager Albert Grossman bought out Dylan’s contract rights for the hefty sum (in 1962) of $10,000, believing in the creative power of this young artist. The rest is music, and literary, history. Dylan’s ballads went on to inspire many big names in music, from the Beatles, to Bruce Springsteen, to U2, and he was able to do these special things because producers and managers were willing to look to the future in deciphering his unconventional talent and skills. Can you see a Dylan in the making? It won't happen unless you spend some time even considering it.

19Sisario, B., A. Alter and S. Chan. (2016). “Bob Dylan Wins Nobel Prize, Redefining Boundaries of Literature.” New York Times, October 12, New York. Retrieved December 10, 2019. https://www. nytimes.com/2016/10/14/arts/music/bob-Dylan-nobel-prize-literature.html.

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A second example is much more recent. One of the most successful TV series of this century is the fantasy drama Game of Thrones. For the rare individual who has not heard of Game of Thrones, it is about a fantasy world with two continents, with various and unique peoples, factions, and families vying for control and domination across these continents, a game of trying to capture the ultimate throne and control the entire queendom. To say it has been a massive success is an understatement—consider only the fact that it has received more Emmy nominations, the US television equivalent of the Oscars, than any TV series in history. Probably the most impactful and popular actor in the series is Peter Dinklage, who won four Emmy Awards for playing the role of Tyrion Lannister, a member of one of the focal ruling families. Tyrion Lannister is actually a great example of a backstage leader, someone who has an incredible knack for indirectly guiding strategic affairs and others (unlike his much more frontstage siblings), a perfect modern-day Claudius, someone who seems insignificant and flawed and yet surprises people with his backstage skills. Playing that type of character would not necessarily bring you to the forefront of this series, which has an incredibly gifted assortment of actors and much more “mainstream” character arcs. And yet Dinklage, who is 4′ 4″ tall and was born with a form of dwarfism, has been the most awarded character in the show. Why? Dinklage brings a sort of genius to the role, able to portray humanity, humility, and compassion, but at the same time acerbic wit, withering insults, and deadpan delivery of philosophical lines which could easily sound clichéd and trite. It’s no wonder that he was the first actor to be cast, and that the entire TV production seems to somehow revolve around him, even though he has won all of his Emmies for playing a “supporting role.”20 Casting Dinklage was probably the most consequential thing the showrunners Benioff and Weiss did for the production of Game of Thrones, and they deserve credit for seeing in Dinklage’s characteristics the capacity to shape and give life to an 8 season, 73 episode mega-series. In other words, sometimes finding such unique talent is a franchise-making moment. Can you see in the “non-traditional” something “extraordinary”? Finding that rare talent is an important step in this particular talent strategy, but it may require a second step, to reshape the organization around that person. Sydney Finkelstein’s book Superbosses provides some good

20Wikipedia contributors. Peter Dinklage. Wikipedia, The Free Encyclopedia. Retrieved December 10, 2019. https://en.wikipedia.org/wiki/Peter_Dinklage.

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examples of leaders who have reshaped parts of their organization around exceptional talent.21 American football contains a role that is particularly important to team performance—the quarterback, the main ball handler on the offense, and whose arm the team relies upon to launch the ball forward, a bit like the bowler in cricket or the scrumhalf in rugby. Legendary coach Bill Walsh, who won three Super Bowls, had a problem while he was offensive coach of the Bengals in Cincinnati. His star quarterback was someone particularly good at throwing long balls down the field, a great way to score points quickly, but then he got injured and was out for the season. Under the next best backup quarterback, the Bengals lost six games straight and were struggling to make their long ball offense work. But Walsh saw a unique skillset in his “backup backup” quarterback, Virgil Carter, who had an incredibly accurate short passing game. Over, say, 6–10 yard (5–9 metre) stretches, Carter was exceptionally good at zinging the ball to the receiver, quickly and accurately. This means that if you are not too greedy in passing, and send your receivers down the field for very short stretches, with some early zig-zag motion and crossing of receivers (to confuse the defense), you could easily gain a very respectable number of yards and gradually move the ball forward, little by little until you scored. But it would require rebuilding the entire offensive capability set in order to leverage this exceptional skillset that Carter possessed, which is what Walsh did, and successfully, as the Bengals went on to win the next seven games and their first ever division title. This innovation sparked for Walsh an entire offensive strategy, which came to be known as the West Coast Offense, a short, precise passing game at its core. The title was ironic because the origins were on the east coast, but the strategy helped Walsh win three Super Bowls in San Francisco and propel him into football history. None of this would have happened, it seems, if Walsh didn’t make the effort to (a) spot unique talent and (b) reshape the organization around that talent. There are other, more conventional, examples of this approach in Finkelstein’s book, for example, building a restaurant franchise concept around the special skill sets of staff. Fun steak house concept restaurant Steak and Ale did this by using college students, taking advantage of their casual dispositions to build this once popular and successful restaurant franchise. Julian Robertson, riches to sort-of-rags to riches fund manager

21Finkelstein, S. (2016b). Superbosses: How Exceptional Leaders Master the Flow of Talent. New York, Portfolio/Penguin.

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handpicked promising analysts and gave them seed money in order to start their own hedge funds; this approach allowed Robertson to build an impressive group of young and successful fund managers. In general, this “build around your star” capability development approach can spark wonderful success stories, and it shouldn’t be dismissed. Yet, it does have problems. For one, building and reshaping an organization around a unique skillset or star means that if something happens to that star, you are vulnerable. You may have noticed reading the previous paragraph that football coach Bill Walsh needed to change his offense in Cincinnati precisely because the type of long ball strategy he had built around his star quarterback would no longer work once that unique talent was injured. In fact in any type of business, the more you build around the star, the more vulnerable you will be, precisely because you are locking your strategy and capabilities around such a unique, difficult to replace, asset and which you don’t entirely own. There is also the problem of context and generalizability of this strategy. The examples above tend to be in places like sport, music, entertainment, and professional services for a reason. These are all industries where the product is essentially that human skillset itself, that is the athlete’s capabilities on the field, the song writer’s lyrics, the singer’s voice, the actor’s presence and delivery, the fund manager’s insights, and so on. That is essentially what the customer or public consume and enjoy. There are many settings and jobs where of course we do not rely upon talent so directly for success. It means that having this strategy alone for crafting capabilities and strategy is not enough, that we may have to consider alternative ways of backstage leadership to craft talent. As Jenny Dearborn, former Senior Vice President and Chief Learning Officer at global giant SAP and founder and CEO of HR consultancy Actionable Analytics told me, “getting just the LeBron Jameses of the world is dangerous. You have to invest in people because selection is not enough.” But it does not mean that we should avoid this strategy altogether. Too often I hear managers, at least in the classroom, dismiss this strategy completely, as though it is “textbook wrong,” something that you should not even contemplate. I think that would be a mistake. There are plenty of contexts where leaders should spend some part of their talent development process pursuing or thinking about this strategy. One of the more conventional and substantial arenas (i.e., putting aside sport, music, and entertainment) is in professional services (consulting, law, tax preparation, etc.). This also happens to be an arena of work that, at least partly, uses the special skills of people to create value for clients, and so we can imagine, say, a consultant with some unique ideas

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and methods around which new capabilities can be crafted and the company strategy developed. Still, professional services also have standard operating procedures and perhaps company “formulas” for success—and more rigid ones in law and tax preparation—and so we also need another way to develop talent.

If You Build Them (Strategic Jobs), They Will Be Filled This brings us to the more mainstream talent development process, which is to focus on developing strategic jobs. This comes closer to the normal world of HR work, and for which there are numerous good works cited below.22 So below I will simply outline some of the key themes and insights in the context of backstage leadership. Start by identifying the key positions. Whereas in the star strategy you are likely to start with the star and mold the organization from there, in this concept the idea is to start with the strategy, consider the key capabilities that you require, and, crucially, scope and craft the key jobs and positions that have an exceptional influence on success. That is, try to distinguish those jobs that have an exceptional influence on the performance outcomes of the company, and particularly where there will be quite some variance in the quality with which people perform those jobs, making sure that you staff those positions with the best people possible. For example, pilots are clearly important to airlines, but because of tight regulations on their conduct and training, and because many issues passengers may find relevant pilots actually cannot impact—turnaround times, landing slot locations, inflight services, even flight times—there is not going to be much difference to client-facing performance between excellent and average pilots. On the other hand, flight crews can have a big impact on passenger satisfaction, depending upon how they actually execute their jobs.23 For example, I was recently on a trans-Atlantic flight from Paris to Boston and overheard this conversation between a flight attendant, an elderly woman who seemed clearly a veteran of the airline, and the passenger on the a­ isle-row seat across

22For an excellent overview of talent management ideas, some of which are summarized here, please see Minbaeva, D. and D. Collings. (2013). “Seven Myths of Global Talent Management.” International Journal of Human Resource Management 24(9): 1762–1776. 23Ibid., p. 1766.

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from my own. The passenger complimented the flight attendant for being so pleasant and helpful, and the passenger did so in a gracious and not at all condescending way. Her response was lovely: “Thank you dear. I’m old but this is my place, and if my passengers are not happy, I’m not happy. If you need something and I can help I’ll make it happen.” This flight attendant was unique and brought something special to the flight experience and was also exceptionally competent in doing her job. So while I’m glad the pilots got us there safely, I noticed that less than the special way in which this flight attendant did her job. Consultant Eric J. McNulty advises leaders to consider “keystone” employees in the organizational ecosystem, the way one considers keystone species in the natural ecosystem: For instance, elephants are keystone species in certain African ecosystems; they knock down trees, creating the savannah in which other species thrive, they leave indentations in the ground with their gargantuan feet, creating natural pools that capture water to support other life forms. Their trails create natural firebreaks. Within the organizational ecosystem, keystone employees are ones that foster the relationships that are most important, and these are often the frontline employees that are the link between your organization and the customer. My personal example of the importance of the flight attendant has been borne out by JetBlue’s experience. Even though JetBlue was racking up J.D. Power awards for customer service for six years running, the company dug deep to discover it was being rated highly based on the material accouterments customers get on the low-cost flights. On its tenth anniversary, JetBlue did something radical by trying to fix something that wasn’t broken. With the goal of “bringing humanity back to air travel,” during an era in which passengers were feeling more like cattle than humans, the company initiated conversations between leadership, at every level, with frontline crewmembers (all JetBlue employees are called crewmembers). Acknowledging that the average flight attendant interacts with 7000 customers each month, flight attendants had priority in these exchanges, next airport customer service and, following that, customer support crewmembers (a.k.a. reservation agents). They attended summits, which included small groups comprised of peers, divisional leadership, and leaders from every JetBlue city and department. The dialogue that ensued gave the flight attendants a heightened appreciation of their role as well as ownership of strategies to help JetBlue realize its objective. A year after JetBlue concentrated on the flight attendants and crewmembers responsible for the customer experience, the company won its 7th J.D. Power & Associates honor for best customer service among ­low-cost carriers. Digging into the scoring, the company’s COO was pleased to note

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that the biggest line-item score increase was in soft-skills such as helpfulness and friendliness.24 Shape the context, not just the players. There is a danger in looking so hard for top players in all positions that we start believing that the key factor that drives performance variability is (only) the person. This is not necessarily true, or at least there are contingencies. In a study of star wall street analysts, researchers found that “When a company hires a star, the star’s performance plunges, there is a sharp decline in the functioning of the group or team the person works with, and the company’s market value falls… Although most companies overlook this fact, an executive’s performance depends on both her personal competencies and the capabilities, such as systems and processes, of the organization she works for. When she leaves, she cannot take the firm-specific resources that contributed to her achievements. As a result, she is unable to repeat her performance in another company; at least, not until she learns to work the new system, which could take years.”25 Backstage leaders, then, will make sure that the context is in shape, that the databases, routines, even physical structures and other resources, are in place to make sure the hired talent can do their job well. A sizeable proportion of the performance of most roles in a company is likely to come from the quality of these contextual factors and resources, not just individual quality. Backstage leaders will shape behavior by shaping the context. This also suggests that trying to fill all roles, not just the strategic ones, with A-players may be misguided. There are plenty of roles where focusing on the quality of the context may be the key factor in performance variability. A case in point for putting systems in place that support employee performance and level the playing field between “A-players” and all employees is Rabobank Nederland’s “Rabo Unplugged” initiative. Many years in development by the Netherlands-based financial services provider, Rabobank Group, Rabo Unplugged is the organizational and technical infrastructure that now enables more than 8500 employees to work “unplugged” at the administrative center of Rabobank Nederland. What this means is they can connect with each other from anywhere while adhering to the bank’s strict

24McNulty, Eric J. (2019). “Who Are Your Company’s Keystone Employees.” Strategy + Business, January 30. Retrieved October 7, 2019. https://www.strategy-business.com/blog/Who-Are-YourCompanys-Keystone-Employees?gko=05542; JetBlue Airways: Winning the Customer Service Game, Client Case Study. Gothamculture.com. Retrieved October 7, 2019. https://gothamculture.com/ clients/case-studies/JetBlue-culture-of-service-excellence/. 25Groysberg, B., A. Nanda and N. Nohria. (2004). “The Risky Business of Hiring Stars.” Harvard Business Review 82(5): 92–100.

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encryption standards. Changing the bank from inward focused—on staff— to outward, on customers, was the main impetus behind the unplugged innovation26: Entrepreneurship in the context of Unplugged working means that ­employees take personal responsibility for the results of their work while they have more freedom to decide where, when, how and with whom they do their job. It … includes the design of the workplace (physical part) and the use of ­state-of-the-art ICT technology (virtual part). The idea is that when staff are functioning well, in a good, healthy and sustainable workplace, they will produce better results for the clients. The open and transparent office design and the work style are designed to break down the barriers between departments.27

Rely on multiple sources of performance input. If there is one thing that defines modern business organizations, it is the measurement of performance, everywhere, and this includes the performance of talent. Companies will therefore develop performance management systems to track talent progress. However, I have seen few other things in HR criticized as much by managers as their performance management system, nor have I seen a perfect performance management system. Common sense would suggest to (a) keep an eye on the “performance” of the performance management system, occasionally conducting an audit to see if the way in which variance is being created among the talent pool is being borne out in business and organizational performance (i.e., are top performers, as identified by the backward-looking HR system, contributing to or associated with some of the biggest performance breakthroughs in the company?), and (b) look to balance quantitative measures with qualitative insights, with depth in understanding of the people behind key roles and their true capabilities. In March 2012 Software company Adobe Systems’ former Senior VP of HR, Donna Morris told the India Economic Times she was scrapping the company’s performance appraisal system. Sleep-deprived after a long flight, she had responded to a journalist’s inquiry on what she could do to disrupt HR. While her answer created an immediate stir and she had not discussed her radical plan with the CEO, Morris had always been unhappy with the 26Goffee, Rob and Gareth Jones. (2013). “Creating the Best Workplace on Earth.” Harvard Business Review, May. Retrieved October 7, 2019. https://hbr.org/2013/05/creating-the-best-workplace-onearth. 27Duke, L. and Q. Huy. (2018). “Enhancing Innovation Through Organizational Learning and Empathy Culture.” Insead Case 03/2018-6393-U. https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1256&context=intl.

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system, which, like Microsoft’s old system, relied on “stacked rankings” and was cumbersome to administrate. The company went without any system for a time, while Morris enlisted a task force to help her come up with a new system. Adobe estimated that its prior review system took up a total of 80,000 hours of managers’ time per year. What’s more, the company saw a spike in voluntary attrition each year in the months following the review, which they figured was due to employees disappointed in their ratings, which with the system, were often “stacked” against them. By Fall of 2012, the task force instituted “Check-in,” with three key goals: review contributions, reward accomplishments, and give feedback. Managers and employees met for informal “check-in” meetings once a quarter in unscripted meetings for which no paperwork is filled out. The discussions, however, must cover expectations, feedback, growth, and development. Two years out, a review of the new “review” revealed it was working fantastically with Adobe reporting a 30% decrease in the number of employees quitting and a 50% increase in firings. At the outset the latter might seem like a negative, but the check-ins spurred regular difficult discussions with employees who were not meeting performance targets. Not only did Adobe reduce t­ime-wasting inefficiency by adopting a new, less formal system, but they also retained the high performers and winnowed employees who were dragging the company down.28 Invest in the development of the position, but also the person. Finally, leaders need to keep an eye on the level of training and investment in the position. This means that the nature of the training and development is in direct support of the capabilities that you are trying to maintain and/or elevate in that position. Another way to think about it is that you are trying to make quite role-specific or firm-specific investments, training and development work that will have a fairly direct and active impact on the position. Think of this as a kind of immediate, or short-term focused, investment. But as we saw in a previous section, sometimes talent development investments may need to be longer term, more about education than training. It’s about what SAP’s former Chief Learning Officer Jenny Dearborn describes as building scaffolding around people and treating their personal development

28Burkus, David. (2016). “How Adobe Scrapped Its Performance Review System and Why It Worked.” Forbes, June 1. Retrieved October 8, 2019. https://www.forbes.com/sites/davidburkus/2016/ 06/01/how-adobe-scrapped-its-performance-review-system-and-why-it-worked/#5a2a8f5355e8; Maier, Steffan. (2017). “How 3 Companies Benefited by Changing Performance Management.” CMS Wire, August 23. Retrieved October 8, 2019. https://www.cmswire.com/digital-workplace/how-3-companiesbenefited-by-changing-performance-management/.

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sincerely. Dearborn argues that you need to invest in the broader educational experiences of talent, providing things like special coaching experiences, interesting job rotations, and investing in knowledge related to future and expanded roles—not just development experiences tailored to their current jobs. These investments may spur some skepticism, however. Does it make sense to invest in talent in a general way, meaning development that they not only can use in another company or context but that also makes them more desirable on the job market? Isn’t that just stupid? Research I have co-authored suggests no.29 In our study of insurance agents, we looked at the impact of firm-specific versus generalized investments in human capital (i.e., those investments in capabilities that people can transfer and deploy to other firms or settings) and particularly on the commitment levels of those workers. What we found was that generalized investments increased commitment levels significantly above and beyond firm-specific sources of investments. We also know from other research that commitment levels are important drivers of things like less turnover, more corporate citizenship and innovativeness as well as higher job performance: it seems we humans are likely to feel the need for reciprocity and offer back higher levels of commitment to a firm that invests in them in seemingly altruistic ways. People tend to appreciate when their employer invests in them as people. And people tend to do well at companies in which they know their employer appreciates their authentic selves and goes out on a limb to nurture their individual interests. One of Britain’s most successful food retailers, Waitrose, which is an employee-owned cooperative, goes the extra mile to support its employees’ interests and education. Suppose you want to learn bassoon or piano? The company will pay for half the cost of lessons. There’s also an active club culture at Waitrose. There are cooking clubs, sports clubs, crafts clubs, and more. The idea is that the more Waitrose invests in its individuals, the more they feel seen for who they are and also as part of the company.30

29Galunic, D. C. and E. Anderson. (2000). “From Security to Mobility: Generalized Investments in Human Capital and Agent Commitment.” Organization Science 11(1): 1–20. 30Goffee, Rob and Gareth Jones. (2013). “Creating the Best Workplace on Earth.” Harvard Business Review, May. Retrieved October 7, 2019. https://hbr.org/2013/05/creating-the-best-workplace-onearth.

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Avoid Assholes One of my former advisors and mentors at Stanford, Professor Bob Sutton, wrote a book with a title that was highly provocative but entirely appropriate, “The No Asshole Rule.”31 Basically, Bob’s thesis, and research review, suggested that while it’s good to look long and hard for amazing talent, the sort of people that make everyone better, it’s also important to look hard at the individuals who Bob would label as “certified assholes.” What Bob and I may mean by the term asshole may be a little different. In Bob’s view of what he calls the Dirty Dozen of Asshole behavior, there are quite a number of actions and markers that would result in someone gaining this infamous label, including insults, threats and intimidation, humiliation, put-downs, and so on. Also, these are not once or twice-off behaviors (let’s face it, we are all assholes sometimes), but persistent behaviors, and with a range of sources, from envy to various insecurities that have never been surfaced let alone resolved. I agree with Bob on the idea that it’s the persistence of these asshole behaviors that is the problem. However, my main concern for the purpose of this chapter segment is with people who persistently and widely dissolve the productivity of the people around them because of the inappropriateness, largely selfishness, of their behaviors. Basically, they make people worse, not better. Bob also notes that assholes tend to kiss-up to their superiors while saving their demeaning behavior for those with less power. While I agree with Bob that this sort of two-faced behavior is deplorable, I don’t require it for my definition for the simple reason that I have seen and heard of people who were assholes also to their bosses. Perhaps the obvious question at this point is, “How can this be a problem for long? Surely such people are quickly rejected?” But let me add another, correlated feature—assholes can have star qualities, often believing that their star qualities allow them to do and say as they please. At the risk of upsetting hardcore fans of Apple, the iconic Steve Jobs was at least “difficult” to work with or for.32 But he delivered such incredible value for Apple that we tend to put-up with some swag, arrogance, and even the odd shouting match. I think it’s safe to say, however, that there are very few Steve Jobs around.

31Sutton, R. I. (2007). The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn’t. New York, Warner Business Books. 32Isaacson, W. (2011). Steve Jobs. New York, Simon & Schuster.

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What we do know is that there is a lot of damage done in the workplace because of, well, assholes, whether you call them bullies, mean-spirited people, tyrants, petty bureaucrats, narcissists, etc. The harmful consequences for those affected by workplace assholes include concentration issues at work, mental and physical health problems, chronic fatigue, feelings of worthlessness, depression, and of course lowered productivity. What’s more, the negative interactions have been shown to have more harmful or negative impact than positive interactions, so while thoughtful backstage leaders may craft numerous positive experiences, a tremendous amount of damage can be done with relatively few moments of such negative behavior.33 The bottom line is that while backstage leaders may be gaining something tangible and beneficial from some high performing talent, they may also be losing much more in the productivity and general well-being of the workplace environment. Besides being mindful of this factor in your talent development, what else can you do about it? Briefly, I would suggest three things: Be mindful during selection. Don’t just focus on the fit people have with the “job” (CV, technical requirements, education, experience), consider how people will fit with the work and with the people with whom they will work. Look beyond the CV at their attitudes and conduct. Do some due diligence and inquire from the references and wider social networks that you have at your disposal in our hyper-networked social media times: How will this individual behave once they are here? What is their record of conduct at other places? How do their expectations mesh with the expectations surrounding their potential colleagues, underlings, and bosses? This could have saved my own organization a lot of trouble. In a hiring decision for an important role, there was corroborated evidence to suggest that the hire was coming in with a mind-set that could prove highly problematic given our expectations. That viewpoint was effectively ignored, and the “fit with the job” viewpoint was the dominant filter. Eventually, the fit never materialized, and we parted company in a lose-lose manner. I believe everyone was worse off. C. Lee Smith, CEO and founder of Columbus, Ohio-based Sales Fuel, a sales consulting and development service, wrote in Fast Company magazine about how he hired a toxic employee. He selected an employee that wanted to win at all costs. Yet, the employee (who went by “they”) interviewed well

33Miner, A., T. Glomb and C. Hulin. (2005). “Experience Sampling Mood and Its Correlates at Work.” Journal of Occupational & Organizational Psychology 78(2): 171–193.

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and came across as a potential asset to the company. Within a week they had settled in and at Smith’s suggestion, had even taken key employees to lunch. But soon after that the new hire began coming into Smith’s office to warn him about one employee after another, even providing a list of employees to terminate, all of whom were high performers, Smith noted. While he started to question his judgment on the employees recommended for termination, others came in to tell him that the new hire was angling for the CEO job! It didn’t take long for Smith to fire the new hire, before they could wreak too much damage to his company. However, he came up with some guidelines for weeding out toxic hires going forward, among them: (1) Don’t emphasize social media profiles—the recruit had fudged many details on their LinkedIn profile, (2) focus on motivators—questions on motivation could have gotten behind the ruthless power grabbing motives of this recruit and (3) identify where a potential hire is on the empathy scale.34 Be clear on conduct, positive and negative, not just final performance. Having leadership, or management, competencies across different levels are not PR exercises, artifacts that we parade around every so often to make us feel like we are professionally managed. They should be taken seriously, and any discussion of them should include discussions of undesirable, bad citizen behaviors that will not be tolerated. Jenny Dearborn encourages this balanced scorecard approach in her work on HR analytics, to capture behaviors not just outcomes. That is, it’s not enough for the talent to just do the good things, they need to avoid doing the bad things as well to really get ahead, or stay ahead. Importantly, do not glorify the top performer who is a jerk, playing-up their negative behaviors to seem as though they are reasons for their success or reducing vile behaviors to simply “quirkiness,” “eccentricity,” or “charisma.” We can tell the difference, and there is seldom a real problem with people who are quirky or eccentric or even difficult. To spin a narrative that someone who is a certified asshole is merely quirky is not what strong leadership is about. Recognize negativity framed as “truth telling” and give feedback on the spot. People who display such behaviors don’t always realize it. That is, they may frame their disdain and negativity as being “realistic,” “speaking hard truth,” “not sugar-coating,” giving “tough love,” or even “trying to

34Smith, C. Lee. (2019). “What I Learned After Making a Terrible Hiring Mistake.” Fast Company, July 2. Retrieved October 2. https://www.fastcompany.com/90371947/ what-i-learned-after-making-a-terrible-hiring-mistake.

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make things better.” Basketball star Kobe Bryant of the LA Lakers seems to have had a reputation for being a no-nonsense, tell-it-like-it-is athlete who took his trade seriously and wanted his teams to perform well. He was certainly an incredible talent and person. But, the way in which he chose to give feedback was at times inappropriate—for example, you probably should not make your peer cry, as Bryant apparently did when telling a young rookie basketball player that he was pursuing the wrong calling in life.35 Bryant’s ultimate goal was almost certainly a positive one, but the way in which this information is delivered, and ultimately the way in which it is received (the real point of such communication), is key. Good leaders will give feedback on the spot, or very soon afterward, to make sure those moments are moments for learning and change and so do not lose their potency as lessons. Good leaders will also take the time to untangle the good from the bad, acknowledging the positives about what was intended, but certainly dealing with the negative consequences of how the scenario played out.

Don’t Allow Bias—Set Values for Talent Development Developing capabilities through talent development is hard enough, even with the best intentions of the managers around you. The prior point was largely about the talent itself. This point is about the management cadre in general, the values for people development among your core management ranks, and the potential for bias and self-protection that can destroy that development. Let’s start with the idea that when developing a capability a lot is at stake. Remember, a capability in the sense that we are using it is about developing a competitive advantage, something that makes you stronger, better. It is a sort of secret ingredient to your strategy. This makes it very valuable and, importantly, a source of status and power inside the organization. Managers are likely to horde it—and why wouldn’t they, it grants them power and status, the ability to move up in the organization and stay longer in positions of power. Imagine, hypothetically, the manager who is responsible for software development for, say, Tesla cars. While there are many important components to a Tesla car—from the electric motor, to the battery, to the body design and aesthetics—it seems reasonable to assume that the software for

35Gaines, Cork. (2015). “Kobe Bryant Once Made a Young Teammate Cry by Saying He Needed to Rethink His ‘Life Purpose’.” Business Insider, July 1, France. Retrieved December 10, 2019. http://www. businessinsider.fr/us/kobe-bryant-made-a-teammate-cry-2015-7.

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an electric car is primus inter pares. It can do everything from ensuring the battery is used optimally to extend the car’s life and granting the car faster acceleration speeds to collecting valuable data on components and their wear-and-tear, to actually guiding the vehicle. Clearly, this should be a strategic capability for any electric car manufacturer. It follows that you want to ensure that this capability is generated by the finest talent available to you. You want the cream of the crop software engineers working in that unit, developing amazing software and systems. Now, technology being constantly in motion, and software development skills in particular, managers of these software units may face a largely unspoken and seldom acknowledged dilemma. They may find that their own technical knowledge fades with time. Management life is scarce on time, and especially time for serious updates to skills and know-how. And yet these same managers are the ones, at that local level, responsible for hiring the best talent possible and ensuring that this talent develops top-notch capabilities. Ideally, they need to hire into strength, looking for people that are “better than themselves,” including hiring future-proof skills and knowledge, and this includes skills and knowledge that they may not have. So, to come back to our hypothetical example, let’s say the avant-garde of electric car manufacturing have found that a different software language or platform may be better for the cars of the future, platforms that the current pool of managers know very little about, at least at a deep technical level. We would expect that manager to hire and develop for the future, to build the capabilities that best serve the strategic interests of the company. In theory… But let’s say our managers have some all too human tendencies. For one, they simply fear younger talent having a stronger foothold in a key capability, something that makes all of us, if faced with it, feel queasy and vulnerable. But then let’s say there are some strong insecurities that come into the picture. Our manager may have some insecurities that are personal ­“self-constructed”, but there is also the possibility that his organizational context leaves him feeling vulnerable and unsafe, constantly looking over his shoulder. He is surrounded by senior leaders who do not value him as a leader but rather place enormous status and pressure on technological prowess and skills. So, instead of hiring into strength, he hires into weakness, looking for employees who are really good but who are not better than him. He avoids talent that may bring disruptive ideas and technologies, and I mean disruptive to him and his status and standing in the organization. He avoids any threat to his power and security. Multiply this a hundred, or a thousand, times across an organization and we will eventually have organization that will, at best, underperform if not badly struggle with capability

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development and advancement. Instead of hiring the best talent that you can afford, you end-up hiring talent that will keep you at the level at which you have achieved but will not necessarily take you beyond. To counter this phenomenon, leaders first of all need to be sensitive to the potential for these unspoken biases among their management cadre. These are not things that are likely to come up in normal conversations. It may be valuable, for example, to have dedicated, regular conversations about talent selection and development decisions and plans with surrounding managers, to signal that this general topic is on your radar. You are effectively trying to develop a better sense and feel for the implicit talent development logic among your managers. Ask why some recruits were selected and not others. Ask about the time and resources spent at local levels on talent development, and why some were recruited and developed and not others. Monitor the development and progress of key talent as well as the capability development of the firm. Show an authentic concern for the talent process. Doing this without micro-managing your managers’ decisions, however, won’t be easy. There is a fine line between showing interest and concern, versus raising suspicion and displaying a lack of trust, but it’s the sort of delicate balancing act that is required of leadership. It requires keen observation skills and it also requires opportune listening—taking any opportunity whatsoever to listen to your managers or subordinates and, then, most importantly, being able to really hear what they are telling you. Consider the advice of one of the greatest football coaches of all time, Manchester United’s Sir Alex Ferguson. For Ferguson being a keen observer and listener was a critical part of his management structure, but something he only came to appreciate later in his coaching career36: Observation is the final part of my management structure. When I started as a coach, I relied on several basics: that I could play the game well, that I understood the technical skills needed to succeed at the highest level, that I could coach players, and that I had the ability to make decisions. One afternoon at Aberdeen I had a conversation with my assistant manager while we were having a cup of tea. He said, “I don’t know why you brought me here.” I said, “What are you talking about?” and he replied, “I don’t do anything. I work with the youth team, but I’m here to assist you with the training and with picking the team. That’s the assistant manager’s job.” And another coach said, “I think he’s right, boss,” and pointed out that I could benefit from not

36Elberse, A. and A. Ferguson. (2013). “Ferguson’s Formula.” Harvard Business Review 91(10): 116–125.

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always having to lead the training. At first I said, “No, no, no,” but I thought it over for a few days and then said, “I’ll give it a try. No promises.” Deep down I knew he was right. So I delegated the training to him, and it was the best thing I ever did…

What may help is to set, communicate, and repeat values surrounding talent development. It may be useful to emphasize the connection between talent development, capability development, and strategy, instead of assuming that everyone gets it. In turn, it may be useful to emphasize the importance of selecting and developing top talent for the organization, however that is eventually defined, for various positions, strategic, and otherwise. Here, backstage leadership is concerned with ensuring that good decisions are being made, not just that those decisions are made “well.” Once again, this requires a sensitivity for the unspoken, the implicit, a gradual honing and calibrating of your intuition as a leader.

Co-own the Talent Development System The popular advice generally given to top leaders is that they should “own” the HR arena. I have never been sure if this was meant seriously, as in that they should effectively run that area, or, more likely, as a rhetorical flourish, to simply signal the importance of HR, but that it should be handled ultimately by HR experts. I tend to believe in the latter, or what we could simply call a co-ownership of this area. Leaders should co-own the talent development area in that they need to consistently spend time on the pillars of talent development, including: a. Talent detection programs; b. Talent development programs; c. Performance management or feedback loops. Each of these is ultimately things that involve line management, not just HR, and so company leaders should provide integrative bridges, to align HR and line management in the development of these systems. This includes developing scorecards for each of these pillars, cascading them onto line subordinates and keeping close track of what does or doesn’t get done. But this also means helping HR align itself to strategy, the markets, and other business developments. One of the reasons HR may find it so difficult to be taken seriously and why it may linger in old school “personnel management” logics is that it does not have enough updating and alignment with

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the moving target that is business strategy.37 Ultimately, it is the job of senior leaders to help align HR, to provide stability for long-term initiatives that should not be touched even in downturns (building a corporate culture), but to also provide leading indicators of where the strategy is going and what it may need to support it. It really is ultimately up to the senior line leaders to make HR relevant and useful.38 If the CEO spends 80% of her time with the CFO and grants a few reluctant working sessions with HR, the priorities of that CEO are fairly clear. It also requires top players in that role. Leaders should not underestimate the amount of knowledge and work this requires, and so they need a capable partner, perhaps a Chief Human Resources Officer or CHRO, as they’re now called. There is a large body of knowledge associated with HR issues, and like any other discipline—finance, engineering, and manufacturing— it requires outstanding people to support you. This is why leaders like Lou Gerstner, who saved and transformed IBM, pointed to the invaluable support and his reliance on two critical roles in the organization—the head of Finance (CFO), but also the head of HR—and he took time, energy, and effort to make sure the best and best fitting people were in those roles.39

Pay Attention to Your Senior Managers’ Networks I have distinguished frontstage from backstage leadership as the difference between the direct impact you can have on people through your “style” and interpersonal charisma and the indirect impact, the way you craft strategic processes, such as scanning and sensemaking, commitment and ­decision-reaching processes, talent development, and of course culture. This next point is perhaps one of the best examples of how these two modes can come together. Once again, it’s important to remind ourselves that good leadership is more than one’s interpersonal charms but is also caused or enacted by “structural” things, and one of the most underappreciated structural resources in the leadership literature, and yet something every leader will be impacted by, is your network.

37Cappelli, P. (2015). “Why We Love to Hate HR…and What HR Can Do About It.” Harvard Business Review 93(7/8): 54–61. 38Charan, R., D. Barton and D. Carey. (2015). “People Before Strategy: A New Role for the CHRO.” Harvard Business Review 93(7/8): 62–71. 39Gerstner, L. V. (2002). Who Says Elephants Can’t Dance? New York, HarperCollins.

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A part of my academic research has been to look at social networks, and I don’t mean Facebook, Snapchat, Reddit, WhatsApp, or Instagram, although that is an emerging part of it. Rather, I am more generally interested in the structure, size, strength, and quality of the human relations we maintain, and how they impact our performance and choices. And they do have a lot of impact, as years of research into social networks have shown. While each of us is in a sense self-contained—we can make choices on the basis of deep imprinting from our national cultures or regions, or family and upbringing, or, deeper yet, our personalities and the expression of our genes and their combinations. We are also sponges, soaking-up information from our ongoing connections, then recombining it with other tidbits of knowledge and insight, before we make decisions. As leaders, we are also prone to have our core leadership decisions—including how we impact our subordinates and those around us—impacted by the networks that we maintain. In other words, leadership and our influence as leaders are “structural.” As humans, we are what we eat, as the saying goes, but as leaders we are what we connect to, the networks that we keep and develop or change over the course of a job or career. There is simply a substantial amount of spillover from our networks onto the people who surround us. Let me give you a few examples from my research with other network scholars. The television production world is ultimately a collection of small worlds. My colleagues at INSEAD and I studied the French TV game show world (shows like “Who Wants to Be a Millionaire?”, which was adapted to France from the UK), examining all 171 game show productions over an eight-year period.40 One of the things we could clearly see in the data was that not all members of production teams were equal, and we don’t mean equal in terms of job position or rank. Rather, they were not equal in their connection to various other production teams and the members therein. For example, the Fig. 6.1 is a snapshot of the collaboration networks of this entire world in one production year. The blue lines are recent (just past) collaborations between these professionals, and the arcs of different colors represent the different communities identified by a network partitioning algorithm that we ran, to sort out the actual communities of interaction at any period in time. For this specific period, the algorithm found 13 communities. The figure shows a typical

40Clement, J., A. Shipilov and C. Galunic. (2018). “Brokerage as a Public Good: The Externalities of Network Hubs for Different Formal Roles in Creative Organizations.” Administrative Science Quarterly 63(2): 251–286.

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Fig. 6.1  Collaboration networks (Thanks to my colleague Julien Clement for sharing with me this network graph, created using D3.js software)

“small world” situation, where you see many more ties within communities than across them. This is typical, because professionals tend to collaborate more within communities like this than across them. But, some “special” individuals are exceptional at bridging across communities. For example, the red lines illustrate the relationships maintained by a particularly famous player, who belongs to the yellow community on the bottom left but is also very active with four other communities on different shows. We call this player a hub, or a broker, someone who is a connector in this world. The usual question we would look at is whether being such a hub helps this player do their job (and the answer is typically yes), but here we were interested in something else: do the people who connect to this individual benefit in any way, and if so, how? Is there spillover from this hub’s insights, gained from his network, to others? The answer was a qualified yes. If you

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have a creative role in a TV production team, such as a creative director, there is significant benefit. Hubs can offer you a wealth of insights that may be difficult to accumulate on your own or over a short space of time. Being connected to them can help you with your creative work and role and make your productions more successful. On the other hand, if you have a production type role, where you are focused on efficiency and discipline in execution, being connected to such a hub can actually be a distraction, as they can be poor collaborators, their attention hard to capture to get stuff done. So, while overall we find substantial spillover from some people’s networks, the effects can go either way. So what about business leaders? In another study, other colleagues and I looked specifically at the impact of a leader’s network on the performance of her subordinates.41 Controlling for various other factors—including the networks of those subordinates themselves—does the leader’s network impact the performance of those subordinates. The answer was yes: Leaders who develop and maintain these hub-like networks, creating bridges across disconnected groups, are associated with subordinates who are higher performers. So given this outcome, a leader’s network is a valuable resource not only for themselves but also for the ability of their talent to add value. It can help them prevent siloed thinking and clearer understanding of developments in the company, insights that can be passed on and influence the development of talent. If that is the case, leadership is also “structural,” and so leaders need to be concerned with the shape of their network. What does this mean for backstage leaders? You should look for ways to shape the networks of your managers and budding leaders, to help them develop wider reach and diversity. This is important because for many of us, the natural tendency is to “hedgehog,” to find a comfortable clique and burrow deeply, satisfied with the stability and familiarity of those same old close connections. Here are just a few ideas on how to help budding leaders diversify their networks: • Time is the scarcest resource for many managers, and reaching out into unexplored corners of the organization can be very time consuming, and difficult. Consider creating regular events—seminars, workshops, and social gatherings—that offer an ongoing place to meet new people. Consider also simple agreements by your managers to reach out to others,

41Galunic, C., G. Ertug and M. Gargiulo. (2012). “The Positive Externalities of Social Capital: Benefiting from Senior Brokers.” Academy of Management Journal 55(5): 1213–1231.

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like to have lunch with someone they do not meet regularly in the company on a fortnightly basis. Moreover, consider making a dialogue about their connectedness in the company a regular part of the periodic feedback and review process. • Be aware that people will vary in their natural desire to network—some may love it and do it naturally, and some may actually hate it, considering it a sort of vice.42 You may have to spend more time with those people who have networking-phobia, personally helping them connect to different corners of the organization, sharing your network with them. They may also prefer formal networking events—seminars, project summaries, cross-functional team meetings—that are more focused on task-related matters, rather than informal happy hours at the pub. Make sure you have something for both networking naturals and the haters or phobic who would normally avoid it. • Encourage generosity, expecting your team members to add value to those around them. For example, encourage them to take the time to share resources/insights/etc. with others, or to bridge two people who would be better off knowing each other. Jenny Dearborn believes this happens more readily when we make it a “badge of honor” among the senior manager cadre for doing this work, of connecting people in the organization to new ideas and value, that we actually want some competition among managers for such value creation via networking. She says, “Your job is to figure out what is coming around the corner, and you only know by connecting to new innovations—you have to always bring in new cool people and ideas.” Reciprocity is a powerful human norm, and I have always believed that how we take care of others, taking the time to reach out to help others, comes back to us somewhere down the road (although don’t do it with the expectation of a quid pro quo ). Getting your senior managers to set a good example for others in value-adding-through-networking is something to consider, as Dearborn goes on to say “Your staff knows that you are taking care of them when you bring in new people and ideas, and this is highly appreciated and it will be recognized.”

42Jonczyk, C. D., Y. G. Lee, C. D. Galunic and B. M. Bensaou. (2016). “Relational Changes During Role Transitions: The Interplay of Efficiency and Cohesion.” Academy of Management Journal 59(3): 956–982.

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Millennials: What Do We Know? What Can We Learn? Capability and talent development will depend on the deeper understandings and social structures of that talent, and this includes generational issues and gaps. The idea of generational gaps dates to the early 1970s and the work of Margaret Mead, the idea being that generations have some fundamental differences in how they think about life, society, and of course work. This can have some profound implications for how people are managed, probably as much as national cultural differences. As an extreme example to make a point, imagine managing someone born in the medieval period and under strong codes of chivalry. They are likely to show extreme loyalty, seek grandiose acts to display their honor and courage, and incite fairly easily to violence if offended—although perhaps you have a few like this in your organization today! Compare that to today’s younger generations that have little loyalty to any particular company and are more concerned about sea turtles and plastic in the ocean than personal “honour.” So generational gaps can certainly be relevant. The question first of all is do we have real, substantial differences in the generation that is sweeping into organizational life at the moment, the Millennials? Let’s begin with some basic distinctions in recent generations (based on Pew Research Center and US Census Bureau).43 • Silent Generation • Baby Boomers • Generation X • Millennials (Gen Y) • Generation Z (iGen)

1928–1945 1944–1964 1965–1980 1981–1995 1996–

Millennials44 are definitely the largest segment of the working population and still the fastest growing.45 But I’m skeptical about stereotyping an entire generation and very skeptical about the extent of differences between neighboring generations. For example, the consensus view among various publications is that Millennials are “tech-saavy,” meaning that they enjoy and

43Stewart, J. S., E. G. Oliver, K. S. Cravens and S. Oishi. (2017). “Managing Millennials: Embracing Generational Differences.” Business Horizons 60(1): 45–54. 44I will include some information on iGen along with Millennials, as the gap so far is not big. 45Calk, R. and A. Patrick. (2017). “Millennials Through the Looking Glass: Workplace Motivating Factors.” Journal of Business Inquiry: Research, Education & Application 16(2): 131–139.

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readily use digital technologies for normal interactions. Now, the “readily” part is fine, in that they grew up with these technologies and know them better. But it’s not at all clear that they necessarily are prone to like them more—if in the mid-1970s you gave Gen X children this shiny little gadget that looks like a chocolate bar and told them they could use it to watch TV, chat with friends, and see what’s playing at the local cinema, do you think it would take much for that to catch on? Sometimes we wrongly stereotype neighboring generations and are likely to pick-up ageist notions. With that said, here is a summary of what I find to be the three most validated distinctions for Millennials, and then some ideas on what this means for talent and capability development and backstage leadership.46 • Their relationship and loyalty to working life and organizations are not as long-term oriented or as strong as past generations. In fact, there may even be a stigma associated with staying in a job or company for too long, as in “what’s wrong with you that you can’t find new jobs and experiences?” They prioritize the intrinsic qualities of that job or company, including what it stands for in the greater scheme of things and social issues. While job security is not as great a priority as in the past, they do emphasize belonging and feeling part of a team, as well as development opportunities, including lateral moves. • They are tech-saavy, in that they are practically tethered to digital media and use it easily. They are as likely to communicate by messaging, even in the same physical space, as face-to-face. This may mean that while their volume of communications, and capacity for juggling diverse communication “threads,” is likely to be higher, they may lack the capacity to capture deeper meanings, to the extent that they lack enough ­face-to-face interactions. They consume knowledge of a greater diversity but in smaller packets and timeframes, through relatively “lean” digital content. Again, this may mean that while the breadth of knowledge that they develop is expansive, there is some concern about the depth. There is

46Some references on Millennials are below, but look especially at the work of Prof. Henrik Bresman, one of my colleagues at INSEAD. Rodriguez, A. and Y. Rodriguez. (2015). “Metaphors for Today’s Leadership: VUCA World, Millennial and ‘Cloud Leaders’.” Journal of Management Development 34(7): 854–866; Barbuto, J. E. and R. K. Gottfredson. (2016). “Human Capital, the Millennial’s Reign, and the Need for Servant Leadership.” Journal of Leadership Studies 10(2): 59–63; Stewart, J. S., E. G. Oliver, K. S. Cravens and S. Oishi. (2017). “Managing Millennials: Embracing Generational Differences.” Business Horizons 60(1): 45–54; Cattermole, G. (2018). “Creating an Employee Engagement Strategy for Millennials.” Strategic HR Review 17(6): 290–294; Petrucci, T. and M. Rivera. (2018). “Leading Growth Through the Digital Leader.” Journal of Leadership Studies 12(3): 53–56.

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also the possibility of lost social skills—Jenny Dearborn noted that new hire programs for Gen Z in her recent experience may need to include things like handshaking (or appropriate greetings in a c­ ontagion-sensitive world), eye contact, and what is appropriate clothing, something that would not be contemplated for new recruits a few decades ago. • Their relationship to authority and hierarchy is tricky. First, they are (increasingly, especially a trend with Gen Z) likely to have relatively little work experience compared to previous generations. This means that they are not as familiar with how stuff works in hierarchical organizations. While they generally want to progress and achieve important roles and positions, they seem to have a love-hate relationship with authority. They tend to like frequent feedback—especially the positive kind—and support, while also liking to have their autonomy. Coping with critical feedback and failure may be problematic. What are then the implications for leadership, trying to cope with these subtle and not-so-subtle differences? There are three things that I believe are valuable to keep in mind and attempt. First, leadership may have to be more, and more easily, accessible but without the feeling of crowding. This means better real-time access to leaders, and especially through digital means, to clarify and ask questions in real-time. Using a rapid and relatively informal medium as messaging or an online platform such as Slack, rather than e-mail, may simply be more effective for communication. Frequent communication may be particularly important in order to sense gaps in knowledge and depth, in order to know when to provide support through more formal means. Corporate policies may have to adapt, however, as some companies may require communications to only go through channels that are storable. However, video-chats may also be very effective and with the added advantage of seeing facial expressions. But digital communications are not a substitute for in-depth discussions of issues. F ­ ace-to-face time is still critical and can be used perhaps more efficiently as a hybrid method. But rather than a model of once or twice-a-year rigorous and heavy feedback moments, where sometimes quite intense critical feedback may be the main part of the agenda, and in which case almost everything else you say may evaporate, it might be better to provide smaller doses of (critical) nudges and adjustments. Sun Microsystems found it advantageous for managers to play a hands-on role in giving its Millennial employees frequent feedback. The company started an experimental mentoring program in which senior leaders mentored Millennial employees. A follow-up study showed that Millennials who were mentored in the program were likelier to stay with

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Sun Microsystems than those who were not. Also, when surveyed, a third of the Millennials in the program said that feedback was the most important thing they felt necessary to improve as professionals and 20% said they did not regularly receive feedback, before the program was put into place.47 Second, greater attention may have to be paid to the meaning of work. Millennials do not attach themselves as easily to companies as they do to social causes, or even the teams to which they bond, and so making sure that company values are relevant and connect to wider social and cultural issues is valuable. Here is a good example of the difference between frontstage and backstage leadership—talking about these things is unlikely to be enough but creating programs and structures to make them real is more important. In a conversation with Indra Nooyi, the former CEO and Chairwoman of Pepsi Co., I encountered someone who was deeply concerned about social/health and environmental issues, and who took active steps to change Pepsi—for example, in the sourcing and better conservation and efficiency of the vast amounts of water needed to produce Pepsi soft drinks and what that meant for local communities. I like to believe that this is something that disproportionately influences the Millennials that Pepsi Co. attracts. Greater attention to work-life balance may also be necessary. Work-life balance not only encompasses family life, but increasingly for Millennials, it goes beyond, touching on individuals and time for their personal development. This doesn’t necessarily mean yoga at work, but attention to how work helps people develop themselves as individuals may be a good idea, especially if your competitors are investing heavily here. Another important thing to note: As Gen Z enters the workforce, anxiety comes with them. According to a 2018 American Psychological Association Survey of 3458 adults ages 18 and over, some 54% of workers under 23 said they felt anxious or nervous due to stress in the preceding month; Millennials are close behind with 40% reporting anxiety—well above the national average of 34%. Yet, along with exhibiting more anxiety comes less inhibition in talking about it. Gen Z workers are more willing both to talk about and try to get help with emotional issues. It’s an anxious age heading into 2020, so some forward-thinking employers are being proactive in addressing anxiety. One of the nation’s biggest employers of new graduates, PricewaterhouseCoopers (PwC), gives online meditation sessions, and as many as 13,5000 PwC employees participate. The company’s chief 47Patel, Deep. (2017). “5 Costly Mistakes Leaders Make When Managing Millennials.” Forbes, November 7. Retrieved October 8, 2019. https://www.forbes.com/sites/deeppatel/2017/11/07/5costly-mistakes-leaders-make-when-managing-Millennials/#2010613af19f.

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people officer, Michael Fenlon, tries to encourage employees to discuss mental health issues more openly by doing things like airing internal podcasts on getting help for mental health issues. He even spoke on the podcast about his own experience dealing with a mother who suffered from depression. “As a kid, I never spoke about it,” he said. “In retrospect, why didn’t I?” Other companies, such as furniture-design company Herman Miller, offer meditation and mindfulness training. But the attention to mental health and anxiety goes deeper. The company broadened its well-being programs to emphasize mental health starting in 2016, placing social workers at its furniture plants to give employees confidential counseling. Herman Miller has also trained 110 employee volunteers in “mental-health first aid,” so they can be better attuned to signs of anxiety in their colleagues and skilled at offering help.48 Finally, you may need to tweak your approaches to capability development and, relatedly, failure. In-depth, rigorous programs I believe are still essential, perhaps even more essential if there are large holes in deep knowledge that cannot simply be picked up by watching a YouTube video. Getting agreement should not be a problem as Millennials generally welcome development and learning opportunities. Ensuring deep dives into knowledge areas means helping them to concentrate, not as easy as it may seem given that this generation is more likely to be heavily multi-tasking as young adults. But just because people multitask, it does not mean it is actually good for knowledge acquisition, and in fact the opposite is likely to be true, disruptions being a major problem for many workers in their ability to fully concentrate and be effective in their jobs.49 This means during intense capability development periods (e.g., residential courses), avoid loading them up with the sort of work that will take them away from learning. Instead, consider action learning projects that will leverage the learning for immediate or near-term application in your company. Still, in addition to these deep dive developmental experiences, create a hybrid development model, with access to relevant online content that will help them to hone their skills and get answers to hot issues and problems. Solid long-term capability development also requires coping with failure. I don’t believe there is any easy way to do this—“talent” tends to be competitive and achievement oriented, and failing 48Shellenbarger, Sue. (2019). “The Most Anxious Generation Goes to Work.” The Wall Street Journal. May 9. Retrieved October 8, 2019. https://www.wsj.com/articles/the-most-anxious-generationgoes-to-work-11557418951. 49Lund Pedersen, Carsten. (2018). “Managing the Distraction-Focus Paradox.” MIT Sloan Management Review 59(4): 72–75. Retrieved December 10, 2019. https://sloanreview.mit.edu/article/ managing-the-distraction-focus-paradox/.

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always comes hard. But building reasonable expectations and opportunities for low-cost or low-visibility failure may be wise. You would rather not have their first experience of failure be something that is highly public and expensive, again the sort of thinking we should expect from effective backstage leadership.

Always Come Back to the Narrative Finally, I come back to a tool mentioned frequently in this book—the power and importance of a strong, clear narrative for your company, strategy, and people. Once again, keep in mind that modern organizations are enormously complex things, with levels of specialization like nothing we have witnessed in human history. Seeing how the pieces fit together—especially pieces that are moving often in an asynchronous fashion—and how they relate to strategy is very difficult. Second, we require more and more of our talent, that they work autonomously to develop themselves, self-initiating programs for career development and staying relevant in their current context. But to do this effectively they need a good map of what is the organization today (gaps), where it is headed, and the core values, exactly the sort of thing a strong narrative can deliver. Developing that story—and then adapting and tweaking it to keep it current—can be an aid in talent development, and thus capability development, another example of how backstage leadership can do important things but indirectly. Building talent will always be important leadership work and should not be just an “HR thing,” nor simply occasions for bouncy speeches about the importance of people. Building talent needs to be taken as seriously as building capabilities for company strategy—there is a clear link. And it is especially vital to get the backstage leadership aspects right. To summarize, you learned how leaders use many small and large consistent actions in developing their talent to achieve the desired strategy—whether it is F.C. Barcelona’s La Masia youth academies where players learn the team’s possession strategy from the ground up or “the new Microsoft” in which Satya Nadella managed to shift employees focus from internal squabbling to serving emerging customers. And as you saw there is no “one size fits all” strategy for talent development because the capabilities you develop must fit your own particular strategy or strategies. Now you have a better sense of when to hire stars and build around them or when to develop strategic jobs that move your organization forward, and, perhaps more important, how to avoid assholes, those toxic employees that undermine teamwork and can cause productivity

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and even profits to plummet. And we can’t only turn our attention outward, but, as you saw, must recognize our own biases, and pay attention to our own networks of senior managers: How are your core leadership decisions impacted by the networks you maintain? Who are the people that create valuable bridges between divisions and functions? Finally, we looked to the current and future generations of workers—millennials and Gen Z—and discovered not only their defining characteristics (while admitting we can’t pigeonhole entire generations) but also what the backstage leader can do to best communicate with them and motivate them. By now you have a good grasp of what kind of adjustments—large and small—the backstage leader makes in everything from exploring new opportunities, to managing tradeoffs and contradictions to developing culture and talent that is aligned with strategy. It’s time to step frontstage and capitalize on all that demanding but crucial work.

References Barbuto, J. E. and R. K. Gottfredson. (2016). “Human Capital, the Millennial’s Reign, and the Need for Servant Leadership.” Journal of Leadership Studies 10(2): 59–63. Bass, D. (2016). “Clippy’s Back: The Future of Microsoft Is Chatbots.” Bloomberg Businessweek, March 26, New York. Brass, D. (2010). “Microsoft’s Creative Destruction.” New York Times, New York. Calk, R. and A. Patrick (2017). “Millennials Through the Looking Glass: Workplace Motivating Factors.” Journal of Business Inquiry: Research, Education & Application 16(2): 131–139. Cappelli, P. (2015). “Why We Love to Hate HR…and What HR Can Do About It.” Harvard Business Review 93(7/8): 54–61. Cattermole, G. (2018). “Creating an Employee Engagement Strategy for Millennials.” Strategic HR Review 17(6): 290–294. Charan, R., D. Barton and D. Carey. (2015). “People Before Strategy: A New Role for the CHRO.” Harvard Business Review 93(7/8): 62–71. Clement, J., A. Shipilov and C. Galunic. (2018). “Brokerage as a Public Good: The Externalities of Network Hubs for Different Formal Roles in Creative Organizations.” Administrative Science Quarterly 63(2): 251–286. Dobbs, R., S. Lund and A. Madgavkar. (2012). “Talent Tensions Ahead: A CEO Briefing.” McKinsey Quarterly 4(4): 92–102. Duke, L. and Q. Huy. (2018). “Enhancing Innovation Through Organizational Learning and Empathy Culture.” Insead Case 03/2018-6393-U. Eichenwald, K. (2012). “Microsoft’s Lost Decade.” Vanity Fair.

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Elberse, A. and A. Ferguson. (2013). “Ferguson’s Formula.” Harvard Business Review 91(10): 116–125. Euchner, J. and S. Nadella (2018). “Navigating Digital Transformation.” ­Research-Technology Management, July–August. Finkelstein, S. (2016a). “Secrets of the Superbosses.” Harvard Business Review 94(1): 104–107. Finkelstein, S. (2016b). Superbosses: How Exceptional Leaders Master the Flow of Talent. New York, Portfolio/Penguin. Galunic, D. C. and E. Anderson. (2000). “From Security to Mobility: Generalized Investments in Human Capital and Agent Commitment.” Organization Science 11(1): 1–20. Galunic, C., G. Ertug and M. Gargiulo. (2012). “The Positive Externalities of Social Capital: Benefiting from Senior Brokers.” Academy of Management Journal 55(5): 1213–1231. Gerstner, L. V. (2002). Who Says Elephants Can’t Dance? New York, HarperCollins. Groysberg, B., A. Nanda and N. Nohria (2004). “The Risky Business of Hiring Stars.” Harvard Business Review 82(5): 92–100. Ibarra, H. and A. Rattan. (2018). “Microsoft: Instilling a Growth Mindset.” London Business School Review, 3, London. Ibarra, H., A. Rattan and A. Johnston. (2018). “Satya Nadella at Microsoft: Instilling A Growth Mindset.” LBS Case Study, CS-18-008, June. Isaacson, W. (2011). Steve Jobs. New York, Simon & Schuster. Jonczyk, C. D., Y. G. Lee, C. D. Galunic and B. M. Bensaou. (2016). “Relational Changes During Role Transitions: The Interplay of Efficiency and Cohesion.” Academy of Management Journal 59(3): 956–982. Minbaeva, D. and D. Collings. (2013). “Seven Myths of Global Talent Management.” International Journal of Human Resource Management 24(9): 1762–1776. Miner, A., T. Glomb and C. Hulin. (2005). “Experience Sampling Mood and Its Correlates at Work.” Journal of Occupational & Organizational Psychology 78(2): 171–193. Pearce, J. L. (2009). Organizational Behavior: Real Research for Real Managers: Individuals in Organizations. Irvine, CA, Melvin & Leigh. Petrucci, T. and M. Rivera (2018). “Leading Growth Through the Digital Leader.” Journal of Leadership Studies 12(3): 53–56. Rodriguez, A. and Y. Rodriguez (2015). “Metaphors for Today’s Leadership: VUCA World, Millennial and ‘Cloud Leaders’.” Journal of Management Development 34(7): 854–866. Sisario, B., A. Alter and S. Chan (2016). “Bob Dylan Wins Nobel Prize, Redefining Boundaries of Literature.” New York Times, New York. Stewart, J. S., E. G. Oliver, K. S. Cravens and S. Oishi (2017). “Managing Millennials: Embracing Generational Differences.” Business Horizons 60(1): 45–54. Sutton, R. I. (2007). The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn’t. New York, Warner Business Books.

7 Back to the Front: Foundational Leadership Traits and Skills

William1 leads a 100+ person high tech start-up involved in sensor and machine learning development, both a hardware and software play that could prove a big success. William is an incredible entrepreneurial talent and has now spent years of planning the technology, and then its development, building a small but growing organization that will hopefully see this product emerge as a commercial success. But his organization is faltering. Over the years, William could handle the spillover work that was emerging with the development of this technology— the extra hassles and questions that emerge as you move from raw concept to development, to fabrication, integration, supply chains, distribution, and so on. Once tightly centralized in the hands of William-the-Entrepreneur, a conqueror-like entrepreneurial figure, he gets that he must now let go of more of the work and push it further down the organization. But he is lost. “He thinks he is empowering people and the organization when all he is doing is delegating,” said a coach working to help William and his team. He is certainly pushing work out, expecting people to “just go do it,” but there is not enough attention to building the backstage processes we have looked at in this book. People don’t know what to do, how it fits in with the overall strategy and product development path. “He talks, but doesn’t say what needs to be said. For example, product development work is confused with providing long term vision and real sensemaking of their VUCA environment.” (VUCA is an acronym used by the American military, which stands for Volatile, Uncertain, Complex, and Ambiguous, probably overused and with overlapping concepts, but maybe 1This

is a real leader, company, and situation, but the names have been masked to protect their identity.

© The Author(s) 2020 C. Galunic, Backstage Leadership, https://doi.org/10.1007/978-3-030-36171-6_7

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better than just saying a “tough environment”.) There is no clear road map on the future and priorities, no clear processes for scanning and sensemaking, there is too little momentum and strategic commitment, even for a smallish organization, and there is particularly no notion of how the autonomy he desperately needs in order to cope will be balanced with the need for efficiencies and centralizing forces. The organization culture is wobbling and unsure. People are growing disillusioned, which may mean trouble with the talent pipeline. As the coach went on to suggest, “he senses the problems, but doesn’t get the complexity,” a remarkable conclusion given that William is someone who is clearly good at dealing with complexity, or at least a certain kind of complexity, a technical and commercial complexity, rather than a human and organizational complexity. Things are not going well, and not because of some unsolvable technical or product-market issue but, at least partly, because of a lack of backstage leadership, attention to the fundamental organizational processes needed in the ongoing life of a strategy and as I have outlined in this book: • Tracking & Sensemaking: Continued scanning and sensemaking of the environment, to track developments and ensure a well-targeted strategy, • Commitments & Momentum: Generating strategic momentum, including clear and fair internal processes for making basic decisions and priorities, while clearing political roadblocks, • Handling Contradictions: Finding your balance point between contradictions, such as autonomy and centralization, short-term and long-term, • Community & Culture Building: Crafting a vibrant, aligned culture, • Talent & Capability Development: Ensuring a strong talent pipeline. But there is more to the story, and stories like this. William is actually a beloved person. People around him—at least for now—really like him. Moreover, his people respect him and are generally willing to follow him. He is of course the founder and an entrepreneurial virtuoso. He has plenty of caché. But there is a difference in being respected for your talent, expertise, brilliance—even your personality or charisma—and being loved and respected for your leadership skills and traits. This has certainly to do with your backstage leadership skills, your ability to craft the five core processes above. But, and the focus of this final chapter, I believe it also has something to do with several fundamental core leadership capabilities, and ones that underpin backstage leadership work. We are now circling back to the front, taking a look at what I believe are the most important and fundamental leadership skills and traits needed to help make a complete leader, and whether you are operating from the front, back, or anywhere in between.

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Let’s start by looking more closely at the metaphor I have been using throughout the book, the idea of leadership being on a stage.

Leadership Foundations: Supporting Front and Backstage Work Erving Goffman was a clever sociologist with tremendous impact on how we think about social life and human behavior, and his book “The Presentation of Self in Everyday Life” remains one of the most influential sociology books of the past two centuries.2 His dramaturgical model of social life, one of his lasting influences, is something that has also helped me think about leadership, and especially the new work of leaders in our volatile and uncertain times. The model goes something like this, and it borrows heavily from the metaphor of the stage, or theater, and acting. Humans are essentially actors on a stage, except the stage(s) are the places we occupy on a daily, or at least regular, basis. These places are, for example, our office or work stage, our home stage, our old-friends-from-high-school-yearly-getaway stage, our localsports-team stage, our neighborhood-association stage, etc. In that theater, we face substantial time on frontstage, interacting in some role that we have carved out. For example, on the work stage, our leadership role will see us face many small meetings, performance reviews, major announcements, strategy setting speeches, and countless other interactions. During those moments, we are constantly engaged in impression management, trying to shape how people not only think about the context, but of course how they think about us, what they attribute to our identity, and how this eventually shapes our personal leadership style or “brand.” These moments are imbued with our leadership style, that is the outward appearance of our leadership conduct, whether relatively autocratic, democratic, friendly, or whatever that style or brand may be. These moments are when we project our idealized selves, who we most wish to be seen by others. We are literally “acting,” although that act need not be entirely contrived, and our manipulations of those situations (clothes, voice, rhetoric, etc.) need not be entirely (or at all) artificial—it could be just us trying to ensure that people really see us, or the “me” that I think I am. Like Hollywood actors, what they portray on camera may actually be them—a student of mine took part in a not-for-thepublic interaction involving one of the cast members of the hit TV comedy 2Goffman,

E. (1959). The Presentation of Self in Everyday Life. Garden City, NY, Doubleday.

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“Modern Family,” and what was remarkable to her was how similar that person felt to their character on Modern Family. Our acting can feel quite “close to home.” However, these moments will not be just about us—they will involve the interpretations that others have of us, which ultimately come to define who we appear as actors. After all, we cannot construct anything we want in those roles—those things have to be believable, they need to appear authentic to some degree, or they simply will not be accepted. This is an important point, and one I will come back to in a moment. We also have a backstage life, a zone where we are not (really, or formally) “performing,” or at least what I would call the center of attention, but where we can be more “ourselves.” It is to some degree a place where we think about and enact—craft, design, monitor, and consciously develop—the fundamental processes I have talked about in this book. To be sure, this “backstage” work does require us to “act” and be visible, but the mindset I have tried to argue—the focus of this work—is not so much on our performance per se, those moments when as leaders we must be the center of attention, but more on fixing the plumbing and crafting the internals of the organization. It is a difference in the focus of our energies and time, less about our direct performance than about our mindful design work and process development. It certainly has visibility, but perhaps not the intense scrutiny and attention that I believe happens when we are front-and-center stage and all eyes are on us. For Goffman, life is lived between these various parts of the stage, and humans go back and forth, between the active, visible actor role, and the somewhat “invisible” (but felt everywhere) designer/plumber role. However, and my segway from Goffman’s powerful dramaturgical model, whether we are doing relatively more frontstage or backstage work, all leaders should spend time on certain fundamentals, on the traits and skills that are foundational to both types of work. That is, whether we are giving speeches, running formal meetings, presenting to corporate boards and analysts, or crafting decision processes, shaping culture, or building talent processes, it all involves human action and sharing of ourselves, a place where it’s not so much about being front or backstage but the enactment of who we are. We always need some repertoire of traits and skills to draw upon for this work. I’ll call these things leadership foundations, some of the most essential traits and skills that inform and supply leadership behaviors. My source for these ideas is both general and specific. They are general in that they are qualities that should not be a surprise to managers living in our times, things that often come up in leadership competency models and 360 measure of leadership attributes. They are specific in that they have

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been part of my experience in teaching managers over many years. One of the questions I have often presented to managers during one of my classes is what do they believe are the most essential leadership traits and skills, in their experiences. Importantly, I ask them to think about their experiences, not “leadership theory.” I ask them to think about leaders they admired, respected, and what that tells them about good, effective leadership. And I ask this in an environment that is incredibly international, typically in classes that have over 20 different nationalities, with people with substantial management experiences, and where there is no majority culture. I have gone over years of such discussions in preparing this final chapter. What I have found, first of all, is remarkable consistency. The same things come up time and time again, and they have so for many years. It leads me to believe that these things are foundational and somehow widespread (although I don’t pretend my method is highly scientific). While there are not endless traits and skills, nor are there just 2 or 3. And there are substantial overlaps in some of the things that they say, a great deal of commonality.

Role Model with Integrity Role modeling means being a conscious example for those around you. It means accepting that people learn a great deal by observation and imitation, that even when we are seemingly not “front-and-centre” stage, we are at least in people’s peripheral view and probably influencing their thinking and conduct at work (and perhaps beyond work). The most obvious place where we see this happen all the time is with children. Children are copying machines, and I don’t mean here a girl imitating dad’s generic shaving routine or a boy trying on mom’s clothes (yes, behaviors may not always fall along traditional gender lines, especially for very young kids). Children are keen observers of what we do, why we do it, how we do it, and so on. It means they pick up little ticks, habits, and idiosyncrasies. I can see it in both my son and daughter—the facial expressions when my son laughs, or the forms of humor my daughter favors in group chats (not always to my kids’ benefit), or the way they may argue a point, or the way they sign-off from phone calls. It becomes particularly crystal clear when you hear a profanity escape the mouth of your teenager for the first time, and for a moment you are not sure if that came from their mouth or your own. The fact is that if dad does not actually wash up after he places used glasses and plates “near” the sink, it becomes more likely that his son or daughter will do the same, and even after they receive a very wordy lecture about how to wash up and that

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the dishwasher does not actually load itself. With kids, actions truly speak louder than words. And this learning is usually a liberating thing, because children learn about skills and methods that help them to actually live freer, to be more independent.3 As someone said to me recently, pointing to the irony, parenting (the art of taking care of others) is essentially about getting our kids to rely on themselves, and so the examples we set become so important for their ability to cope in the world, and probably more important than the words we dish out. When we “do” something for our kids the real value may not be so much in the task value of the act but in the example that we set. Adults are not children, and so we are more open to “words” influencing us from others, not just actions. We may even be careful not to imitate too quickly, or at all, for fear that it may be a sign of weakness or being hopelessly uncool. So I’m not suggesting here that a young employee will start wearing the same brand of clothes or perfume/cologne as the boss— in fact, they may actively try to do the opposite, at least in these obvious things. But nor do we entirely lose the capacity for mimicry—it is simply human to imitate others. And that process may work silently, without us being entirely conscious of its power, and especially with our leaders. At the end of the day, a leader is a big figure in our working lives. Whether we like it or not, we are likely to be impacted in some substantial and very relevant ways (unlike our choice of perfume or cologne) by the behaviors of leaders. For example, one study looked at corporate crime and the role of a leader’s example.4 Corporate crime is a big deal, and not just the large publicity cases that make global headlines but the aggregate impact of daily transgressions—gross misreporting on expense reports, for example—that mount up and can become a major problem if not punished or prevented in some way. So what happens when managers are expected to respond to employee shenanigans? Do they respond in appropriately punitive ways, or are they more likely to turn a blind eye and risk the spread of such transgressions? This study found that unethical behavior by higher-ranking people (i.e., the boss) influences how people (i.e., managers) respond to lower-ranking others who subsequently do the same misdeed. In a nutshell, if the boss “does it,” it’s

3Stiefel, Chana. What Your Child Learns by Imitating You. Retrieved December 10, 2019. Parents. com;  https://www.parents.com/toddlers-preschoolers/development/behavioral/what-your-childlearns-by-imitating-you/. 4Bauman, C. W., L. P. Tost and M. Ong. (2016). “Blame the Shepherd Not the Sheep: Imitating Higher-Ranking Transgressors Mitigates Punishment for Unethical Behavior.” Organizational Behavior & Human Decision Processes 137: 123–141.

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ok for those below to “do it” as well, and punitive measures are not taken as seriously. The muck spreads. It means that things like unethical behavior can rapidly contaminate an organization if this is what the leader displays. Information flows from the top, and the leader’s conduct is a massive source of information. As another example, one thing that is particularly contagious from leaders is “mood.” We know that mood is generally very contagious in teams and groups,5 but the leader’s effect on mood can be especially powerful. So, studies find that when a team leader is positive, the group members are much more likely to be positive (holding various other sources of influence constant), and when a team leader is negative, the group members are much more likely to be negative.6 Moreover, the positive mood and affective tone that spreads to team members have been found to lead to greater coordination efforts but less efforts (more efficiency) overall. Role modeling is of huge importance to all of the core processes of this book: natural curiosity in order to role model scanning and sensemaking, fairness in personal conduct and decisions in order to role model a fair and just strategic decision process, applying different frames to a situation to role model ambidextrous thinking, clearly displaying core company values in every day conduct to role model cultural development and impact the socialization of new talent, and so on. All of the five core processes that we have looked at will be more effective if the leader is role modeling consistent behaviors and attitudes. People will learn about the spirit of these processes not just by what you say but how you enact and establish these processes. But perhaps at the core of being a conscious role model is a particular characteristic that we must role model. I think my executive participants singled out role modeling as an important leadership trait because it covers a lot of ground, but often what would closely follow on from a discussion of role modeling is a desire to have leaders with integrity, or honesty, a leadership trait that is very popular and deemed vital across many different cultures and settings—in fact, research has found that integrity is at the top of the list of universal facilitators of leadership effectiveness, regardless of local

5Barsade,

S. G. (2002). “The Ripple Effect: Emotional Contagion and Its Influence on Group Behavior.” Administrative Science Quarterly 47: 644–675. 6Sy, T., S. Cote and R. Saavedra. (2005). “The Contagious Leader: Impact of the Leader’s Mood on the Mood of Group Members, Group Affective Tone, and Group Processes.” Journal of Applied Psychology 90(2): 295–305.

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cultural idiosyncrasies.7 It seems clear that of all the things people would like to see role modeled, integrity comes to the front. I don’t think it’s just because it is a politically correct thing to say—what culture after all does not at least espouse honesty as a virtue and raise its children with that in mind? It’s because ground zero for working in modern organizations is trust, and trust requires reliability, integrity. By modern organizations I mean places that operate on institutional logics, not market logics. Yes, a sort of trust can be created through formal contracting like we see in market transactions—carefully defined roles, responsibilities, duties, or outcomes between two parties, like we see all the time between two legal entities, say your company and its various suppliers (e.g., IT contracts, which can get very specific on performance expectations and metrics these days). Yet this is not how modern organizations work “on the inside,” and it is not how leadership models work across the world. Yes, we have employment contracts, but they are hardly detailed legal documents, or certainly not nearly at the level of detail that would be required to manage a trusting relationship between a manager and employees in order to craft and execute all the various turns and responses needed in our world. What we have is an implicit or “psychological” contract, an understanding, that the leader is endowed with largely unspecified possibilities for directing her authority in the pursuit of overall goals and members have largely unspecified duties and behaviors—and this is our reality despite some attempts over the years at writing job descriptions. At the end of the day, what we have is an understanding between people about general roles and responsibilities, and leaders must work within that framework. What we have found is that this institutional approach to leading organizations—rather than a more contractual approach—is probably best, and particularly in situations where it is very hard to write clear and forward-looking contracts (i.e., our VUCA world). But the cornerstone of this entire edifice is trust. Our entire modern organizational model falls apart if there is no trust. And the key ingredient of that cornerstone—the foundations for trust—is integrity, and particularly the integrity of our leaders. It is ground zero for everything else (in business, management…life). In a study by KRW International, a Minneapolis-based leadership consultancy, researchers discovered that CEOs whose employees gave them high marks in four traits that determine moral character—integrity, responsibility,

7Dorfman, P., M. Javidan, P. Hanges, A. Dastmalchian and R. House (2012). “GLOBE: A Twenty Year Journey into the Intriguing World of Culture and Leadership.” Journal of World Business 47(4): 504–518.

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forgiveness, and compassion—were able to achieve higher firm performance than those in which CEOs had low character ratings: a 9.35% return on assets over a two-year period, five times more than for companies led by low character CEOs. One of the ten CEOs KRW leader co-founder Fred Kiel designated as “virtuoso CEO,” those who scored highest on the four traits out of a 100-point scale, was Sally Jewell, then head of outdoor equipment retailer and consumer cooperative, Recreational Equipment, Inc., or REI. Jewell then went on be Secretary of the Department of the Interior under President Barack Obama. During her tenure at REI, Jewell was a role model for environmental stewardship, which is a key part of the company’s mission. She championed the retailing co-op’s engagement in supporting volunteer stewardship of public lands along with efforts to manage the retailer’s own environmental footprint. While she was CEO of REI from 2005 to 2012, she increased the company’s profits from 1.5 billion to over $2 billion and the company was consistently listed as one of “The Best Companies to Work For.”8 Jewell not only modeled integrity as a champion of environmental protection, but she also was known for modeling integrity in the toxic culture of sexual harassment and assault she encountered at the Department of the Interior. Addressing this culture head on was a priority for her between 2013 and 2017. This is likely why she was tapped for—and took on—the job of interim CEO of global advocacy group, The Nature Conservancy. Before Jewell took over in 2019, the agency was rocked by a sexual harassment and misconduct investigation. When she took over the interim role to provide stability, Jewell said she was really committed to providing “the kind of organization where employees can bring their whole selves to work.”9 Political leaders in particular tend to focus on integrity as a core trait. Consider Lee Kuan Yew (1923–2015), the founder of modern-day Singapore. Corruption had been common in Singapore’s British colonial civil service and during the World War II Japanese occupation. Lee sought out to change this by addressing corruption from the top down by being a

8Kiel, Fred. (2015). “Leadership Measuring the Return on Character.” Harvard Business Review 96(4): 20–21. Retrieved November 29, 2019. https://hbr.org/2015/04/measuring-the-return-on-character; St. Anthony, Neal. (2015). “Consultant: CEOs with Integrity Produce Better Returns.” Minneapolis Star Tribune, May 15. Retrieved December 10, 2019. http://www.startribune.com/ consultant-ceos-with-integrity-produce-better-returns/303937621/. 9Jacobs, Jeremy P. (2019). “Sally Jewell on New Job: ‘I Actually Threw My Hat in the Ring.’” E&E News Greenwire, June 12. Retrieved November 29, 2019. https://www.eenews.net/stories/1060561213.

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role model. In his speech at the “Africa Leadership Forum in Singapore” he exclaimed: Once a political system has been corrupted right from the very top leaders to the lowest rungs of the bureaucracy, the problem is very complicated. The cleansing and disinfecting has to start from top and go downwards in a thorough and systematic way. It is a long and laborious process that can be carried out only by a very strong group of leaders with the strength and moral authority derived from unquestioned integrity.

In the same vein, in an essay titled “The Search for Talent” he wrote “… bad leaders drive out good men from high positions.”10 Lee took steps himself to demonstrate the integrity of top leadership. When members of his government were sworn into office they wore simple white shirts and trousers, signaling their purity.11 In parliament, Lee insisted that high-ranking civil servants should be recruited entirely on merit and receive substantial salaries, comparatively higher than those in any other country, to both show how they were deserving but also to minimize temptation for bribery. His attitude toward corruption influenced that of his subordinates: In 1986, when the minister of national development was investigated for accepting bribes, he killed himself in shame. In his suicide note he wrote to Lee “It is only right that I should pay the highest penalty for my mistake.” It continued to prevail years after he had passed away. In 2018, the Transparency International Corruption Perceptions Index ranked Singapore third highest for transparent governance.12 The anti-corruption attitude also made the country a hospitable place for economic development, and in particular, foreign direct investment; in 2019, Singapore ranked first (higher than the United States) in the World Economic Forum Global Competitiveness Index.13 To sum, Lee believed that if he changed the culture around corruption in Singapore, by ensuring that high-level government officials acted morally, he could stop it from penetrating further and deeper in society.

10Ng, Lance. (March 18, 2019). “Lee Kuan Yew on Beating Corruption”. Medium. Retrieved December 10, 2019. https://medium.com/@lancengym/lee-kuan-yew-on-beating-corruptionf0b740d80ca5. 11Keefe, P. (2015). “Corruption and Revolt.” The New Yorker 19: 1–11. 12Transparency International. (2018). Corruption Perceptions Index: Singapore. Retrieved December 10, 2019. https://www.transparency.org/country/SGP. 13Schwab, Klaus. (2019). “The Global Competitiveness Report 2018–2019.” World Economic Forum. Retrieved December 10, 2019 (p. xiii).

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Anand Mahindra, chairman of Mahindra & Mahindra Ltd., India’s largest maker of tractors and sport-utility vehicles, is reputed for demonstrating this quality. He has managed to reinforce a policy of integrity, often discussing the importance of trust and support in the workplace.14 He often communicates through Twitter because it allows him to stay in close touch with employees and demonstrate his values. In an interview he noted: Once I got a tweet from some kid saying his girlfriend got sick after drinking too much at a concert in Nashik. She was throwing up outside our factory there and the watchman got her some water and helped them find an auto. I called up the plant and asked them to thank him on my behalf with a garland. Now think about what this does to company culture. I can give ten workshops to my staff on empathy but one tweet recognizing that watchman is [way more powerful].15

Employees applaud his attitude, which touches many through his use of social media. He believes that emotional exchanges are an important part of business and not just fluff, to be exercised when it’s fitting.16 One person even shared a letter saying how Mahindra’s management style “trickled down” so that his employees showed integrity and professionalism.17

Vision Seekers Of all the things that could be said about visionary people, my favorite has to be that they are unapologetically unrealistic, at least some of the time. By unrealistic I mean that they are unafraid to get bored and/or dissatisfied with the status quo. They are able to step back from the “same old” and take a balcony view of how things work and ask playful and even pushy questions.

14Fortune

Editors. (2014). “The World’s 50 Greatest Leaders”. Fortune, March 20. Retrieved December 10, 2019. https://fortune.com/2014/03/20/worlds-50-greatest-leaders/ 15Madhok, Diksha. (2019). “Why Billionaire Anand Mahindra Spends so Much Time on Twitter.” Quartz India, July 30. Retrieved December 10, 2019. https://qz.com/india/1677247/ why-billionaire-anand-mahindra-spends-so-much-time-on-twitter/. 16Jinny Riat. (2017). “What Start-Up Leaders Can Learn from Anand Mahindra”. MyStory, August 12, 2019. Retrieved December 10, 2019. https://yourstory.com/mystory/3e55fe11fc-what-start-up-leaders. 17Madhok, Diksha. (2019). “Why Billionaire Anand Mahindra Spends so Much Time on Twitter.” Quartz India, July 30, 2019. Retrieved December 10, 2019. https://qz.com/india/1677247/ why-billionaire-anand-mahindra-spends-so-much-time-on-twitter/.

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Many of us don’t work like that, certainly not as early-stage and middle managers. “The mundane” is efficient—even while we complain about the monotony of the routines we manage, secretly we love them, protect them, and cherish them. They keep us safe from uncertainty, hassle, political conflict, and plain old hard work. And our organizations may reward that sort of work as well, expecting us to do the “same old” but really well, not to rock the boat of our higher-ups. If you do this for long enough—for a few years which turn into a decade—you end up being socialized to accept the mundane, to accept the status quo just fine. More than that, once you have become efficient at the mundane, and it seems to work for you—sales accumulate, you not only keep your job but there are the regular little promotions and accolades—you fill the time savings you gained with other things, not least investments in your hobbies and pleasures and, yes, lots of little projects that make the mundane a little more secure. The problem is that when you reach senior leadership levels, the success of your organization requires you to become more of a dreamer, a risk-taker, and visionary. But you have just spent a decade or more learning practically the opposite—little safe steps and not to rock the boat. I believe this is a major challenge for many managers. One of the things that I have sensed in their career paths over the years is that (a) in the early years of their management careers, they are typically rewarded and promoted for doing established things very well, but (b) to really break through to the highest levels of authority and strategic leadership, at least in companies who understand that to cope with the VUCA world they need to develop visionary leaders, they have to be able to do something really special, and something really special typically involves something not yet seen or done or imagined. It is a sort of testing ground for senior leadership. Such people, such leaders, I believe are particularly good at not getting sucked into the pull of inertia but regularly raise their heads to ask difficult questions. Let’s break vision seeking into two components for more clarity. First, it’s interesting that when my executive participants talk about visionaries, they often mention in the same breath the capacity to push the system, to look for better ways to do things. So the desire to challenge and think critically is an important element. In this sense, being visionary is partly about turning your gaze inwards but with a critical, turn-things-upside-down mentality. It is about the capacity to not accept good enough, to always challenge things and with quite some reach in your thinking. But, second, it is also about turning your gaze outwards and beyond, to leave some time to dream. The other thing that often gets mentioned when executive participants talk about “vision” is the capacity for strategic thinking, to take that

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“view from space” that was discussed in Chapter 3, when we looked at strategy mobilization processes. This is closely associated with strategic thinking. So let’s define vision seekers as those with two capacities, the first being the capacity to turn their world upside down at times, to not be satisfied with good enough, and the second being the capacity to look over the horizon and explore what may be out there. The late Nelson Mandela, or “Madiba,” the clan name by which he is still affectionately referred, comes immediately to mind when one thinks about a truly visionary leader. An anti-apartheid revolutionary in South Africa, Mandela was imprisoned for conspiring to overthrow the state as part of the African National Congress (ANC). Despite harsh conditions and life sentence, Mandela steadfastly held on to his vision of a South Africa in which the racist system of apartheid would be outlawed. When offered freedom in exchange for renouncing his opposition to the South African government, Mandela refused and told then President Botha: “What freedom am I being offered while the organization of the people remains banned? …What freedom am I being offered if I must ask permission to live in an urban area? ” He held on to his vision while serving out his term in three different prisons. While held in prison he not only maintained his vision of a racially harmonious South Africa but he also strategically assessed his next moves and the anticipated reaction. Botha was succeeded by President F.W. de Klerk, who released Mandela in 1990 and the two went on to negotiate an end to apartheid. Mandela was very careful, even while angering some of the more radical members of the ANC, to work toward a peaceful and orderly transition from white minority to black majority rule. As president from 1994 to 1999, rather than following the example of Zimbabwe’s Robert Mugabe whose brutal dictatorship brought the country to its knees, Mandela clung to the principles of forgiving without ever forgetting and of sharing power—he even invited his prison guards to his presidential swearing in ceremony, a powerful symbol of his vision of peace and harmony. After being the first president to lead post-apartheid South Africa, Mandela went on to become an elder statesman and won over 250 honors including the Nobel Peace Prize.18 While one can’t compare the accomplishments of Mandela in ­apartheid-torn South Africa to those of CEOs in the business world, there are, nevertheless, business and non-profit leaders who have been lauded for their visionary traits. People such as: 18Schoemaker, Paul J. H. and Krupp, Steven. (2014). “6 Principles That Made Nelson Mandela a Renowned Leader.” Fortune, December 5. Retrieved November 30, 2019. https://fortune. com/2014/12/05/6-principles-that-made-nelson-Mandela-a-renowned-leader/.

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Jeff Bezos—Whatever you think of Amazon CEO Bezos—and as the wealthiest person in the world he does incite controversy—there is no denying he is a visionary leader. From starting an online bookstore out of his garage in 1994, Bezos has catapulted Amazon to an e-commerce colossus that took in some $280 billion in revenues and netted $14 billion in operating income in 2019. Bezos kept his eye honed on his customer-centric vision as the company hemorrhaged money for years. His visionary nature comes from focusing obsessively on customer needs—even anticipating ones that have not yet come to the fore—and then assuming the technological uncertainty of meeting those needs can be worked out. The story of “the empty chair” is now iconic of Bezos’ attention to the customer; whenever there is a meeting, there is an empty chair representing “the most important person in the room,” the customer. Bezos has instituted a culture of metrics to try to give that most important person in the room a voice, tracking the company’s performance against 500 or so measurable goals, 80% of which are related to customer objectives. And Bezos equally obsessively tracks and tries to remove what customers don’t want: delayed shipments, the wrong recommendations, out-of-stock products. The company has found that even a 1 second delay in loading a web page can translate to a 1% drop in customer activity. Being so data driven provides the security that lets Bezos innovate and push into new areas—from partnering with Whole Foods to TV series production. Robert Smith—The profile of the richest black billionaire in the United States was a relatively hidden one until he offered to forgive the entire student loan debt of the 400 students who graduated in 2019 from Morehouse College, a historically black men’s college. Suddenly a lot more people were wondering about the philanthropist who gave $40 million to the Morehouse graduating class. Smith turns out to be a visionary, albeit one who doesn’t toot his own horn. The Founder, Chairman and CEO of Vista Equity Partners, made his mark at Goldman Sachs in the early 1990s by overseeing mergers and acquisitions of then start-up tech companies, taking “a little company called Microsoft” public as well as IBM. After the dot com bomb, Smith didn’t abandon tech as many were doing, but he saw the opportunity waiting in enterprise software companies. He created Vista in 2000 determined to unlock the untapped value of these firms, but his investment goes beyond the financial; as soon as Vista invests in a company it applies a series of Vista Standard Operating Procedures (VSOPs). Within each company, Smith applies what might be the most signature element of his vision: a meritocratic approach to human resources. Both at Vista and the companies it funds, potential hires take a finely tuned aptitude test “to assess social skills and problem-solving abilities and determine fit within specific job

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functions at a software company,” Smith explains. Ex-archaeologists, former Domino’s pizza managers, or mailroom employees have all risen to astonishing heights in their enterprise tech positions. A Walmart shelf stacker did so well on the test that Vista offered him a job in their systems group, giving him 28% more compensation than he originally asked for.19 Kimberly Bryant—a biotech engineer, was frustrated when she couldn’t find any computer programming opportunities for her 12-year-old daughter. While she eventually enrolled her daughter in a week-long coding summer camp course at Stanford University, Bryant was dismayed that her daughter was the only girl of color in the course—just as she had been the only black woman in her 1980 graduating class at Vanderbilt University. Bryant had an epiphany that she could address the problem by founding a program that would nurture girls of color, like her daughter, who were interested in computer programming. Her vision was to turn things upside down in the tech industry, in which black women make up only 3% of the workforce. In 2011, Bryant launched Black Girls Code, a non-profit that teaches computer programming and engineering to girls of color ages 7–17. That Bryant left her biotech engineering job to work full time at Black Girls Code is testament to its phenomenal popularity and growth. In 2016, Black Girls Code moved into a 6000-square-foot office hosted by Google, their first grantor. At that time they had worked with 6000 girls, up from 2500 in 2014, and they have a goal to train one million girls to code by 2040. The story of Kimberly Bryant proves that sometimes visions stem from personal longing; she had not set out to be such a visionary change agent but simply sees herself as a mother trying to make the world a better place for her child.20 Franz Beckenbauer—the German football player, turned his world upside down. He had a certain genius for the game, always thinking about the game strategically (positionally), not just tactically (execution). One sports journalist wrote “He was the puppet master, standing back and pulling the strings which earned West Germany and Bayern Munich every

19Reeves, Benjamin. (2015). “Private Equity’s Philosopher.” Ideas and Insights, Columbia Business School, April 8. Retrieved December 1, 2019. https://www8.gsb.columbia.edu/articles/columbia-business/ private-equitys-philosopher. 20Anonymous. (2014). “The CNN 10 Visionary Women.” CNN, March. Retrieved November 28, 2019. https://www.cnn.com/interactive/2014/03/living/cnn10-visionary-women/; Kokalitcheva, Kia. (2016). “Google’s New York City Office Is Now Home to Non-Profit Black Girls Code.” Fortune, June 28. Retrieved November 30, 2019. https://fortune.com/2016/06/28/black-girls-code-google/.

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major prize.” His nickname was in fact Der Kaiser, for his command.21 He was best known for the libero or sweeper attack which he brought to the game. It was characterized by long runs out of his central defense position. No one believed that sweepers should occupy their opponents’ part of the field so it at first created an element of surprise. The sweeper was also never marked, hiding in the back of the field. As a result, he was capable of running out any moment. His manager Helmut Schoen and other players were cautious to implement Beckenbauer’s idea. Despite requests, he was in fact prevented from playing how he wanted. Finally, in 1971 he became captain of the West German team and he had the authority to incorporate the sweeper attack. Once vision meets authority, magic can happen. In the following European Championship, West Germany won, beating the Soviet Union 3-0 and he was voted European Footballer of the Year. Later in life, he would become the only person ever to win the World Cup as a player and as a coach.22 Beckenbauer was able to see beyond the game through his constant questioning and experimental tactics.

Care Takers Another always-mentioned core leadership trait revolves around how leaders think about the people around them. And I guess the starting point for this trait is that they actually do “think about” the people around them, that they spend active, conscious time taking interest in the people under their charge. It also means that they are open and approachable in general, so that they can receive even unsolicited feedback and critical “updating” to any situation facing the group, to new ideas and difficult conversations. But let’s start with the proactive part of this trait, the “active-taking-interest-in” aspect. This trait or condition can be partly captured by a powerful leadership theory that emerged over several decades of work but exploded in the 1990’s, called Emotional Intelligence, and that is probably a common part of the leadership lexicon today, although with varying and sometimes

21Cummings, Michael. (2011). “25 Players Who Revolutionized Soccer.” The Bleacher Report, September 27. Retrieved December 10, 2019. https://bleacherreport.com/articles/865997-25players-who-revolutionized-soccer#slide4. 22FIFA. (2009). “Der Kaiser, the Brains Behind Germany.” October 7–17. Retrieved December 10, 2019. https://www.fifa.com/womensyoutholympic/news/y=2007/m=4/news=der-kaiser-the-brainsbehind-germany-503637.html.

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heated interpretations and views.23 Emotional Intelligence (EI) was shaped as another form of intelligence, that in as much as our “IQ” is important to (leadership) success, so is our capacity for working with emotions— although whether this is actually a natural “intelligence” or simply a learnable skillset, or even just a moral quality, has been debated.24 In any case, the popular form of EI25 means coping first and foremost with our own emotions, and there are good reasons why this is important to leadership. The foundation here is self-awareness, in that you have a good stock of your core moods and emotional tendencies. This is important because it can help the leader begin to see how her emotional tendencies may be having an effect on others. It’s also valuable in that it can help us understand our judgments and decisions—if I am naturally a dry, cynical character, I may be prone to dismissing ideas rather easily, and so blunting the motivation of those around me to surface new ideas and questions. There is also self-regulation, that is the capacity to not allow emotional hijacking. For example, while effective leadership may require moments of showing that you are “not pleased” with an outcome (basically a form of anger), there is a big difference between showing that displeasure and allowing that anger to swell-up—to hijack our brain—into some form of table-thumping rage. In general, the ability to control our impulsiveness seems important to leadership and life success in general. There was a famous experiment conducted on young kids (3–5 years of age) at Stanford University in the early 1970’s, later called the marshmallow test.26 Basically, the kids were offered a small reward (a marshmallow or some such treat) now or two small rewards later, if they could “wait a bit,” about 15 minutes. The study found that those kids who were able to delay gratification and persevere, not give into impulsivity and simply gorge that treat in a split second—a form of ­self-regulation—were more likely to have better life outcomes later, such as higher SAT scores, educational attainment, and body mass index scores. Similarly, leaders who can self-regulate—who can avoid extreme emotional hijacking of their brain and thinking capacities—may

23Goleman,

D. (1995). Emotional Intelligence. London, UK, Bloomsbury; Salovey, P., M. A. Brackett and J. D. Mayer. (2004). Emotional Intelligence: Key Readings on the Mayer and Salovey Model. National Professional Resources Inc./Dude Publishing. 24Wikipedia Contributor. Emotional Intelligence. Wikipedia, the Free Encyclopedia. Retrieved December 10, 2019. https://en.wikipedia.org/wiki/Emotional_intelligence. 25Goleman, D. (1995). Emotional Intelligence. London, UK, Bloomsbury. 26Wikipedia Contributor. Stanford_Marshmallow_Experiment. Wikipedia, the Free Encyclopedia. Retrieved December 10, 2019. https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment.

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be in a better position to make rational choices, but perhaps also to have the appearance of greater wisdom and control. To be sure, emotional fuel is important to leadership, and so the capacity for self-motivation is important, that is to not just harness but encourage positive emotions, to fuel your focus and concentration, and to inspire the people around you (back to role modeling), along with other social skills (being able to get along with others and manage relationships). But perhaps the cornerstone of the emotional intelligence concept and work was around empathy, our capacity for “experiencing” others’ emotions. Empathy is basically the capacity to read and interpret the emotions of the people around you. Those emotions don’t come easily to us—in general, our daily interactions at work do not involve people sharing their emotional states verbally. It would be strange to hear your subordinate say “well, I came into this meeting with some worry and a little anxiety, but, following your talk and presentation, I’m leaving with a mixture of deep sadness which will soon morph into disillusionment, anger and frustration.” As the life work of Paul Ekman (an American psychologist and Professor Emeritus at the University of California, San Francisco) has shown us, much of our emotional communication comes non-verbally, and largely through the face.27 Some of us, therefore, catch the annoyance of the waiter—a subtle form of anger, lips pressed slightly and narrowed, eyebrows lowered momentarily—as our difficult friend awkwardly criticizes the wine menu. For leaders, reading the emotional states of the people around us is valuable. It can help us recognize when someone is not really on-board with an issue or plan or strategy and hopefully take corrective steps with that subordinate before their confusion/anger/frustration creates barriers to their work, or even spills over and impacts the rest of the group. In that sense, it is a form of “intelligence,” and I mean here a source of data, of information. It is a capacity for deepening our human interactions, and although there has been a battle in the academic and leadership community as to whether EI is a deep trait or a skill/ability, it seems intuitive that having more information about what our subordinates may be feeling, and therefore thinking, should increase our leadership effectiveness. To me, however, this capacity for empathy is also an important part of caring in leadership, or a leader’s desire to know but also “help” “improve” “develop” the people under her fold. It is not surprising that this condition is so often mentioned by business leaders as an important

27Ekman, P. (2003). Emotions Revealed: Recognizing Faces and feelings to Improve Communication and emotional Life. New York, Times Books.

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part of effective leadership. It is a proactive trait in that it requires leaders to actively read and monitor and simply “care” for the people around them. My students also mention the importance of openness when it comes to effective leadership, less a proactive trait than a general disposition. In fact, the notion of openness is also a personality trait, one of the so-called big five personality traits that are often studied by psychologists (the other ones being Conscientiousness, Agreeableness, Neuroticism, and Extraversion). Openness as a personality trait—and typically expressed as openness to experiences—is about the capacity for curiosity, new and different experiences, active imagination, and sensitivity to aesthetic things. Some research has linked this personality trait to successful leadership.28 In the sense that my students have used it, it is conveyed as an openness to other people, but presumably this would involve their ideas, their concerns, their inputs—in other words openness to new experiences. It is probably a particularly useful trait in fast changing environments, where updating of priors is necessary and the challenging of existing assumptions. Such openness to experiences, when mixed with human empathy and care, strikes me as a powerful leadership ingredient in a world where leaders need to make tough choices but without all the first-hand information and experiences that they would like, and so having to rely upon the data, insights, and also the skills and understandings of the people they have around them. It is “care taking” in a broad sense, but with a central focus on the people. It does not necessarily mean being “nice”; it reflects more the desire to know, to engage, and in that sense to care. Jürgen Klopp, manager of Liverpool Football Club (FC) since 2015, epitomizes the leader as care taker. Liverpool FC continues to be one of Britain’s most successful professional association football clubs in the Union of European Football Associations (UEFA) competitions. When the club was experiencing a decline from 2010 to 2015, manager Klopp took over and has since made a phenomenal comeback, reaching the European Champions League final twice and winning once, finishing second in the English Premier League in the 2018–2019 season (having lost only one game), and the league leader for most of the 2019/2020 season (although winning the league is never a surety until the final day). Klopp has been recognized for his management style, which is one in which he creates an atmosphere of superb trust among the Liverpool team members.

28Judge, T. A., R. Ilies, J. E. Bono and M. W. Gerhardt. (2002). “Personality and Leadership: A Qualitative and Quantitative Review.” Journal of Applied Psychology 87(4): 765–780.

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He connects emotionally to his players, giving them a true feeling of belonging and safety. “Jürgen creates a family,” Liverpool’s assistant manager Pepijn Lijnders told a Dutch newspaper, “We always say 30 per cent tactics, 70 per cent team building.” And team building extends to everyone who works at Melwood, the football club’s training ground. “Each of our players knows the name of each person who works at Melwood. It’s not for me to create an atmosphere in a room—each person in our team is responsible for that,” says Klopp, and it is his skill as a superb motivator who empathizes with each person at Melwood, that has led to the team’s success on the field. “All we do in life is about relationships,” Klopp emphasizes. This attention to each person at Melwood—not just the extremely ­well-compensated players—paid off big time when Liverpool clinched the historic win in the semi-finals of the Champions League against Barcelona FC in May 2019. On the eve of the match, Klopp briefed the ball boys, all of whom are teenagers, on how they can best support the players. With only minutes left on the clock, a 14-year-old ball boy rolled the ball to the player in a way that enabled him to take a corner kick quickly, catching the opposing team off guard and helping to set up the winning goal.29 In the business world, Marriott International’s Arne Sorenson comes to mind as a care taker CEO. Sorenson was named CEO of 2019 by Chief Executive magazine and has been singled out for his stewardship of Marriott, lauded for his keen attention to the needs of his employees. Marriott has consistently gained top scores in terms of care shown for employees. In Sorenson’s own words: Putting people first has always been the cornerstone of our success. We believe that if we take care of our people, they take care of our customers, and business will take care of itself. Even after the 9/11 terror attacks in New York, where we went from an occupancy rate of 75 to 5 percent overnight—where our hotels stood empty of guests but full of staff—putting people first was our priority. Rather than undergoing massive layoffs, we set in place education programs, maintained health benefits, and did all we could to come through the crisis with minimal negative impact on our people.30

29Hughes, Clodagh. (2019). “Jürgen Klopp’s Leadership Lessons for Business.” Linkedin, May 21. Retrieved November 17, 2019. https://www.linkedin.com/pulse/j%C3%BCrgen-kloppsleadership-lessons-business-clodagh-hughes/. 30Hougard, Rasmus. (2019). “What the CEO of 2019 Thinks of Caring for His People.” Forbes, April 23. Retrieved November 17, 2019. https://www.forbes.com/sites/rasmushougaard/2019/04/23/ what-the-ceo-of-2019-thinks-about-caring-for-his-people/#3e0341b0474e.

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And Sorenson has also said “Across the board we put our people above our customers,” recognizing that without happy service business employees you likely won’t have happy customers.31 Back to the sporting world, another great example of care taking is Mahendra Singh Dhoni, the renowned Indian cricket captain. He was known for giving young players opportunities to prove themselves, aware of their struggles and insecurities, and he made his mark by helping his team beat archrival Pakistan, as well as the big whales of cricket, England, South Africa, and Australia. During the International Cricket Council Championships (ICC) Final in 2013, Dhoni passed the ball to Ishant Sharma—who had been seriously beat in the previous over—at a critical part of the game. Sharma’s efforts, however, allowed the team to win the championship and helped restore his confidence.32 In the same vein, Ram Kumar, executive director of the ICC, recalls how Dhoni always provided encouragement, empathizing with his juniors: “When Dhoni comes out and tells the media that [his teammate] Zaheer Khan is a great bowler and he will deliver, he is being positively demanding. The confidence expressed in public puts positive pressure.”33 Backing his teammates demonstrated that he was committed to their successes. But Dhoni also showed care for the older players. When Sourav Ganguly, one of his teammates, was playing his last match Dhoni suggested that Ganguly should take charge of the team. He recognized the years that Ganguly had dedicated to cricket and wanted to demonstrate that he mattered. Ram Kumar said: One must keep in mind that when Dhoni took over…[other senior players] were stars. His point to them was that I am the captain but you are far senior and better than me. This is something to be cherished. A statement like this makes seniors secure. It’s an important quality of a good leader to recognise the extremely capable in the team, rather than feel insecure about their presence.34

31Evans,

Christina Ohly. (2016). “The Many Sides of Marriott’s Arne Sorenson.” Surface, August 5. Retrieved December 2, 2019. https://www.surfacemag.com/articles/power-100-hospitalityarne-sorenson/. 32Khanna, Gaurav. Leadership of a Holistic Personality—The M.S Dhoni. Madhav University. Retrieved December 10, 2019. https://madhavuniversity.edu.in/m.s-dhoni.html. 33Bhattacharya, Saumya and Malini Goyal. (2011). “Leadership Secrets of Mahendra Singh Dhoni.” The Economic Times, April 4. Retrieved December 10, 2019. https://economictimes.indiatimes. com/management-leaders/leadership-secrets-of-mahendra-singh-dhoni/recognise-the-capable/slideshow/7862270.cms. 34Ibid.

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He understood how to acknowledge others’ efforts and encourage their success. He was known for believing in other players on his team and helping them to improve their skills, improving the team as a unit.

Courageous One of my biggest surprises in leadership education has been the extent to which leaders—especially as they move into higher positions with more responsibility and, it seems, authority—feel vulnerable, exposed, and alone. This is not the image many of us would have of senior leaders and figures in history. Perhaps human proclivity for hierarchy—the fact that so much of human life, family and work, coordination within organizations and society, is steeply hierarchical—leads us to assume that leaders are endowed with more than enough authority to get things done as they please, in essence that they are somehow superhuman. The reality, however, is so very different. More often than we may believe, they feel fear, defenseless, and alone. A recent testimonial/presentation in class by one of my students, a senior manager, is common. He has struggled for years to build a new management team that could cope with the digital age and the new demands of their business (distribution and freight sector), and there have been various investments required. But now “corporate,” which lacks the full visibility into local operations, has issued some harsh financial demands, effectively killing all longer term investments. This leader feels caught between the financially focused corporate office and the expectations he has set among his staff and has been nurturing for years. The demands have completely deflated his aspirations. As he told me his story and ordeal, his sense of exasperation, uncertainty, but most of all exposure were clear and painful. To go against corporate orders—effectively to make the investments he had planned and hope that a sales surge would more than cover these costs—would place him directly accountable for any shortcomings and in their sights for punishment. And to now back down from these investments and promises to his staff is likely to erode his credibility, and will require decisions and plans for the detour that is then required, if he hopes to retain the top members. Such a detour will also make him more accountable to them, to ensure that at least this detour is followed. Or look at a CEO of a multi-billion dollar global company with whom I have worked in the past years. She has many years of experience in senior leadership, and she has been a success story in her industry. In her current role as CEO, the pinnacle of her career, she is caught in the crossfire of three forces:

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a. Senior managers in her organization have major differences in how they see the future direction of the company and want to see real changes in company culture, particularly with respect to great coordination among the various moving parts, b. Her top management team has been siloed for years, with a tacit understanding of “if you leave me alone, I will leave you alone,” and resent the imposition of a centralizing CEO figure, c. Board members have back channels to senior managers and have been known to undermine the CEO’s authority in the past, and there has been some division among themselves as to the direction of the company. During a late night phone call when we were planning some meetings, and when the fatigue from the day drops your guard, I could sense once again some familiar feelings—worry, exposure, and vulnerability. There was clearly a desire for clarity and decisiveness, but there was also the realization that, despite being CEO, she did not fully control these actors, her situation, and the future. To be sure, there were strong and reasonable ideas on what to do, and what was best for the company. But the problem wasn’t a lack of ideas. The problem was how to muster the willpower to seize the moment and pull the company together. These real-life scenarios and situations point to at least three related traits that leaders would benefit to hold, and which have always come up in past discussions among my students when it comes to their image of a good leader: accountability, decisiveness, and most of all courage. Accountability is about taking responsibility to the point of blameworthiness and answerability. It’s basically the ability to be and stay vulnerable. It’s the person who takes that step forward from the line-up when the school master asks who is the ringleader behind some mischievous prank that went terribly wrong. It’s Frodo in Lord of the Rings, the central character of the famous book series who takes on the enormous responsibility of ridding Middle-earth of the “One Ring” that could enslave the populations of that world. But it’s also his companion, Samwise, who becomes accountable for taking care of Frodo, even to the point of breathtaking self-sacrifice and invisibility. It’s the condition of being comfortable with tremendous scrutiny, and in that sense is an incredibly ironic leadership trait in that it is the very opposite of what we commonly think of leadership to be—that is, one who scrutinizes. Rather, it is the characteristic of being cool with that scrutiny. Dalia Grybauskaite, Lithuanian president from 2009 to 2019, exhibits clear accountability. She has remained committed to her political agenda despite uncertainty and foreign pressure, and she has staked her ­re-election

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claims based on what she has managed to deliver. She ran on a platform to fight oligarchs, corruption, and the underground economy and consequently faced severe opposition. She led Lithuania out of an economic recession by enacting painful and unpopular fiscal consolidation reforms (equal to 12% of GDP).35 With an extensive background in economics, a former EU budget commissioner and minister of finance in her country, she advised to slash public expenditures. In 2013, she won the Charlemagne prize for her efforts in recovering the Lithuanian economy. Overtime, she also built a reputation as a critic of foreign powers that do not support progressive reforms for their populations.36 Dubbed Lithuania’s “Iron Lady,” a reference to Margret Thatcher Grybauskaite is known as someone who does not back down from her positions and stands by the results. EU representatives say she is a “tough negotiator, especially when it comes to defending her country’s interests against those of more powerful European Union members.”37 Her hardline style has worked well. She registered an overwhelming presidential victory in her first election, capturing more than 69% of the vote, and she was then the only Lithuanian president to be elected to a second term. Because Grybauskaite is known for sticking to her own guns and avoiding party politics, she has managed to garner widespread support from both conservatives and liberals. Barred from seeking re-election again due to term limits, Grybauskaite remains widely popular with the Lithuanian public after relinquishing the presidency in July 2019.38 Although she came into office at a time of great uncertainty in Lithuania, her even-handedness and accountability have garnered her continued support. Decisiveness is the ability to make hard choices with clarity and speed. It’s partly rational, in that it is tied in with your ability to cut through complex issues and reveal the red thread running through the crossing story lines and confusion. But it is also emotional, the capacity to stand with confidence and resolve behind a decision, and so impart that same resolve and confidence to the people around you. You can’t really fake this. People who

35Speech

of President Dalia Grybauskaitė of Lithuania to the OECD Council (2013). November 12. OECD. Retrieved December 10, 2019. https://www.oecd.org/about/speech-of-president-dalia-grybauskait-of-lithuania-to-the-oecd-council-12-november-2013.htm. 36Martyn-Hemphill, Richard. (2015). “The Baltic ‘Iron Lady’: Putin’s Solitary Foe”. Politico, May 21. Retrieved December 10, 2019. https://www.politico.eu/article/the-baltic-iron-lady-putinssolitary-foe-dalia-grybauskaite/. 37Lithuania: The Charlemagne Prize for Grybauskaite | European Journal (2013). DW News, May 9. Retrieved December 10, 2019. https://www.youtube.com/watch?v=bB-BvVAB4gw 38Pop, Valentina. (2013). “Litouwse president”. EU Monitor, May 10. Retrieved December 10, 2019. https://www.eumonitor.nl/9353000/1/j9vvik7m1c3gyxp/vj9ic7tzd6zv?ctx=vgo02ttuyayv.

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know you will know if that decisiveness is authentic, and so it begins in your own head. Even people who don’t know you can sense if your position on an issue is for real. Greta Thunberg is a 15-year-old high school student in Sweden, but in the past year she has mobilized millions of school children to conduct school strikes in order to protest against global warming and its massive impacts on our climate. She is known for being incredibly blunt and transparent about climate change, and most of all by revealing the hypocrisy of adults who make noises about climate change but then do nothing in how they lead their lives or expend resources. Her “low emotion” introverted style and statements and bluntness are in fact very emotional, in the sense that they send a very poignant message, while her clarity, and subsequent role modeling, in calling for and executing strike actions, reveal extraordinary authenticity and decisiveness. Her decisiveness was on display recently when she rejected a Nordic prize for environmental work, arguing that there were too many prizes but not enough action. But the summary trait in this category is surely courage. To be accountable, to be decisive, both take incredible amounts of courage. We all know courage when we see it, and so perhaps it may not need definition, but surely it has something to do with moving forward despite fear, pain, and, especially in our context, enemies. Malala Yousafzai, the Pakistani education and women’s rights activist, is an emerging leader who found a way to incite change at a very young age, and at great personal risk to herself. When she was a child, the Taliban started to destroy schools throughout the Swat Valley in Pakistan. Families were terrorized into keeping their daughters at home. Yet, she fervently wanted to attend school, the daughter of an education activist. Eager to speak out against those that sought to thwart her education, at 11 years old she began to anonymously blog for BBC Urdu online.39 The blog quickly became viral: “I started speaking out…I had no idea if my voice can have an impact or not but soon I realized that people were listening to me and my voice was reaching to people around the world.”40 Several years passed and despite personal risks Malala continued to speak openly about the issues

39Wikipedia contributors. Malala Yousafzai. Wikipedia, the Free Encyclopedia. Retrieved December 13 2019. https://en.wikipedia.org/wiki/Malala_Yousafzai. 40Gibbs, Alexandra. (2018). “Malala Yousafzai: Anyone Can Bring About Change at Any Point— And at Any Age.” CNBC, Make It, January 31. Retrieved December 10, 2019. https://www.cnbc. com/2018/01/31/malala-yousafzai-on-leadership-and-her-own-career-path.html.

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young women faced, demonstrating enormous courage. She almost paid with her life for that courage—in 2012, Malala was shot in the head by a Taliban member on the way home from school. She used the press coverage that followed to encourage activism, rather than relinquishing her cause to stay safe.41 She wrote her autobiography, I Am Malala and allowed director Davis Guggenheim to create a documentary about her. Malala found that recounting her experiences grabbed people’s attention and inspired them, even though it came at continued personal risk to her own safety. She became the youngest ever Nobel Peace Prize winner in 2014. Back in the corporate world, consider Mary Barra, the first female CEO of an automaker. Barra made the controversial decision to shut down four GM plants but not during a period of economic crisis. Her reasoning: better to make difficult adjustments at a time when the company and the US economy are healthy than when it is in crisis, as it was in 2009 when the company was bailed out by the US government, and which came on the heels of another crisis. In 2001, a few GM engineers realized there was a potentially dangerous defect in GM ignition switches in some of the company’s small cars; they would accidentally turn off while driving. For the next 15 years, the company did not take any effective action due to a culture of company inertia and numbing bureaucracy. The ignition switch crisis caused the deaths of 124 people, and it was only after Barra took over as CEO in January of 2014 that the company issued a recall. Right after she took the helm, Barra testified about the deaths in front of a hostile senate investigating committee, and she laid the blame directly on GM’s culture problems. This took courage not so much because of the external exposure (after all, she could not be tagged with this crisis, as it was well before her time) but because of the internal exposure, not allowing GM to forget and brush-aside this cultural failure, or as she said, “I never want to put this behind us. I want to put this painful experience permanently in our collective memories.” “Having gone through bankruptcy and the ignition switch crisis,” Barra said to a CNN Business reporter, “has fundamentally made me more impatient. Time is not our friend.” That impatience drives Barra

41Hartigan Shea, Rachel. (2015). “Malala on Standing Up to World Leaders While Also Being a Teenager.” National Geographic, October 1. Retrieved December 10, 2019. https://www.nationalgeographic.com/news/2015/10/151001-malala-movie-girls-education-nobel-taliban-boko-haram/.

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to be decisive.42 As she moves away from the internal combustion engine toward a world in which self-driving cars, electric vehicles and ride-sharing will dominate, Barra took actions that led to the September 2019 strike of 46,000 workers. Again, Barra was not shutting plants and slashing payrolls because the company was losing money, which understandably angered loyal GM employees, but because she is betting big on technologies of the future. Barra said: There was a point in time where we were everywhere for everyone with everything. We had to say, ‘Where are we deploying capital that’s not generating appropriate returns?’ Once you start to believe in the science of global warming and look at the regulatory environment around the world, it becomes pretty clear that to win in the future you’ve got to win [with electric and driverless vehicles.] This is what we really believe is the future of transportation.43

Taking controversial and downright unpopular actions in the service of that vision is what makes Barra hailed as one of today’s most courageous CEOs.

Self-Aware Another commonly desired characteristic in leaders begins with what people would like to avoid in their leaders, what they find the complete opposite of good leadership and would like to see much less of or disappear. Let’s call this the “bottomless ego.” This is the leader who enters a room and expects all eyes and ears on him. The signals may be subtle and culturally specific, but the message is the same “I’m here, take careful notes, I must be the centre of attention.” Like a scene from some autocratic state or a movie about

42Valdes-Dapena, Peter. (2019). “Mary Barra’s Impatience Could Save GM: ‘Time Is Not Our Friend.’” CNN Business, March 10. Retrieved December 1, 2019. https://www.cnn.com/2019/03/10/ business/GM-ceo-mary-Barra-profile/index.html; George, Bill. (2017). “Courage: The Defining Characteristic of Great Leaders.” Forbes, April 24. Retrieved December 1, 2019. https://www. forbes.com/sites/hbsworkingknowledge/2017/04/24/courage-the-defining-characteristicof-great-leaders/#14db7c3011ca. 43Welch, David and Bryan Gruley. (2019). “GM’s Mary Barra Bets Big on an Electric, Self-Driving Future.” Bloomberg Business Weak, September 19. Retrieved December 1, 2019. https://www.bloomberg.com/news/features/2019-09-19/before-GM-goes-electric-mary-Barra-has-a-strike-to-settle.

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infamous dictators, where the senior lieutenants pull out their notebooks to carefully jot down the wisdom of the leader, these situations seem surreal but are not so rare in business life. No amount of obsequiousness is too much, a deluge of ego-stroking, fawning, head nodding, and above all an eagerness to agree, or at least to be seen to agree. I recall a multi-day executive training event and, in particular, one of the lunch meetings, involving very senior and accomplished managers who were awaiting the arrival of the CEO for lunch. Although I did not know it at the time, this was a figure with a narcissistic reputation. The CEO came late, and not just a few minutes late but visibly and annoyingly late (or at least I was annoyed—the people around me certainly did not express any annoyance). What was remarkable for me, because it was one of my first experiences of something so dramatic, was the change in the mood, vibe, and focus in the room after the CEO came onto the scene. Ok, yes, we would all expect some change in focus—that is only natural when a high status individual enters the stage—but what was so startling to me was the extent to which people in the room adopted a submissive stance. One moment they were people in possession of themselves and the conversation, with strong opinions and views, and the next moment it was as though they became “possessed” or at least entranced by the presence of the leader. I know many things could explain this type of phenomenon—culture, both national and organizational for one—but I believe it also has something to do with the behavior and expectations of the leader. I actually enjoyed what I got to know of this leader, a thoughtful and provocative character, but I also wondered how much of that obsequiousness was because of this leader and the way he demanded status and required grooming. When we see such bottomless ego, one question that comes to mind is why? Why do some people have such a strong need for affirmation, spotlighting, stroking, etc., and especially when they are already in such positions of authority? You would think they have enough, but for some not even “more” is enough. It’s likely to be many things and complex, but I believe some of it involves insecurities and unchecked “life baggage,” things in our lives which perhaps we have never really processed and which make us the opposite of being comfortable with vulnerability. Some leaders may drag those insecurities and unprocessed life issues with them into the office on a daily basis, and in order to cope may leverage their authority in such a way so as to demand (implicitly and explicitly) maximum subservience. Again, this is a complex matter, and figuring out why some of us may need more attention and control than others will never be straightforward, but at least leaders who want to be more effective, and recognize that their need for

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control, status, and importance is a factor in their ability to lead, should try to find some answers. The beginnings of this is self-awareness. By self-awareness I mean exploring your core assumptions and ensuing thought processes and behaviors when it comes to, in this context, working in, and leading, groups of individuals. It is about the capacity to take a balcony view of your self and begin to understand (unravel and decode) your character, basic drives, emotional responses (as we noted above), and deeper motivations. There is much of it about these days, but it’s not clear how much time managers actually spend trying to solicit anything beyond the normal feedback on their “ticks” (e.g., talking a bit too much at meetings, and coming late to those meetings regularly) and deeper needs (e.g., a big desire for status and visibility). So what does a “healthy” leader look like in this respect? Well, I have to admit that it’s easier for students to notice pathology on this dimension than “good health.” That is, it’s easier to spot the leader who is totally narcissistic than the one with a healthy ego. But I believe it has some of the following characteristics. The first is that they do not want fawning, and that they definitely do not see themselves as superhuman. I think it’s about people who can acknowledge that they don’t know everything and have real weaknesses (rather than the kind of “weaknesses” that are about “doing too much”). We appreciate their realness, their humanity, and I believe we tend to trust them more— after all, if they can be honest about themselves, perhaps they are more likely to be honest with us. Second, these are people who don’t “need” the spotlight on them at all times, and who are happy to share it—even excited to share it—with their teams and those in their charge. Like caring parents, they relish moments to let their subordinates take a bow, to be acknowledged, and they take pride in the work that they have done to support the success of their team. They are happy to stand in the wings at times, give the center-stage to their team(s) and simply applaud. In sum, they have a quality that I can’t express better than to say that they feel and act like “mature adults.” I suppose adulthood is different from adolescence at least in that we don’t need indulging (so often) and we learn to better temper our selfishness, to practice temperance rather than tempermentality. But most of all I think it’s an elevated state of self-awareness, of who we are, and of comfort with that discovery. The result is someone who feels somehow “centered” but not perfect, and who while being comfortable with themselves still looks for ways to develop and grow. We don’t necessarily stand in awe of them, like we might in front of some super famous figure; we simply admire them, and appreciate them, because they make us somehow better. They are leaders we want to work for, we want to be around, who we want to be lead by. Afterall, leadership is ultimately a condition that is bestowed upon us, “given” to us, by the people that we lead.

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Sarah Green Carmichael and Jacqueline Carter wrote a guide to becoming a more mindful, selfless leader, The Mind of the Leader. In a survey of 30,000 leaders, they found that the character traits of mindfulness, selflessness, and compassion were foundational and that by practicing self-awareness, leaders can run more “people-centered” organizations. One of the leaders they cite for his self-awareness and focus on the people around him, rather than on himself, is Cisco’s HR Executive Ted Kezios. In their interview with him, Kezios said, “I start every meeting with my team saying ‘how can I be of benefit to you.’” It’s perhaps not surprising that Cisco is a pioneering company in employee-friendly human resources policies like their ­gender-neutral parental leave policy.44 Another example of the self-aware leader is the music streaming company Spotify’s founder and CEO Daniel Ek. The 36-year-old Swedish billionaire entrepreneur presides over a company with a market cap of more than $30 billion. In an in-depth chat with former Fast Company magazine editor Robert Safian, Ek revealed that he considers himself to have absolutely zero charisma or the magnetism normally thought necessary to lead such a successful company. Ek described himself as “relatively decent at most things, like a jack of all trades, but not really great at anything.” The introverted Ek is self-aware enough to know he has to work hard at front stage CEO tasks, like making presentations, that don’t come at all naturally to him. “I’m still not a very good presenter,” he admitted, “…I had to change things about myself that I wasn’t really comfortable changing. I did a lot of soul searching. I got a lot of feedback at what I wasn’t good enough at.” A private person, Ek struggled to become more transparent to employees, which didn’t come at all naturally to him. “I tell people when I’m uncertain about something or where I think I’ve screwed up. These are things that the old me wouldn’t have done necessarily.” The hopeful lesson in Ek’s unfolding transformation, is that self-awareness and going against the grain of one’s nature, can be learned—with openness to feedback and a lot of effort.45

44HBR IdeaCast. (2018). “Leading with Less Ego.” Harvard Business Review, March 21. Retrieved November 26, 2019. https://hbr.org/ideacast/2018/03/leading-with-less-ego.html; Biro, Meghan M. (2018). “Shattering Stereotypes: Cisco’s New Parental Leave Policy.” Talentculture, June 21. Retrieved December 1, 2019. https://talentculture.com/shattering-stereotypes-ciscos-new-parental-leave-policy/. 45Stillman, Jessica. (2018). “Spotify CEO. How I Learned to Lead with Zero Natural Charisma.” Inc. Magazine, August 23. Retrieved November 29, 2019. https://www.inc.com/jessica-stillman/Spotifyceo-how-i-learned-to-lead-with-zero-natural-charisma.html.

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Integrators Finally, leadership also requires the capacity to be an integrator, a bridge, a connector. By being an integrator I mean at least three things. First, they are connectors of people. They look for opportunities to make connections between individuals, or between individuals and knowledge and resources. This is partly about positioning, ensuring a network that gives you the opportunity to broker, as we have examined in Chapters 3 and 6. But it’s also about motivation, about going out of your way, making an effort, to create value for others by bringing people together. Second, this is about the capacity to integrate teams. In this case, the actors already know each other, but they may not necessarily be “connected,” or at least not in any meaningful sense. This is about the capacity to give each player enough attention to feel individually recognized, and s­elf-important, and in some degree of control, but to also ensure that they feel responsibility to the whole, to the team or group. It’s about finding moments that bond the group and make them feel as one, outcomes which may not necessarily happen naturally, but which need to be crafted by a leader. Finally, they are integrators of the overall business story and context, helping people to see the big picture and how they fit into that overall narrative. We can never lose sight of the fact that modern organizations are extremely specialized entities. There are many different types of jobs, roles, decisions, processes, and structures that allow modern firms to operate. And this specialization can create substantial frustration at local levels, not to mention a lack of natural collaboration and synchronous work. Effective leaders want to provide some degree of completeness to how people understand their organization, but more importantly they care that people feel somehow connected to that whole and see their place in that messy universe. Recent research shows that firms with more cross-boundary collaborations have greater customer loyalty and higher profit margins. That is, ­cross-silo integration is not just about restructuring an organization but training people to learn about and relate to people who might seem to operate at cross-purposes to them. One way to do this is to craft cultural brokers, that is people who are great at collaborating with people in different functions or domains. They are the integrative “bridges” in the networks we discussed in Chapter 6. But bridging isn’t all; researchers have found cultural brokers spur cross-boundary work in two different ways, by acting as a bridge, a go-between who allows people with different functions or in different regions to collaborate. Like an adhesive, these are the people who excel at bringing people together to build strong, mutually beneficial and lasting

264     C. Galunic

relationships. For example, champagne and spirits distributor Moët and Hennessey España got two wine experts, enologists, to manage communications between its marketing and sales groups, which had been known for miscommunication and conflict. The wine experts understood the world of both groups so could speak clearly of each group’s purpose and operations to the other. They were the “bridges” then between marketing and sales, enabling the two groups to create real synergy but sparing them the unhelpful interactions.46 In the sphere of law, consider Sandra Day O’Conner, the first woman ever to serve as a Justice of the US Supreme Court. She was appointed in 1981 by Ronald Reagan and retired in 2006. Throughout her career she faced numerous hurdles—including struggling to get a job at a private law firm as a woman. So how did she succeed in becoming the first female justice? One factor was that she was good at making connections.47 She was well known for maintaining a relentless social schedule throughout her career, hosting numerous social gatherings. For instance, as a state senator in Arizona, O’Connor began her efforts to remove sexism from the law. Republicans had a thin majority and so negotiations were essential to securing necessary votes for her agenda. She regularly invited her colleagues and other leaders across the political spectrum to dine so that they could get to know each other, softening tensions. Later in her career, O’Connor became the glue of the Court. She knew that it was important to get to know her colleagues; they had to talk, and not about work. They had to get to know each other. She organized daily luncheons with the justices and made efforts to ensure everyone joined, across political spectrums, even conservative Justice Scalia, who went on to praise O’Connor: “I’ll miss Sandra Day O’Conner… if there is anyone who’s been sort of the social glue of the Court, it’s been Sandra.”48 She also worked to make a community among the Court clerks and staff. She organized hiking, fly-fishing, and white-water rafting trips. She reserved the basketball court above the courtroom and scheduled an aerobics teacher to come instruct classes that became very

46Casciaro, Tiziana, Amy C. Edmondson and Sujin Jang. (2019). “Cross-Silo Leadership.” Harvard Business Review, May–June. Retrieved December 1, 2019. https://hbr.org/2019/05/cross-silo-leadership. 47Jacobs, Lizzie. (2018). “How Sandra Day O’Connor Beat the Odds, Ruled the Court, and Became the Most Powerful Woman in America.” MentalFloss, October 24, 2018. Retrieved December 10, 2019. https://www.mentalfloss.com/article/75545/how-sandra-day-oconnor-beat-odds-ruled-court-andbecame-most-powerful-woman-america. 48Murphy, Bruce Allen. (2014). “Scalia: A Court of one.” Simon and Schuster, p. 334.

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popular, organized on a daily basis. Simple but powerful social gatherings helped create a much more integrated atmosphere in what can be a highly fractious institution, where the stakes are enormously high.49 Or consider Masayoshi Son, the founder and leader of SoftBank, one of the world’s most powerful holding companies, headquartered in Japan and owner of a highly influential technology private equity fund, the Vision Fund. Entrepreneurs it seems are running to Mr. Son for backing, and he has backed some very well-known and successful start-ups in recent years, such as Uber, Grab, Arm, Alibaba, and so on. Entrepreneurs and business leaders could go to many sources for financial injection, but it seems one of the reasons they flock to Mr. Son is because he is what one leader described as this “all-seeing person.”50 What his years of experience has probably allowed him to do is to build a much more integrative picture of technology, its dynamics and potential for society. Yes, this would translate into improved vision, and he is also known as a visionary (and so covers at least two of the traits in this chapter), but underpinning this ability to provide investors with not just money but viewpoints and, crucially, pathways for that development, is, I believe, his capacity for integrative thinking. That is—and as he has been described by the entrepreneurs he supports—he has an uncanny ability to not just see something decades away as an opportunity, but, crucially, to link it back to the structures and systems necessary today and then detail the path to get there.51 That level of detailing in providing a vision, I believe, has much to do with the capacity for integrative thinking, and of course with the capacity to integrate other stakeholders within some ecosystem to bring these things to life. Interestingly, he claims to have more failures than most, but the key for him was the learning from those failures, which would have contributed to his rich, integrative map of global technologies and the possible narratives for consumers and customers.

49Jacobs, Lizzie. (2018). “How Sandra Day O’Connor Beat the Odds, Ruled the Court, and Became the Most Powerful Woman in America.” MentalFloss, October 24, 2018. Retrieved December 10, 2019. https://www.mentalfloss.com/article/75545/how-sandra-day-oconnor-beat-oddsruled-court-and-became-most-powerful-woman-america. 50Balakrishnan, Anita. (2017). “Masayoshi Son Is shaking Up Silicon Valley $1 billion at a Time— Here’s How He Became One of Tech’s Most Powerful People.” CNBC News, December 31. Retrieved December 10, 2019. https://www.cnbc.com/2017/12/31/who-is-masayoshi-son.html. 51The Genius Works. (2019). “SoftBank’s Masayoshi Son Is the Most Powerful Man in Technology … with an Obsession for AI, and 300 Year Plan for Success.” TheGeniusWorks.com, February 21. Retrieved December 10, 2019. https://www.thegeniusworks.com/2019/02/softbanks-masayoshi-son-has-becomethe-most-powerful-person-in-silicon-valley-with-a-300-year-plan-for-ai/.

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X-Factor Finally, there is a trait that I am adding here but which doesn’t come up in conversations at all among my executive students—it is something that I have simply recognized among the many executives that I have come across. It is a simple observation after years of educating managers and developing leaders—they are all somehow different, somehow unique. I have never met two who are identical in style and approach as leaders. This may seem obvious, but it’s an important realization for the leaders themselves. They do not have to become “someone else” in developing themselves as leaders. They have to develop and think about the combination of factors—their proportions, their emphasis, their special flavors—that will amount to their leadership approach. In other words, what I mean by the X-Factor is exactly what the name of the popular television talent show tries to convey, that in even the most talented (singers, dancers, etc.) there will always be the need for some X-Factor, something that is “extra” and uniquely their own and sets them aside from everyone else. In business leadership, I think it’s the capacity to build a “brand” that is unique, that is entirely your own. Just like there is no brand like “Coke,” although there are several cola companies, or no brand like “Harley Davidson,” although there are many motorbike manufacturers, there will never be a leader entirely like yourself. Obviously, I cannot define this X-Factor in specific terms. I can only say that some of the most interesting leaders that I have had the privilege to work with or teach cannot be placed into any single box or leadership category or type. They somehow create a model that is their own. Not to be misunderstood, the above traits are the building blocks for that work, among others, but the way in which it all comes together, the special highlights that are given, the feel of how those traits are conveyed, this is an (exciting) enterprise that is part of the work and journey of leadership development.

Final Thoughts We have come full circle. I started this book making the case that leadership development has spent too much time having leaders looking at their reflections instead of developing the skills and tools to work the organizational “plumbing and electrics.” I believe a switch, or rebalancing, of focus from frontstage leadership to backstage leadership is necessary in our world. I have condensed here the five core processes that I think are key

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to organizational leadership, and particularly the leadership work required to craft the organization’s business strategy. There are more processes to think about, but these five are a good starting point, and a solid foundation. Finally, I have come “back to the front” to acknowledge that leadership “character” and traits are still necessary, and underpin all leadership work, even the more silent variety. Yet, whether frontstage or backstage, I hope I have somehow conveyed the idea that ultimately leadership is in the service of something other than itself—a strategy, a special project, a community. We can think of leadership skills as a special resource to humanity—while we may tout that everyone is a leader, the reality is that humanity is hierarchical. Relatively few will occupy positions of (substantial, strategic) authority. In that sense, the exercise of leadership is the privilege of relatively few, and so its interpretation and unfolding is a relatively scarce resource. The hope is that those chosen to lead—who have earned the right to lead—will appreciate that they were chosen to lead something other than just their careers or agendas. The hope is that they will develop the fullest possible toolkit for that important work, both the skills for coping with the glare and spotlight of the frontstage, but also, and especially, the skills for building and maintaining the complex machinery of the backstage.

References Barsade, S. G. (2002). “The Ripple Effect: Emotional Contagion and Its Influence on Group Behavior.” Administrative Science Quarterly 47: 644–675. Bauman, C. W., L. P. Tost and M. Ong. (2016). “Blame the Shepherd Not the Sheep: Imitating Higher-Ranking Transgressors Mitigates Punishment for Unethical Behavior.” Organizational Behavior & Human Decision Processes 137: 123–141. Dorfman, P., M. Javidan, P. Hanges, A. Dastmalchian and R. House. (2012). “GLOBE: A Twenty Year Journey into the Intriguing World of Culture and Leadership.” Journal of World Business 47(4): 504–518. Ekman, P. (2003). Emotions Revealed: Recognizing Faces and Feelings to Improve Communication and Emotional Life. New York, Times Books. Goffman, E. (1959). The Presentation of Self in Everyday Life. Garden City, NY, Doubleday. Goleman, D. (1995). Emotional Intelligence. London, UK, Bloomsbury. Judge, T. A., R. Ilies, J. E. Bono and M. W. Gerhardt. (2002). “Personality and Leadership: A Qualitative and Quantitative Review.” Journal of Applied Psychology 87(4): 765–780.

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Salovey, P., M. A. Brackett and J. D. Mayer. (2004). Emotional Intelligence: Key Readings on the Mayer and Salovey Model. Port Chester, NY, Dude Publishing. Sy, T., S. Cote and R. Saavedra (2005). “The Contagious Leader: Impact of the Leader’s Mood on the Mood of Group Members, Group Affective Tone, and Group Processes.” Journal of Applied Psychology 90(2): 295–305.

Index

A

B

Accountability, trait 255, 256 Airbnb 30 Airbus 169 Alcatel-Lucent 78, 79, 90, 93 Alcoa 148, 149, 182 Amazon 105, 106 Ambidexterity 117, 119, 120, 122, 123, 127, 128, 131–135, 137–139, 141 contextual 137, 138 Ambidextrous leadership 18 Apple Computers 20, 21, 67–70, 72, 80, 84 Arsenal Football Club 13 Artifacts org. culture framework 19 relevant 160, 161 Assholes 213, 214, 230 Assumptions, org. culture framework 152, 155, 156 A380 (Airbus) 169, 170 Autonomy 103, 104, 107, 113–116, 142 Avoid assholes 213

Ballmer, Steve 194 Balsillie, Jim 68, 71 Barcelona Football Club (FC) 21, 188–190 La Masia 189, 190, 230 tika taka 189 Barra, Mary 258, 259 Beckenbauer, Franz 248 Bengals 205 Betterment 60 Bezos, Jeff 246 BlaBlaCar 31 Blackberry 68–72, 83, 100 Black Girls Code 247 Brodin, Jesper 16, 17 Bryant, Kimberly 247 Burry, Michael 46, 47 C

Capability development 21, 187–190, 193, 195, 201, 206, 217–219, 225, 226, 229, 230 Caretaker leaders 251

© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020 C. Galunic, Backstage Leadership, https://doi.org/10.1007/978-3-030-36171-6

269

270     Index

Carmichael, Sarah Green 262 Carter, Jacqueline 262 Catmull, Ed 9 Cattani, Gino 39 Challenger, Space Shuttle 43 Cisco Systems 262 Cognitive dissonance 122 Collective rewards 132 Collectivity 103, 114, 115, 132, 142 Collins, Billy 203 Columbia 203 Columbia Records 203 Combes, Michel 79, 93 Confirmation biases 41, 42 Contradictions 104, 106, 107, 110, 112, 116, 121–125, 127, 129–132, 137, 141, 142 Convergent thinking 125 Cook, Tim 163 Core culture values 19 Corning 39, 40 Courageous leadership 255, 257–259 Courtroom model 15 Creative and Fair Process 15, 75, 77, 79, 92, 100 Creative process 6 Cultural disruption 20 Cultural narrative 184

Deutsche Bank 57 Dhoni, Mahendra Singh 253 Dinklage, Peter 204 Disruption 28, 30, 51, 56 Divergent thinking 125 DJ Lee 181 Doriot, George (General) 23 Dr. Reddy’s 179 Duhigg, Charles 148, 174, 182 Duolingo 31 Dylan, Bob 202, 203 Dynamic capabilities 32–34 E

EADS (Airbus) 170 Eberhard, Martin 3 Eisman, Steve 46, 47, 58 Emotional Intelligence (EI) 248, 249 Empathy, trait 243, 250, 251 Espoused values, org. culture framework 152, 155, 164, 169, 171, 177, 179 Ethnography 156–159 Exploitation 104, 117–125, 128–130, 133, 135–140 Exploration 104–106, 117–125, 128–130, 133, 135–141 Exploration vs. exploitation 119, 142

D

Daniel, Ek 262 Davis, Jeff 121 Dearborn, Jenny 206, 211, 212, 215, 224, 227 “The Death of Stalin,” (film) 48 Decision-making 5, 13, 15, 72, 87, 88 autocratic 75, 93, 100 continuum 75 democratic 74, 75, 93, 100 strategic 73, 74 Decision-taking 15, 87–89 Decisiveness, trait 255–257 Deep data 80

F

Feynman, Richard 44 Foundational leadership traits 236 Fourtou, René 97 Fry, Art 153 Fry, Stephen 69 G

Game of Thrones 204 Benioff and Weiss 204 Tyrion Lannister 204 Generale des Eaux 2

Index    271

General Motors (GM) 258, 259 Generational gaps 225 Generational issues 225 Generation(s) 225–227, 229, 231 Gerstner, Louis 49, 53, 151, 176, 178–180 Gillette 34 GitHub 109, 110 Goffman, Erving 235 Goldenberg, Jacob 33 Good strategy 27, 32, 35 definition 26, 27 Google 32, 54, 55 Grossman, Albert 203 Growth mind-set 196 Grybauskaite, Dalia 255, 256 H

Hammond, John 203 Hastings, Reed 28 Havas 50 Hewlett-Packard 136 Hierarchy 108–110, 127 High-Performance Work Systems (HPWS) 139, 141 Hindustan Computers Limited (HCL) 83 Holloway, Katelin 172, 173 Honda 7, 8 motorcycle market 7 Honda A 7, 8 Honda B 7, 8 Horizon thinking 13, 52–54, 57, 60, 61 HTC engineering 163, 164 Huang, Jen-Hsun 27 I

IBM 49, 53, 168, 176, 178, 180 IDEO 61, 80, 81 IDEO, “deep dive” 81

Ikea 10–12, 14–17, 19–21 app 17 founding 12, 17 restructuring 4, 5, 14, 16 INSEAD 23 In Search of Excellence 159 Integrity 239–243 iPhone 20, 67–70, 83 Iron Man 74, 75 Ive, Jony 21 J

Japanese Finance Ministry 8 JCDecaux 58 J.C. Penney 168 JetBlue 208 Jewell, Sally 241 Jobs, Steve 21 Johnson, Chris 98, 99 Johnson, Ron 168 K

Kamprad, Ingvar 11, 12, 14, 20, 22 Kelly, Terri 130 Key capability 187, 199, 207, 217 Keystone employees 208 Kezios, Ted 262 Kiel, Fred 241 Kim, W. Chan 58 Klopp, Jürgen 251, 252 KRW International 240, 241 L

Land, Edwin 37 Lasseter, John 9 Lazard Freres 2 Lazaridis, Mike 68, 71 Lee, Kuan Yew 241, 242 Lee, Kun-hee 181 Levy, Clifford 126, 127

272     Index

Lewis, Michael The Big Short 46 Lincoln Electric 169 Lippmann, Greg 57, 58 Liverpool Football Club (FC) 251, 252 Lundgren, Gillis 20, 21 M

Management by Walking Around (MBWA) 159 Mandela, Nelson 245 Mapping (map) 88, 95, 96 March, James 117, 118 Marriott International 252 Mauborgne, Renee A. 58 McCord, Patty 28 Merck 170 Messier, Jean-Marie 2 Meyer, Marissa 55 Microsoft 21, 190–199, 211, 230 Bing 191 growth mindset 196, 199 Surface 191 Tay chatbot 198, 199 Vista 191 Zune MP3 player 191 The Mind of the Leader 262 Millennials 225–229, 231 Mitel Corp. 165 Mobilization 75, 77, 93, 94, 97–100 mapping 96 Model Lovet 20 Moët and Hennessey España 264 Morehouse College 246 Musk, Elon 3, 30 N

Nadella, Satya 194–199, 230 Narcissism 115, 116 NASA 121

The Nature Conservancy 241 Nayar, Vineet 83 Near-Decomposable organizations 17, 108, 110 Nestle 98 Netflix 28–30 “Culture deck,” 28 Network(s) 3, 10, 21, 214, 220–224, 231 New York Times 126, 127 Nokia 25, 26, 35, 50 Noncustomers 35, 58 Blue Ocean strategy 58 Nooyi, Indra 52, 53 Norwich Union Insurance 4 Nvidia 27 O

O’Conner, Sandra Day 264 Ohio State Buckeyes 132 O’Neill, Paul 148, 149, 182 Openness, trait 251, 262 Organizational processes and behavior (OB) 25 P

Palmisano, Sam 53 Paradox(es) 104, 122–125, 127, 130, 142 embracing 123 Paradoxical forces 104 Paradoxical leadership 129 Pepsi Co. 52, 53 Everyday Nutrition Business 53 Peters, Tom. See In Search of Excellence Piezunka, Henning 59 Pixar 9 Brain Trust Meetings 9 Storytrust 9 Polaroid 37–39, 49, 63 Post-Its, invention 153

Index    273

Prasad, G.V. 179 Pratt, James 163, 164 Pret-a-Manger 58 Q

Quesnelle, Stephen 165 R

Rawls, John 75, 76 Reddit 172, 173 Rent the Runway 30 Research in Motion (RIM) 68 Rhône-Poulenc 97 Role modelling 237, 239, 250 Rometty, Ginni 53, 54 Rubinstein, Bob 21 Rumelt, Richard 26, 27 Rusta 61–63 S

Samsung 181, 182 Sarandos, Ted 28 Scanning 5, 6, 12–14, 18, 28, 30, 32, 34–36, 39, 40, 42, 48, 49, 51–57, 59–63 frequency of engagement 35, 51 search map 35, 51 Schein, Edgar 19 Schrift, Rom Y. 33 Schultz, Howard 160 Self-awareness, trait 249, 261, 262 Self-regulation, trait 249 Sensemaking 5, 6, 12–14, 18, 28, 36, 39, 40, 42, 44, 46–49, 51–53, 55, 57, 60, 62, 63 Silver, Spencer 153 Simon, Herbert 107, 108 Smith, Robert 246, 247 Snowball, Patrick 4, 6 SONY 169

Sorenson, Arne 252, 253 Southwest Airlines 149, 169 Space Shuttle program 43 Spotify 262 Square 58 Stack ranking 192 Stanford University 117 Starbucks 160 Star employees 202, 209 Star qualities 213 Star strategy 207 Strategic commitment 71, 73, 75–77, 85, 93, 100 Strategic decisions 71–74, 89, 93 Strategic jobs 21, 201, 207 Strategy development 2, 3, 6–8, 10, 11, 18, 19, 21 Structural holes 97 Structural separation 133, 137 Stumpf, John 154, 155 Super App 17 Sutton, Bob 213 Symbian OS, Nokia 50 Symbolic acts, culture 180, 181 Synergy 103, 104, 107, 110, 113–116, 126, 135 T

Talent development 21, 188–190, 196, 197, 199, 201, 206, 207, 211, 214, 216, 218–220, 225, 230 twenty-first century 199 Talent puzzle 188, 200, 201 Talent shortage 200 Tarpenning, Marc 3 TaskRabbit 17 Telecommuting 134 Tesla 3 Model 3 29, 30 Thomsen, David 80 3M 54 3M, 15% rule 54

274     Index

Time horizons, contradiction 111, 113, 133 Traemand 17 Tressel, Jim 132 Tutorspree 104, 105 U

Undercover Boss 159 USA Today 136 US Department of the Interior 241

Wanderful Media 80 Waterman, Robert H.. See In Search of Excellence Wealthfront 60 Webvan 105 Wegmans 172 Wells Fargo Bank 154, 170 Westerberg, Goran 61–63 WhatsApp 31 W.L. Gore & Associates 130 Woods, Tiger 129 Wyzant 105

V

Valence 161, 163 Valence filter 19 Van Maanen, John 157 Vaughan, Diane 43 Victoria’s Secret 62 Victors & Spoils 50, 59 Visionary leadership 243–247, 265 Vista Equity Partners 246, 247 Vivendi 2, 3 VUCA (Volatile, Uncertain, Complex, and Ambiguous) 233, 240, 244 W

Walmart 149, 168, 169 Walsh, Bill 205, 206 Walt Disney Animation Studios 9

X

X-Factor 266 Y

Yahoo! 55 Yousafzai, Malala 257, 258 Z

Zaffaroni, Alex 97 Zappos 149, 169