We don't need another hero

Everybody loves the stories of heroes like Martin Luther King, Jr., Mother Teresa, and Gandhi. But the heroic model of moral leadership usually doesn't work in the corporate world. Modesty and restraint are largely responsible for the achievements of the most effective moral leaders in business. The author, a specialist in business ethics, says the quiet leaders he has studied follow four basic rules in meeting ethical challenges and making decisions. The rules constitute an important resource for executives who want to encourage the development of such leaders among their middle managers. The first rule is "Put things off till tomorrow." The passage of time allows turbulent waters to calm and lets leaders' moral instincts emerge. "Pick your battles" means that quiet leaders don't waste political capital on fights they can't win; they save it for occasions when they really want to fight. "Bend the rules, don't break them" sounds easier than it is--bending the rules in order to resolve a complicated situation requires imagination, discipline, restraint, flexibility, and entrepreneurship. The fourth rule, "Find a compromise," reflects the author's finding that quiet leaders try not to see situations as polarized tests of ethical principles. These individuals work hard to craft compromises that are "good enough"--responsible and workable enough--to satisfy themselves, their companies, and their customers. The vast majority of difficult problems are solved through the consistent striving of people working far from the limelight. Their quiet approach to leadership doesn't inspire, thrill, or provide story lines for uplifting TV shows. But the unglamorous efforts of quiet leaders make a tremendous difference every day in the corporate world.     

What makes a leader?

Superb leaders have very different ways of directing a team, a division, or a company. Some are subdued and analytical; others are charismatic and go with their gut. And different situations call for different types of leadership. Most mergers need a sensitive negotiator at the helm, whereas many turnarounds require a more forceful kind of authority. Psychologist and noted author Daniel Goleman has found, however, that effective leaders are alike in one crucial way: they all have a high degree of what has come to be known as emotional intelligence. In fact, Goleman's research at nearly 200 large, global companies revealed that emotional intelligence--especially at the highest levels of a company--is the sine qua non for leadership. Without it, a person can have first-class training, an incisive mind, and an endless supply of good ideas, but he still won't make a great leader. The components of emotional intelligence--self-awareness, self-regulation, motivation, empathy, and social skill--can sound unbusinesslike. But exhibiting emotional intelligence at the workplace does not mean simply controlling your anger or getting along with people. Rather, it means understanding your own and other people's emotional makeup well enough to move people in the direction of accomplishing your company's goals. In this article, the author discusses each component of emotional intelligence and shows through examples how to recognize it in potential leaders, how and why it leads to measurable business results, and how it can be learned. It takes time and, most of all, commitment. But the benefits that come from having a well-developed emotional intelligence, both for the individual and the organization, make it worth the effort.     

Thriving locally in the global economy

More and more small and midsize companies are joining corporate giants in striving to exploit international growth markets. At the same time, civic leaders worry about their communities' economic future in light of the impact of global forces on the operation and survival of business. How can communities retain local vitality yet still link their business to the global economy? Harvard professor Rosabeth Moss Kanter addresses that question in this classic HBR article, orginally published in 1995. To avoid a clash between international economic interests and local political interests, globalizing business must learn how to be responsive to the communities in which they operate, Kanter says. And communities must determine how to create a civic culture that will attract and retain footloose companies. The author surveyed five U.S. regions with direct connections to the global economy--Boston, Cleveland, Miami, Seattle, and the Spartanburg-Greenville region of South Carolina--to determine their business and civic leader's strategies for improving their constituent's quality of life. She identified ways in which the global economy can work locally by capitalizing on the resources that distinguish one place from another. Kanter argues that regions can invest in capabilities that connect their local populations to the global economy in one of three ways: as thinkers, makers, or traders. She points to the Spartanburg-Greenville region as a good example of a world-class makers, with its exceptional blue-collar workforce that has attracted more than 200 companies from 18 countries. The history of the economic development of this region is a lesson for those seeking to understand how to achieve world-class status and bring local residents into the world economy.     

Six dangerous myths about pay

Every day, executives make decisions about pay, and they do so in a landscape that's shifting. As more and more companies base less of their compensation on straight salary and look to other financial options, managers are bombarded with advice about the best approaches to take. Unfortunately, much of that advice is wrong. Indeed, much of the conventional wisdom and public discussion about pay today is misleading, incorrect, or both. The result is that business people are adopting wrongheaded notions about how to pay people and why. In particular, they are subscribing to six dangerous myths about pay. Myth #1: labor rates are the same as labor costs. Myth #2: cutting labor rates will lower labor costs. Myth #3: labor costs represent a large portion of a company's total costs. Myth #4: keeping labor costs low creates a potent and sustainable competitive edge. Myth #5: individual incentive pay improves performance. Myth #6: people work primarily for the money. The author explains why these myths are so pervasive, shows where they go wrong, and suggests how leaders might think more productively about compensation. With increasing frequency, the author says, he sees managers harming their organizations by buying into--and acting on--these myths. Those that do, he warns, are probably doomed to endless tinkering with pay that at the end of the day will accomplish little but cost a lot.     

Putting leaders on the couch. A conversation with Manfred F. R. Kets de Vries. Interview by Diane L. Coutu

Much of the business literature on leadership starts with the assumption that leaders are rational beings. But irrationality is integral to human nature, and inner conflict often contributes to the drive to succeed. Although a number of business scholars have explored the psychology of executives, Manfred F.R Kets de Vries has made the analysis of CEOs his life's work. In this article, Kets de Vries, a psychoanalyst, author, and instead professor, draws on three decades of study to describe the psychological profile of successful CEOs. He explores senior executives' vulnerabilities, which are often intensified by followers' attempts to manipulate their leaders. Leaders, he says, have an uncanny ability to awaken transferential processes--in which people transfer the dynamics of past relationships onto present interactions--among their employees and even in themselves. These processes can present themselves in a number of ways, sometimes negatively. What's more, many top executives, being middle-aged, suffer from depression. Mid-life prompts a reappraisal of career identity, and by the time a leader is a CEO, an existential crisis is often imminent. This can happen with anyone, but the probability is higher with CEOs, and senior executives because so many have devoted themselves exclusively to work. Not all CEOs are psychologically unhealthy, of course. Healthy leaders are talented in self-observation and self-analysis, Kets de Vries says. The best are highly motivated to spend time on self-reflection. Their lives are in balance, they can play, they are creative and inventive, and they have the capacity to be nonconformist. "Those who accept the madness in themselves may be the healthiest leaders of all," he concludes.     

Looking ahead: implications of the present

On its seventy-fifth anniversary, HBR asked five of the business world's most insightful thinkers to comment on the challenges taking shape for executives as they move into the next century. In "The Future That Has Already Happened," Peter Drucker examines the effects of the increasing underpopulation of the world's developed countries. With growing imbalances in labor resources worldwide, he writes, executives in the developed countries will need to improve the productivity of knowledge and of knowledge workers to maintain a competitive advantage. Esther Dyson's article "Mirror, Mirror on the Wall" reveals the mind shift executives will need to make in a networked world, where companies will be known for what they do rather than for what they say. Executives will have to respond openly and intelligently to feedback about their organizations. The old language of property and ownership no longer serves executives, writes Charles Handy in "The Citizen Corporation." The corporation should be thought of no longer as property but as a community, where members are regarded as citizens. Technology has given executives more information than today's machines can help them understand, explains Paul Saffo in "Are You Machine Wise?" Machine-wise executives will know when to turn their computers off and take their own counsel, he writes. Peter Senge's article "Communities of Leaders and Learners" urges executives to reject the myth of leaders as isolated heroes and instead to build a community of leaders. Sustained institutional learning, he writes, requires organizations to reintegrate their typically fragmented learning processes.     

The virtue matrix. Calculating the return on corporate responsibility

Executives who want to make their organizations better corporate citizens face many obstacles: If they undertake costly initiatives that their rivals don't embrace, they risk eroding their company's competitive position. If they invite government oversight, they may be hampered by costly regulations. And if they adopt wage scales and working conditions that prevail in the wealthiest democracies, they may drive jobs to countries with less stringent standards. Such dilemmas call for clear, hard thinking. To aid in that undertaking, Roger Martin introduces the virtue matrix--a tool to help executives analyze corporate responsibility by viewing it as a product or service. The author uses real-life examples to explore the forms and degrees of corporate virtue. He cites Aaron Feuerstein, CEO of Malden Mills, a textile company whose plant was destroyed by fire in 1995. Rather than move operations to a lower-wage region, Feuerstein continued to pay his idled workforce and rebuilt the plant. Unlike the typical CEO of a publicly held corporation, who is accountable to hundreds or thousands of shareholders, Feuerstein was free to act so generously because he had only a few family members to answer to. But as Martin points out, corporations don't operate in a universe composed solely of shareholders. They can be subject to pressure from citizens, employees, and political authorities. The virtue matrix provides a way to assess these forces and how they interact. Martin uses it to examine why the public clamor for more responsible corporate conduct never seems to abate. Another issue the author confronts is anxiety over globalization. Finally, Martin applies the virtue matrix to two crucial questions: What are the barriers to increasing the supply of corporate virtue? And what can companies do to remove those barriers?     

Building an innovation factory

New ideas are the precious currency of the new economy, but generating them doesn't have to be a mysterious process. The image of the lone genius inventing from scratch is a romantic fiction. Businesses that constantly innovate have systematized the production and testing of new ideas, and the system can be replicated by practically any organization. The best innovators use old ideas as the raw materials for new ideas, a strategy the authors call knowledge brokering. The system for sustaining innovation is the knowledge brokering cycle, and the authors discuss its four parts. The first is capturing good ideas from a wide variety of sources. The second is keeping those ideas alive by playing with them, discussing them, and using them. Imagining new uses for old ideas is the third part--some knowledge brokers encourage cross-pollination by creating physical layouts that allow, or even force, people to interact with one another. The fourth is turning promising concepts into real services, products, processes, or business models. Companies can use all or part of the cycle. Large companies in particular desperately need to move ideas from one place to another. Some will want to build full-fledged consulting groups dedicated to internal knowledge brokering. Others can hire people who have faced problems similar to the companies' current problems. The most important lesson is that business leaders must change how they think about innovation, and they must change how their company cultures reflect that thinking.     

Intellectual leaders in futures studies: A survey

This report presents the findings of a survey conducted recently with the aim of discovering which writers and thinkers are generally regarded as the intellectual leaders in futures studies. It is intended that such information may help in locating sources of significant new ideas about the future.     

The discipline of innovation. 1985

How much of innovation is inspiration, and how much is hard work? The answer lies somewhere in the middle, says management thinker Peter Drucker. In this HBR classic from 1985, he argues that innovation is real work that can and should be managed like any other corporate function. Success is more likely to result from the systematic pursuit of opportunities than from a flash of genius. Indeed, most innovative business ideas arise through the methodical analysis of seven areas of opportunity. Within a company or industry, opportunities can be found in unexpected occurrences, incongruities of various kinds, process needs, or changes in an industry or market. Outside a company, opportunities arise from demographic changes, changes in perception, or new knowledge. There is some overlap among the sources, and the potential for innovation may well lie in more than one area at a time. Innovations based on new knowledge tend to have the greatest effect on the marketplace, but it often takes decades before the ideas are translated into actual products, processes, or services. The other sources of innovation are easier and simpler to handle, yet they still require managers to look beyond established practices, Drucker explains. The author emphasizes that innovators need to look for simple, focused solutions to real problems. The greatest praise an innovation can receive is for people to say, "That's so obvious!" Grandiose ideas designed to revolutionize an industry rarely work. Innovation, like any other endeavor, takes talent, ingenuity, and knowledge. But Drucker cautions that if diligence, persistence, and commitment are lacking, companies are unlikely to succeed at the business of innovation.     

What working for a Japanese company taught me

In the late 1970s, John E. Rehfeld read everything he could on Japanese business. Most of the discussions focused on interest rates, the education system, and the culture--all very interesting but not very useful. What did these things have to do with day-to-day management? Since then, by working for Japanese companies, he has discovered more than ten Japanese management techniques that have everything to do with running a business. As vice president and general manager of Toshiba's U.S. computer business for nine years and president of Seiko Instruments USA for two, he has seen firsthand how the Japanese manage, and he has applied those techniques in the United States. Using six-month budget cycles, quantifying intangibles, and looking back to see what you could have done better are among the seemingly insignificant practices that combine to have big impact. For example, the author first saw budgeting for 6 months instead of 12 as twice as much work. But he came to appreciate the benefits: managers work harder because they have two deadlines a year, and planning and control improve because managers can adjust their targets to changing conditions more quickly. The author had another change of heart when he was asked to specify how many PCs would sell as the result of a demo program, a task he first thought ridiculous. Though he still thinks such numbers are shaky, he values the discipline of the thought process. These and other techniques, he says, explain much of Japanese companies' success and are tools that managers anywhere can use.     

Realizing what you're made of

A ruptured disk pressed against Glenn Mangurian's spinal cord several years ago, leaving the lower half of his body permanently paralyzed. One minute, Mangurian was healthy and secure in his career as a management consultant; the next, his life was transformed and filled with uncertainty. The injury has taught him volumes about resilience and leadership. In this first-person account, he explains how people can create a new future after a crisis hits--and how, even if they're simply tackling everyday challenges, they can prepare themselves for the worst. Mangurian identifies resilience as one of the key qualities desired in business leaders today, but he says that many people confuse it with toughness. Toughness certainly can be an advantage in business, because it enables you to separate emotion from the negative consequences of difficult choices. But it can also be a disadvantage, because it can cut you off from many of the resources you'll need to bounce back after a crisis. Resilience, by contrast, is mostly about absorbing challenges--not deflecting them--and rebounding stronger than before. The author has learned a number of lessons about leadership in the face of adversity. For instance, although crisis distorts reality by reinforcing your fears, it also puts an emphasis on what matters right now; it highlights what's important to you and what you're capable of. Another major lesson is that loss amplifies the value of what remains, pushing you to take stock of what you have and to celebrate your assets. Perhaps most important, you can't know what will happen tomorrow--and it's better that way, because it's far more rewarding to engage with the present than just to prevent bad things from happening.     

Collaboration rules

Corporate leaders seeking to boost growth, learning, and innovation may find the answer in a surprising place: the Linux open-source software community. Linux is developed by an essentially volunteer, self-organizing community of thousands of programmers. Most leaders would sell their grandmothers for workforces that collaborate as efficiently, frictionlessly, and creatively as the self-styled Linux hackers. But Linux is software, and software is hardly a model for mainstream business. The authors have, nonetheless, found surprising parallels between the anarchistic, caffeinated, hirsute world of Linux hackers and the disciplined, tea-sipping, clean-cut world of Toyota engineering. Specifically, Toyota and Linux operate by rules that blend the self-organizing advantages of markets with the low transaction costs of hierarchies. In place of markets' cash and contracts and hierarchies' authority are rules about how individuals and groups work together (with rigorous discipline); how they communicate (widely and with granularity); and how leaders guide them toward a common goal (through example). Those rules, augmented by simple communication technologies and a lack of legal barriers to sharing information, create rich common knowledge, the ability to organize teams modularly, extraordinary motivation, and high levels of trust, which radically lowers transaction costs. Low transaction costs, in turn, make it profitable for organizations to perform more and smaller transactions--and so increase the pace and flexibility typical of high-performance organizations. Once the system achieves critical mass, it feeds on itself. The larger the system, the more broadly shared the knowledge, language, and work style. The greater individuals' reputational capital, the louder the applause and the stronger the motivation. The success of Linux is evidence of the power of that virtuous circle. Toyota's success is evidence that it is also powerful in conventional companies.     

Developing globally responsible leaders: What role for business schools in the future?

This paper reports on a collaborative research process to explore the future role of business schools in the development of globally responsible leaders. Swinburne University of Technology held a collaboratory workshop of academics across disciplines and a range of business leaders to explore firstly what a globally responsible leader would look like and secondly how these capabilities would be developed. In taking forwards actions from the workshop, the Business School was noticeably absent which raised the specific question regarding the on-going role for business schools in the future development of leaders, and how they would need to change in order to maintain a future role in this sphere. The paper reflects on the transformative process necessary within business schools if they are to meet this future agenda.     

Smart Growth—Creating Real Long-term Value

Most U.S. business leaders appear to believe that all businesses either “grow or die”—and many act as if they believed that all growth is good, and that public companies should grow in a linear, continuous manner as reflected in ever-increasing quarterly earnings. But if these tenets of “the U.S. Growth Model” inform the short-term business view that prevails in many C-suites and boardrooms, there has been surprisingly little analysis of the extent to which the pursuit of continuous growth translates into longer-run success. In this article, the author reports finding no theoretical or empirical support in the fields of economics, finance, strategy, organizational design (or biology) for the idea that continuous growth is either a realistic possibility or a useful corporate objective. In business organizations, the pursuit of continuous growth can drive bad corporate behavior and inhibit real growth and innovation. Based on extensive research, the author suggests a new model of “smart growth”—one in which companies grow successfully by building internal comprehensive systems designed to encourage growth through specific kinds of culture, leadership, and processes. Smart-growth companies use experimental learning processes designed to test growth ideas and build diversified “growth portfolios” while also attempting to limit the risks associated with the pursuit of growth.     

The failure-tolerant leader

"The fastest way to succeed," IBM's Thomas Watson, Sr., once said, "is to double your failure rate." In recent years, more and more executives have embraced Watson's point of view, coming to understand what innovators have always known: Failure is a prerequisite to invention. But while companies may grasp the value of making mistakes at the level of corporate practices, they have a harder time accepting the idea at the personal level. People are afraid to fail, and corporate culture reinforces that fear. In this article, psychologist and former Harvard Business School professor Richard Farson and coauthor Ralph Keyes discuss how companies can reduce the fear of miscues. What's crucial is the presence of failure-tolerant leaders--executives who, through their words and actions, help employees overcome their anxieties about making mistakes and, in the process, create a culture of intelligent risk-taking that leads to sustained innovation. Such leaders don't just accept productive failure, they promote it. Drawing from their research in business, politics, sports, and science, the authors identify common practices among failure-tolerant leaders. These leaders break down the social and bureaucratic barriers that separate them from their followers. They engage at a personal level with the people they lead. They avoid giving either praise or criticism, preferring to take a nonjudgmental, analytical posture as they interact with staff. They openly admit their own mistakes rather than trying to cover them up or shifting the blame. And they try to root out the destructive competitiveness built into most organizations. Above all else, failure-tolerant leaders push people to see beyond traditional definitions of success and failure. They know that as long as a person views failure as the opposite of success, rather than its complement, he or she will never be able to take the risks necessary for innovation.     

How to pitch a brilliant idea

Coming up with creative ideas is easy; selling them to strangers is hard. Entrepreneurs, sales executives, and marketing managers often go to great lengths to demonstrate how their new concepts are practical and profitable--only to be rejected by corporate decision makers who don't seem to understand the value of the ideas. Why does this happen? Having studied Hollywood executives who assess screenplay pitches, the author says the person on the receiving end--the "catcher"--tends to gauge the pitcher's creativity as well as the proposal itself. An impression of the pitcher's ability to come up with workable ideas can quickly and permanently overshadow the catcher's feelings about an idea's worth. To determine whether these observations apply to business settings beyond Hollywood, the author attended product design, marketing, and venture-capital pitch sessions and conducted interviews with executives responsible for judging new ideas. The results in those environments were similar to her observations in Hollywood, she says. Catchers subconsciously categorize successful pitchers as showrunners (smooth and professional), artists (quirky and unpolished), or neophytes (inexperienced and naive). The research also reveals that catchers tend to respond well when they believe they are participating in an idea's development. As Oscar-winning writer, director, and producer Oliver Stone puts it, screen-writers pitching an idea should "pull back and project what he needs onto your idea in order to make the story whole for him." To become a successful pitcher, portray yourself as one of the three creative types and engage your catchers in the creative process. By finding ways to give your catchers a chance to shine, you sell yourself as a likable collaborator.     

Worse than enemies. The CEO's destructive confidant

The CEO is often the most isolated and protected employee in the organization. Few leaders, even veteran CEOs, can do the job without talking to someone about their experiences, which is why most develop a close relationship with a trusted colleague, a confidant to whom they can tell their thoughts and fears. In his work with leaders, the author has found that many CEO-confidant relationships function very well. The confidants keep their leaders' best interests at heart. They derive their gratification vicariously, through the help they provide rather than through any personal gain, and they are usually quite aware that a person in their position can potentially abuse access to the CEO's innermost secrets. Unfortunately, almost as many confidants will end up hurting, undermining, or otherwise exploiting CEOs when the executives are at their most vulnerable. These confidants rarely make the headlines, but behind the scenes they do enormous damage to the CEO and to the organization as a whole. What's more, the leader is often the last one to know when or how the confidant relationship became toxic. The author has identified three types of destructive confidants. The reflector mirrors the CEO, constantly reassuring him that he is the "fairest CEO of them all." The insulator buffers the CEO from the organization, preventing critical information from getting in or out. And the usurper cunningly ingratiates himself with the CEO in a desperate bid for power. This article explores how the CEO-confidant relationship plays out with each type of adviser and suggests ways CEOs can avoid these destructive relationships.     

Level 5 leadership. The triumph of humility and fierce resolve

Boards of directors typically believe that transforming a company from merely good to truly great requires a larger-than-life personality--an egocentric chief to lead the corporate charge. Think "Chainsaw" Al Dunlap or Lee Iacocca. In fact, that's not the case, says author and leadership expert Jim Collins. The essential ingredient for taking a company to greatness is having a "Level 5" leader at the helm--an executive in whom extreme personal humility blends paradoxically with intense professional will. Collins paints a compelling and counter-intuitive portrait of the skills and personality traits necessary for effective leadership. He identifies the characteristics common to Level 5 leaders: humility, will, ferocious resolve, and the tendency to give credit to others while assigning blame to themselves. Collins fleshes out his Level 5 theory by telling colorful tales about 11 such leaders from recent business history. He contrasts the turnaround successes of outwardly humble, even shy, executives like Gillette's Colman M. Mockler and Kimberly-Clark's Darwin E. Smith with those of larger-than-life business leaders like Dunlap and Iacocca, who courted personal celebrity. The jury is still out on how to cultivate Level 5 leaders and whether it's even possible to do so, Collins admits. Some leaders have the Level 5 seed within; some don't. But Collins suggests using the findings from his research to strive for Level 5--for instance, getting the right people on board and creating a culture of discipline. "Our own lives and all that we touch will be better for the effort," he concludes.     

The World Bank's innovation market

Large, tradition-bound organizations can make space for radical, low-cost (and therefore low-risk) innovations. Just ask executives at the World Bank. The story of this best practice begins in 1998, when a young new-products group at the international funding agency proposed holding an Innovation Marketplace to capture novel ideas within the Bank for alleviating poverty. The forum, which eventually was opened to external participants, let people informally present their antipoverty ideas to potential funding sources. Funders could move among hundreds of booths and evaluate proposals for, say, a program that would provide postdisaster reconstruction insurance in developing countries or a vaccination development initiative. The marketplace truncated the Bank's standard project-review processes, which often stretched to a year or more, and gave funders permission to make commitments in the tens of thousands of dollars, rather than in the tens of millions more typical of Bank-financed projects. The marketplace concept met with some skepticism at the beginning. Some senior executives at the Bank felt no group had the right to spend the agency's money without following its well-established resource allocations process. But the marketplace team believed an open process for allocating grants would produce more breakthrough ideas in the long run than a centralized one. In this article, the authors describe how the new-products team brainstormed to create a market for ideas, how it got senior management's support, and how it has expanded on the original concept for these innovation marketplaces. The program's success, they contend, offers hope both for the world's poor and for business leaders looking to find new ideas under the hard crust of corporate dogma, conformance, and bureaucracy.