The uncompromising leader

Managing the tension between performance and people is at the heart of the CEO's job. But CEOs under fierce pressure from capital markets often focus solely on the shareholder, which can lead to employee disenchantment. Others put so much stock in their firms' heritage that they don't notice as their organizations slide into complacency. Some leaders, though, manage to avoid those traps and create high-commitment, high-performance (HCHP) companies. The authors' in-depth research of HCHP CEOs reveals several shared traits: These CEOs earn the trust of their organizations through their openness to the unvarnished truth. They are deeply engaged with their people, and their exchanges are direct and personal. They mobilize employees around a focused agenda, concentrating on only one or two initiatives. And they work to build collective leadership capabilities. These leaders also forge an emotionally resonant shared purpose across their companies. That consists of a three-part promise: The company will help employees build a better world and deliver performance they can be proud of, and will provide an environment in which they can grow. HCHP CEOs approach finding a firm's moral and strategic center in a competitive market as a calling, not an engineering problem. They drive their firms to be strongly market focused while at the same time reinforcing their firms' core values. They are committed to short-term performance while also investing in long-term leadership and organizational capabilities. By refusing to compromise on any of these terms, they build great companies.     

The young and the clueless

It's natural to promote your best and brightest, especially when you think they may leave for greener pastures if you don't continually offer them new challenges and rewards. But promoting smart, ambitious young managers too quickly often robs them of the chance to develop the emotional competencies that come with time and experience--competencies like the ability to negotiate with peers, regulate emotions in times of crisis, and win support for change. Indeed, at some point in a manager's career--usually at the vice president level--raw talent and ambition become less important than the ability to influence and persuade, and that's the point at which the emotionally immature manager will lose his effectiveness. This article argues that delaying a promotion can sometimes be the best thing a senior executive can do for a junior manager. The inexperienced manager who is given time to develop his emotional competencies may be better prepared for the interpersonal demands of top-level leadership. The authors recommend that senior executives employ these strategies to help boost their protégés' people skills: sharpen the 360-degree feedback process, give managers cross-functional assignments to improve their negotiation skills, make the development of emotional competencies mandatory, make emotional competencies a performance measure, and encourage managers to develop informal learning partnerships with peers and mentors. Delaying a promotion can be difficult given the steadfast ambitions of many junior executives and the hectic pace of organizational life. It may mean going against the norm of promoting people almost exclusively on smarts and business results. It may also mean contending with the disappointment of an esteemed subordinate. But taking the time to build people's emotional competencies isn't an extravagance; it's critical to developing effective leaders.     

The CEO's real legacy

The literature on CEO succession planning is nearly unanimous in its advice: Begin early, look first inside your company for exceptional talent, see that candidates gain experience in all aspects of the business, and help them develop the skills they will need in the top job. It all makes sense and sounds pretty straightforward. Nevertheless, the list of CEOs who last no more than a few years on the job continues to grow. Implicit in many, if not all, of these unceremonious departures is the absence of an effective CEO succession plan. The problem is, most boards simply don't want to talk about CEO succession: Why rock the boat when things are going well? Why risk offending the current CEO? Meanwhile, most CEOs can't imagine that anyone could adequately replace them. In this article, Kenneth W. Freeman, the retired CEO of Quest Diagnostics, discusses his own recent handoff experience (Surya N. Mohapatra became chief executive in May 2004) and offers his approach to succession planning. He says it falls squarely on the incumbent CEO to put ego aside and initiate and actively manage the process of selecting and grooming a successor. Aggressive succession planning is one of the best ways for CEOs to ensure the long-term health of the company, he says. Plus, thinking early and often about a successor will likely improve the chief executive's performance during his tenure. Freeman advocates the textbook rules for succession planning but adds to that list a few more that apply specifically to the incumbent CEO: Insist that the board become engaged in succession planning, look for a successor who is different from you, and make the successor's success your own. After all, Freeman argues, the CEO's true legacy is determined by what happens after he leaves the corner office.     

Gilt Groupe's CEO on building a team of A players

Ryan believes that a CEO should spend more time on recruiting and managing people than on any other activity, and that the head of HR is one of the most important people in the company. He insists on his freedom to bypass managers and speak with any employee at any time. And he espouses certain talent-management principles, such as that your best people are usually underpaid (reward them with performance pay) and that people leave jobs mainly because they don't like their managers. Recruiting at Gilt Groupe focuses on references more than on résumés and interviews because, Ryan says, resumes only establish basic qualifications for a job, and interviewers can't help being influenced by well-spoken or attractive people. But reference checks need to go beyond the names supplied by a candidate: Employers should dig up people in their networks who are willing to speak candidly.     

Almost ready: how leaders move up

Most designated CEO successors are talented, hardworking, and smart enough to go all the way--yet fail to land the top job. What they don't realize is, the qualities that helped them in their climb to the number two position aren't enough to boost them to number one. In addition to running their businesses well, the author explains, would-be CEOs must master the art of forming coalitions and winning support. They must also sharpen their self-awareness and their sensitivity to the needs of bosses and influential peers because they typically receive little performance feedback once they're on track to become CEO. Indeed, the ability to pick up on subtle cues is often an important part of the test. When succession doesn't go well--or fails altogether--many people pay the price: employees depending on a smooth handoff at the top, investors expecting continuous leadership, and families uprooted when jobs don't pan out. Among those at fault are boards that do not keep a close watch on the succession process, human resource organizations that should have the capacity to help but are not up to the task, and CEOs who do a poor job coaching potential successors. But the aspiring CEO also bears some responsibility. He can dramatically increase his chances of success by understanding his boss's point of view, knowing his own limitations, and managing what psychologist Gerry Egan has called the "shadow organization"--the political side of a company, characterized by unspoken relationships and alliances--without being labeled "political." Most of all, he must learn to conduct himself with a level of maturity and wisdom that signals he is ready--not almost ready--to be chief executive.     

Confessions of a trusted counselor

Advising CEOs sounds like a dream job, but doing so can be perplexing and perilous. At times, the questions you must ask yourself-about your own motivations and loyalty-can be thornier than the organizational problems that clients face. David Nadler knows, because he has been asking himself such questions for a quarter century while advising the chiefs of more than two dozen corporations. If you're an adviser to CEOs, recognizing the pitfalls of your role may help you sidestep them. And understanding a problem's nuances and implications may help you uncover a solution. The challenges facing consultants include the following: The loyalty dilemma: Is my ultimate responsibility to the CEO, who pays for my services, or to the institution, which pays for his? Today's shorter CEO tenures and greater board oversight have diminished the top leader's power and autonomy; it's now routine for a CEO adviser to have conversations with directors about the CEO's performance. To defuse loyalty issues, the adviser should raise them with the executive at the outset of the relationship. The overidentification dilemma: How do I immerse myself in the CEO's worldview without making it my own? CEOs can be enormously persuasive, but if you don't push back, you're not doing your job. The trick is to ask probing questions without shaking the CEO's confidence that you fully comprehend the forces that shape her views. The friendship dilemma: If the CEO and I like each other, can we-should we-become friends? A successful, long-term advisory relationship with a CEO requires a strong personal connection; in some cases, that becomes a friendship. But the best relationships are characterized by the participants' clear-eyed recognition of each other's frailties-tempered, of course, by genuine affection and easy rapport.     

The tests of a prince

When a CEO takes office, stakeholders dissect his or her intellectual, physical, and emotional capacities as they try to gauge whether the new leader will help them fulfill their aspirations and protect them from trouble. For the heir to a family business, the challenge of turning stakeholders into followers is particularly thorny: He or she must manage many constituencies--family members, directors, senior executives, investors, trade unions--that may not be convinced the successor has earned the right to hold the top spot. Making matters worse, says Lansberg, a family business expert, corporate scions usually ignore or greatly underestimate stakeholders. They don't realize that, particularly after they are formally anointed as CEOs, they must establish their credibility with and authority over these spheres of influence. Smart CEOs understand that their success depends on how well they respond to the iterative testing process that stakeholders use to make judgments about would-be leaders. This article offers a road map for managing the four kinds of tests that constitute iterative testing: Qualifying tests are assessments based on criteria--such as formal education, work experience, and professional awards--that executives can cite as evidence of suitability for the top job. Self-imposed tests are expectations that leaders themselves set and against which they assume stakeholders will measure their performance. Circumstantial tests are unplanned challenges or crises, during which stakeholders can observe the leader coping with the unexpected. And political tests are challenges from rivals who want to enhance their own influence, often by undermining the leader.     

Selling the brand inside

When you think of marketing, chances are your mind goes right to your customers--how can you persuade more people to buy whatever it is you sell? But there's another "market" that's equally important: your employees. Author Colin Mitchell argues that executives by and large ignore this critical internal audience when developing and executing branding campaigns. As a result, employees end up undermining the expectations set by the company's advertising--either because they don't understand what the ads have promised or because they don't believe in the brand and feel disengaged or, worse, hostile toward the company. Mitchell offers three principles for executing internal branding campaigns--techniques executives can use to make sure employees understand, embrace, and "live" the brand vision companies are selling to the public. First, he says, companies need to market to employees at times when the company is experiencing a fundamental challenge or change, times when employees are seeking direction and are relatively receptive to new initiatives. Second, companies must link their internal and external marketing campaigns; employees should hear the same messages that are being sent to the market-place. And third, internal branding campaigns should bring the brand alive for employees, creating an emotional connection to the company that transcends any one experience. Internal campaigns should introduce and explain the brand messages in new and attention-grabbing ways and then reinforce those messages by weaving them into the fabric of the company. It is a fact of business, writes Mitchell, that if employees do not care about or understand their company's brands, they will ultimately weaken their organizations. It's up to top executives, he says, to give them a reason to care.     

It's so hard to be fair

When employees believe they are being treated fairly-when they feel heard, when they understand how and why important decisions are made, and when they believe they are respected-their companies will benefit. Research shows that practicing process fairness reduces legal costs from wrongful-termination suits, lowers employee turnover, helps generate support for new strategic initiatives, and fosters a culture that promotes innovation. What's more, it costs little financially to implement Yet few companies practice it consistently. Joel Brockner examines this paradox, exploring psychological and other reasons that cause managers to resist embracing process fairness. The fact that it's relatively inexpensive to implement, for instance, may be why some numbers-oriented executives undervalue it. Many managers believe that they practice process fairness, but 360-degree feedback tells another story. Some corporate policies actually undermine it--such as when the legal department won't let managers fully explain decisions for fear that disclosure could expose the firm to lawsuits. And, frequently, managers simply follow the all-too-human tendency to avoid uncomfortable situations. But the good news is that organizations can take concrete steps to promote greater process fairness. Many studies have shown that training programs make a big difference, and the author describes the most effective format. In addition, warning your managers that they may experience negative emotions when practicing fair process will help prepare them to cope with those feelings. Finally, role modeling fair process on the executive level will help spread the practice throughout the organization. The fact is, process fairness is the responsibility of all executives, at all levels and in all functions; it cannot be delegated to HR. The sooner managers realize that and work to make it a company norm, the better off the organization will be.     

Mastering the management system

Companies have always found it hard to balance pressing operational concerns with long-term strategic priorities. The tension is critical: World-class processes won't lead to success without the right strategic direction, and the best strategy in the world will get nowhere without strong operations to execute it. In this article, Kaplan, of Harvard Business School, and Norton, founder and director of the Palladium Group, explain how to effectively manage both strategy and operations by linking them tightly in a closed-loop management system. The system comprises five stages, beginning with strategy development, which springs from a company's mission, vision, and value statements, and from an analysis of its strengths, weaknesses, and competitive environment. In the next stage, managers translate the strategy into objectives and initiatives with strategy maps, which organize objectives by themes, and balanced scorecards, which link objectives to performance metrics. Stage three involves creating an operational plan to accomplish the objectives and initiatives; it includes targeting process improvements and preparing sales, resource, and capacity plans and dynamic budgets. Managers then put plans into action, monitoring their effectiveness in stage four. They review operational, environmental, and competitive data; assess progress; and identify barriers to execution. In the final stage, they test the strategy, analyzing cost, profitability, and correlations between strategy and performance. If their underlying assumptions appear faulty, they update the strategy, beginning another loop. The authors present not only a comprehensive blueprint for successful strategy execution but also a managerial tool kit, illustrated with examples from HSBC Rail, Cigna Property and Casualty, and Store 24. The kit incorporates leading management experts' frameworks, outlining where they fit into the management cycle.     

AN INTRODUCTION TO GAME THEORY AND BUSINESS STRATEGY

Sound managerial decision making often requires “putting yourself behind your rivals' desk.” Assuming rivals are rational and acting in their selfinterest, what decisions are they likely to make and how are they likely to respond to your actions? A complicating factor is that rivals' optimal choices typically will depend on their expectations of what you will do; their expectations in turn depend on their assessments of your expectations about them. This type of circularity or recursive thinking might appear to make the overall problem completely intractable. Yet, this situation is precisely where game theory is most useful. This article introduces the basic elements of game theory within the context of business strategy and shows how managers might use these tools in decision making. This analysis also provides managers with a richer understanding of competition within different market settings. For example, it provides insights into why there is fierce competition in some concentrated industries (such as commercial aircraft), but not in others. Although the authors focus primarily on interactions among rival firms in product markets, these concepts also are useful to managers when dealing with other parties, such as suppliers, employees, or gov‐ernment officials.     

The risky business of hiring stars

With the battle for the best and brightest people heating up again, you're most likely out there looking for first-rate talent in the ranks of your competitors. Chances are, you're sold on the idea of recruiting from outside your organization, since developing people within the firm takes time and money. But the authors, who have tracked the careers of high-flying CEOs, researchers, software developers, and leading professionals, argue that top performers quickly fade after leaving one company for another. To study this phenomenon in greater detail, the authors analyzed the ups and downs of more than 1,000 star stock analysts, a well-defined group for which there are abundant data. The results were striking. After a star moves, not only does her performance plunge, but so does the effectiveness of the group she joins--and the market value of her new company. Moreover, transplanted stars don't stay with their new organizations for long, despite the astronomical salaries firms pay to lure them from rivals. Most companies that hire stars overlook the fact that an executive's performance is not entirely transferable because his personal competencies inevitably include company-specific skills. When the star leaves the old company for the new, he cannot take with him many of the resources that contributed to his achievements. As a result, he is unable to repeat his performance in another company--at least not until he learns to work the new system, which could take years. The authors conclude that companies cannot gain a competitive advantage or successfully grow by hiring stars from outside. Instead, they should focus on cultivating talent from within and do everything possible to retain the stars they create. Firms shouldn't fight the star wars, because winning could be the worst thing that happens to them.     

Are you a good boss--or a great one?

Private moments of doubt and fear come even to managers who have spent years on the job. Any number of events can trigger them: an initiative going poorly, a lukewarm performance review, a daunting new assignment. HBS professor Hill and executive Lineback have long studied the question of how manager grow and advance. Their experience brings them to a simple but troubling observation: Most bosses reach a certain level of proficiency and stay there--short of what they could and should be. Why? Because they stop working on themselves. The authors offer what they call the three imperatives for managers who seek to avoid this stagnation. First, manage yourself--who you are as a person, the beliefs and values that drive your actions, and especially how you connect with others all matter to the people you must influence. Second, manage your network. Effective managers know that they cannot avoid conflict and competition among organizational groups; they build and nurture ongoing relationships. Third, manage your team. Team members need to know what's required of them collectively and individually and what the team's values, norms, and standards are. The authors include a useful assessment tool to help readers get started.     

Surviving your new CEO

Almost 50% of the largest American firms will have a new CEO within the next four years; your company could very well be next. Senior executives know that a CEO transition means they're in for a round of firings, organizational reshuffles, and other unwelcome career changes. When your career suddenly depends on the views of a person you may not know, how worried should you be? According to the authors--very. They investigated the 2002-2004 CEO turnover rates of the top 1,000 U.S. companies and interviewed more than a dozen CEOs, each of whom had taken over at least one very large organization. Their study reveals that when a new CEO takes charge, remaining top managers are more likely than not to be shown the door. Those who leave often land in a lower position at a new company, work in a much smaller firm, or retire altogether. The news is not all grim, however. The interviewees offer some pointers on how to create a good impression and maximize your chances of survival and success under the new regime. Some of that advice may surprise you. One CEO pointed out, for instance, that "managers do not realize how much the CEO is looking for teammates on day one. I am amazed at how few people come through the door and say, 'I want to help. I may not be perfect, but I buy into your vision:" Other recommendations are more intuitive, such as learning the new CEO's working style, understanding her agenda, and helping her look good in her new position by achieving positive operating results--and soon. Along with the inevitable stresses, the authors point out, CEO transitions can provide opportunities. Whether you reinvigorate your career within your company or find fulfillment elsewhere, the key lies in deciding what you want to do--and then doing it right.     

Six IT decisions your IT people shouldn't make

Senior managers often feel frustration--even exasperation--toward information technology and their IT departments. The managers complain that they don't see much business value from the high-priced systems they install, but they don't understand the technology well enough to manage it in detail. So they often leave IT people to make, by default, choices that affect the company's business strategy. The frequent result? Too many projects, a demoralized IT unit, and disappointing returns on IT investments. What distinguishes companies that generate substantial value from their IT investments from those that don't? The leadership of senior managers in making six key IT decisions. The first three relate to strategy: How much should we spend on IT? Which business processes should receive our IT dollars? Which IT capabilities need to be companywide? The second three relate to execution: How good do our IT services really need to be? Which security and privacy risks will we accept? Whom do we blame if an IT initiative fails? When senior managers aren't involved in these decisions, the results can be profound. For example, if they don't take the lead in deciding which IT initiatives to fund, they end up overloading the IT department with projects that may not further the company's strategy. And if they aren't assessing security and privacy risks, they are ignoring crucial business trade-offs. Smart companies are establishing IT governance structures that identify who should be responsible for critical IT decisions and ensure that such decisions further IT's strategic role in the organization.     

Beware the busy manager

Managers will tell you that the resource they lack most is time. If you watch them, you'll see them rushing from meeting to meeting, checking their e-mail constantly, fighting fires--an astonishing amount of fast-moving activity that allows almost no time for reflection. Managers think they are attending to important matters, but they're really just spinning their wheels. For the past ten years, the authors have studied the behavior of busy managers, and their findings should frighten you: Fully 90% of managers squander their time in all sorts of ineffective activities. A mere 10% of managers spend their time in a committed, purposeful, and reflective manner. Effective action relies on a combination of two traits: focus--the ability to zero in on a goal and see the task through to completion--and energy--the vigor that comes from intense personal commitment. Focus without energy devolves into listless execution or leads to burnout. Energy without focus dissipates into aimless busyness or wasteful failures. Plotting these two traits into a matrix provides a useful framework for understanding productivity levels of different managers. Managers who suffer from low levels of both energy and focus are the procrastinators: They dutifully perform routine tasks but fail to take initiatve. Disengaged managers have high focus but low energy: They have reservations about the jobs they are asked to do, so they approach them half-heartedly. Distracted managers have high energy but low focus: They confuse frenetic activity with constructive action. Purposeful managers are both highly energetic and highly focused: These are the managers who accomplish the most. This article will help you identify which managers in your organization are making a real difference--and which just look busy.     

Nobody trusts the boss completely--now what?

Catching problems early is a big advantage to any manager, and the best way to find out about developing headaches is to have your subordinates tell you. But how do you get them to be candid? How do you get them to talk freely about their own mistakes-and, harder yet, about yours? Candor depends on trust. Both have strict natural limits. People keep their mouths shut in order to protect themselves or their subordinates, to avoid the limelight, or because they are afraid of seeming timid or ineffectual, and so they try to fix their own problems without help. Company politics can also stand in the way of plain talk. Worst of all, trust avoids authority and flees a judge. Since employees always see the boss as judge, managers need to be aware of how they can increase trust-or destroy it. There are six critical areas: 1. Communication must always be a two-way street. 2. Support means being approachable, helpful, and concerned, especially when the chips are down. 3. Respect is a question of delegating authority and listening to what subordinates have to say. 4. Fairness means giving credit and assessing blame where they are due. 5. Predictability is being dependable and keeping promises. 6. Competence means knowing your own job and doing it well. But given the limits of trust, good managers watch for other telltale signs of trouble: decline in the information flow, deteriorating morale, ambiguous verbal messages, nonverbal signs, and diminishing results.(ABSTRACT TRUNCATED AT 250 WORDS)     

The ambidextrous CEO

Although most managers publicly acknowledge the need to explore new businesses and markets, the claims of established businesses on company resources almost always come first, especially when times are hard. When top teams allow the tension between core and speculative units to play out at lower levels of management, innovation loses out. At best, leaders of core business units dismiss innovation initiatives as irrelevancies. At worst, they see the new businesses as threats to the firm's core identity and values. Many CEOs take a backseat in debates over resources, ceding much of their power to middle managers, and the company ends up as a collection of feudal baronies. This is a recipe for long-term failure, say the authors. Their research of 12 top management teams at major companies suggests that firms thrive only when senior teams lead ambidextrously--when they foster a state of constant creative conflict between the old and the new. Successful CEOs first develop a broad, forward-looking strategic aspiration that sets ambitious targets both for innovation and core business growth. They then hold the tension between innovation unit demands and core business demands at the very top of the organization. And finally they embrace inconsistency, allowing themselves the latitude to pursue multiple and often conflicting agendas.     

Corporate redemption and the seven deadly sins

Competitive purgatory is the sorry state of too many formerly proud U.S. corporations. They are languishing from the devastating effects of seven familiar sins: inconsistent product quality; slow response to the marketplace; lack of innovative, competitive products; uncompetitive cost structure; inadequate employee involvement; unresponsive customer service; and inefficient resource allocation. To make matters worse, the maladies are mostly management-induced, and the remedies most managers are employing-shifting strategy, reallocating resources, focusing on operations--are proving ineffective. The cures don't address the cause of the disease: negative, risk-averse, bureaucratic work environments that flourished in decades of easy growth but today are undermining competitive performance. What's needed is a total reinvention of the soft side of the organization to produce a work environment that stresses speed, Spartanism, innovation, and marketplace focus. First, top managers must decide what their company stands for and convince their employees of this uniqueness. Second, they must set standards that drive their business to worldclass levels and be tough about enforcing and raising them. Third, they must push constantly to ensure that enough innovations take place to change the company's future significantly. Three other factors are crucial: the right talent, an effective reward system, and CEOs who can drive the desired changes personally. Creating a dynamic work environment is not easy: it takes perseverance, flexibility, and commitment. But these efforts will pay off: how people tackle problems, work together, and think about their jobs are the activities that make a company great.     

Connectivity and control in the year 2000 and beyond

By now, most executives are familiar with the famous Year 2000 problem--and many believe that their companies have the situation well in hand. After all, it seems to be such a trivial problem--computer software that interprets "oo" to be the year 1900 instead of the year 2000. And yet armies of computer professionals have been working on it--updating code in payroll systems, distribution systems, actuarial systems, sales-tracking systems, and the like. The problem is pervasive. Not only is it in your systems, it's in your suppliers' systems, your bankers' systems, and your customers' systems. It's embedded in chips that control elevators, automated teller machines, process-control equipment, and power grids. Already, a dried-food manufacturer destroyed millions of dollars of perfectly good product when a computer counted inventory marked with an expiration date of "oo" as nearly a hundred years old. And when managers of a sewage-control plant turned the clock to January I, 2000 on a computer system they thought had been fixed, raw sewage pumped directly into the harbor. It has become apparent that there will not be enough time to find and fix all of the problems by January I, 2000. And what good will it do if your computers work but they're connected with systems that don't? That is one of the questions Harvard Business School professor Richard Nolan asks in his introduction to HBR's Perspectives on the Year 2000 issue. How will you prepare your organization to respond when things start to go wrong? Fourteen commentators offer their ideas on how senior managers should think about connectivity and control in the year 2000 and beyond.