Harvard Business Review 2007 January · Leading Change: Why Transformation Efforts Fail John P....

48 Becoming the BossLinda A. Hill

58 Courage as a SkillKathleen K. Reardon

66 The CEO’s Second ActDavid A. Nadler

76 Firing Back: How Great Leaders Rebound After Career DisastersJeffrey A. Sonnenfeld and Andrew J. Ward

86 What to Ask the Person in the MirrorRobert S. Kaplan

15 PERSPECTIVESMoments of Truth: Global Executives Talk About the Challenges That Shaped Them as Leaders

27 HBR CASE STUDYThe Very Model of a Modern Senior Manager Mike Morrison

40 MANAGING YOURSELFHow Leaders Createand Use Networks Herminia Ibarra and Mark Hunter

96 BEST OF HBRLeading Change: Why Transformation Efforts FailJohn P. Kotter

104 BEST OF HBRWhen a New Manager Takes ChargeJohn J. Gabarro

THE TESTS OF A

LEADER

SPECIAL ISSUE

January 2007www.hbr.org

Our designers got the seven-year itch.

©2006 BMW of North America, LLC. The BMW name and logo are registered trademarks. SAV and Sports Activity Vehicle are the registered trademarks for BMW light trucks.

Introducing the all-new BMW X5. When we unveiled the original X5, it wasn’t just a new vehicle, it was a new category:

the Sports Activity Vehicle.® Meticulously designed to deliver pure performance and total refi nement at once. Today we’ve

taken the X5 to an even higher level. With advancements like a new optional third row seat, deftly adding more room inside

Mail to [email protected] for any further request.

And scratch they did.

bmwusa.com

BMW 2007The all-new X5 4.8i

without sacrifi cing overall effi ciency. Which is why the all-new X5 is far from a typical people mover. And with artfully

sculpted exterior lines and sophisticated new trim and interior options, including rich Napa leather, it’s a masterful mix of

function and form. The all-new BMW X5: we’ve expanded on a great idea.

bmwusa.com

BMW 2007The all-new X5 4.8i


Cov

er A

rt:

Chr

is W

inds

or /

Get

ty Im

ages

48 Becoming the BossLinda A. Hill

The experience of becoming a boss for the first time leaves an indelible mark – some might call it a scar – on the psyche. But the transition to new manager doesn’t have to be quite so painful.

58 Courage as a SkillKathleen K. Reardon

Courage in business is rarely impulsive; rather, it resultsfrom careful deliberation and preparation. The “courage calculation,” consisting of six decision-making processesthat can be refined over time, helps managers make bold moves that will lead to success while averting career suicide.

66 The CEO’s Second ActDavid A. Nadler

A new CEO’s brilliance can fade quickly once he or she hassolved the company’s immediate problems and the next set of challenges comes along. A chief executive’s Act II requires a lot less swashbuckling and a lot more humility.

76 Firing Back: How Great Leaders Rebound After Career Disasters Jeffrey A. Sonnenfeld and Andrew J. Ward

Stunning recovery is possible from even the most catastrophic of setbacks. Michael Milken, Martha Stewart,Home Depot’s Bernie Marcus, Bank One’s Jamie Dimon,and others came back from the depths by following thepath of the universal hero.

86 What to Ask the Person in the Mirror Robert S. Kaplan

No matter how talented and successful you are, you willmake mistakes. But the higher up the ladder you go, thefewer people there are to tell you when you’ve made a mis-step. To assess your performance, you should periodicallyask yourself a series of pointed questions.

continued on page 4

JANUARY 2007

Features

86

76

58

66

2 Harvard Business Review | January 2007 | hbr.org

48


6 COMPANY INDEX

8 FROM THE EDITOR

All Eyes on YouLeaders are always, in matters great and small, being tested. The way a leader handles a crisis increases his political capital or bankrupts him. Although thetests of a leader are ultimately personal,they affect others, too, because leadershave followers.

15 PERSPECTIVES

Moments of Truth: Global ExecutivesTalk About the Challenges ThatShaped Them as LeadersWhen did you realize you had the rightstuff to lead? HBR’s editors ask a widerange of business leaders that questionand get some surprising answers.

27 HBR CASE STUDY

The Very Model of a Modern Senior ManagerMike Morrison

A leadership crisis at Barker Foods has the executive committee wonderingwhether the company should create acompetency model for senior managers.Is such a framework just what Barkerneeds, or is it an exercise in oversimplifi-cation? With commentary by ReubenMark, Rebecca Ray, George Manderlink,and Dave Ulrich.

40 MANAGING YOURSELF

How Leaders Create and Use NetworksHerminia Ibarra and Mark Hunter

One test of leadership capability iswhether you can leverage social contactsinto business results. You may do a lot ofnetworking, but is it the right kind?

74 STRATEGIC HUMOR

96 BEST OF HBR

Leading Change: Why Transformation Efforts FailJohn P. Kotter

Companies often cope with new, morechallenging environments by making fundamental changes in the way they dobusiness. To succeed, follow these eightcritical steps in the right order – and withplenty of patience.

104 BEST OF HBR

When a New Manager Takes ChargeJohn J. Gabarro

Fourteen managers accepted new assignments. At the end of three years,ten had succeeded and four had beenfired. What made the difference? Experi-ence, the situation’s urgency, managerialstyle, the quality of the managers’ work-ing relationships, and the level of supportfrom superiors were critical factors.

118 LETTERS TO THE EDITOR

The science may be elegant, but a biotechdrug with finicky dosing or storage require-ments is often less likely to be incorpo-rated quickly into mainstream medicalpractice. This contributes to the perceptionthat biotech’s R&D productivity is lacking.

122 EXECUTIVE SUMMARIES

128 PANEL DISCUSSION

The Final TestDon Moyer

The hardest test of leadership is sharingwhat you’ve learned with the next generation.


Departments

8

15

27

40

104

JANUARY 2007

96


For information call 877-862-7555 - www.vacheron-constantin.com

...DEDICATED TO PERFECTION

© F

ranc

is G

.May

er/

CO

RB

IS

PATRIMONY Hand-wound mechanical movement. Caliber 1400 movement with Poinçon de Genève quality hallmark. Case Ø 40 mm in pink gold. Opaline dial with applied pink gold hour markers.

81180/000R9159

MORE THAN 250 YEARS OF UNINTERRUPTED HISTORY…1776. When the U.S. Declaration of Independence was signed, Vacheron Constantin was 21 years old.


Ann Taylor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Apple . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Arthur Andersen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Ballistic Recovery Systems . . . . . . . . . . . . . . . . . . . . . . . . . 15

Bank of America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Bank One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Blackwater . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

BNP Paribas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Booz Allen Hamilton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Bristol-Myers Squibb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

British Airways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Carter Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Chugai Pharmaceutical . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Cirrus Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Citigroup. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Coca-Cola . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 76

Colgate-Palmolive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Corning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Daylin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Dell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Deutsche Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Drexel Burnham Lambert . . . . . . . . . . . . . . . . . . . . . . . . . . 76

E.A. Renfroe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Eastern Airlines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Enron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Ernst & Young. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Ford . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76, 96

Gap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 76

General Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 104

General Motors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Gensler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Goldman Sachs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66, 86

Google . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Handy Dan Home Improvement. . . . . . . . . . . . . . . . . . . . . . 76

Hewlett-Packard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66, 76

Home Depot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

IBM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66, 76

ImClone Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

J.Crew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

JPMorgan Chase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

KGB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Kohlberg Kravis Roberts & Company . . . . . . . . . . . . . . . . . 66

Landmark Communications . . . . . . . . . . . . . . . . . . . . . . . . . 96

Lexmark International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Lucent Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Mardian Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Martha Stewart Living Omnimedia . . . . . . . . . . . . . . . . . . . 76

Masonite International . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Massachusetts Institute of Technology. . . . . . . . . . . . . . . . 15

MasterCard Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Merrill Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

MGM Mirage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

NeXT Computer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Nissan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Nokia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Patagonia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

PepsiCo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Pfizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Pixar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

PricewaterhouseCoopers . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Quest Diagnostics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Ramada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

RedEnvelope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Rolf Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

San Francisco Bay Area Rapid Transit District . . . . . . . . . . 15

Scruggs Katrina Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Security Pacific National Bank . . . . . . . . . . . . . . . . . . . . . . 76

SmithKline Beecham Clinical Laboratories . . . . . . . . . . . . . 66

Starwood Hotels & Resorts . . . . . . . . . . . . . . . . . . . . . . . . 76

State Farm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Sun Microsystems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Texas Pacific Group Ventures . . . . . . . . . . . . . . . . . . . . . . . 76

Time Warner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

United Air Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

University of California, Berkeley . . . . . . . . . . . . . . . . . . . . 15

U.S. Army . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Vanguard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Wellington Management . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Western Investments Capital . . . . . . . . . . . . . . . . . . . . . . . 58

Wurster, Bernardi & Emmons . . . . . . . . . . . . . . . . . . . . . . . 15

AU T H O R A F F I L I AT I O N S

Blackwater . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Cirrus Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Coca-Cola . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Colgate-Palmolive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Ernst & Young. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

F. Hoffmann-La Roche . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Gensler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Goldman Sachs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Harvard Business School . . . . . . . . . . . . . . . . . 48, 86, 96, 104

Heidrick & Struggles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Insead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

MasterCard Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Mercer Delta Consulting. . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Nokia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

RBL Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Rolf Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

University of Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

University of Michigan’s Ross School of Business . . . . . . . 27

University of Southern California’s Marshall

School of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

University of Toyota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Yale School of Management. . . . . . . . . . . . . . . . . . . . . . . . 76

Yale University . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Organizations in this issue are indexed to the first page of each article in which they are mentioned. Subsidiaries are listed under their own names.


THE TESTS OF A LEADER | COMPANY INDEX | January 2007

“Flanders, you’ve got what it takes to go all the way to alpha –but we just can’t have you, ahem, ‘making water’ with each new acquisition.” Te

resa

Bur

ns P

arkh

urst


Rob

ert M

egan

ck

All Eyes on You

S SPAIN’S ARMADA NEARED

England in 1588, Elizabeth I, whose hold on her crown was tenuous and whose

country was a second-rate power,spoke these words at Tilbury docks: “Iam come amongst you…at this time…being resolved, in the midst and heat ofthe battle, to live and die amongst youall; to lay down for my God, and for mykingdom, and my people, my honourand my blood, even in the dust. I knowI have the body but of a weak and fee-ble woman; but I have the heart andstomach of a king, and of a king of En-gland too!” That speech defined her,her reign, and her realm: You can hear its echo in the languageof every subsequent heroic English leader, from Nelson toChurchill.

On a winter’s day in 1893, Mohandas K. Gandhi boarded a train in Pietermaritzburg, South Africa. He was ejected fromthe first-class compartment because of his color, despite hav-ing a ticket. When he protested, he was thrown from the trainand parked in a freezing waiting room while the railway au-thorities took charge of his suitcases. “The cold was extremelybitter,” he wrote. “My over-coat was in my luggage, but I didnot dare to ask for it lest I should be insulted again, so I satand shivered.” The episode marks the beginning of the missionthat made India an independent state and Gandhi a twentieth-century saint.

In August 1921, paralysis struck Franklin Roosevelt, ninemonths after a James Cox – FDR presidential ticket had beenresoundingly defeated by Warren Harding and Calvin Coolidge.For nearly seven years, Roosevelt endured unsuccessfultherapy, spending much time in Warm Springs, Georgia, be-fore determining that the debility of his legs would neitherweaken his will nor cripple his career. In 1928, annealed in thefires of his personal hell, he returned to public life, beingelected governor of New York and then four times president ofthe United States. When he assumed that office in 1933, dur-ing the Great Depression, he spoke from experience when hetold his nation, “The only thing we have to fear is fear itself.”

Why do leaders like stories likethese? Partly, they – we all – are vainenough to want to be cast in a heroicmold. Largely, though, the stories helpleaders learn how to act when put tothe test. For leaders are always, in mat-ters great and small, being tested.Everybody watches the first decision a new boss makes– it’s a test. The waya leader handles a crisis is a test: It in-creases his political capital or bank-rupts him. The test may come from out-side: for example, an act of war or acompetitor’s move. It may be organiza-tional, such as launching a new busi-ness. It may come from within, as a dis-

ease does. The test may come unbidden, or it may be one theleader seeks, such as turning around a failing company orspeaking up to right a wrong.

The tests of a leader are ultimately personal, but they affectothers, too, because leaders have followers. We had both in-dividual and organizational perspectives in mind as we de-veloped this special issue of HBR. We asked eight peoplefrom businesses around the world to describe the mostsearching tests they ever faced. We asked Linda Hill of Har-vard Business School to help us understand how people cope with the challenge of being a leader for the first time.We persuaded her colleague Rob Kaplan to share a marvelousself-test he developed when, as vice chairman of GoldmanSachs, he learned that top managers like him rarely get frank,honest feedback. Kathleen Reardon, Jeffrey Sonnenfeld, DavidNadler, and Herminia Ibarra are back in our pages – as are JohnKotter and John Gabarro, with articles from HBR’s peerlessarchive. Together their contributions have created an issuethat, I hope, will make you smarter, stronger, and readier whenyour tests come.

A

Thomas A. Stewart


THE TESTS OF A LEADER | FROM THE EDITOR


*Toyota vehicles and components are built using many U.S. sourced parts. **2005 Center for Automotive Research study.Includes direct, dealer and supplier employees, and jobs created through their spending. ©2006

**

he new Camry Hybrid – as good

for the economy as it is for the

environment. Toyota is already known

for being the world’s leading

hybrid producer, but not everyone

knows what our hybrids will do

for the U.S. economy. That’s

about to change. Our new Camry

Hybrid is now being built here in the U.S.

The place? Georgetown, Kentucky, where

48,000 Camry Hybrids are planned for

the first year of production. It’s all part

of our commitment to

America, the air you

breathe, the communities

where you work and live,

and to the future we want to build

together. And that’s good for everyone.

T


SENIOR EDITORSDavid Champion

(Paris)Diane Coutu

Bronwyn FryerPaul HempJulia Kirby

Gardiner MorseM. Ellen PeeblesSteven ProkeschAnand P. Raman

SENIOR EDITOR,HBR ONLINEEric Hellweg

ASSOCIATE EDITORS

Roberta A. FusaroAndrew O’Connell

CONSULTING EDITORBernard Avishai

MANUSCRIPTEDITORS

Christina BortzLisa Burrell

Andrea Ovans Martha Lee Spaulding

EDITORIAL MANAGER

Kassandra Duane

EDITORIALCOORDINATOR

Rasika Welankiwar

STAFF ASSISTANTElizabeth Waldman

SENIORPRODUCTION

MANAGERDana Lissy

EDITORIALPRODUCTION

MANAGERChristine Wilder

SENIOR DESIGNERSKaajal S. Asher

Jill MancaAnnette Trivette

EDITORIALPRODUCTION

COORDINATORSJosette Akresh-

GonzalesTisha Clifford

EDITOR FORBUSINESS

DEVELOPMENTJohn T. Landry

COMMUNICATIONSDIRECTOR

Cathy Olofson

COMMUNICATIONSASSOCIATE

Siobhan C. Ford

CONTRIBUTING STAFFLilith Z.C. Fondulas

Amy L. HallidayAmy N. Monaghan

Annie NoonanLindsay A. Sweeney

A NOTE TO READERSThe views expressed in articles are the

authors’ and not necessarily those of HarvardBusiness Review, Harvard Business School,

or Harvard University. Authors may haveconsulting or other business relationships

with the companies they discuss.

SUBMISSIONSWe encourage prospective authors to follow

HBR’s “Guidelines for Authors” beforesubmitting manuscripts. To obtain a copy,

please go to our Web site at www.hbr.org; write to The Editor, Harvard Business Review, 60 Harvard Way, Boston, MA 02163; or send

e-mail to [email protected]. Unsolicited manuscripts will be returned only

if accompanied by a self-addressed stamped envelope.

EDITORIAL OFFICES60 Harvard Way, Boston, MA 02163

617-783-7410; fax: 617-783-7493www.harvardbusinessonline.org

Volume 85, Number 1January 2007

Printed in the U.S.A.

EDITOR AND MANAGING DIRECTORThomas A. Stewart

DEPUTY EDITOR AND ASSISTANT MANAGING DIRECTOR

Karen Dillon

EXECUTIVE EDITORSarah Cliffe

ART DIRECTORKaren Player

In five days,

even Darwin would

be shocked at how

you’ve changed.

We’re all business.™WHARTON EXECUTIVE EDUCATION

Introducing the Wharton Learning Continuum. From the pre-program courseworkto the post-program follow up, you will transform your career. Request your information kit at [email protected], or visit our website at executiveeducation.wharton.upenn.edu. Call 800.255.3932 (U.S. or Canada)or +1.215.898.1776 (worldwide), and reference HBR.

EXECUTIVE DEVELOPMENT PROGRAM

> May 6–18, 2007 September 9–21, 2007

FINANCE AND ACCOUNTING FOR THE NON-FINANCIAL MANAGER

> May 7–11, 2007 July 30–August 3, 2007

THE LEADERSHIP JOURNEY: CREATING AND DEVELOPING

YOUR LEADERSHIP

> May 20–25, 2007 October 7–12, 2007

MERGERS AND ACQUISITIONS

> June 3–8, 2007


NOW I INVENTINSTEAD OF PREDICT

I AM A VISIONARY..

Wharton Executive EducationWe’re all business.™

THE ADVANCED MANAGEMENT PROGRAMC R E A T I N G I N N O V A T O R S

June 3– July 6, 2007 | September 23–October 26, 2007

Today’s business culture demands leaders who are true innovators. They challenge traditionalthought. They use both sides of the brain. They are the most sought after executives in theworld. And, after 5 weeks at Wharton’s Advanced Management Program, you will be one too.

To become a master of innovation, and to receive your information kit, call Robin Salaman at +1.215.898.1179 (worldwide) or 800.255.3932 (U.S. or Canada), or email her [email protected].

Be sure to visit our website and listen to Nine Stories of AMP innovators. http://executiveeducation.wharton.upenn.edu


www.internationalbusinesswales.com

800.65.WALES

www.internationalbusinesswales.com

800.65.WALES

InternationalBusiness Wales

Leave it to a country with sea on three sides to realize its potential as asource of energy. Right now, a team of engineers at Swanturbines Ltd.in Wales is working on a systemof underwater turbines to harness the awesome, infinitelyrenewable power of tidal flow.That’s Wales. Thinking beyondconventional boundaries andfinding better ways. Nearly 500companies from around theworld have located here toharness the passion and ingenuityof the Welsh. After all, goingagainst the tide can generatesome powerful ideas.

Dr. Ian MastersDirectorSwanturbines Ltd.

In deep.


oracle.com/bestor call 1.800.968.4664

Copyright © 2005, Oracle. All rights reserved. Oracle, JD Edwards and PeopleSoft are registered trademarks of Oracle Corporation and/or its affiliates. Other names may be trademarks of their respective owners.

The Best Companies Run Oracle

“$104 million in savings”

“51% decrease in T&E reporting costs”

Get Better Results With Oracle Applications


hbr.org | January 2007 | Harvard Business Review 15

HEN DID YOU REALIZE you had the right stuff tolead? The answer depends, of course, on what you consider the right stuff to be. Is vision the essential quality of leadership? Is it the courage to act with

conviction? Or does it have more to do with having passion, goodinstincts, or humility? The editors of Harvard Business Reviewasked business leaders in a variety of settings to tell us whatthey think is the most important leadership quality and howthey’ve personally been tested. We didn’t always get the story weexpected.

It’s easy to assume that leaders’ stories mirror their organiza-tions’ travails and triumphs. If a company has suffered a highlyvisible setback–like a product recall or a proxy fight–it seems ob-vious that the incident must have tested the chief executive’smettle. Likewise, when a company is known for a quality, like in-novation or focus, we expect to see it reflected in the leader’s owncareer. In contexts like these, leaders do show us what they’remade of. But more often in the pages that follow, what we see issomething they learned about themselves at a less public, morepivotal moment.

W

Chr

is S

harp

PERSPECTIVES | THE TESTS OF A LEADER

Moments of Truth Global Executives Talk About the Challenges That Shaped Them as Leaders

Perspectives from:

Olli-Pekka Kallasvuo, president and CEO, Nokia...................16

Gary Jackson, president, Blackwater USA..............................17

Franz Humer, chairman and CEO, Roche ..................................17

Arthur Gensler, founder, Gensler .............................................18

Sergey Petrov, founder, Rolf Group..........................................20

Alan Klapmeier, cofounder, Cirrus Design...............................22

Alexander B. Cummings, president and COO,

Coca-Cola Africa ...................................................................24

Duleep Aluwihare, managing partner,

Ernst & Young Poland............................................................25


IHumilityOlli-Pekka Kallasvuo has been the president

and CEO of the telecommunications company

Nokia, in Espoo, Finland, since June 2006.

In 1990, I was 36 years old and had justbeen appointed chief financial officerat Nokia. It was a challenge – and notonly because I was young. It was a tur-bulent time in the company’s history.Nokia, which was already very big, wasin quite a serious financial situation,and each month brought fears that wewould not be able to pay salaries thenext. What I also see now is how inexpe-rienced I was, having come from a legaland strategy, rather than an accounting,background. There were many trips inthose months – to Zurich, Frankfurt,Tokyo, London – while I tried to raisemoney from bankers who were losingfaith as earnings continued to fall.Those long flights brought me face-to-face with the difficulty of our situationand how utterly alone I was. Theychanged me. Even when things got bet-ter financially, I knew where I stood,personally.

Humility is a vital quality in a leader,just as it is for a company. Nokia, if it isto continue to prosper, has to be exter-nally oriented. It must have the kind ofhumility that makes it listen to the cus-tomer and seek ideas from outside. Ithas to be humble inthe face of complex-ity. Especially today,as the convergence ofmobility and the In-ternet has everyoneguessing, Nokia can’tbe so overconfidentas to believe its pre-dictions are the best.Instead, we need toperceive changes asthey occur and reactthe fastest. In a management team, thatresponsiveness is a product of diver-sity – managers must humbly acceptthat their own perspectives need to bebroadened by others’.

Having humility does not mean thatyou are quiet or that you lack thecourage to say what you think. Courageand humility are more complementarythan contradictory. People who havebeen humbled by being down and outcan have more courage when things gettough. They’ve been there already, andthey understand that things are not al-

ways easy. But havinghumility does meanthat you put yourown contribution inperspective. It meansthat you know, asCEO, that your role isreally to serve thecompany.

The demands oncorporate leaders areso great, many CEOscome to understand

that if they aren’t committed to theirjobs 101% they will not make it. Forme, the realization came in the mid-1990s, when I worked abroad for twoyears. I made the decision that this is

the life I am going to lead. I’m servingthe company, and I will give it my all.

When you have made that decision,you grow as a person. It gives you thecourage to speak up when everyone ina room says, “This is the case,” and youdon’t agree. It gives you the strength toresist the safe conformity of bench-marking and instead try to think differ-ently. It allows you (in fact, compelsyou) to say that things have changed,and we need to change, too.

At the same time, that perspectivemakes you appreciate how much youdepend on others – another humblingrealization. When I was first put incharge of a team 19 years ago, I had tocome to terms with the fact that I wasno longer a lone professional doing myown job. I had to manage in such a waythat other people would be the onesmaking things happen, not me. Withevery year, the lesson has intensified. Asof January 2007, Nokia has 100,000people, and there’s really very little I can do alone. But there is much I cando with the team.


THE TESTS OF A LEADER | PERSPECTIVES | Moments of Truth

In a management team,humility is a product of diversity – managersmust humbly acceptthat their ownperspectives need to be broadened by others’.


IntuitionFranz Humer is the chairman and CEO of the pharmaceutical firm Roche,

based in Basel, Switzerland.

P

T


EnergyGary Jackson (gjackson@blackwaterusa

.com) is the president of Blackwater USA,

a private military contractor and security firm

based in Moyock, North Carolina.

The crucial turning point in the for-tunes of Blackwater USA occurred inthe wake of the October 2000 bombingof the USS Cole. Suddenly, the U.S. Navyurgently needed the type of training weprovide. In fact, the Navy asked us totrain 20,000 sailors in six months at fa-cilities in four locations. Our companyat that point consisted of 30 people. I re-member thinking, “Oh my goodness.”But I had no qualms about saying yes.We had it all, even if we hadn’t put it alltogether. Before those six months wereup, the nation suffered the terrorist at-tacks of September 11, and Blackwaterwas growing from a small training cen-ter into a major force.

The key to our growth has been ourculture. Almost as soon as you set footon the 7,000-acre campus at our NorthCarolina headquarters, you feel the en-ergy of the place. Some of this is justa function of who we are. A lot of ourpeople are from Special Ops – GreenBerets and Navy SEALs. These are peo-ple who, when presented with a chal-lenge, don’t say “Hmmm.” They say,“Let’s go.” But it’s also a function ofhow we choose to run things. I’ve triedto take the best of military culture andstructure (I might be the only corpo-rate president who has a corporatemaster chief and a chaplain reportingto him) and keep the chain of com-mand short, so bureaucracy doesn’tovertake us.

To keep the spirit entrepreneurial, Isponsor “100-day projects.” Anyone atany level in the company who has anidea for making or saving money isgiven free rein to pursue it, so long asthe payoff can be realized within 100days. We’ve got six of those projects run-ning at the moment.

Everyone who knows me knowsabout the personal database I keep. I’ve

got 3,500 names tagged with either a“T” or a “D,” depending on whether theperson is a talker or a doer. I constantlypush for the 80% solution that is exe-cutable now over the 100% solution wemight be able to devise in anotherthree weeks.

Our culture is what has made ourname as a company, and the biggest testI face as a leader is preserving it. Someof that test comes down to personal be-havior. In our parking lot, we have onlyone spot marked “reserved,” but it’s re-served for the first person who gets towork in the morning. More often thannot, I get it. One of the challenges ofworking in a super-energy environmentis that the company feels it when theleader is flagging. I can’t slow down.

The greater part of the test comeswith high-profile decisions, especiallyabout personnel. Six weeks ago, I had to make a wrenching one regarding adozen people who were hired way backwhen I was just getting staff on board.They had developed that 100% solutionmentality, wanting to form working

groups that would discuss possibilitiesfor weeks. That isn’t us. But I wrestledwith the decision because another hugepart of our culture is loyalty. We have6,000 men and women working in ninevery dangerous countries, plus another1,000 in the U.S., and they do it becausethey love the company. But they also doit because I’ve said that their loyalty willbe returned. Most have families, and wemake their well-being our business, too.When I asked those dozen people toleave, I risked sending the wrong kindof signal about Blackwater. But I knewit was the right thing to do: I’d alreadylet them stay longer than was good forthe company.

In the 23 years I spent as a NavySEAL, my leadership capabilities weretested at every step. I had to prove Icould lead two or three people, then 16people, and so on into the hundreds.Today, I’m an entrepreneur leading a7,000-man force that believes in doingwhat it says it will do and at speeds thatnobody can believe. My job is to keepthat going.

People often talk about the lonelinessat the top of an organization. It’s true:The balance is not easy to strike whenyou want to build and work in a teambut must make difficult decisions thatyou cannot always share with the teammembers.

But leaders have to go it alone in an-other important way. Many times,when opportunities arise to grow thebusiness or to make substantial changes,your internal organization talks to youonly about the risks you run – about allthe things that could go wrong. Whenthe evidence presented to you is so un-evenly stacked, it’s up to you to knowhow much trust to have in the otherside of the deal.

Sometimes, the resistance takes theform of unquestioned assumptions. Inthe mid-1990s, when I was with anothercompany, we had an ulcer treatmentthat had reached £1 billion in sales –which was as much as any pharmaceu-tical product had ever sold. I believedsales could go twice as high, but con-vincing the marketing teams and gen-eral managers around the world was ahuge challenge. The whole organiza-tion was absolutely convinced it couldn’tbe done. Why? Simply because it hadn’tbeen done before.

Often, the resistance has better argu-ments than that. I remember the de-bates four years ago when Roche boughtthe majority interest in a Japanese


I

company. It was established wisdomthat one could not acquire a Japanesecompany and be successful. Westerncompanies that had tried had neverreally been recognized as Japaneseplayers in Japan, as opposed to foreign-ers coming in. It is true that, given howbusiness is done there, it is difficult tounderstand and navigate the market-place, especially if you don’t speak thelanguage. It was also true that Roche al-ready had a market presence in Japanunder our own brand name. As part ofthe deal, we would be giving that up, in-tegrating the operations, management,and products into those of the Japanesecompany. My colleagues weren’t at allconfident that it was worthwhile towalk away from what had been builtover 75 years.

Today, Chugai Pharmaceutical is oneof the top three players in the world’ssecond largest pharmaceutical market.But four years ago, I had to trust itwould work. I did, in large part, be-cause I trusted my counterpart in thenegotiations. Our relationship had de-veloped over a five-year period in whichwe had started discussions, then brokenthem off, then come back together. Usu-ally, a leader has less to go on yet stillmust make the decision on how muchto trust.

How does one learn that judgment?It’s a matter of becoming hyperawareof your environment and learning tosense the vibe in the room. Especiallyin a negotiation setting, I try to havemy entire body, my entire mind, all myemotions switched on to “receiving.”How are people reacting? How are theybehaving? If you can enter this mode,you can be sensitive to small changesthat other people wouldn’t even notice.Perhaps I’ve developed some of thatsensitivity from living in many differ-ent countries and speaking many dif-ferent languages. By now, with nostrong roots in any given culture, Igravitate quickly to what is commonto all people.

The pharmaceutical business is filledwith licensing deals, business develop-ment partnerships, and product alli-

ances. For any significant deal, I insiston meeting with the other people be-fore we sign. I want to know with whomwe are dealing. And I have walked awayfrom deals when I have felt I cannottrust those people.

This does not take the form of somedramatic scene. Rather, I go back andtake a closer look at the deal, then, per-haps, realize that the risk is a little too

high, the terms are a little too loose, orthere is a bit too much flexibility. I’m a lawyer by training, so if trust is notthere, I want to have everything naileddown to the last iota. The Japanese dealwas a mere two-page document thatmy counterpart and I signed. We gave itto the lawyers and financial people andsaid, “This is what you need to makehappen.”



In 1965, I had just finished a majorproject for San Francisco’s BART publictransit system, setting the standards –down to how many restrooms wereneeded – for 13 teams who were design-ing 33 stations. I was working for the ar-chitectural firm of Wurster, Bernardi &Emmons, under the legendary WilliamWurster, who had formerly been deanof the architecture schools at bothBerkeley and MIT. Heencouraged me (as hedid everyone) to hangout my own shingle.

It happened aroundthat time that I metup with an old collegeclassmate one night,and he told me heneeded help in tenantdevelopment work.This involved meetingwith potential tenantsof an office buildingand drawing up plansfor how they would fitinto the facility. It’s what’s known asspace planning today, but back then it was considered below the dignity of a “real” architect. Typically, an officemanager or furniture dealer wouldsketch out the floor plan on graphpaper. What passed for interior designwas putting a few Barcelona chairs ina lobby.

My friend was the developmentmanager for a San Francisco water-front project called the Golden Gate-way, which included the Alcoa build-ing, a major new office tower. Theconversation intrigued me. I thoughtin this “tenant work”there might be themakings of a valuable business.

So I rented some space and fourdrafting tables, hired one draftsman,

and took my friend upon his offer. It wasn’tthe best time to takean entrepreneurial risk.I had a wife and threechildren to support,and a total of $200 insavings. I can’t claim Ihad any business acu-men. There’s virtuallyno business training in architecture school.But I listened to thepeople in the legal, fi-nance, and consultingcompanies who were

the tenants. I asked about what they didand how they worked. I became fasci-nated with the way organizations oper-ate in a space. And I soon realized thatthere was an opportunity to profession-alize tenant work, to thoughtfully ana-lyze the space requirements of the vari-ous business functions and raise that toa new level of service.

VisionArthur Gensler founded Gensler – a global architecture, design, planning, and consulting firm –

41 years ago. The firm has grown to 2,400 people in 30 offices.

The most importantdecision we madewas to do away withthe star system. Ittakes a star to get the project, a star to design it, a star todocument the design,a star to build it.Weare all stars.


At Hitachi, each of our diverse technologies, from

medical and data storage to telecom and power, has

its own story to tell. That’s why we’ve created Hitachi

True Stories, a collection of documentary fi lms about

these technologies, and the people who use them to

make their world a bigger place.

From clean-burning power plants to revolutionary

cancer treatments, Hitachi expertise is helping

inspire innovation in ways that may surprise you. We

invite you to discover for yourself the remarkable

stories that unfold when people and businesses are

empowered by the right technology.

Now playing hitachi.com/truestories

A fi lm series inspired by the next great achievement.

Hitachi Presents


M

To understand how different thisclient-based perspective was, considerone of the oldest lines in the profession:“I could do a great project if it weren’tfor the client.” It’s always said jokingly,but architects really do refer to projectsas their buildings when in fact the build-ings belong to the clients. I came to seethat architecture is all about the user ofthe building. It isn’t just what you see asyou drive down the street; it’s about theenvironment we create inside.

In the following decades, we contin-ued to question traditional industrypractices. We put in a profit-sharingplan and created in-house management-training courses. We adopted a struc-ture based on practice areas. Most suc-cessful firms still operate on a projectbasis, which means a lot of hiring andfiring to match the workload and no in-terest in small jobs. Our structure allowsus to welcome both large and small proj-ects, as long as the work is for a qualityclient. I remember loaning a singledraftsman to someone for a small proj-ect 35 years ago. That was Don Fisher,who was opening his second Gap store,and we’ve worked with him ever since.

The most important decision wemade was to do away with the star sys-tem: Outside Gensler, the profession isstill very much centered on a “name”ar-chitect. But a hugely complex projectcannot hinge on one person. It takes astar to get the project, a star to designthe project, a star to document the de-sign, a star to build it, a star to collectfees, and a star to run the business be-hind them. We’ve built a team culturewhere we are all stars, no matter whatrole we play on a project.

By 1995, “Gensler and Associates,Architects” had evolved to the pointwhere we were offering many differentservices besides tenant planning –architecture, consulting, brand strategy,product design, master planning, andinterior design. Perhaps I shouldn’thave been surprised when our brandingand graphics group suggested that wetake “architects” out of our name. It nolonger defined the broad consultativepractice we had become. Still, it was an

agonizing decision for me. Like mostpeople in the profession, I think designis in my blood. At the age of five, I toldpeople I would grow up to be an archi-tect, and at Cornell’s Department ofArchitecture I won the top award inmy graduating class. My profession iscentral to my identity.

But I’ve discovered there are alwaysnew ways to define the profession. Re-

cently we have started a new kind ofservice for very large-scale, complexprojects. We are managing the designsof six other world-renowned archi-tects, as well as providing our own de-sign services, for MGM Mirage in LasVegas. It is an unprecedented rolewithin the industry, and there was noterm for it. We’ve settled on “executivearchitect.”



PerspectiveSergey Petrov ([email protected]) is the founder and sole owner of the $2.4 billion Rolf Group,

Russia’s largest foreign car importer and distributor.

My professional life began in the mili-tary, and by 26, I was a major in com-mand of a squadron. So one could saythat I was benefiting personally fromthe Communist system, but still it mademe sick. By 1982, unrest had flared up inPoland in the form of the Solidarnostmovement, and a group of friends andI felt that mass protest could developalong similar lines here. We began tomeet, to study market economies andthe history of Western democracies, toanalyze the flaws of the Soviet system,

and to talk about Russia’s future. Wefelt that it was necessary to preparetraining courses for people who mightlead the trade union movement. It waswhen we started to print flyers that theKGB took notice, as we knew it eventu-ally would. But when you see thatsomething is wrong, you have a choice:Either you convince yourself that every-thing’s all right and become a moral in-valid, or you resist.

When I was first held for question-ing, the counterintelligence chief of the


Volga Military Administrative District,a General Dan’kov, said to me,“So you,Major, want us to have democracy? Buthere, everything is for the people. I’lltell you what: Why don’t I bring you tothe nearest factory and tell the work-ers, ‘This man wants everything to belike in America.’ They will tear you topieces.” I thought to myself, “It reallymight be better to go home to mywife.” He was right that I’d be going tojail for people who had become so usedto slavery that they didn’t questionit – even loved it.

It’s difficult for most people to seethe system they are part of for what itis, and perhaps that is one test of aleader. The same lack of perspectiveoften keeps people from seeing howtheir own mentality might be a con-straint. After the company I founded,Rolf, began growingrapidly in the 1990s, Ihad to recognize howthe attitudes of someof my Russian execu-tives were creatingrisks they didn’t per-ceive. In late 2000, forexample, we were sup-posed to pay an Aus-trian construction firmseveral million dollarson a contract it had al-ready completed. But just as the pay-ment was coming due, there was achange in Russian customs regulations,which led to an upsurge in demand forcars. To satisfy it, we had to importmany more vehicles than originallyplanned. “Can we find the money?”I asked my finance director. “Yes,” hesaid, “if we hold back from paying theAustrians.” I called and negotiated onemonth’s grace. But somehow, threemonths went by, and the bill was stillnot paid. In my finance director’s mind,it was a matter of “So what? It’s only asmall fine for being overdue.”He had nonotion that it wouldn’t be seen this wayin other parts of the world, where a lagin payment is considered a default anda catastrophe. Rumors, in fact, were al-ready flying.

After that, I told him,“Listen, man, Ilove you very much, and I’m ready to godancing or fishing with you, but I’mgoing to hand over the finances tosomeone else–someone whose mental-ity corresponds to that of our foreignpartners.” That turned out to be MattDonnelly, the Irishman I recently madeCEO of the business.

The emphasis we put on our reputa-tion has paid off. Last year, for example,we were able to get $350 million underfavorable terms from a syndicate ofWestern banks, saving us the astro-nomical interest we would have paid inRussia.

Over the years, I’ve had to put agreat deal of effort into defending theforeign executives I’ve brought in. OurRussian managers are ambitious guys;they know what life is all about, and

suddenly they have to obey a foreignerwho seems to knownothing. His Russian is terrible, and his own language incom-prehensible. And, intruth, foreigners canbe pretty strange: Theytry to rally peoplearound HR technolo-gies and other pro-grams that really don’t

work here. But we need to have ourperspectives challenged. So when emotions have run too high, I’ve said,“That’s it. Stop! If you can’t work withthem, we’ll just have to replace you!”

It’s one thing to manage a $10 mil-lion company and another thing tomanage one that has grown into thebillions. You need a different approach,and not everyone can make the transi-tion. When I’ve recognized that andmade management changes along theway, people have become upset. “Whydid you do this,” they’ve asked me,“when everything was going well?There was no decline in the num-bers….”But you can’t sit around waitingto go into decline. If you can see the lim-itations in a situation, you can act totranscend them.

In truth, foreignerscan be pretty strange:They try to rallypeople around HRtechnologies andother programs thatreally don’t work here.


I


In the mid-1980s, I was flying with an in-structor and had a midair collision withanother small airplane. We were barelyable to land safely, and I watched theother guy hit the ground. It turned outto be a friend of mine from the next air-port over who died. I was passionateabout flying before that – my brother,Dale, and I had been airplane nuts fromboyhood. But after that day, I was pas-sionate about airplane safety.

That’s probably why, when a com-pany called Ballistic Recovery Systemsdeveloped a workable full-plane para-chute, we were the one aircraft makerinterested. Our company, Cirrus Design,was just beginning to make a name foritself in the industry; the guys from BRShad already called on everyone else.When we said yes, they almost couldn’tbelieve it – but it fit in perfectly withwhat we were trying to do.

If you talk to people who like to flybut aren’t pilots, you tend to hear acommon refrain.“I’ve always wanted tolearn, but it’s so expensive,” they say – asthey climb into their Lexus and head offto golf at the country club. It’s an ex-cuse, because they don’t want to admitthat either it’s too hard or they’reafraid. Private-aircraft designers need toaddress the fear in two ways: by chang-ing people’s perceptions – because fly-ing is really a lot safer than most peoplethink–and by changing the reality–be-cause it’s also more dangerous than itcould be. A parachute on the airplanehelps do both. And so does another in-novation we brought to market: a moreintuitive panel flight display.

The argument for the new PFD –what the industry now calls the “glasscockpit” – is straightforward. Pilots aremuch more prone to accidents whenthey’re using instrument flight rules(IFR), when visibility is limited, thanwhen they’re using visual flight rules(VFR), on a clear day. Those who’ve

made mistakes usually say they gotinto trouble when they “broke theirscan.”The scan is the routine way pilotslearn to watch the round gauges infront of them and keep their bearings:They look at the artificial horizon, thenat the airspeed, then back to the artifi-cial horizon, then at the altitude, thenback to the artificial horizon, then atthe heading – and back to the begin-ning. That constant reference back tothe artificial horizon is necessary be-cause it’s the only way to know whichway is up when the natural horizon isnot visible. If some distraction in thecockpit (maybe as minor as having tofiddle with radio knobs) makes youbreak the scan, you can easily becomevery disoriented.

Pilots use the same gauges flyingVFR. But if they break their scan, theyrarely get into trouble because theyhave information coming in from thecorner of their eye to alert them to achange in their attitude. What we real-ized is that computer technology couldreplace the quaint little gauge with anartificial horizon spanning the width ofthe cockpit. That edge-to-edge image,mounted horizontally instead of verti-cally, is similar to being able to see theactual horizon. Combine that with a big,moving map, and the new PFD relievesthe pilot of having to spend so much en-ergy just forming a mental picture ofwhat the plane is doing. The pilot be-comes less a data collector and more adecision maker. Bottom line: It’s safer.

PassionAlan Klapmeier cofounded Cirrus Design, a Duluth, Minnesota–based manufacturer of private aircraft,

with his brother, Dale, in 1984.



But as logical as it seems, this inno-vation would never have made it tomarket if we hadn’t been truly passion-ate about it. When we went to airshows and told people about the fea-tures we were designing and how theywould change the industry, peoplelaughed at us – literally. My own boardof directors tried to stop me from intro-ducing it. In their de-fense, we had justspent $100,000 doinga market researchstudy and, of all theproduct developmentideas the respondentsweighed in on, thatone ranked dead last.But I said, “You can’task a question of somebody who doesn’tunderstand the question and make adecision based upon their answer. Theydon’t know how good this stuff is goingto be – how it will change the way theyfly, change safety, change utility. They’rejust wrong.” I knew I was betting thecompany, and I said so. I also knew itwould be my head if it didn’t work.

I made things even harder for myselfby insisting that this great new technol-ogy would be standard on all our air-planes, including our base model. Iknew other people thought it should bea high-priced option – but my thinkingwas the complete opposite, that it hadto be for entry-level aircraft owners be-cause, by making it easier for them,we’d keep them in the game.

Anyone who’s passionate about thefuture of general aviation should see itthis way: When it’s easier to fly, peoplefly more often, and when they fly moreoften, they find they get better valueout of flying – and they stick with it.That benefits the whole industry. Theattitude of some pilots amazes me. I re-member one complaining to me after apresentation I did at the Oshkosh airshow in the mid-1990s.“If you do all thestuff you’re talking about,” he said,“then anybody will be able to fly.” I said,“Yeah, that’s the idea!”

You have to have passion to do some-thing industry changing – and not only

because there are so many skeptics. Youalso need it to get you through all thesetbacks. In so many businesses, there’sa tendency anytime something goeswrong to abandon the whole approachand go in another direction. There’s notenough passion, or perseverance, or con-viction that the basic idea is right. Peo-ple shrug and say,“Well, that didn’t work.

Let’s go and do some-thing different,”as op-posed to, “Well, thatdidn’t work, but whatabout it didn’t work?”

Not long after westarted Cirrus Design,we faced that kind of moment. It was aweek before Oshkosh,

and we were testing a prototype of ourfirst airplane. I did the test flight withone of the engineers, Dean Vogel, in theright seat. My brother and our chief en-gineer were in the chase airplane. Asone of the guys closed up the enginecompartment, he asked me if I wantedto wait while he put in some new fire ex-tinguishers. The airplane had automaticfire protection, but the fire protectionbottles had blown off the day beforewhen the engine overheated. I said “No,they’ll just blow off again.” I was saving$25 worth of fire extinguishers.

It was right after takeoff that thechase airplane came alongside, and Iheard the chief engineer yelling, “Fire!Fire! Fire!” We set the plane down in afield about a mile off the runway, gotout, and proceeded to watch it burn. Af-terwards we gathered everybody to-gether, maybe 20 of us, and went to thelocal Pizza Hut.“The good news,” I said,“is that it burned up completely – be-cause think how much work we’d haveto do this week if it were only dam-aged.” Everybody kind of laughed, andthen we talked about how to get backon track. As we were leaving, someonesaid,“I can’t believe it; I just assumed wewere out of business. I mean, we lost theprototype.”We said,“No, we still believewe’re right. There’s a market here, andwe understand the technology. We’regoing to make this work.”

It was right after takeoffthat the chase airplanecame alongside, and Iheard the chief engineeryelling, “Fire! Fire! Fire!”


ConvictionAlexander B. Cummings ([email protected]) is the president and chief operating officer

of the Coca-Cola Company’s Africa Group. He is based in Windsor, UK.

W

I was an experienced manager, hav-ing come from a company where I hadserved as CFO for the internationalbusiness. But until that point in my ca-reer, I can honestly say I had never feltso much pressure to reverse a deci-sion – to roll back prices. I was in some-what of a quandary; I would be put-ting my career at risk if the declines involume and market share persisted.

Despite the pressure, I was convincedthat in the medium to long term, thedecision would prove to be the rightone, both for the company and our bot-tler. We just needed the fortitude to rideout the short-term effects. I knew, too,that my leadership and credibility – aswell as any future influence – with thebottler would be severely damaged if Iretracted my decision. Finally, I trustedmy instincts and knew that my com-pany was in fact paying me to makecalls like this.

Fortunately, things did work out inthe end. After six tough months, the de-clines finally bottomed out. In thefourth quarter, the bottler began to seethe financial benefits. Ultimately, oureconomics changed for the better, aswell. Today, even though we have somechallenges in that market, the systemcontinues to benefit from that deci-sion. And just as I underestimated theshort-term negative effects, I also un-derestimated how much our relation-ship with the bottler would alsochange for the better. People there had

expected me to cave inunder the pressure. Butonce I held my ground,it was the beginning of a whole new chapter.Not only did the eco-nomics of the relation-ship shift but so did the psychology. We atthe Coca-Cola Company

had demonstrated that we understoodthe bottler’s challenges and were sup-portive of them. In the eyes of that im-portant business partner, and for mygrowth as a leader, seeing this tough de-cision through was indeed a definingmoment.



When you are a leader, but not theleader, of an enterprise, the tests of yourability come as strongly from above asthey do from below. Early in my dayswith Coca-Cola Africa, I made a deci-sion that I felt was a good one at thetime, but unfortunately the short-termresults were not proving me right. Quitethe contrary, my judgment was costingthe company volume and market share.I remember feeling intense pressure toreverse the decision and stem the losses.

Here was the situation: The Coca-Cola Company was at the time, as itstill is, a very competitive enterprise.Volume and share growth was para-mount; we wanted to see continuousincreases in the per capita consump-tion of our products. But I saw a situa-tion where that focus was taking a tollon the overall health of our businesssystem, especially for our indispensa-ble partners – our bottlers.

In a market with high inflation andcurrency devaluation, we had held price

for several years to maintain our growthmomentum. As a result, our bottler wasstruggling to make adequate returns. Inthe interest of overall system profitabil-ity, I made the unpopular decision toincrease prices. I firmly believed that itwas the right decision to serve our owncompany’s long-term interests, eventhough the primarybeneficiary of the priceincrease was the bot-tler. After much de-bate, I got agreementto proceed with thecontroversial, yet vital,price increase.

We all knew that thedecision would lead toa decline in volumes–but I hadn’t antic-ipated how dramatically they woulddrop. Even more worrisome, despite thefact that our competitor followed suitand raised its own prices within a fewweeks, we were also losing marketshare. The pressure began mounting.

Until that point in mycareer, I can honestlysay I had never feltso much pressure toreverse a decision.


TThe most difficult experience in mybusiness career came with the collapseof Arthur Andersen, a company atwhich I had worked for 25 years, andone that was once the leader in the con-sulting market. The demise of Andersenwas a traumatic experience not only forme but also for 800 workers of Ander-sen in Poland. We did survive; almostevery consultant from Andersen trans-ferred to Ernst & Young. I was able tokeep the team intact and maintain thetrust of our clients in the Polish consult-ing market.

This might not have been the casehad I not previously undergone a diffi-cult personal development experiencethat improved my managerial abilities.When I came to Poland in 1989 fromLondon, where I had worked for Ander-sen since I’d graduated from the Lon-don School of Economics, my job was tobuild the Polish Andersen office fromscratch. After a few years, we wereachieving great results and developinga client base more rapidly than ourcompetitors.

Unfortunately, our success went tomy head. Totally subconsciously, I grewto have a stronger and stronger feelingof my own infallibility. My friends saythat I became arrogant. I was terrificallyself-confident; I felt sure that I could doeverything. I even bought a Jaguar – acar that not many people in Polanddrove at that time.

I received a visit from my mentor,Manuel Soto, a creator of the SpanishAndersen, who was supervising the activity of the company in Europe.Manuel observed my behavior at workand said that as a company director Ihad strayed from the right leadershippath. I listened to him, of course, butwithout conviction.

Not long afterwards, our biggest cli-ent failed to pay us for two major deals.The loss caused me to lose face; I had

to explain myself to my bosses. Manueltook one look at me and scolded me:“Look what arrogance leads to. You pre-tended to be a superman; you were sureyou could do anything. And now you’reasking us for understanding and for-giveness.” He told me I had to change.I had to stop showing off and trying todominate people. I had to regain theirrespect. I had to rebuild the trust ofothers in me as a leader and supportthem during good and bad times. Headded that I shouldn’t overestimate thestrength of personal involvement inthe daily work of the team, because suc-cess springs from the team’s work.

This time I took the lesson to heart;I adopted a completely different leader-ship model. I tried to become an exam-ple for others. I set very high standardsfor myself, and I expected everyone todo likewise. I stopped simply giving in-structions, and I worked on the frontline with my people. I tried to build aculture in which the employees couldmake decisions quickly and would notbe afraid of challenges and possiblefailures.

The personal and behavioral changesthe team and I both made stood us ingood stead when Andersen was in trou-ble. Suddenly, everything my coworkersand I had spent so many years buildingwas about to fall apart. My leadershipwas put to the test. I didn’t know howmany people would stay with me orhow many would trust me during thehardest months, when we were negoti-ating the merger with E&Y and ourcompetitors were trying to buy ourconsultants. We managed, however, toemerge victorious from that trial, andtoday E&Y Poland is doing well.

And as for the Jaguar…that problemwas solved, too. The car was stolen.

Reprint R0701A

To order, see page 127.

LearningDuleep Aluwihare is the managing partner at the accounting firm Ernst & Young

in Warsaw, Poland.


E’S LEAVING THE BUILDING, and he’s taking Sweetie and Scotty with him,” reported the deep male voice coming through the cell phone in Anne Baxter’s hands. The HRdirector shot a quizzical look at Barker Foods’CEO, Colin

Anthony, who was sitting directly across from her, riflingthrough the papers strewn across his desk. Colin waved a handdismissively–the universal sign for “Let him go, let him go”–andAnne relayed the message. Doug Lothian, the just-fired nationalsales director of Barker’s chocolates and confections division,was being escorted out of the building by a security guard anda junior member of the human resources staff. Among the per-sonal belongings he was carrying out were framed animationcels of Sweetie and Scotty, the characters Barker Foods had fea-tured in its ad campaigns in the late 1950s and early 1960s. Sev-eral senior executives – the highest-performing managers in2004 – had received the collectibles as part of a holiday bonus,


Dan

iel V

asco

ncel

los

HBR CASE STUDY

“H

The Very Model of a Modern Senior ManagerShould all executives be cut from the same cloth? The head of HR thinks so – she’s alreadycreating a competency model for the organization – but the rest of the leadership team isn’t so sure.

by Mike Morrison

HBR’s cases, which are fictional, present common managerial dilemmas

and offer concrete solutions from experts.


and the prints were prized among theleadership group, mostly because onlya dozen or so existed.

“I’d just better not see them oneBay,” Colin remarked before turninghis attention back to the matter athand. Anne was there to debrief himon the schism in Sales, the company’slatest leadership crisis.

Doug had come up through theranks. Since he had impressed his su-pervisors as an aggressive local salesrep, they had put him through leader-ship training and promoted him to re-gional manager. After six years in that

role, eight product launches, and oneregime change, Doug was heading upnational sales, where his creativity andimpulsivity were considered both man-agerial strengths and potential weak-nesses. Just a year or so into Doug’stenure as national sales director, Barkerhad decided to relaunch several of itsclassic candy bars in a series of limited-edition flavors, hoping to breathe lifeinto the brand. As different functionsin the organization worked overtimeto implement the new strategy, Doug’simpulsive nature backfired on him: Hemade a batch of bad decisions abouthow to market the new products, en-gaged in some questionable selling be-haviors, and lost the confidence of hiscustomers and his sales team. Ulti-mately, he also lost his job.

“The next person in will have a lot ofbridging to do, externally and inter-nally,” Anne remarked as she finishedup her summary of the situation and

jotted down a few more notes in Doug’spersonnel file.

“We’ve taken a hit on Valentine’s Daysales – I don’t want the same thing tohappen with Easter,” Colin said withequal parts annoyance and resignation.“Who’s on deck?”

Kian Hesemeyer, the assistant direc-tor of national sales, looked like a goodcandidate for the interim. He’d beentrained and championed by Doug, buthis management style was less abra-sive, more inclusive. He’d fielded a lot ofthe sales reps’ complaints about Douganyway; and, Anne pointed out, Kian

was the one who brought HR in whenthings were breaking down.“The teamseems to trust him,” she said. She hadmore résumés and phone numbers inhand but set them aside. She admittedto Colin that she was wondering if shemight be able to use Doug’s situation asproof of concept for her ongoing leader-ship development project.“Here’s a per-fect example of why we need to defineexactly what we’re looking for from ourpeople at the top.”

Colin had been in on the initial dis-cussions about building a leadershipcompetency model at Barker Foods –a framework that would not only high-light the critical values, knowledge,and skills necessary to lead any of thedivisions of the consumer-packaged-goods company but also identify thecorresponding tasks, behaviors, andmeasures of success. There was mixedsupport for such a plan among themembers of the senior team. Colin, for

one, was interested in getting more databefore making any decisions.

“It does get back to what we weretalking about several months ago,” heresponded.“There are simply too manysenior managers operating on theirown agendas. The cowboy mentalitymight have worked ten years ago, butwe’ve grown exponentially since then,and the market is much more compet-itive. There’s just no room for rogueleaders.”

Despite the company’s recent per-sonnel issues, there was no doubt thatCleveland-based Barker was continu-ing to grow. Over the past 35 years, ithad expanded from a local confectionerwith 40 employees to a multinationalpackaged-foods producer with some65,000 employees in multiple officesand manufacturing plants worldwide.Barker was one of the top three choco-late makers in the world but alsoclaimed hefty shares of the marketsfor breakfast cereals and granola bars,fruit juices, ice cream novelties, and pre-pared frozen meals. The company (thechocolates and confections division inparticular) was continually pursuingnew branding partnerships – for in-stance, Barker’s recent lucrative place-ment of BigBark candies in the ani-mated film Bondo’s Big Adventures, andthe associated merchandising. In thepast year and a half, Barker had also ac-quired two smaller, family-owned candycompanies (one in Michigan and an-other in Nevada), hoping to use theirplants and technologies to launch a sep-arate manufacturing and services unitthat would cater to private-label brands.

Because of the attempts to expandquickly, Barker’s leadership develop-ment process had been reduced to tra-ditional training – which meant therewasn’t enough emphasis on how resultsshould be achieved. Barker offeredcomprehensive executive educationcourses and had created an in-depthcompany values document that waspart of every employee’s orientationpacket. But, from Anne’s perspective,there was nothing in the leadership de-velopment framework that explicitly


THE TESTS OF A LEADER | HBR CASE STUDY | The Very Model of a Modern Senior Manager

Mike Morrison ([email protected]) is the vice president and the dean of the

University of Toyota in Los Angeles. He is the author of The Other Side of the Card: Where Your

Authentic Leadership Story Begins (McGraw-Hill, 2006).

“There are simply too many senior managers operating

on their own agendas.The cowboy mentality might have

worked ten years ago, but we’ve grown exponentially

since then.”


tied the ways executives acted to therevenues they generated within theirdivisions.

Doug Lothian’s problems demon-strated precisely why there should besuch a framework. Doug’s natural ag-gressiveness translated into impa-tience: He hadn’t paid enough atten-tion to Marketing’s carefully designed

plan for a slow rollout of Barker’s newdark-chocolate-and-cherry BigBark bars.Additionally, his loose definition ofdynamic pricing confused retail cus-tomers and created ill will betweenthe manager and his sales reps. Thesales team was required to sell at pre-mium prices, while Doug was givingdeep discounts to customers he consid-ered critical. Some stores canceled theirorders; the bars weren’t selling well any-way because, the retailers thought,Barker hadn’t built enough buzz. Andincreasingly, none of the sales reps feltthey could have a productive conversa-tion with their manager.

As Colin sat there thinking aboutDoug’s missteps and the company’spursuit of a bigger share of the globalmarket, it became more and more obvi-ous to him that the organization’s un-derstanding of “leadership” neededsome refinement. The goal was to im-prove the quality of leadership – to en-hance individual and organizationalperformance and to attract even morehigh-level talent in the future. As Annehad said in a meeting with the topteam, the company couldn’t use gen-eral characteristics such as “ability tolead change” to define leadership com-petencies; the language Barker used totalk about its executives’ developmenthad to be more precise, tied to specificbehaviors and outcomes, and embed-ded in the culture.

Colin wondered how easy it would beto codify the higher-level capabilitiesnecessary to successfully head up anyof Barker’s diverse global units. Justthinking about his own ascendancy atthe company gave him pause; he’dworked for a wide variety of seniormanagers, all with their own styles ofcommunicating and negotiating. But

then, he reasoned, coming up with thelist was HR’s problem, not his.

Three months earlier, Anne and asmall team of colleagues from HR hadbeen given the green light by the execu-tive committee to research and create aprototype competency model. (The timeseemed right, since a different leader-ship crisis had recently gotten everyone’sattention: The head of IT’s bungling ofthe new inventory management systemrollout in the beverages division hadleft retailers understocked and underfire by customers demanding their bot-tles of Peachy Punch.) Anne’s grouphad been interviewing the 100 highest-performing midlevel and senior manag-ers across the organization and draftinga list of competencies required for suc-cess at Barker – skills that would hope-fully mesh with whatever strategicgoals Barker set forth. They were slatedto present their findings to Colin andthe rest of the executive committee by the end of the month.

“Competency models, leadershipscorecards, personality profiles – hell,bring in the tarot cards if you want,”Colin told Anne. “Do you think youcould do your presentation early? I’dreally like to make this a priority,” hesaid as he pinged his assistant to set upan Outlook appointment with KianHesemeyer.

“I’ll have something prepared by theend of next week,” Anne promised. She

dropped Kian’s file on Colin’s desk andthen headed back toward her office.She’d have to schedule and reschedulea lot of interviews.

Filling the MoldA few days later, Anne found herself inGrand Rapids, Michigan, about 300miles away from her office, hypnotizedby the sounds and glimmer of the extru-sion and enrobing machines and con-veyor belts, all in perpetual synchro-nized motion, and by the sweet smellsof warm sugar and vanilla. In the inter-est of time, she probably could have in-terviewed the executive from the re-cently acquired Colonial Sweets & Nutsover the phone. But the call of the cocoawas too much to resist; plus she’d havean opportunity to better acquaint her-self with one of the latest additions tothe Barker Foods family. Colonial wasof particular interest to Anne because,before it had been acquired, the com-pany had been using what she consid-ered a modified competency model,mostly as a mechanism for assessingline workers’ skills. That model focusedless on high-level leadership conceptsand more on the specific tasks and logis-tics involved with manufacturing.

She’d just had time to take in the at-mosphere – less Wonkalike and morewidgetlike than she’d hoped for – whenthe receptionist came over to escort herto the executive offices. They marchedpast the tour group standing by thehuge picture windows (“Why can’t theyhurry through this part and get to thesamples?” Anne overheard one teen-ager whisper to his friend) and up sev-eral short flights of stairs to the office ofZachary Colleton, chief operations offi-cer at Colonial. While Colin was laidback and Doug had been high-strung,Zachary was all business. As Anne en-tered the office, she tried a little smalltalk, joking that she’d never get any-thing done if she worked at the plant.Zachary responded with a polite smileand guided her to a chair across fromhis at the small round table in his office.“What was it you wanted to go over?”



“I think it’s dangerous to overdefine the capabilities a leader

should have – especially when the company is trying to

establish or reestablish itself in a bunch of different areas.”



When Anne asked Zachary about hiscompetency checklist, he replied,“Peo-ple on the floor understand what’s ex-pected of them and how what they dois helping the company. When they failin a task, there is a clear understandingof the why, when, and how. Similarly,when we’re hiring or promoting, weknow exactly what we’re looking for.”The checklist had been fairly easy tocompile: To add value to the organiza-tion, factory workers needed to be ontime, pay attention to detail, and com-municate well with supervisors andcolleagues; other skills were involvedtoo, of course, but those were the corecompetencies. Because the produc-tion work was relatively predictable,Zachary explained, the company rarelyhad to make adjustments to the list.

“If you were going to create a similarchecklist for someone at your level – afunctional manager, someone withP&L responsibility and direct reports –what would you put on it?” Anneasked.

Zachary paused for a second – afterall, he’d been under Barker’s umbrellaonly a short time, and this was his firsttime meeting the HR executive in per-son. “I’m not sure I’d put anything onit,” he said. “I think it’s dangerous tooverdefine the capabilities a leadershould have–especially when the com-pany is trying to establish or reestab-lish itself in a bunch of different areas.”As someone being charged with basi-cally creating a new business for BarkerFoods, Zachary felt strongly about thispoint. A competency model mightmake sense in certain divisions or func-tions, he said, but not in others.“I don’tthink it’s wise to oversimplify the worksenior executives do. At my level, it’s adifferent ball game.”

Anne had gotten similar feedbackfrom others – not just about the loss offlexibility organization-wide but alsoabout the loss of flexibility individualmanagers would have in groomingleaders within their units.“You’ll under-mine the spirit of entrepreneurshipand innovation that got us here andthat we need more of,” Barker’s CFO

had told her when she’d spoken withhim a month before.

Even so, other executives were aspassionate as Anne about the idea ofcreating a competency framework thatcould align organizational performancewith leaders’ selection, development,compensation and rewards, and succes-sion planning. The competencies couldnever be perfectly defined, the support-ers admitted, but the framework rep-resented an important starting point.

Many of the senior executiveswanted to avoid talking details. Theiridea of a competency framework wasone centered on values, like “commit-ment” and “respect,” not on specific be-haviors in those categories. Or theywanted to talk about high-level con-cepts like “continuous learning” and

“strategic thinking.” Some managerssaid that a willingness to learn and theability to quickly integrate any newknowledge into emerging-product de-velopment and marketing plans werecritical for success. Unfortunately, thiskind of discipline was largely absentfrom the urgent day-to-day realities ofthe business.

Anne was betting she could get thenaysayers to come aboard once theytook a closer look at the proposedmodel. It included traditional leader-ship capabilities – being self-aware, set-ting direction, leading change – as wellas the unique knowledge and skills re-quired of leaders in the consumer-goods industry and at Barker in partic-ular. Within each of these areas ofcompetency, the group had delineatedthree levels of capability, from noviceto expert, not just highlighting what todo but also describing real-world ac-tions and measures of success.

“I know there is concern about loss offlexibility–but believe it or not, some ofthat can actually be built into the frame-work,” Anne told Zachary. “Don’t youthink it could be helpful, particularly aswe’re expanding overseas, to give ourpeople in the senior ranks specific guide-lines and expectations for growth?”

Zachary raised his eyebrows slightly,thinking about how difficult it wouldbe to factor in the cultural differencesof leaders, along with their individualfunctional and unit responsibilities,when defining “the successful leader”at Barker Foods. But he said nothingmore.

Anne noticed that it was coming upon 3:00. She thanked Zachary for histime and feedback. In return, he gra-ciously offered the complete Colonial

factory tour, but a disappointed Anneknew she had a plane to catch.“Maybewe can just skip the tour part – and getto the samples?” she asked hopefully.

Breaking the Mold“Flexible. Intelligent. Snappy dresser,”Olivia Deckers scribbled on her yellownotepad before vehemently crossingout the line. The VP of supply chain forBarker’s chocolates and confectionsunit was sitting by herself at Rafe’sPub, a popular downtown lunch desti-nation for Barker employees, only ashort walk from the offices. “Kian’slate – as usual,” she thought, watchingthe steady flow of tables emptying andrefilling with people. She was gearingup for a powwow that afternoon withAnne Baxter to talk competencies.They’d had to reschedule the appoint-ment twice already–once because Annewas traveling, and again because, well,

Many of the senior executives wanted to avoid talking

details.Their idea of a competency framework was one

centered on values, like “commitment” and “respect,”

not on specific behaviors in those categories.


Olivia had hidden behind a “necessary”vendor meeting to put off the discus-sion. Truth be told, she wasn’t lookingforward to it.

She wasn’t against the concept ofbringing more consistency to the com-pany’s leadership development pro-cess. She just wondered if the payoffwould be worth all the work: A compe-tency framework would require con-stant monitoring to determine who

was living up to the standards. Therewould have to be 360-degree feed-back, interim discussions, and frequentupdates – which would require evenmore data gathering–all while the com-pany’s leadership needs kept changing.Frankly, she thought, there was justtoo much real work to do, with realdeadlines and dollars involved, to besidelined by what would seemingly be a Sisyphean task.

When Kian finally showed up tenminutes later, the two executives puttheir order in right away – a cheese-burger and fries for Kian, and a Cobbsalad for Olivia.

Olivia shared her concerns about thecompetency model. “You’ve been talk-ing directly to Colin – how serious doyou think he is about this whole thing?”she asked.

“The executive committee thoughtenough of the plan to have the meetingmoved up,” Kian said. “I’m not surewhere Colin’s coming from, but I doknow the whole Doug thing reallyticked him off. As we were going overnext steps and I was telling him myplans for mending fences, I could tell hewas trying really hard not to curse outDoug and put a hex on him forever.”

“I have my theories…” Olivia began.“I’m not surprised,” Kian responded

with a chuckle.

“This whole exercise is just anotheroverdesigned solution. We’re all sup-posed to feel like we’re doing some-thing important for our future – blah,blah, blah. In the end, it will have ab-solutely no impact on the business,”Olivia declared. Obviously, the HR de-partment would have to take the lead inmanaging any activities around thecompetency model, she reasoned – andAnne, especially, stood to gain because

of that. “She’d be right there, at thehead of the table,” Olivia said.

“This is about creating a systematicprocess for developing leaders,” Kiansaid, playing devil’s advocate.“You can’tblame Anne for positioning her depart-ment, and herself, as a kind of partnerin strategy. That’s what HR is supposedto do–hire and develop the right peopleso the company can execute its strategy.Nothing wrong with that.”

“I just don’t want to become a Step-ford executive.”

“I don’t think there’s any chance ofthat happening,” Kian said, subtly guid-ing his colleague’s hand away from hisplate of fries.

• • •Colin was on his way to the eighth-floorconference room, where Anne and herstaff would be holding court. The CEOhad only barely had time to go over thePowerPoint presentation and other ma-terials the HR team had circulated inadvance. He did know from casual con-versations with colleagues on the seniorteam that they were pretty evenly splitbetween supporting and opposing theuse of a senior-level competency model.

As he stepped into the elevator, Colinreflected on Barker’s recent leadershipcrises – and how the managers who’dstepped in to fix the messes in Sales andIT had differed so greatly from their

predecessors. Kian, for instance, had im-pressed the CEO with his calm, rational,intelligent decision making – quite acontrast to Doug’s hotheaded nature.But then, before personality flaws hadcaught up with Doug, the chocolatesand confections division had been post-ing terrific results under his leadership.Doug had been an effective leader atsome level, for some period of time,Colin thought.

The bell rang, and the black elevatordoors slid open. As he stepped on to theeighth floor, Colin noticed the fairlylarge print in front of him, hangingopposite the bank of elevators. It was apicture of Barker Foods founder andformer CEO Paulus Barker; he wasflanked by two employees–one dressedas Sweetie, the other as Scotty–smilingand waving benevolently as theyposed in front of corporate headquar-ters, circa 1963. Paulus Barker was a bril-liant but painfully shy man who alwaysused go-betweens (a secretary, an assis-tant VP, his limo driver) to communi-cate with others. His employees wereloyal to him, however. Through hisproxies, Paulus was remarkably fairand generous, handing out bonuschecks and boxes of sweets for employ-ees to take home to their families, aswell as other perks. He always encour-aged and celebrated people’s innova-tive ideas for new products and pro-cesses – even if he wasn’t always theone to shake hands.

Colin studied the print on the wallfor a minute and wondered: Whatwould Paulus Barker have thoughtabout competency modeling? If such aleadership development tool had ex-isted 40 or 50 years ago, would the manwho built Barker Foods from localplayer to multinational giant have evenmade the cut?

Colin kept turning those questionsround and round in his head as hestrode into the conference room.

Should Barker go forward with compe-tency modeling? • Four commentatorsoffer their expert advice beginning onpage 34.



If such a leadership development tool had existed 40 or 50

years ago, would the man who built Barker Foods from local

player to multinational giant have even made the cut?


Are you worried about losingyour leading edge?…

Advertorial

The fact that there are so many - successful - competing theories of leadership suggest there is no magic formula for the best way to lead. But whatever style you choose, the right tools and advice are crucial to being an effective leader in today’s turbulent business environment.

The landscape has changed dramatically in recent years. Globalisation, EU enlargement, the increasing influence of emerging economies such as China and India – each of these drivers has had significant effect, raising testing issues such as increasing protectionism, and new ways of sourcing supplies, developing skills and raising capital.

A key role of government is to facilitate access to world markets so that businesses can achieve the full potential benefits of international opportunities whether through trade, joint ventures or other forms of investment. The UK believes it is for business to seize opportunities and for government to create the environment in which business can flourish.

Managing and minimising risk is one of the most important roles of a business leader. Successful business leaders need to be able to foresee and manage the various risks and threats their companies face and governments that help them do so are also likely to provide the attractive

business environments required to generate business growth. Such environments tend to feature low regulatory burdens, relatively low taxation, a flexible workforce, access to world and market intelligence from a credible and authoritative source, and world-class R&D.

Strategic support for companies wishing to internationalise is key to enabling businesses to succeed, as is the provision of high quality, impartial advice to help inform the decision making process. Business leaders with access to excellent

market intelligence are more likely to be able to navigate around the threats that they face and take advantage of the opportunities.

Recognising this, UK Trade & Investment, the UK government organisation that provides advice and help for businesses worldwide in developing their global business growth strategies, is working in association with the Economist Intelligence Unit (EIU) in examining the key issues that drive the corporate agenda. The results make interesting reading.

To find out more about UK Trade & Investment, visit:

www.ukinvest.gov.uk

Advertisement



THE TESTS OF A LEADER | HBR CASE COMMENTARY | Should Barker Go Forward with Competency Modeling?

Reuben Mark is the chairmanand CEO of New York–basedColgate-Palmolive.

he central characters in this case study areaddressing the wrong problem. They’re

worried about “leadership competencies” –business jargon for the skills, behaviors, andexperiences managers need to succeed at anorganization. Instead they should be lookingmore closely at the culture of Barker Foods:How do employees relate to one another? Arethey honest with one another and with cus-tomers? Do the company’s leaders managewith respect?

Strong, successful leaders will flourish, atevery level of the organization and in every di-vision, in a caring and consistent culture. Cer-tainly, a checklist of desired behaviors can bea practical tool. It can help people understandwhat’s expected of them; it can also helpmanagers and supervisors coach people andgrow their careers. We use competencies atour company. But if you’re Colin Anthony orAnne Baxter and you try to suddenly imposea competency model – or, for that matter, anyleadership development tool or technique – ona cracked cultural foundation, the model willnever take hold.

Over the past few decades at Colgate-Palmolive, we have developed a framework for

what we call “personal leadership.” Within thisframework are two general types of organiza-tional competencies, defined with help frommanagers in most of our subsidiaries aroundthe world. There are the technical competen-cies, or the areas of functional and technicalexpertise, which differ from one job or depart-ment to the next. Then there are the leadershipcompetencies, or the skills that managersneed to create strategies, inspire and motivatepeople, bounce back from disappointments,and get results. The leadership competenciesare common across all functions. They includebehaviors such as “Set the example” and“Value unique contributions.”

Competencies are the glue that joins all ofour HR processes; they factor into our variousemployee training and development programs(about 110 worldwide) as well as our promotionand compensation decisions. But our frame-work wasn’t created in a vacuum, nor does itstand alone; it is grounded in our culture, thecentral tenet of which I’ve expressed at timesas “Love is a better motivator than fear.” Thesought-after skills, behaviors, and experiencesuphold our core values of caring, global team-work, and continuous improvement, and ourworkplace principle of managing with respect.They change as the business does – twice inthe past dozen years, in fact – but they are al-ways aligned with the culture.

The characters in this case study seem tooverlook the importance of culture and val-ues. The CEO is worried mostly about Valen-tine’s Day and Easter and seems less con-cerned about why he knows so little aboutwhat’s going on in Sales. Zachary Colleton of-fers Anne a tour of the Colonial factory, andshe declines because she doesn’t want tomiss her plane–yet she’s still wondering aboutgetting candy samples. Anne is essentially say-ing, “My schedule is more important thanthose of the hundreds of people who work atthis plant, and I don’t really care.” The inclusiveand respectful culture that the founder ofBarker Foods built over time is quickly beingdestroyed because of Colin’s inattention to it.If the CEO wants to create a culture of contin-uous improvement, he needs to make that,not competencies, his top priority. He musttake a closer look at how people act and inter-act – and surround himself with individualswho share his beliefs about the importance oforganizational culture. He might be able towork with Anne on this front.

In the English countryside, there are thesebeautiful green lawns that look as smooth asbilliard tables. A visitor asks a groundskeeper,“How can I get my lawn to look like yours?”And the groundskeeper says, “Well, first youroll it for 50 years.” Organizations are like that.Legacy and consistency matter. Competencymodeling, unless it’s rooted in an underlyingphilosophical belief, will be perceived as – andwill be – nothing more than business jargon.

T

If you try to suddenly impose a competency

model on a cracked cultural foundation,

the model will never take hold.

Wen

dy W

ray


…it all depends on what you know (and who you talk to).

Advertorial

The 2006 CEO Briefing survey1 of 555 senior executives found that executives in North and Latin America are increasingly looking overseas to achieve their strategic goals. The survey also highlighted the importance of globalisation to their strategic growth plans, with respondents expecting the proportion of revenue coming from overseas markets to rise by an average of more than 40 per cent over the next three years. Key challenges were to exploit growth opportunities in emerging markets and gain a better understanding of local customers.

More recently, an EIU report on protectionism2 – commissioned by UK Trade & Investment - found that C-level executives see protectionism as on the rise, particularly in developed markets. Interestingly it also found they are more reconciled to protectionism at home than overseas. A key recommendation to help firms cope with protectionism was increased localisation through strategic alliances and joint ventures. Fighting the right battle by addressing tomorrow’s trade barriers and wide lobbying against protectionist measures, especially as groups of firms, were also identified as key tactics.

But perhaps one of the most critical tests of leadership is the challenge that comes with managing multinationals.

An EIU report3 commissioned by UK Trade & Investment investigating this issue found that the level of decentralisation chosen depended critically on the quality of local leadership and management, withNorth American C-levels being more resistant to localisation than Asian. The business risks of localisation were recognised, and the inherent leadership challenges that more local control would bring.

UK Trade & Investment’s work with the EIU continues with the launch in January of the CEO Briefing survey 2007 highlighting issues that top board agendas. You can obtain a pdf of this report by pre-registering atwww.ukinvest.gov.uk/ceorequest

Depending on industry realities and local conditions, business leaders emphasise different challenges in the race to win the competitive game. In their differing contexts, national trade and investment organisations and consultants can play an important part in equipping leaders to meet some of the challenges that globalisation poses.

UK Trade & Investment has a key role to play here. Through its menu of services for high value businesses at all stages of the business planning cycle, high quality corporate white papers and unique network of investment and commercial advisers worldwide, UK Trade & Investment offers the contacts and knowledge to help equip leaders to win at the business game.

To find out how UK Trade & Investment can help you raise your game, visit:

www.ukinvest.gov.uk

1. EIU: CEO Briefing. Corporate priorities for 2006 and beyond. 2. EIU: Barriers to entry. Coping with protectionism. 3. EIU: Global dreams, local realities. The challenge of managing multinationals.

Advertisement


Rebecca Ray ([email protected]) is the seniorvice president for global learn-ing and organizational develop-ment at MasterCard Worldwidein New York.

f Colin Anthony wants to build a leadershipcompetency model just for the sake of it or

to appease HR, he shouldn’t even bother walk-ing into that conference room. If, however, he’slooking for a mechanism to help drive a conver-sation about what kinds of leaders BarkerFoods needs and wants; to align the seniorteam’s expectations for its managers; and tocreate a common language the top team canuse to seek, train, and assess high-performingexecutives–then he should be an active partic-ipant in the meeting.

An effective competency model considerstwo important dimensions: the “what” and the“how.” The “what” can look different at differ-ent levels of an organization. On the factoryfloor, a competency model can link job perfor-mance to quantifiable standards– line workersneed to be able to, say, move a specified num-ber of cartons with a certain percentage of ac-curacy. When you’re talking about the develop-ment of senior-level talent, the model has tobe more complex. It should still define skills,behaviors, and metrics but also carry additionalattributes or principles. For instance, if skill inachieving optimal results is one of the compe-tencies captured in the model, it needs to beaccompanied by a competency that enables it,such as proficiency in cultivating collaborationand consensus. If a leadership competency

model addresses both dimensions, it becomesan effective tool for holding people account-able and managing performance. If it doesn’t,a company can end up with mediocre perform-ers and sagging bottom-line results.

Even as it denotes a fixed set of leadershiprequirements, a competency model can bebuilt to accommodate different managerialstyles– for instance, multiple ways of inspiringothers or mentoring junior staffers. It can alsorecognize various types of “how.” (PaulusBarker might very well have passed musterhad he been assessed under a competencyframework.)

Meanwhile, an organization shouldn’t con-stantly tinker with its competency model. It’sbest to give a model time to settle in, to seewhat it looks like once it’s embedded and mani-fest in different processes. Consistency overtime is crucial.

If you build your competency model in-house, with some help from external profes-sionals and based on a comprehensive body ofresearch, you’re more likely to gain high ratesof participation and buy-in from senior leaders.You’re getting the top team to articulate itshopes and expectations for the company–andits best ideas for finding and shaping succes-sors. Before joining MasterCard, I helpedsales organizations assess, place, and traincandidates in retail branch-manager positionson Wall Street. To the degree that our programswere successful, it was because our frame-works reflected both the talent-developmentand frontline-execution perspectives.

Finally, the evangelism for a behavioral com-petency model must start from the top, witha CEO who publicly supports such a modeland is able to articulate its business value.MasterCard Worldwide built its competencymodel on existing leadership attributes andvalues before going public in May 2006. Wewanted to align our new strategy and the com-petency model. Our president and CEO, Bob

Selander, not only helped build the model butalso discussed it in-depth after the companywent public, explaining to employees how ourtalent-development strategy meshed with ouroverarching goals and values. He and our CFO,Chris McWilton, then jointly championed inter-active sessions so that employees would un-derstand our strategy, our financial models,and the MasterCard competency model.

Colin could learn a thing or two from bestpractices. He needs to get out of his currentreactionary mode and start thinking morestrategically about the company’s processesfor developing senior talent.

I

If you build your competency model in-house, you’re more likely

to gain high rates of participation and buy-in from senior leaders.




UK Trade & Investment

Your gateway to global growth

For the contacts and knowledge to help you win, visit:

www.ukinvest.gov.uk




George Manderlink ([email protected]) is a partner in Heidrick & Struggles Leadership Consulting. He is based in New York.

nough about Barker Foods has changed inits recent past – growth through acquisi-

tions, an increasingly diverse product mix, andgreater reach into international markets – thatthe requirements for successful leadershipat the organization have probably changed,too. The acquisition of several smaller compa-nies, for instance, has injected new skills, per-sonalities, bad habits, and best practices intothe business. The influx of new leadership tal-ent has its obvious upside but can also presentsteep challenges if that talent is not cultivatedand managed appropriately.

CEO Colin Anthony and the executive com-mittee need to take a closer look at Barker’ssenior-level bench strength and develop a lead-ership competency model. Otherwise, theleadership crises will continue to mount, andthe company will be drawn into a never-endingcycle of subpar performance. Evidence of thatis the likely appointment of Kian Hesemeyer tothe national sales manager’s slot. This is noth-ing more than “satisficing”–settling for a B-levelleader when what’s truly needed is an A player.A competency model that cuts across lines ofbusiness and functions would provide the ap-propriate data for identifying A-level leaders

(both internal and external candidates) and amore reliable framework for making decisionsabout who advances in the hierarchy, who getshired, and who gets fired.

Anne Baxter’s one-off, research-heavy ap-proach to creating a competency model maybe eliciting useful information about whichleadership requirements to include in the tool,but her process isn’t engendering enough dia-logue among the senior team about why lead-ership needs to be an agenda item right now.It may not be too late for her to change course:She could gather together Barker’s senior lead-ers to talk about the company’s major strategicchallenges, how well-equipped the leaders

across the organization are to handle thosechallenges, and how prepared they will be forany future challenges. This kind of collabora-tion would undoubtedly result in more buy-infor a leadership competency model than wouldeven a stellar presentation by Anne.

In their individual interviews with Anne andher team, some Barker executives raised con-cerns about how competency models arebuilt and used–chief among them, oversimpli-fication and loss of flexibility. Experience andresearch demonstrate that leaders in today’slarge and complex businesses rely heavily onseveral types of proficiencies – including cer-tain cognitive and intellectual capabilities (suchas conceptual and analytical thinking), the abil-ity to engage and motivate people, and theability to execute strategy. You’ll find thesethemes in practically any company’s leadershipcompetency model, but they are weighted dif-ferently in organizations, depending on strat-egy and culture. An executive competency inthinking creatively, for instance, figures promi-nently in high tech and media. In pharmaceuti-cal firms, a competency in managing innova-tion processes is more important.

Moreover, companies that do an excellentjob of building useful competency models drilldeep when defining their terms – all the waydown to a specific list of observable behaviors.The competency models of two companiesthat value innovation-process managementmay include substantially different desired be-haviors. In one company, the critical leadershipactions may be process oriented; in the other,they may be more socially oriented.

The “one size doesn’t fit all” argumentagainst competency models is often a red her-ring pulled out by units that feel threatened bythe potential loss of autonomy. Companies asdiverse as GE and PepsiCo have used internallyconsistent behavioral competency models todevelop strong leaders – executives who showmastery of unit-specific competencies as wellas organization- and industry-related skills.

Colin really needed this HR intervention.Through collaborative discussions facilitatedby Anne, the executive team can develop a ro-bust vision of how senior leaders at BarkerFoods will need to behave to succeed.

E

The “one size doesn’t fit all” argument is often

a red herring pulled out by units that feel

threatened by the potential loss of autonomy.



arker Foods needs to cultivate a system-atic method for growing great leaders. The

company’s focus on individuals as leaders,rather than on leadership development as anorganizational capability, has created mixed results: Some executives rise to the require-ments of their jobs; others, like Doug Lothian,don’t. When leaders fail, CEO Colin Anthonyand the human resources team are left scram-bling. Although an exceptional individual leadercan deliver outstanding results for a while, hemay not be very good at creating a process tohelp other people in his group grow and de-velop. Without a disciplined approach to creat-ing next-generation leaders, organizational per-formance may suffer.

Top management would do well to adopt a senior-level competency model–one that de-notes the essential knowledge, skills, and val-ues required of those in leadership positions atBarker Foods, as well as the means for assess-ing and improving those attributes. Such a toolcould have served as a valuable reality checkbefore Doug moved up the ranks into manage-ment. His creativity and impulsivity helped himsucceed in the field, but those same traits laterprevented him from taking a broader view ofhis role as a team leader and building stabilityand continuity into his division.

A successful competency model has twoparts. It certainly needs to specify the leader-ship fundamentals – that is, the particular per-sonal attributes necessary for an individual toearn and maintain credibility and the abilitiesrequired to be a strategist, executor, talentmanager, and human capital developer (oftenall at once). These fundamentals become thecompany’s leadership code. But the modelalso needs to go beyond the basics to defineand support the organization’s “leadershipbrand” – that is, the company’s standard forhow leaders at all levels will turn customerexpectations into employee and organizationbehaviors. So while it’s important to engageinternal constituencies in defining leadershipcompetencies, as HR director Anne Baxter hasdone, it is just as important to engage custom-ers in this process.

Anne should organize a meeting with cus-tomers who are critical to Barker’s future and

ask how they expect Barker’s leaders to be-have. (For instance, they probably would haveexpected Doug to follow through with Market-ing’s plan for building buzz for the new line ofBigBark candies rather than act on his own.)When customers’ expectations are baked intothe leadership brand and into the competencymodel, senior leaders will be encouraged to actin ways that will best serve customers andthe organization in the long term. Involving cus-tomers in the process can therefore turn a generic competency model into a businessproposition. The model then also becomes a useful decision-making tool for the seniorteam: who to hire, who to train, how to train,how to allocate compensation, and so on. Witha complete competency model, Barker Foodswould enjoy smoother transitions during leader-ship changes and a deep, highly skilled pool oftalent.

Even if Anne’s competency model is ap-proved by the executive committee – and I’mnot entirely sure she’s built up enough supportfor it – there are signals that it may not be

deployed effectively. Colin and the rest of theexecutive committee have been only minimallyinvolved in its development, and the CEOmade the issue a priority only in the wake of a crisis in Sales. Anne should not have topresent a de facto model. Instead, she shouldbe the facilitator of a collaborative effort – oneowned by Colin but with input from the entireexecutive committee. The CEO can’t afford tojust assign others to draft a generic leadershipcompetency model. He needs to be an activeparticipant.

Reprint R0701B

Reprint Case only R0701X

Reprint Commentary only R0701Z


B

Involving customers in the process

can turn a generic competency

model into a business proposition.

Dave Ulrich ([email protected])is a partner and a cofounder ofthe RBL Group, a leadershipdevelopment and human re-source consultancy in Provo,Utah. He is also a professor of business administration atthe University of Michigan’sRoss School of Business inAnn Arbor.



Fred

Rix

THE TESTS OF A LEADER | MANAGING YOURSELF

HEN HENRIK BALMER be-came the production man-ager and a board memberof a newly bought-out cos-

metics firm, improving his network wasthe last thing on his mind. The mainproblem he faced was time: Wherewould he find the hours to guide histeam through a major upgrade of theproduction process and then thinkabout strategic issues like expandingthe business? The only way he couldcarve out time and still get home tohis family at a decent hour was to lockhimself – literally – in his office. Mean-while, there were day-to-day issues toresolve, like a recurring conflict withhis sales director over custom ordersthat compromised production effi-

ciency. Networking, which Henrik de-fined as the unpleasant task of tradingfavors with strangers, was a luxury hecould not afford. But when a new acqui-sition was presented at a board meetingwithout his input, he abruptly realizedhe was out of the loop – not just insidethe company, but outside, too–at a mo-ment when his future in the companywas at stake.

Henrik’s case is not unusual. Over thepast two years, we have been followinga cohort of 30 managers making theirway through what we call the leader-ship transition, an inflection point intheir careers that challenges them to re-think both themselves and their roles.In the process, we’ve found that net-working – creating a fabric of personalcontacts who will provide support, feed-back, insight, resources, and informa-tion–is simultaneously one of the mostself-evident and one of the most dreadeddevelopmental challenges that aspiringleaders must address.

Their discomfort is understandable.Typically, managers rise through the

How Leaders Create and Use NetworksSuccessful leaders have a nose for opportunity and a knackfor knowing whom to tap to get things done. These qualitiesdepend on a set of strategic networking skills thatnonleaders rarely possess.

by Herminia Ibarra and Mark Hunter

W



ranks by dint of a strong command ofthe technical elements of their jobs anda nose-to-the-grindstone focus on ac-complishing their teams’ objectives.When challenged to move beyond theirfunctional specialties and address stra-tegic issues facing the overall business,many managers do not immediatelygrasp that this will involve relational –not analytical–tasks. Nor do they easilyunderstand that exchanges and interac-tions with a diverse array of current andpotential stakeholders are not distrac-tions from their “real work” but are ac-tually at the heart of their new leader-ship roles.

Like Henrik (whose identity we’vedisguised, along with all the other man-agers we describe here), a majority ofthe managers we work with say thatthey find networking insincere or ma-nipulative – at best, an elegant way ofusing people. Not surprisingly, for everymanager who instinctively constructsand maintains a useful network, we seeseveral who struggle to overcome thisinnate resistance. Yet the alternative to

networking is to fail–either in reachingfor a leadership position or in succeed-ing at it.

Watching our emerging leaders ap-proach this daunting task, we discov-ered that three distinct but interdepen-dent forms of networking–operational,personal, and strategic – played a vitalrole in their transitions. The first helpedthem manage current internal respon-sibilities, the second boosted their personal development, and the thirdopened their eyes to new business di-rections and the stakeholders theywould need to enlist. While our manag-ers differed in how well they pursuedoperational and personal networking,we discovered that almost all of themunderutilized strategic networking. Inthis article, we describe key features ofeach networking form (summarized inthe exhibit “The Three Forms of Net-working”) and, using our managers’ ex-periences, explain how a three-prongednetworking strategy can become partand parcel of a new leader’s develop-ment plan.

Operational NetworkingAll managers need to build good work-ing relationships with the people whocan help them do their jobs. The num-ber and breadth of people involved canbe impressive – such operational net-works include not only direct reportsand superiors but also peers within anoperational unit, other internal playerswith the power to block or support aproject, and key outsiders such as sup-pliers, distributors, and customers. Thepurpose of this type of networking is toensure coordination and cooperationamong people who have to know andtrust one another in order to accom-plish their immediate tasks. That isn’talways easy, but it is relatively straight-forward, because the task provides focusand a clear criterion for membership in the network: Either you’re necessaryto the job and helping to get it done, oryou’re not.

Although operational networkingwas the form that came most naturallyto the managers we studied, nearlyevery one had important blind spots re-garding people and groups they de-pended on to make things happen. Inone case, Alistair, an accounting man-ager who worked in an entrepreneurialfirm with several hundred employees,was suddenly promoted by the com-pany’s founder to financial director andgiven a seat on the board. He was boththe youngest and the least-experiencedboard member, and his instinctive re-sponse to these new responsibilities wasto reestablish his functional credentials.Acting on a hint from the founder thatthe company might go public, Alistairundertook a reorganization of the ac-counting department that would en-able the books to withstand close scru-tiny. Alistair succeeded brilliantly inupgrading his team’s capabilities, but hemissed the fact that only a minority ofthe seven-person board shared thefounder’s ambition. A year into Alis-tair’s tenure, discussion about whetherto take the company public polarizedthe board, and he discovered that allthat time cleaning up the books might


have been better spent sounding out hiscodirectors.

One of the problems with an exclu-sive reliance on operational networks is that they are usually geared towardmeeting objectives as assigned, not to-ward asking the strategic question,“What should we be doing?” By thesame token, managers do not exerciseas much personal choice in assemblingoperational relationships as they do inweaving personal and strategic net-works, because to a large extent theright relationships are prescribed by thejob and organizational structure. Thus,most operational networking occurs

within an organization, and ties are de-termined in large part by routine, short-term demands. Relationships formedwith outsiders, such as board members,customers, and regulators, are directlytask-related and tend to be boundedand constrained by demands deter-mined at a higher level. Of course, an in-dividual manager can choose to deepenand develop the ties to different ex-tents, and all managers exercise discre-tion over who gets priority attention.It’s the quality of relationships–the rap-port and mutual trust – that gives anoperational network its power. None-theless, the substantial constraints onnetwork membership mean these con-nections are unlikely to deliver valueto managers beyond assistance with thetask at hand.

The typical manager in our groupwas more concerned with sustainingcooperation within the existing net-work than with building relationshipsto face nonroutine or unforeseen chal-lenges. But as a manager moves into a


THE TESTS OF A LEADER | MANAGING YOURSELF | How Leaders Create and Use Networks

Herminia Ibarra ([email protected]) is the Insead Chaired Professor of Organizational Behavior at Insead in Fontainebleau, France,

where she also directs the Leadership Transition, an executive program for managers moving into broader leadership roles. Her most recent book

is Working Identity: Unconventional Strategies for Reinventing Your Career (Harvard Business School Press, 2003). Mark Hunter (mark.hunter@

insead.edu) is an investigative journalist and an adjunct professor of communications at Insead. He is the author of The Passions of Men: Work

and Love in the Age of Stress (Putnam, 1988).

leadership role, his or her network mustreorient itself externally and toward thefuture.

Personal Networking We observed that once aspiring leaderslike Alistair awaken to the dangers of anexcessively internal focus, they begin toseek kindred spirits outside their orga-nizations. Simultaneously, they becomeaware of the limitations of their socialskills, such as a lack of knowledge aboutprofessional domains beyond theirown, which makes it difficult for themto find common ground with people

outside their usual circles. Through pro-fessional associations, alumni groups,clubs, and personal interest communi-ties, managers gain new perspectivesthat allow them to advance in their ca-reers. This is what we mean by personalnetworking.

Many of the managers we studyquestion why they should spend pre-cious time on an activity so indirectlyrelated to the work at hand. Why widenone’s circle of casual acquaintanceswhen there isn’t time even for urgenttasks? The answer is that these contactsprovide important referrals, informa-tion, and, often, developmental supportsuch as coaching and mentoring. Anewly appointed factory director, forexample, faced with a turnaround-or-close-down situation that was paralyz-ing his staff, joined a business organiza-tion – and through it met a lawyer whobecame his counsel in the turnaround.Buoyed by his success, he networkedwithin his company’s headquarters insearch of someone who had dealt with

a similar crisis. Eventually, he found twomentors.

A personal network can also be a safespace for personal development and as such can provide a foundation forstrategic networking. The experience ofTimothy, a principal in a midsize soft-ware company, is a good example. Likehis father, Timothy stuttered. When hehad the opportunity to prepare formeetings, his stutter was not an issue,but spontaneous encounters inside andoutside the company were dreadfullypainful. To solve this problem, he beganaccepting at least two invitations perweek to the social gatherings he had as-siduously ignored before. Before eachevent, he asked who else had been in-vited and did background research onthe other guests so that he could initi-ate conversations. The hardest part, hesaid, was “getting through the door.”Once inside, his interest in the conver-sations helped him forget himself andmaster his stutter. As his stutter dimin-ished, he also applied himself to net-working across his company, whereaspreviously he had taken refuge in histechnical expertise. Like Timothy, sev-eral of our emerging leaders success-fully used personal networking as a rel-atively safe way to expose problems andseek insight into solutions–safe, that is,compared with strategic networking, inwhich the stakes are far higher.

Personal networks are largely exter-nal, made up of discretionary links topeople with whom we have somethingin common. As a result, what makes apersonal network powerful is its refer-ral potential. According to the famoussix degrees of separation principle, ourpersonal contacts are valuable to the ex-tent that they help us reach, in as fewconnections as possible, the far-off per-son who has the information we need.

In watching managers struggle towiden their professional relationships

As a manager moves into a leadership role, his or her

network must reorient itself externally and toward the future.



in ways that feel both natural and legit-imate to them, we repeatedly saw themshift their time and energy from opera-tional to personal networking. For peo-ple who have rarely looked outsidetheir organizations, this is an importantfirst step, one that fosters a deeper un-derstanding of themselves and the en-vironments in which they move. Ulti-mately, however, personal networkingalone won’t propel managers throughthe leadership transition. Aspiring lead-ers may find people who awaken newinterests but fail to become comfort-able with the power players at the levelabove them. Or they may achieve newinfluence within a professional commu-nity but fail to harness those ties in theservice of organizational goals. That’swhy managers who know they need todevelop their networking skills, andmake a real effort to do so, nonethelessmay end up feeling like they havewasted their time and energy. As we’llsee, personal networking will not help a manager through the leadership tran-sition unless he or she learns how tobring those connections to bear on or-ganizational strategy.

Strategic Networking When managers begin the delicate tran-sition from functional manager to busi-ness leader, they must start to concernthemselves with broad strategic issues.Lateral and vertical relationships withother functional and business unit man-agers – all people outside their imme-diate control – become a lifeline for fig-uring out how their own contributionsfit into the big picture. Thus strategicnetworking plugs the aspiring leaderinto a set of relationships and informa-tion sources that collectively embodythe power to achieve personal and orga-nizational goals.

Operating beside players with di-verse affiliations, backgrounds, objec-tives, and incentives requires a managerto formulate business rather than func-tional objectives, and to work throughthe coalitions and networks needed tosell ideas and compete for resources.Consider Sophie, a manager who, afterrising steadily through the ranks in lo-gistics and distribution, was stupefied to learn that the CEO was considering aradical reorganization of her function

that would strip her of some responsi-bilities. Rewarded to date for incremen-tal annual improvements, she had failedto notice shifting priorities in the widermarket and the resulting internal shuf-fle for resources and power at thehigher levels of her company. Althoughshe had built a loyal, high-performingteam, she had few relationships outsideher group to help her anticipate thenew imperatives, let alone give herideas about how to respond. After sheargued that distribution issues were herpurview, and failed to be persuasive, shehired consultants to help her prepare acounterproposal. But Sophie’s boss sim-ply concluded that she lacked a broad,longer-term business perspective. Frus-trated, Sophie contemplated leavingthe company. Only after some patientcoaching from a senior manager did sheunderstand that she had to get out ofher unit and start talking to opinionleaders inside and outside the companyto form a sellable plan for the future.

What differentiates a leader from amanager, research tells us, is the abilityto figure out where to go and to enlistthe people and groups necessary to get

THE THREE FORMS OF NETWORKING

Managers who think they are adept at networking are often operating only at an operational or personal level. Effective leaders learn to employ networks for strategic purposes.

Operational

Getting work done efficiently;maintaining the capacities andfunctions required of the group.

Contacts are mostly internal andoriented toward current demands.

Key contacts are relatively nondis-cretionary; they are prescribedmostly by the task and organiza-tional structure, so it is very clearwho is relevant.

Depth: building strong working relationships.

Personal

Enhancing personal and profes-sional development; providing referrals to useful information and contacts.

Contacts are mostly external andoriented toward current interestsand future potential interests.

Key contacts are mostly discre-tionary; it is not always clear who is relevant.

Breadth: reaching out to contactswho can make referrals.

Strategic

Figuring out future priorities andchallenges; getting stakeholdersupport for them.

Contacts are internal and externaland oriented toward the future.

Key contacts follow from thestrategic context and the organi-zational environment, but specificmembership is discretionary; it isnot always clear who is relevant.

Leverage: creating inside-outsidelinks.

Purpose

Location and tem-poral orientation

Players and recruitment

Network attributesand key behaviors


Strategic networking can be difficultfor emerging leaders because it absorbsa significant amount of the time and energy that managers usually devote to meeting their many operational de-mands. This is one reason why manymanagers drop their strategic network-ing precisely when they need it most:when their units are in trouble and onlyoutside support can rescue them. Thetrick is not to hide in the operationalnetwork but to develop it into a morestrategic one.

One manager we studied, for exam-ple, used lateral and functional contactsthroughout his firm to resolve ten-sions with his boss that resulted fromsubstantial differences in style and stra-tegic approaches between the two. Tieddown in operational chores at a distantlocation, the manager had lost contactwith headquarters. He resolved the sit-uation by simultaneously obliging hisdirect reports to take on more of thelocal management effort and sendingmessages through his network thatwould help bring him back into theloop with the boss.

Operational, personal, and strategicnetworks are not mutually exclusive.One manager we studied used his per-sonal passion, hunting, to meet peoplefrom professions as diverse as stone-masonry and household moving. Al-most none of these hunting friends hadanything to do with his work in the con-sumer electronics industry, yet they allhad to deal with one of his own dailyconcerns: customer relations. Hearingabout their problems and techniquesallowed him to view his own from adifferent perspective and helped himdefine principles that he could test inhis work. Ultimately, what began as apersonal network of hunting partnersbecame operationally and strategicallyvaluable to this manager. The key washis ability to build inside-outside linksfor maximum leverage. But we’ve seenothers who avoided networking, orfailed at it, because they let interper-sonal chemistry, not strategic needs,determine which relationships theycultivated.



there. Recruiting stakeholders, lining upallies and sympathizers, diagnosing thepolitical landscape, and brokering con-versations among unconnected partiesare all part of a leader’s job. As they stepup to the leadership transition, somemanagers accept their growing depen-dence on others and seek to transformit into mutual influence. Others dismisssuch work as “political” and, as a result,undermine their ability to advancetheir goals.

Several of the participants in oursample chose the latter approach, justi-fying their choice as a matter of per-sonal values and integrity. In one case,Jody, who managed a department in a large company under what she de-scribed as “dysfunctional” leadership,refused even to try to activate her ex-tensive network within the firm wheninternal adversaries took over key func-tions of her unit. When we asked herwhy she didn’t seek help from anyonein the organization to stop this coup,she replied that she refused to play “stu-pid political games….You can only do

what you think is the ethical and rightthing from your perspective.” Stupid ornot, those games cost her the respectand support of her direct reports andcoworkers, who hesitated to followsomeone they perceived as unwilling todefend herself. Eventually she had nochoice but to leave.

The key to a good strategic networkis leverage: the ability to marshal infor-mation, support, and resources fromone sector of a network to achieve re-sults in another. Strategic networkersuse indirect influence, convincing oneperson in the network to get someoneelse, who is not in the network, to takea needed action. Moreover, strategicnetworkers don’t just influence their re-lational environment; they shape it intheir own image by moving and hiringsubordinates, changing suppliers andsources of financing, lobbying to placeallies in peer positions, and even re-structuring their boards to create net-works favorable to their business goals.Jody abjured such tactics, but her adver-saries did not.


Just Do It The word “work” is part of networking,and it is not easy work, because it in-volves reaching outside the borders of a manager’s comfort zone. How, then,can managers lessen the pain and in-crease the gain? The trick is to leveragethe elements from each domain of net-working into the others – to seek outpersonal contacts who can be objective,strategic counselors, for example, or totransform colleagues in adjacent func-tions into a constituency. Above all,many managers will need to changetheir attitudes about the legitimacy andnecessity of networking.

Mind your mind-set. In our ongoingdiscussions with managers learning toimprove their networking skills, weoften hear, “That’s all well and good,but I already have a day job.” Others,like Jody, consider working through networks a way to rely on “whom youknow” rather than “what you know” –a hypocritical, even unethical way toget things done. Whatever the reason,when aspiring leaders do not believethat networking is one of the most im-portant requirements of their new jobs,they will not allocate enough time andeffort to see it pay off.

The best solution we’ve seen to thistrap is a good role model. Many times,what appears to be unpalatable or un-productive behavior takes on a newlight when a person you respect does itwell and ethically. For example, GabrielChenard, general manager for Europeof a group of consumer product brands,learned from the previous general man-ager how to take advantage of branchvisits to solidify his relationships withemployees and customers. Every flightand car trip became a venue for catch-ing up and building relationships withthe people who were accompanyinghim. Watching how much his boss gotdone on what would otherwise bedowntime, Gabriel adopted the practiceas a crucial part of his own manage-ment style. Networking effectively andethically, like any other tacit skill, is amatter of judgment and intuition. We

You can’t outrun change, but you can outthink it.

Executive Development Program:Transition to General Management

April 15-27

The Columbia Senior Executive ProgramApril 29-May 25

New: Managing Strategic AccountsMay 15-17

To learn more: www.gsb.columbia.edu/execed/HBRor call (212) 854-0616

You can’t just wait for change. You have to confront it head on.

Sharpen your skills in the Columbia Business School Executive

Education Programs. Together with the Columbia Business School

faculty and peers from around the globe, you’ll maximize your

effectiveness, enhance your managerial skills, and take on the issues

of our rapidly changing world. There’s no time to wait. Join us.


learn by observing and getting feed-back from those for whom it’s secondnature.

Work from the outside in. One of themost daunting aspects of strategic net-working is that there often seems to beno natural “excuse” for making contactwith a more senior person outside one’sfunction or business unit. It’s difficult to build a relationship with anyone, letalone a senior executive, without a rea-son for interacting, like a common taskor a shared purpose.



Some successful managers find com-mon ground from the outside in–by, forinstance, transposing a personal interestinto the strategic domain. Linda Hen-derson is a good example. An invest-ment banker responsible for a group ofmedia industry clients, she always won-dered how to connect to some of her se-nior colleagues who served other indus-tries. She resolved to make time for anextracurricular passion–the theater–ina way that would enhance her businessdevelopment activities. Four times a

year, her secretary booked a buffet din-ner at a downtown hotel and reserved a block of theater tickets. Key clientswere invited. Through these events,Linda not only developed her own busi-ness but also learned about her clients’companies in a way that generatedideas for other parts of her firm, thusenabling her to engage with colleagues.

Other managers build outside-insideconnections by using their functionalinterests or expertise. For example, com-munities of practice exist (or can easilybe created on the Internet) in almostevery area of business from brand man-agement to Six Sigma to global strategy.Savvy managers reach out to kindredspirits outside their organizations tocontribute and multiply their knowl-edge; the information they glean, inmore cases than not,becomes the “hook”for making internal connections.

Re-allocate your time. If an aspiringleader has not yet mastered the art ofdelegation, he or she will find many rea-sons not to spend time networking. Par-ticipating in formal and informal meet-ings with people in other units takestime away from functional responsibil-ities and internal team affairs. Betweenthe obvious payoff of a task accom-plished and the ambiguous, often de-layed rewards of networking, naivemanagers repeatedly choose the for-mer. The less they practice networking,the less efficient at it they become, andthe vicious cycle continues.

Henrik, the production manager andboard member we described earlier, forexample, did what he needed to do inorder to prepare for board meetings butdid not associate with fellow boardmembers outside those formal events.As a result, he was frequently surprisedwhen other board members raised is-sues at the heart of his role. In contrast,effective business leaders spend a lot of time every day gathering the infor-mation they need to meet their goals,relying on informal discussions with alot of people who are not necessarily incharge of an issue or task. They networkin order to obtain information continu-ally, not just at formal meetings.

FROM FUNCTIONAL MANAGER TO BUSINESS LEADER:HOW COMPANIES CAN HELP

Executives who oversee management development know how to spot critical inflection points: the moments when highly successful people must change theirperspective on what is important and, accordingly, how they spend their time.Many organizations still promote people on the basis of their performance in roleswhose requirements differ dramatically from those of leadership roles. And manynew leaders feel that they are going it alone, without coaching or guidance. Bybeing sensitive to the fact that most strong technical or functional managers lackthe capabilities required to build strategic networks that advance their personal andprofessional goals, human resources and learning professionals can take steps tohelp in this important area.

For example, Genesis Park, an innovative in-house leadership development program at PricewaterhouseCoopers, focuses explicitly on building networks. Thefive-month program, during which participants are released from their client re-sponsibilities, includes business case development, strategic projects, team build-ing, change management projects, and in-depth discussions with business leadersfrom inside and outside the company. The young leaders who participate end upwith a strong internal-external nexus of ties to support them as their careersevolve.

Companies that recognize the importance of leadership networking can also doa lot to help people overcome their innate discomfort by creating natural ways forthem to extend their networks. When Nissan CEO Carlos Ghosn sought to breakdown crippling internal barriers at the company, he created cross-functional teamsof middle managers from diverse units and charged them with proposing solu-tions to problems ranging from supply costs to product design. Nissan subse-quently institutionalized the teams, not just as a way to solve problems but also to encourage lateral networks. Rather than avoid the extra work, aspiring leadersask for these assignments.

Most professional development is based on the notion that successful peopleacquire new role-appropriate skills as they move up the hierarchy. But making thetransition from manager to leader requires subtraction as well as addition: To makeroom for new competencies, managers must rely less on their older, well-honedskills. To do so, they must change their perspective on how to add value and whatto contribute. Eventually, they must also transform how they think and who theyare. Companies that help their top talent reinvent themselves will better preparethem for a successful leadership transition.


Ask and you shall receive. Manymanagers equate having a good net-work with having a large database ofcontacts, or attending high-profile pro-fessional conferences and events. Infact, we’ve seen people kick off a net-working initiative by improving theirrecord keeping or adopting a networkmanagement tool. But they falter at thenext step – picking up the phone. In-stead, they wait until they need some-thing badly. The best networkers do ex-actly the opposite: They take everyopportunity to give to, and receive

from, the network, whether they needhelp or not.

A network lives and thrives onlywhen it is used. A good way to begin is to make a simple request or take theinitiative to connect two people whowould benefit from meeting each other.Doing something – anything – gets theball rolling and builds confidence thatone does, in fact, have something tocontribute.

Stick to it. It takes a while to reap thebenefits of networking. We have seenmany managers resolve to put network-ing at the top of their agendas, only tobe derailed by the first crisis that comesalong. One example is Harris Roberts,a regulatory affairs expert who realizedhe needed a broader network to achievehis goal of becoming a business unitmanager. To force himself into what feltlike an “unnatural act,” Harris volun-teered to be the liaison for his businessschool cohort’s alumni network. But sixmonths later, when a major new-drugapproval process overwhelmed his cal-endar, Harris dropped all outside activ-ities. Two years later, he found himselfout of touch and still a functional man-ager. He failed to recognize that by nottaking the time to attend industry con-

ferences or compare notes with hispeers, he was missing out on the strate-gic perspective and information thatwould make him a more attractive can-didate for promotion.

Building a leadership network is lessa matter of skill than of will. When firstefforts do not bring quick rewards,some may simply conclude that net-working isn’t among their talents. Butnetworking is not a talent; nor does itrequire a gregarious, extroverted per-sonality. It is a skill, one that takes prac-tice. We have seen over and over again

that people who work at networkingcan learn not only how to do it wellbut also how to enjoy it. And they tendto be more successful in their careersthan those who fail to leverage exter-nal ties or insist on defining their jobsnarrowly.

Making a successful leadership tran-sition requires a shift from the confinesof a clearly defined operational net-work. Aspiring leaders must learn tobuild and use strategic networks thatcross organizational and functionalboundaries, and then link them up innovel and innovative ways. It is a chal-lenge to make the leap from a lifetimeof functional contributions and hands-on control to the ambiguous process ofbuilding and working through net-works. Leaders must find new ways ofdefining themselves and develop newrelationships to anchor and feed theiremerging personas. They must also ac-cept that networking is one of the mostimportant requirements of their newleadership roles and continue to allo-cate enough time and effort to see itpay off.

Reprint R0701C; HBR OnPoint 1727


Savvy managers reach out to kindred spirits outside their

organizations to contribute and multiply their knowledge;

the information they glean, in more cases than not,

becomes the “hook” for making internal connections.

“Managers whowant to ‘get’ thenew innovation paradigm should

check out [Rotman’s] MBA

programs.”(BusinessWeek online, March 7, 2005)

— Bruce Nussbaum,Assistant Managing Editor,BusinessWeek

Find out what thought leaders

already know.

Order your free copy ofThe Best of Rotman Magazine,

Volume 2

www.rotman.utoronto.ca/bestE: [email protected]

T: 416-946-0103


VEN FOR THE MOST GIFTED INDIVIDUALS, the process ofbecoming a leader is an arduous, albeit rewarding,journey of continuous learning and self-development.The initial test along the path is so fundamental thatwe often overlook it: becoming a boss for the first time.

That’s a shame, because the trials involved in this rite of pas-sage have serious consequences for both the individual andthe organization.

Executives are shaped irrevocably by their first manage-ment positions. Decades later, they recall those first months astransformational experiences that forged their leadershipphilosophies and styles in ways that may continue to hauntand hobble them throughout their careers. Organizationssuffer considerable human and financial costs when a personwho has been promoted because of strong individual perfor-mance and qualifications fails to adjust successfully to manage-ment responsibilities.


The earliest test of leadership comes with that first assignment tomanage others. Most new managersinitially fail this test because of a setof common misconceptions aboutwhat it means to be in charge.

E

Paul

Blo

w

by Linda A. Hill

OSS

BBecoming the


The failures aren’t surprising, given the difficulty of thetransition. Ask any new manager about the early days ofbeing a boss – indeed, ask any senior executive to recall howhe or she felt as a new manager. If you get an honest answer,you’ll hear a tale of disorientation and, for some, overwhelm-ing confusion. The new role didn’t feel anything like it wassupposed to. It felt too big for any one person to handle. Andwhatever its scope, it sure didn’t seem to have anything todo with leadership.

In the words of one new branch manager at a securitiesfirm: “Do you know how hard it is to be the boss when youare so out of control? It’s hard to verbalize. It’s the feelingyou get when you have a child. On day X minus 1, you stilldon’t have a child. On day X, all of a sudden you’re a motheror a father and you’re supposed to know everything there isto know about taking care of a kid.”

Given the significance and difficulty of this first leader-ship test, it’s surprising how little attention has been paid tothe experiences of new managers and the challenges theyface. The shelves are lined with books describing effectiveand successful leaders. But very few address the challengesof learning to lead, especially for the first-time manager.

For the past 15 years or so, I’ve studied people makingmajor career transitions to management, focusing in par-ticular on the star performer who is promoted to manager.My original ambition was to provide a forum for new man-agers to speak in their own words about what it means tolearn to manage. I initially followed 19 new managers overthe course of their first year in an effort to get a rare glimpseinto their subjective experience: What did they find most dif-ficult? What did they need to learn? How did they go aboutlearning it? What resources did they rely upon to ease thetransition and master their new assignments?

Since my original research, which I described in the firstedition of Becoming a Manager, published in 1992, I’ve con-tinued to study the personal transformation involved whensomeone becomes a boss. I’ve written case studies about newmanagers in a variety of functions and industries and havedesigned and led new-manager leadership programs forcompanies and not-for-profit organizations. As firms have be-come leaner and more dynamic – with different units work-ing together to offer integrated products and services andwith companies working with suppliers, customers, and com-petitors in an array of strategic alliances–new managers havedescribed a transition that gets harder all the time.

Let me emphasize that the struggles these new manag-ers face represent the norm, not the exception. These aren’timpaired managers operating in dysfunctional organiza-tions. They’re ordinary people facing ordinary adjustment

problems. The vast majority of them survive the transitionand learn to function in their new role. But imagine howmuch more effective they would be if the transition were lesstraumatic.

To help new managers pass this first leadership test, weneed to help them understand the essential nature of theirrole – what it truly means to be in charge. Most see them-selves as managers and leaders; they use the rhetoric ofleadership; they certainly feel the burdens of leadership. Butthey just don’t get it.

Why Learning to Manage Is So HardOne of the first things new managers discover is that theirrole, by definition a stretch assignment, is even more de-manding than they’d anticipated. They are surprised tolearn that the skills and methods required for success as anindividual contributor and those required for success as a manager are starkly different – and that there is a gap be-tween their current capabilities and the requirements ofthe new position.

In their prior jobs, success depended primarily on theirpersonal expertise and actions. As managers, they are respon-sible for setting and implementing an agenda for a wholegroup, something for which their careers as individual per-formers haven’t prepared them.

Take the case of Michael Jones, the new securities-firmbranch manager I just mentioned. (The identities of individ-uals cited in this article have been disguised.) Michael hadbeen a broker for 13 years and was a stellar producer, one ofthe most aggressive and innovative professionals in his re-gion. At his company, new branch managers were generallypromoted from the ranks on the basis of individual compe-tence and achievements, so no one was surprised when theregional director asked him to consider a management ca-reer. Michael was confident he understood what it took tobe an effective manager. In fact, on numerous occasions hehad commented that if he had been in charge, he wouldhave been willing and able to fix things and make life betterin the branch. After a month in his new role, however, hewas feeling moments of intense panic; it was harder thanhe had imagined to get his ideas implemented. He realized he had given up his “security blanket”and there was no turn-ing back.

Michael’s reaction, although a shock to him, isn’t unusual.Learning to lead is a process of learning by doing. It can’t betaught in a classroom. It is a craft primarily acquired throughon-the-job experiences – especially adverse experiences inwhich the new manager, working beyond his current capa-bilities, proceeds by trial and error. Most star individual per-formers haven’t made many mistakes, so this is new forthem. Furthermore, few managers are aware, in the stressful,mistake-making moments, that they are learning. The learn-ing occurs incrementally and gradually.


THE TESTS OF A LEADER | Becoming the Boss

Linda A. Hill is the Wallace Brett Donham Professor of Business Ad-

ministration at Harvard Business School in Boston and the author of

Becoming a Manager: How New Managers Master the Challenges

of Leadership (Harvard Business School Press, second edition, 2003).



WHY NEW MANAGERS DON’T GET IT

Beginning managers often fail in their new role, at least initially, because they come to it with misconceptions or mythsabout what it means to be a boss. These myths, because they are simplistic and incomplete, lead new managers to neglect key leadership responsibilities.

Defining characteristicof the new role:

Source of power:

Desired outcome:

Managerial focus:

Key challenge:

Authority

“Now I will have the freedom to implement my ideas.”

Formal authority

“I will finally be on top of the ladder.”

Control

“I must get compliance from my subordinates.”

Managing one-on-one

“My role is to build relationships with individual subordinates.”

Keeping the operation in working order

“My job is to make sure the operation runssmoothly.”

Interdependency

“It’s humbling that someone who works for me could get me fired.”

“Everything but”

“Folks were wary, and you really had to earn it.”

Commitment

“Compliance does not equal commitment.”

Leading the team

“I need to create a culture that will allow the group to fulfill its potential.”

Making changes that will make the team

perform better

“I am responsible for initiating changes to enhance the group’s performance.”

MYTH REALITY

As this process slowly progresses – as the new managerunlearns a mind-set and habits that have served him overa highly successful early career – a new professional identityemerges. He internalizes new ways of thinking and beingand discovers new ways of measuring success and derivingsatisfaction from work. Not surprisingly, this kind of psy-chological adjustment is taxing. As one new manager notes,“I never knew a promotion could be so painful.”

Painful – and stressful. New managers inevitably pondertwo questions: “Will I like management?”and “Will I be goodat management?” Of course, there are no immediate an-swers; they come only with experience. And these two ques-tions are often accompanied by an even more unsettlingone: “Who am I becoming?”

A New Manager’s MisconceptionsBecoming a boss is difficult, but I don’t want to paint an un-relentingly bleak picture. What I have found in my researchis that the transition is often harder than it need be becauseof new managers’ misconceptions about their role. Theirideas about what it means to be a manager hold some truth.But, because these notions are simplistic and incomplete,

they create false expectations that individuals struggle toreconcile with the reality of managerial life. By acknowledg-ing the following misconceptions–some of which rise almostto the level of myth in their near-universal acceptance –newmanagers have a far greater chance of success. (For a com-parison of the misconceptions and the reality, see the ex-hibit “Why New Managers Don’t Get It.”)

Managers wield significant authority. When asked to de-scribe their role, new managers typically focus on the rightsand privileges that come with being the boss. They assumethe position will give them more authority and, with that,more freedom and autonomy to do what they think is bestfor the organization. No longer, in the words of one, will theybe “burdened by the unreasonable demands of others.”

New managers nursing this assumption face a rudeawakening. Instead of gaining new authority, those I havestudied describe finding themselves hemmed in by inter-dependencies. Instead of feeling free, they feel constrained,especially if they were accustomed to the relative indepen-dence of a star performer. They are enmeshed in a web ofrelationships – not only with subordinates but also withbosses, peers, and others inside and outside the organization,all of whom make relentless and often conflicting demands


on them. The resulting daily routine is pressured, hectic,and fragmented.

“The fact is that you really are not in control of anything,”says one new manager. “The only time I am in control iswhen I shut my door, and then I feel I am not doing the jobI’m supposed to be doing, which is being with the people.”Another new manager observes: “It’s humbling that some-one who works for me could get me fired.”

The people most likely to make a new manager’s life mis-erable are those who don’t fall under her formal authority:outside suppliers, for example, or managers in another divi-sion. Sally McDonald, a rising star at a chemical company,stepped into a product development position with highhopes, impeccable credentials as an individual performer,a deep appreciation for the company’s culture – and even

the supposed wisdom gained in a leadership developmentcourse. Three weeks later, she observed grimly: “Becominga manager is not about becoming a boss. It’s about becom-ing a hostage. There are many terrorists in this organizationthat want to kidnap me.”

Until they give up the myth of authority for the reality ofnegotiating interdependencies, new managers will not beable to lead effectively. As we have seen, this goes beyondmanaging the team of direct reports and requires manag-ing the context within which the team operates. Unless theyidentify and build effective relationships with the key peoplethe team depends upon, the team will lack the resourcesnecessary to do its job.

Even if new managers appreciate the importance ofthese relationships, they often ignore or neglect them andfocus instead on what seems like the more immediate task ofleading those closest to them: their subordinates. When theyfinally do accept their network-builder role, they often feeloverwhelmed by its demands. Besides, negotiating withthese other parties from a position of relative weakness–forthat’s often the plight of new managers at the bottom ofthe hierarchy –gets tiresome.

But the dividends of managing the interdependenciesare great. While working in business development at a largeU.S. media concern, Winona Finch developed a business planfor launching a Latin American edition of the company’s U.S.teen magazine. When the project got tentative approval,Finch asked to manage it. She and her team faced a numberof obstacles. International projects were not favored by topmanagement, and before getting final funding, Finch would

need to secure agreements with regional distributors repre-senting 20% of the Latin American market –not an easy taskfor an untested publication competing for scarce newsstandspace. To control costs, her venture would have to rely on thesales staff of the Spanish-language edition of the company’sflagship women’s magazine, people who were used to sell-ing a very different kind of product.

Winona had served a stint as an acting manager two yearsbefore, so despite the morass of detail she had to deal with insetting up the new venture, she understood the importanceof devoting time and attention to managing relationshipswith her superiors and peers. For example, she compiled bi-weekly executive notes from her department heads that shecirculated to executives at headquarters. To enhance commu-nication with the women’s magazine, she initiated regular

Latin American board meetings at which top worldwide ex-ecutives from both the teen and women’s publications coulddiscuss regional strategy.

Her prior experience notwithstanding, she faced the typi-cal stresses of a new manager: “It’s like you are in final exams365 days a year,”she says. Still, the new edition was launchedon schedule and exceeded its business plan forecasts.

Authority flows from the manager’s position. Don’t get mewrong: Despite the interdependencies that constrain them,new managers do wield some power. The problem is thatmost of them mistakenly believe their power is based onthe formal authority that comes with their now lofty – well,relatively speaking–position in the hierarchy. This operatingassumption leads many to adopt a hands-on, autocratic ap-proach, not because they are eager to exercise their newpower over people but because they believe it is the most ef-fective way to produce results.

New managers soon learn, however, that when direct re-ports are told to do something, they don’t necessarily respond.In fact, the more talented the subordinate, the less likely sheis to simply follow orders. (Some new managers, whenpressed, admit that they didn’t always listen to their bosseseither.)

After a few painful experiences, new managers come tothe unsettling realization that the source of their power is, ac-cording to one,“everything but”formal authority. That is, au-thority emerges only as the manager establishes credibilitywith subordinates, peers, and superiors. “It took me threemonths to realize I had no effect on many of my people,”recallsone manager I followed.“It was like I was talking to myself.”



As one disillusioned new leader puts it, “Becoming a manager is notabout becoming a boss. It’s about becoming a hostage.”


Many new managers are sur-prised by how difficult it is to earnpeople’s respect and trust. Theyare shocked, and even insulted,that their expertise and track re-cord don’t speak for themselves.My research shows that many alsoaren’t aware of the qualities thatcontribute to credibility.

They need to demonstrate theircharacter – the intention to do theright thing. This is of particular im-portance to subordinates, whotend to analyze every statementand nonverbal gesture for signs of the new boss’s motives. Suchscrutiny can be unnerving.“I knewI was a good guy, and I kind of expected people to accept me im-mediately for what I was,” says onenew manager. “But folks werewary, and you really had to earn it.”

They need to demonstrate theircompetence – knowing how to dothe right thing. This can be prob-lematic,because new managers ini-tially feel the need to prove theirtechnical knowledge and prowess,the foundations of their success asindividual performers. But whileevidence of technical competenceis important in gaining subordi-nates’respect, it isn’t ultimately theprimary area of competence thatdirect reports are looking for.

When Peter Isenberg took over the management of a trad-ing desk in a global investment bank, he oversaw a groupof seasoned, senior traders. To establish his credibility, headopted a hands-on approach, advising traders to close downparticular positions or try different trading strategies. Thetraders pushed back, demanding to know the rationale foreach directive. Things got uncomfortable. The traders’ re-sponses to their new boss’s comments became prickly andterse. One day, Isenberg, who recognized his lack of knowl-edge about foreign markets, asked one of the senior peoplea simple question about pricing. The trader stopped what hewas doing for several minutes to explain the issue and offeredto discuss the matter further at the end of the day. “Once Istopped talking all the time and began to listen, people onthe desk started to educate me about the job and, signifi-cantly, seemed to question my calls far less,” Isenberg says.

The new manager’s eagerness to show off his technicalcompetence had undermined his credibility as a managerand leader. His eagerness to jump in and try to solve prob-


lems raised implicit questions about his managerial compe-tence. In the traders’ eyes, he was becoming a micromanagerand a “control freak” who didn’t deserve their respect.

Finally, new managers need to demonstrate their influ-ence–the ability to deliver and execute the right thing. Thereis “nothing worse than working for a powerless boss,” says a direct report of one new manager I studied. Gaining andwielding influence within the organization is particularlydifficult because, as I have noted, new managers are the “lit-tle bosses” of the organization. “I was on top of the worldwhen I knew I was finally getting promoted,” one new man-ager says. “I felt like I would be on the top of the ladder I had been climbing for years. But then I suddenly felt like I was at the bottom again–except this time it’s not even clearwhat the rungs are and where I am climbing to.”

Once again, we see a new manager fall into the trap ofrelying too heavily on his formal authority as his source of in-fluence. Instead, he needs to build his influence by creatinga web of strong, interdependent relationships, based on


credibility and trust, throughout his team and the entire or-ganization – one strand at a time.

Managers must control their direct reports. Most newmanagers, in part because of insecurity in an unfamiliar role,yearn for compliance from their subordinates. They fear thatif they don’t establish this early on, their direct reports willwalk all over them. As a means of gaining this control, theyoften rely too much on their formal authority – a techniquewhose effectiveness is, as we have seen, questionable at best.

But even if they are able to achieve some measure of con-trol, whether through formal authority or authority earnedover time, they have achieved a false victory. Compliancedoes not equal commitment. If people aren’t committed,they won’t take the initiative. And if subordinates aren’ttaking the initiative, the manager can’t delegate effectively.The direct reports won’t take the calculated risks that lead

to the continuous change and improvement required bytoday’s turbulent business environment.

Winona Finch, who led the launch of the teen magazinein Latin America, knew she faced a business challenge thatwould require her team’s total support. She had in fact beenawarded the job in part because of her personal style, whichher superiors hoped would compensate for her lack of ex-perience in the Latin American market and in managingprofit-and-loss responsibilities. In addition to being known asa clear thinker, she had a warm and personable way withpeople. During the project, she successfully leveraged thesenatural abilities in developing her leadership philosophyand style.

Instead of relying on formal authority to get what shewanted from her team, she exercised influence by creatinga culture of inquiry. The result was an organization in whichpeople felt empowered, committed, and accountable forfulfilling the company’s vision. “Winona was easygoing andfun,” a subordinate says.“But she would ask and ask and askto get to the bottom of something. You would say somethingto her, she would say it back to you, and that way everyonewas 100% clear on what we were talking about. Once she gotthe information and knew what you were doing, you had tobe consistent. She would say, ‘You told me X; why are youdoing Y? I’m confused.’” Although she was demanding, shedidn’t demand that people do things her way. Her subordi-nates were committed to the team’s goals because they wereempowered, not ordered, to achieve them.

The more power managers are willing to share with sub-ordinates in this way, the more influence they tend to com-mand. When they lead in a manner that allows their peo-ple to take the initiative, they build their own credibility asmanagers.

Managers must focus on forging good individual relation-ships. Managing interdependencies and exercising informalauthority derived from personal credibility require new man-agers to build trust, influence, and mutual expectations witha wide array of people. This is often achieved by establishingproductive personal relationships. Ultimately, however, thenew manager must figure out how to harness the power ofa team. Simply focusing on one-on-one relationships withmembers of the team can undermine that process.

During their first year on the job, many new managersfail to recognize, much less address, their team-building

responsibilities. Instead, they conceive of their people-management role as building the most effective relation-ships they can with each individual subordinate, erro-neously equating the management of their team withmanaging the individuals on the team.

They attend primarily to individual performance andpay little or no attention to team culture and performance.They hardly ever rely on group forums for identifying andsolving problems. Some spend too much time with a smallnumber of trusted subordinates, often those who seemmost supportive. New managers tend to handle issues,even those with teamwide implications, one-on-one. Thisleads them to make decisions based on unnecessarily lim-ited information.

In his first week as a sales manager at a Texas softwarecompany, Roger Collins was asked by a subordinate for anassigned parking spot that had just become available. Thesalesman had been at the company for years, and Collins,wanting to get off to a good start with this veteran, said,“Sure, why not?” Within the hour, another salesman, a bigmoneymaker, stormed into Collins’s office threatening toquit. It seems the shaded parking spot was coveted for prag-matic and symbolic reasons, and the beneficiary of Collins’scasual gesture was widely viewed as incompetent. The man-ager’s decision was unfathomable to the star.

Collins eventually solved what he regarded as a trivialmanagement problem – “This is not the sort of thing I’msupposed to be worrying about,” he said – but he began to



I repeatedly hear new managers describe situations in which theymade an exception for one subordinate but ended up regretting theaction’s unexpected negative consequences for the team.



OH, ONE MORE THING: CREATE THECONDITIONS FOR YOUR SUCCESS

New managers often discover, belatedly, that they are ex-pected to do more than just make sure their groups func-tion smoothly today. They must also recommend and ini-tiate changes that will help their groups do even better inthe future.

A new marketing manager at a telecommunicationscompany whom I’ll call John Delhorne discovered thathis predecessor had failed to make critical investments,so he tried on numerous occasions to convince his imme-diate superior to increase the marketing budget. He alsopresented a proposal to acquire a new information sys-tem that could allow his team to optimize its marketinginitiatives. When he could not persuade his boss to re-lease more money, he hunkered down and focused onchanges within his team that would make it as produc-tive as possible under the circumstances. This courseseemed prudent, especially because his relationshipwith his boss, who was taking longer and longer to an-swer Delhorne’s e-mails, was becoming strained.

When the service failed to meet certain targets, theCEO unceremoniously fired Delhorne because, Delhornewas told, he hadn’t been proactive. The CEO chastisedDelhorne for “sitting back and not asking for his help” insecuring the funds needed to succeed in a critical newmarket. Delhorne, shocked and hurt, thought the CEOwas being grossly unfair. Delhorne contended it wasn’this fault that the company’s strategic-planning and bud-geting procedures were flawed. The CEO’s response: Itwas Delhorne’s responsibility to create the conditions forhis success.

recognize that every decision about individuals affectedthe team. He had been working on the assumption that ifhe could establish a good relationship with each person whoreported to him, his whole team would function smoothly.What he learned was that supervising each individual wasnot the same as leading the team. In my research, I repeat-edly hear new managers describe situations in which theymade an exception for one subordinate – usually with theaim of creating a positive relationship with that person –but ended up regretting the action’s unexpected negativeconsequences for the team. Grasping this notion can be es-pecially difficult for up-and-comers who have been able toaccomplish a great deal on their own.

When new managers focus solely on one-on-one relation-ships, they neglect a fundamental aspect of effective leader-ship: harnessing the collective power of the group to im-prove individual performance and commitment. By shapingteam culture – the group’s norms and values – a leader canunleash the problem-solving prowess of the diverse talentsthat make up the team.

Managers must ensure that things run smoothly. Likemany managerial myths, this one is partly true but is mis-leading because it tells only some of the story. Making surean operation is operating smoothly is an incredibly difficulttask, requiring a manager to keep countless balls in the air atall times. Indeed, the complexity of maintaining the statusquo can absorb all of a junior manager’s time and energy.

But new managers also need to realize they are responsi-ble for recommending and initiating changes that will en-hance their groups’ performance. Often – and it comes as asurprise to most – this means challenging organizationalprocesses or structures that exist above and beyond theirarea of formal authority. Only when they understand thispart of the job will they begin to address seriously their lead-ership responsibilities. (See the sidebar “Oh, One MoreThing: Create the Conditions for Your Success.”)

In fact, most new managers see themselves as targets oforganizational change initiatives, implementing with theirgroups the changes ordered from above. They don’t seethemselves as change agents. Hierarchical thinking andtheir fixation on the authority that comes with being theboss lead them to define their responsibilities too narrowly.Consequently, they tend to blame flawed systems, and thesuperiors directly responsible for those systems, for theirteams’ setbacks – and they tend to wait for other people tofix the problems.

But this represents a fundamental misunderstanding oftheir role within the organization. New managers need togenerate changes, both within and outside their areas of re-sponsibility, to ensure that their teams can succeed. Theyneed to work to change the context in which their teamsoperate, ignoring their lack of formal authority.

This broader view benefits the organization as well as thenew manager. Organizations must continually revitalize and

transform themselves. They can meet these challenges only ifthey have cadres of effective leaders capable of both manag-ing the complexity of the status quo and initiating change.

New Managers Aren’t AloneAs they go through the daunting process of becoming a boss,new managers can gain a tremendous advantage by learningto recognize the misconceptions I’ve just outlined. But giventhe multilayered nature of their new responsibilities, they arestill going to make mistakes as they try to put together themanagerial puzzle – and making mistakes, no matter howimportant to the learning process, is no fun. They are goingto feel pain as their professional identities are stretched andreshaped. As they struggle to learn a new role, they will oftenfeel isolated.


Unfortunately, my research has shown that few new man-agers ask for help. This is in part the outcome of yet anothermisconception: The boss is supposed to have all the answers,so seeking help is a sure sign that a new manager is a “promo-tion mistake.” Of course, seasoned managers know that noone has all the answers. The insights a manager does possesscome over time, through experience. And, as countless stud-ies show, it is easier to learn on the job if you can draw onthe support and assistance of peers and superiors.

Another reason new managers don’t seek help is that theyperceive the dangers (sometimes more imagined than real)of forging developmental relationships. When you share youranxieties, mistakes, and shortcomings with peers in yourpart of the organization, there’s a risk that the individualswill use that information against you. The same goes for shar-ing your problems with your superior. The inherent conflictbetween the roles of evaluator and developer is an age-olddilemma. So new managers need to be creative in finding

support. For instance, they might seek out peers who areoutside their region or function or in another organizationaltogether. The problem with bosses, while difficult to solveneatly, can be alleviated. And herein lies a lesson not onlyfor new managers but for experienced bosses, as well.

The new manager avoids turning to her immediate supe-rior for advice because she sees that person as a threat to,rather than an ally in, her development. Because she fearspunishment for missteps and failures, she resists seekingthe help that might prevent such mistakes, even when she’sdesperate for it. As one new manager reports:

“I know on one level that I should deal more with mymanager because that is what he is there for. He’s got the ex-perience, and I probably owe it to him to go to him and tellhim what’s up. He would probably have some good advice.But it’s not safe to share with him. He’s an unknown quan-tity. If you ask too many questions, he may lose confidence inyou and think things aren’t going very well. He may see thatyou are a little bit out of control, and then you really have a tough job. Because he’ll be down there lickety-split, askinglots of questions about what you are doing, and before youknow it, he’ll be involved right in the middle of it. That’s a really uncomfortable situation. He’s the last place I’d gofor help.”

Such fears are often justified. Many a new manager hasregretted trying to establish a mentoring relationship with

his boss.“I don’t dare even ask a question that could be per-ceived as naive or stupid,”says one.“Once I asked him a ques-tion and he made me feel like I was a kindergartner in thebusiness. It was as if he had said,‘That was the dumbest thingI’ve ever seen. What on earth did you have in mind?’”

This is a tragically lost opportunity for the new manager,the boss, and the organization as a whole. It means that thenew manager’s boss loses a chance to influence the man-ager’s initial conceptions and misconceptions of her new po-sition and how she should approach it. The new managerloses the chance to draw on organizational assets – from financial resources to information about senior manage-ment’s priorities – that the superior could best provide.

When a new manager can develop a good relationshipwith his boss, it can make all the difference in the world –though not necessarily in ways the new manager expects.My research suggests that eventually about half of new man-agers turn to their bosses for assistance, often because of

a looming crisis. Many are relieved to find their superiorsmore tolerant of their questions and mistakes than theyhad expected.“He recognized that I was still in the learningmode and was more than willing to help in any way hecould,” recalls one new manager.

Sometimes, the most expert mentors can seem decep-tively hands-off. One manager reports how she learned froman immediate superior: “She is demanding, but she enjoysa reputation for growing people and helping them, notthrowing them to the wolves. I wasn’t sure after the first 60days, though. Everything was so hard and I was so frustrated,but she didn’t offer to help. It was driving me nuts. When I asked her a question, she asked me a question. I got no an-swers. Then I saw what she wanted. I had to come in withsome ideas about how I would handle the situation, andthen she would talk about them with me. She would spendall the time in the world with me.”

His experience vividly highlights why it’s important for thebosses of new managers to understand–or simply recall–howdifficult it is to step into a management role for the first time.Helping a new manager succeed doesn’t benefit only that in-dividual. Ensuring the new manager’s success is also cruciallyimportant to the success of the entire organization.

Reprint R0701D; HBR OnPoint 1723




About half of new managers turn to their bosses for assistance. Manyare relieved to find their superiors more tolerant of their questions andmistakes than they had expected.


FOR A FREE “HIGH POTENTIAL” POSTER, PLEASE VISIT WWW.PIWORLDWIDE.COM

The Predictive Index®

is a proven, scientifically-validated

behavioral assessment tool

that improves bottom line

performance by helping

you hire, develop and retain

talented people.

Predictive Index is a registered trademark of Praendex Incorporated, the parent company of PI Worldwide. © 2006 PI Worldwide. All rights reserved.

People Smart. Results Driven.®

HIGH POTENTIAL ISN’T ALWAYS HIGH PROFILE.

The earlier you recognize it, the higher the potential. The

Predictive Index® (PI)—a practical, proprietary behavioral

assessment tool—helps you identify and develop your

next leaders. With a 50-year track record of success,

PI offers fresh insights into the drives and motivations that

set the highest achievers a breed apart. So your people

—and your organization—can reach their full potential.



by Kathleen K. Reardon

Mar

k an

d R

osem

ary

Jarm

an

as a SkillCourage

How can you know the difference betweenpolitical courage and political suicide?

DIVISION VICE PRESIDENT blows the whistle on cor-ruption at the highest levels of his company. Ayoung manager refuses to work on her boss’s pet project because she fears it will discredit the organi-

zation. A CEO urges his board, despite push back from pow-erful, hostile members, to make a serious investment in en-vironmentally sustainable technology. Such things happenevery day in firms around the world. What is behind thesehigh-risk, often courageous acts?

The U.S. senator and onetime prisoner of war John McCainhas defined courage as a brief, singular occurrence: “thatrare moment of unity between conscience, fear, and action,when something deep within us strikes the flint of love, of


honor, of duty, to make the spark that fires our resolve.”This definition conjures up an image of the lone herowho – instinctively, spontaneously, and against all odds –suddenly takes charge and stands up for virtue.

Certainly, courage is sometimes a matter of life and death.Police officers and firefighters risked and lost their livessaving people on September 11, 2001; people dove intoswirling waters to rescue strangers after a giant tsunamiswept Indonesia in 2004. Yet in my 25 years of studyinghuman behavior in organizations, I’ve discovered thatcourage in business seldom operates like this. Through inter-views with more than 200 senior and midlevel managerswho have acted courageously–whether on behalf of society,their companies, their colleagues, or their own careers – I’velearned that this kind of courage is rarely impulsive. Nordoes it emerge from nowhere.

In business, courageous action is really a special kind ofcalculated risk taking. People who become good leaders havea greater than average willingness to make bold moves, butthey strengthen their chances of success – and avoid careersuicide – through careful deliberation and preparation.Business courage is not so much a visionary leader’s inborncharacteristic as a skill acquired through decision-makingprocesses that improve with practice. In other words, mostgreat business leaders teach themselves to make high-riskdecisions. They learn to do this well over a period of time,often decades.

Learning to take an intelligent gamble requires an under-standing of what I call the “courage calculation”: a method ofmaking success more likely while avoiding rash, unproduc-tive, or irrational behavior. Six discrete processes make upthe courage calculation: setting primary and secondary goals;determining the importance of achieving them; tipping thepower balance in your favor; weighing risks against benefits;selecting the proper time for action; and developing contin-gency plans.

Setting Goals The first component of the courage calculation answersthese questions: What does success look like in this high-risksituation? Is it obtainable? If my primary goal is organiza-tional, does it defend or advance my company’s or team’sprinciples and values? If my primary goal is personal, does itderive solely from my career ambitions or also from a desirefor my organization’s or even society’s greater good? If I can’tmeet my primary goal, what is my secondary goal?

Suppose a well-regarded coworker is about to be fired.He has been maligned, and the person who poisoned hiswell did so to clear his own path to promotion. Colleagueshave been grumbling about this, but no one has stepped for-

ward to counter the false accusations. The senior managerwho will do the firing is a poor listener and tends to killmessengers. Given the politics, should you try to save yourcoworker? Would doing so advance both the firm’s andyour own goals, preferably without making the senior man-ager look inept?

Whether primary or secondary, your goals should be rea-sonably within reach, not pie-in-the-sky ambitions. A primarygoal that serves the organization might be either to rescue a good employee or to prevent the senior manager from act-ing on faulty information. A secondary organizational goalmight be to apprise the senior manager of a “rat” in the com-pany’s midst. A primary goal that serves you personallymight be to receive some behind-the-scenes credit for help-ing the employee. A secondary personal goal might be tofeel that you did something for the greater good.

Although the odds of success will be hard to estimate be-fore the other decisions in the courage calculation have beenmade, it is possible at this stage to think about the likelihoodof primary-goal achievement. The venture capitalist TaniaModic, for instance, managing partner of Western Invest-ments Capital, took a big risk in her first job out of college, asthe assistant marketing development officer at an interna-tional bank. Modic’s fancy title had a catch: There was nomarketing development officer for her to assist, and the workshe was assigned was unchallenging. The ambitious Modicwanted to contribute to the bank’s success and also to herown advancement. Having helped many people senior toher, she knew she had the skills to do their jobs. So, using va-cation time and her own money, she traveled to New York,called on some accounts that her senior colleagues had al-lowed to languish, and revitalized them. When she returned,some high-placed noses were out of joint, but her coura-geous action gained the attention of senior management,and she was rewarded with praise and, later, a promotion.

Modic was not merely brash. She thought clearly abouther goals and the circumstances surrounding her high-riskmaneuver: the culture of the organization, her personal his-tory and skills, and the points of view of others involved. Herprimary goal was organizational – to revitalize the dead ac-counts–and she estimated her chances of achieving that goalat about 70%. Her secondary goal was personal – to raise hervisibility – and she saw a 60% chance of succeeding at that.She estimated her chances of getting fired at about 50% – orhigher if she failed to rescue the accounts. Modic decidedthat she could live with these odds: The upside for the bankwas considerable, and for herself, she believed, even badvisibility was better than none. She took the plunge, andwent on to an impressive career. Like many effective lead-ers, Modic succeeded by recognizing, early in her career, theadvantages of careful risk calculation over impulsiveness.


THE TESTS OF A LEADER | Courage as a Skill

Kathleen K. Reardon ([email protected]) is a professor of management and organization at the University of Southern California Marshall

School of Business. Her latest book is It’s All Politics: Winning in a World Where Hard Work and Talent Aren’t Enough (Doubleday, 2005).


Determining Your Goals’ Importance The second component of the courage calculation addressesthese questions: Just how important is it that you achieveyour goal or goals? If you don’t do something about the cur-rent state of affairs, will your company suffer? Will your ca-reer be derailed? Will you be able to look at yourself in themirror? Does the situation call for immediate, high-profileaction or something more nuanced and less risky? Courageis not about squandering political capital on low-priorityissues.

To distinguish such squandering from constructive risk,John Hallenborg, a Los Angeles–based senior entertainmentmanager, assigns importance at three levels. On the lowestrung of his risk-taking ladder are issues about which he doesnot feel strongly, though he may prefer a particular outcomeand may say so in a low-risk situation. Middle-rung issues arethose about which his opinion is strong but doesn’t involvehigher values; his feelings may change based on new infor-mation. At the top of the ladder are “spear in the sand”issues.He perceives these as resting on morals or values for whichhe is willing to take a stand and fight.

Spear-in-the-sand situations require that you weigh yourbelief in the cause against the risks involved. Such situationsare rare: They occur when negotiation is difficult or impossi-ble, open minds are hard to find, and doing nothing is simplynot an option. Peter Rost, a physician, formerly with Pfizer,drove his spear into the sandwhen he broke ranks with hisemployer by calling for legis-lation allowing the import oflower-priced medicines fromCanada and elsewhere – apractice the U.S. drug industrystrongly opposes. He also puthis job on the line in efforts tohalt the sale of off-label drugsand the associated incentivesfor physicians.Rost did not takeon the pharmaceutical industrylightly, and the move cost him his career. But his convictionswere too strong to ignore. He left the industry and went on towrite The Whistleblower: Confessions of a Healthcare Hitman.

Tipping the Power BalancePeople often assume that power in corporations is a simplematter of position on the organization chart. In attemptingto please those above them, many people choose never totake a stand. But in reality, even those in top managementgive power to anyone on whom they are dependent –whether for respect, advice, friendship, appreciation, or net-work affiliations. Seen this way, power is something overwhich we really do have considerable control. By establish-ing relationships with and influencing those around you,

for example, you gain sway over people who otherwise holdsway over you. This gives you a broader base from which tomake bold moves.

You can wisely form supportive power networks in ad-vance, but building them takes time. In 1981 Jack Gallawaydeveloped his power base as part of a courage calculation onbehalf of Ramada. At the time, Gallaway was president ofthe Tropicana hotel and casino in Las Vegas, which Ramadaowned. The company, having spent $340 million to constructits Atlantic City casino, was selling off hotels to make up fora 300% cost overrun. The last thing Ramada’s board and topmanagers wanted to consider was any kind of expansion.But Gallaway believed that expansion in the booming LasVegas market was critical.

When he approached Ramada’s senior managers aboutadding another hotel tower to the Tropicana, they told himto stick to his knitting. “They wouldn’t even give me themoney to work on the concept designs,” he recalls. He de-cided to see what he could do by leveraging his external net-work: He contacted an executive with Mardian, a Phoenix-based real estate developer. This was a clever move, becausethe powerful chairman of Ramada himself had previouslypassed on the executive’s name.

Gallaway knew that Mardian was in the process of build-ing a stadium in Las Vegas, and that the executive and otheremployees would need a place to stay while in town. So he

made a trade: He provided Mardian’s people with hotelrooms and transportation for a week in exchange for a com-plete set of concept drawings and an architectural model ofa new Tropicana tower, worth more than $100,000. Mar-dian’s senior managers knew this would give them the insidetrack if the hotel expansion was actually undertaken.

Gallaway’s calculation paid off. When the Atlantic Cityoperation opened in 1982, Ramada was again in the black,and Gallaway made his move. He presented Ramada’sboard with the drawings and the model, and the board ap-proved the project. He knew that he could have been handedhis head for going against the board’s instructions, but helowered the risks by tipping the power balance – workingwith someone he’d found through Ramada’s chairman.Meanwhile, he proved himself a loyal “citizen”by keeping his


Does the situation call for immediate, high-profileaction or something more nuanced and less risky?Courage is not about squandering political capitalon low-priority issues.


operation’s numbers up. By the time the company’s financialcrisis was over, Gallaway had secured an invaluable footholdin Las Vegas.

Weighing Risks and Benefits This component of the courage calculation focuses on trade-offs. Who stands to win? Who stands to lose? What are thechances that your reputation will be tarnished beyond repairif you go forward? Will you lose respect or your job? Causeothers to lose theirs? Delay your opportunity for promotion?

Lieutenant General Claudia J. Kennedy, the first femalethree-star general in the U.S. Army, went through a difficultrisk-benefit assessment before reporting a fellow officer whohad plagiarized a research paper at a professional armyschool. Kennedy weighed the negatives (discomfort andembarrassment for “snitching”on a fellow of-ficer) against the positives (allegiance to thearmy’s high standards for its future leaders,and adherence to her own ethics).The decisionwas difficult: An instinct for self-protection,loyalty to her colleagues and to the institu-tion, and her personal integrity all contendedwithin her. She considered speaking privatelyto the officer, but realized that he would reactangrily and that, after all, it wasn’t her job tomanage him. In the end, she decided that herloyalty to army standards was paramount: “I…recognizedthat overlooking an ethical lapse was tantamount to partici-pating in the event,” she writes in her book Generally Speak-ing. She discreetly reported the incident; her reputationremained intact and her career thrived.

Other trade-offs deal with the quality of the action and thestrategy involved. Are your goals better served if you act ina direct and forceful way or if you take an indirect approach?A story I call “Send Him a Rose” exemplifies the calculationrequired here. A division vice president who had a habit ofenraging underlings stormed into the office of Rick Sanders(not his real name), the editor of an in-house corporatenewspaper. The VP accused Sanders of not having checkedhis facts before printing a story about the VP’s division. Heranted and raved, giving Sanders no chance to point out thatthe facts in question had come from the VP’s own assistant.

At first Sanders wanted to send the executive a scathing e-mail. He knew that doing so would mean saying good-byeto his job. He was angry enough not to care, but he consid-ered the costs to his division: The VP would probably refuseto work with Sanders’s colleagues in the future, and theirreputation with the CEO would be sullied. Sanders was farless willing to chance this. “If I reacted too strongly,” he re-members thinking, “I’d run a big risk of hurting my team.Still, I felt I had to do something.”

Sanders chose a judolike approach suggested by a col-league, who told him to “send the VP a rose” in the form of

a disarmingly professional memo. The memo remindedthe executive of the good relations their two departmentshad enjoyed over the years. Sanders said he regretted the in-accuracy but mentioned that the facts had been checkedwith the VP’s assistant. He ended with a hope for positivecollaboration in the future. The memo was not apologetic;rather, it was civil and to the point, and it invited a higherlevel of discourse – in essence, teaching the executive howto behave like one. After calculating the benefits of such amove, Sanders opted for what John F. Kennedy, in Profiles inCourage, described as a less glorified but nevertheless criti-cal form of courage, which achieves the better outcomethrough a willingness to replace conflict with cooperation.

A few weeks later, Sanders happened to see the vice pres-ident. Instead of glaring reproachfully at Sanders or ignor-ing him, the VP shook his hand respectfully and said, “It’s

a pleasure working with you.” The memo, which demon-strated a level of professionalism the executive himself hadfailed to display, paid off. Whereas countless others hadcrashed on the VP’s reef, Sanders preserved an important re-lationship for his division and for himself. He also learnedthat he could deal with a tough customer in a creative way.

Selecting the Right Time Desmond Tutu has described good leaders as having an un-canny sense of timing. “The real leader,” he writes, knows“when to make concessions, when to compromise, when toemploy the art of losing the battle in order to win the war.”

It can be argued that when someone is confronted by asituation that requires courage, the question of timingshould be irrelevant. We assume that in spear-in-the-sandsituations, when much is at stake and emotions are runninghigh, brave people don’t hesitate to act. This may be true inemergency situations, but a single-minded rush to actionin business is usually foolish.

Consider what happened when one group of senior man-agers pressured their CEO, who was in his seventies, to pro-duce a succession plan a year before he was ready to do so.The CEO, who had always treated his managers like family,was deeply hurt. Though he wasn’t opposed to the notion ofsuccession planning, he considered the forcing of it prema-ture and impertinent. Had the managers waited, the CEO



Courageous action in business is for themost part deliberative. Real emergenciesare rare. Time may well be on your side.


later told me, they would have accomplished their mission.But they were adamant. The CEO’s anger grew; he edged outone manager, and the others were soon looking for new jobs.

Although emotion is always in the mix, and may even bean asset when making a courageous move, the followingquestions can help in logically calculating whether the timeis right: • Why am I pursuing this now?• Am I contemplating a considered action or an impulsiveone?

• How long would it take to become better prepared? Isthat too long?

• What are the pros and cons of waiting a day, two days,a week or more?

• What are the political obstacles? Can these be either removed or reduced in the near future?

• Can I take steps now that will create a foundation for a courageous move later?

• Am I emotionally and mentally prepared to take this risk?• Do I have the expertise, communication skills, track record,and credibility to make this work?

Spending too much time on any or all of these questions,of course, can lead you into Hamlet’s trap, and the opportu-nity for courage may pass you by. At the same time, too littleconsideration may result in an o’er-hasty leap. It’s importantto remember that courageous action in business is for themost part deliberative. Real emergencies are rare. Time maywell be on your side.

Before you make your move, it’s critical to marshal suffi-cient support, information, or evidence to improve yourodds of success. The sisters Cori and Kerri Rigsby were vet-eran employees of E.A. Renfroe, a firm that helps State Farmand other insurance companies adjust disaster claims. Fol-lowing an influx of claims by Hurricane Katrina victims,the Rigsbys found indications that State Farm was pressuringengineers to alter their conclusions about storm damage sothat policyholders’ claims could be denied. The sisters couldhave gone public with the first or second piece of evidence,but they were wise enough to know that they needed muchmore. They spent months collecting 15,000 pages’ worth ofinternal reports, memos, e-mails, and claims, which theyturned over to federal and state regulators. They then wentto work as consultants for the Scruggs Katrina Group, whichwas organized to sue insurance companies on behalf ofthousands of policyholders.

My research indicates that those who act courageously inbusiness settings have an instinct for opportunity. They readsituations quickly, but they are never reckless. If they sensethat the emotional climate is not right for a frontal assault, orthat history or politics raises insurmountable obstacles, theypause, reflect, and consider another time or route. If they feeloutmatched or lack the skill or stamina to go the distance,they continue to gather their resources and wait for a morepropitious moment. Choosing the right time is the most dif-ficult part of the courage calculation; it takes a deep sensitiv-ity to one’s surroundings and a great deal of patience.

Developing Contingency PlansFaced with having to take a risk, most people make onlyone attempt: They ring the doorbell, and if a response isnot forthcoming, they give up and go away. Those who ac-complish their primary and secondary goals try knockingat the back door, tapping at a window, or even returning asecond time.

Winning in risky situations often requires being what youhaven’t been, thinking as you haven’t thought, and acting asyou haven’t acted. The better developed your contingencyplans are, the likelier it is you’ll achieve your primary and sec-ondary goals. But before deciding how to proceed, it’s impor-tant to account for possible failure. If you don’t meet your ob-jective, what then? Will your team lose credibility? Will youthink about resigning? If not, how might you salvage yourjob or reputation? Can failure be converted into somethingpositive?

Contingency planning is really about resourcefulness.People who take bold risks and succeed are versatilethinkers; they ready themselves with alternative routes.Tania Modic, for example, decided that if things went badlyafter her risky move, she would call the bank chairman, withwhom she had a good rapport, and explain her decision. Shecould promise never to step out of line again. She figured



that asking forgiveness after the fact was a better optionthan asking permission beforehand. She believed that if shegot into trouble, one good word from the chairman wouldhelp her case. She even invited him to listen in on the phonecall in which her superiors asked her to explain herself. Asit turned out, she didn’t need the chairman’s support; butknowing that she could probably get it had emboldened her.

Courageous managers prepare themselves for any even-tuality, including worst-case scenarios. Alison May was one ofa group of stock traders attending a conflict-resolution work-shop. All the attendees were young, bright, and capable, butalso mutually antagonistic and unrelentingly competitive.They were courteous during the workshop, even flatteringone another; but their level of conflict had reached patho-logical proportions, and May was disgusted by the viciousbackbiting and hypocrisy of the group. She spoke up: “Whoare we kidding? We despise each other most of the time.”Looking directly into the eyes of her colleagues, she pro-ceeded to describe their most flagrant transgressions. Thenone red-faced trader pointed a finger at another and thevenom spilled. Attacks and counterattacks flooded the air,but the group was honestly confronting its demons. Progresswas made and remedies agreed to, all because May steppedup to the plate.

May had thought long and hard about the worst possibleconsequence: that her candor would motivate the others toget her fired. She knew that she could get another job. Infact, her most liberating contingency plan was, as she put it,to “work at McDonald’s flipping burgers”rather than remainin the vipers’ pit. This gave her the freedom to speak up. To



“And it gets worse.” Cha

rles

Alm

on

her relief, the group didn’t hold her outburst against her. Onsome level, its members were relieved to have the issuesaired, and the senior VP at the workshop was impressed. Maywent on to become the CFO of the outdoor-clothing retailerPatagonia and, later, the CEO of the gift-catalogue companyRedEnvelope.

• • •Alison May once undertook an exercise that can be useful toanyone wishing to cultivate professional courage. She wrotedown the five most critical conditions for any future en-deavor: that she be doing meaningful work she loved; thatshe be proud of the company for which she worked andproud to tell people she worked there; that at least half thecompany’s employees and senior managers be women; thatthe company have a higher mission and a product that wasfun, valuable, or beneficial to society; and that the company’svalues match her own. Throughout her career, she has mea-sured courageous risks against this template.

In the end, courage in business rests on priorities thatserve a personal, an organizational, or a societal philosophy.When this philosophy is buttressed by clear, obtainable pri-mary and secondary goals, an evaluation of their importance,a favorable power base, a careful assessment of risks versusbenefits, appropriate timing, and well-developed contin-gency plans, managers are better empowered to make boldmoves that serve their organizations, their careers, and theirown sense of personal worth.

Reprint R0701E; HBR OnPoint 1726



© Copyright 2006 Perot Systems

© Copyright 2006 Perot Systems

Trust is knowing that when you need someone the most, they’ll be there.

At Perot Systems, we build successful business relationships through the

principles of honesty, integrity, and accountability. These core values, along

with our integrated technology solutions, help us deliver measurable results

to more than 400 global clients. We’ve become a trusted advisor to these

organizations by helping them improve operations, control costs, and

enhance their competitive advantage.

Discover how Perot Systems can meet your next IT challenge, no matter how

high your goals. Call us at 1 888 31 PEROT, or visit www.perotsystems.com.

Consulting

Business Processes

Applications

Infrastructure


HE C-SUITE HAS BECOME THE HOT SEAT. With CEOsunder enormous pressure to deliver the outstand-ing performance investors demand–and to satisfy other, often conflicting constituencies – it is no

wonder that the pace of CEO turnover is accelerating. Thelatest Booz Allen Hamilton CEO succession study foundthat 15.3% of CEOs worldwide and 16.2% in North Americaleft office in 2005. That’s an increase since 1995 of 70%globally and 54% in North America. What’s more, a thirdof the departures in the most recent survey were“nonrou-

tine”– that is, they occurred before the scheduled succes-sion date, usually because of performance problems.

Typically, the early departure of a CEO leads to therecruitment of someone thought to be better equippedto fix what the last CEO couldn’t, or wouldn’t. The newleader arrives with a mandate to change course or, in themost extreme circumstances, to save a sinking ship. Theboard places its confidence in him because of the pres-ent dilemma’s similarity to some previous challenge hedealt with successfully, such as reshuffling a portfolio,


The best CEOs master the ability to reset their goals and reinvigoratetheir agendas every few years.

by David A. Nadler

TG

erar

d D

uboi

s

ActNDThe CEO’s


slashing costs, increasing market share, or negotiating withregulators.

Facing a familiar problem, the CEO can be expected to dowhat he was hired to do. Indeed, research presented in “AreLeaders Portable?” by Boris Groysberg, Andrew N. McLean,and Nitin Nohria (HBR May 2006), indicates that leaderssucceed when the skills demanded in their new positions di-rectly draw upon the executives’ professional backgroundsand experiences. But familiar problems are inevitably suc-ceeded by less familiar ones, for which the specially selectedCEO is not quite so qualified. More often than not, the expe-riences, skills, and temperament that yielded triumph inAct I turn out to be unequal to Act II’s difficulties. In fact,the approaches that worked so brilliantly in Act I may be thevery opposite of what is needed to bring Act II to a happyresolution.

As the drama unfolds, the CEO has four choices: He can re-fuse to change, in which case he will be replaced; he can re-alize that the next act requires new skills and learn them; hecan downsize or circumscribe his role to compensate for hisdeficiencies; or he can line up a successor who is qualified tofill a role to which the incumbent’s skills and interests are nolonger suited. Hewlett-Packard’s Carly Fiorina exemplifiesthe first alternative; Merrill Lynch’s Stanley O’Neal the sec-ond; Google’s Sergey Brin and Larry Page the third; andQuest Diagnostics’ Ken Freeman the fourth. All but the firstoption are reasonable responses to the challenges presentedin the second acts of most CEOs’ tenures. And all but the firstrequire a power of observation, a propensity for introspec-tion, and a strain of humility that are, in truth, quite rare inthe ranks of the very people who need those qualities most.

Act II’s Four VariationsRemake your company into one that has no place for you.Carly Fiorina is a perfect example of a CEO brought in to ad-dress a specific set of problems because of her success in deal-ing with similar ones elsewhere. Hewlett-Packard’s boardbegan searching for a new CEO because the company had be-come stodgy, inbred, bureaucratic, uncompetitive, and de-moralized. HP’s last groundbreaking innovation, the ink-jetprinter,had been introduced 15 years earlier, in 1984,and quar-terly growth was almost nonexistent. Competitors threatenedto encroach on every segment of HP’s business–Dell in PCs,Lexmark in printers, Sun Microsystems in servers, and IBM insolutions. So the board sought a dynamic, first-class commu-nicator who could revive morale, restart the innovation en-gine, cut through the bureaucracy, and justify the reputationon which HP had been undeservedly resting for too long.


THE TESTS OF A LEADER | The CEO’s Second Act

David A. Nadler ([email protected]) is the chairman of

New York–based Mercer Delta Consulting, a global management con-

sulting firm that specializes in executive leadership, organizational

change, and corporate governance.

IMPLICATIONS FORTHE BOARD

The near inevitability that a new CEO will face an Act II thatputs his or her skills and assumptions to a severe testplaces special responsibility in the hands of boards of di-rectors. This advice is addressed to them.

• In succession and selection, beware of stylized leadersor one-trick ponies who seem to have succeeded in onekind of situation but have had limited exposure to a rangeof leadership challenges. Look for evidence that the indi-vidual has developed or could adopt more than one lead-ership approach.

• Pay attention to the possible leading indicators of CEOineffectiveness, such as failure to deliver on promises, ex-cessive rationalization of failures, departures of valuedexecutives, or the CEO’s seeming out of touch with his or-ganization or even his own team. Often, a CEO’s inabilityto adjust to a new set of issues reveals itself only whenproblems become acute. By then, it may be too late to doanything other than remove him. The board should collectdata with an eye toward determining the CEO’s ongoingeffectiveness. The board’s sense of his progress should beshared with the CEO and the company’s other leaders.

• Recognize that the board has a role to play in mentor-ing and coaching the CEO. Too often, the board takes ahands-off approach until it becomes apparent that the CEOis faltering.

• When faced with a crisis, recognize that you may needto think about a two-stage succession process. Considerbringing in a CEO specifically to handle the immediateproblems. Make clear that once the crisis has been re-solved, you may look for another CEO, one who is bettersuited to dealing with the next round of issues.

Fiorina filled the bill. Having been president of Lucent’sGlobal Service Provider Business, she had done these thingsbefore. She set out to market her vision for HP by makingspeeches and appearances at high-profile events such as theWorld Economic Forum, courting media attention, meetingwith endless groups of HP managers, and, perhaps most dra-matically, becoming the public face of the company by ap-pearing in its commercials and other advertising. Contribut-ing to her personal mystique and sharpening HP’s image washer distinction as the first woman to lead such a large, well-known company.

As outsized as her image were the steps she took to recastthe organization. She laid off thousands of people and con-solidated well over a hundred product groups into about adozen to reduce redundancies and speed decision making.But only a major acquisition, she concluded, could disruptentrenched routines and catapult HP into a commanding


lead in the personal computer industry. To accomplish this,she was forced to override a boardroom minority that ob-jected to a merger with Compaq, and she ignored those whopointed out that mergers of large companies in the high-techarena had never worked out.

Today, even her detractors admit that the Compaq acqui-sition made sense. Despite boardroom tensions that explodedinto a spying scandal, HP is now enjoying a growing lead overits competitors, including what was supposed to be an un-stoppable Dell. But integrating two organizations and boost-ing operating performance in the core businesses requirevery different skills from developing a vision, embodying it,communicating it, and driving it through – Fiorina’s provenstrengths. Her continued public exposure, even after the bat-tle was won, led to accusations that she was an incorrigible

publicity hound. In the end, her reluctance to delegate led toconflict with the board, which lost confidence in her.

Remake your company – then yourself. In 2003, StanO’Neal was engaged in deep reflection. He was finishing hisfirst year as the CEO of Merrill Lynch, and, despite his tre-mendous success, he sensed it was time for a change.

Two years earlier, in July 2001, he had been named presi-dent of the company. Six weeks later, he was managing incommand-and-control mode, regrouping the firm after theterrorist attacks of September 11, which killed three employ-ees and forced the company to evacuate its heavily damagedheadquarters. Additionally, Merrill Lynch was still feeling theeffects of the bursting of the tech bubble a year earlier (andit would soon be hit with a wave of negative headlines aboutthe Wall Street research scandal). The challenges requiredimmediate action; O’Neal made painful and unpopular de-cisions that would be criticized by some within Merrill Lynchand second-guessed from the sidelines.

Between 2001 and 2003, O’Neal worked hard to resize andreshape the firm, cutting costs to cope with lower revenue,reengineering parts of the business to diversify revenuestreams and neutralize the roller-coaster highs and lows ofdebt and equity trading, and reining in expansion plans thathad failed to deliver.

O’Neal often found himself in a lonely position: He knewhe had to rethink the firm’s entire business model and chal-lenge the “Mother Merrill” culture that had become morematernalistic than performance based. At the same time, hehad to improve the morale of a shaken workforce and retainthe attributes of the iconic franchise he had inherited.

By the summer of 2003, O’Neal’s efforts had paid off, withMerrill Lynch posting the best first-half results in its nearlycentury-long history. With the firm on solid ground, he beganto think longer term about what he would need to do to en-sure that Merrill’s future leaders would not have to face sim-ilar problems. He realized that new challenges would requireMerrill’s executives, himself included, to provide a substan-tially new kind of leadership. In other words, he understoodthe need to make a major shift in leadership skills in Act II,even though Act I had been a great success.

Working with an outside consultant and his senior man-agement team, he led a process of feedback and coaching. To-gether they created the Merrill Lynch Leadership Model toclarify what they expected of themselves and other leaders atthe firm. The model focuses on four areas critical to effective

leadership: strategic thinking, business results, people leader-ship, and personal effectiveness.

The top 11 leaders (including O’Neal), followed by the next200, then the next 1,000, received feedback and coaching.Changes were made in performance evaluation, rewards,talent reviews, and other mechanisms to support the newmodel of leadership. By 2006, objective measures revealedthat Merrill’s culture, which had been homogeneous, lenient,and clubby, had shifted significantly, becoming merit based,rigorous, and diverse.

Respect your limitations while growing your company.Larry Page and Sergey Brin founded Google when they werePhD candidates at Stanford. The uniquely effective Internetsearch engine they invented enabled their company to beone of the few healthy survivors of the dot-com crash. Astheir background might suggest, the founders’ strong suit iswriting computer code. But their ambitions for Google gowell beyond spurring technical refinements of its core tech-nology. Google now offers satellite mapping, digitalized li-braries, and its own e-mail service, and its search capabilitiesextend to e-mail databases and company intranets. AlthoughPage and Brin were committed to staying with the companythey created, they knew they weren’t professional managersor marketers or masters of strategy. So in 2001 they broughtin a “grown-up,” Eric Schmidt, to operate the company.

Schmidt had been the chairman and CEO of Novell forfour years, and before that he was the chief technology offi-cer at Sun Microsystems, where he led the development ofJava. He is a skilled big-company executive, a seasoned mar-keter, and a renowned technology expert in his own right.


The approaches that worked so brilliantly for a CEO in Act I may be thevery opposite of what is needed to bring Act II to a happy resolution.


With Schmidt as CEO, Page as president for products, andBrin as president for technology, the company has flourishedbeyond almost anyone’s expectations. Indeed, Google pro-vides one of the few examples of technology-oriented foundersmaking a smooth handoff to a professional manager.

Remake your company, then move on. In 1995, Ken Free-man was named chairman and CEO of Corning Clinical Labs,the ailing medical testing business soon to be spun off fromCorning. Freeman had been a Corning “lifer,” having risenthrough the financial side to become controller while still inhis early forties. He then moved through a variety of roles,among them running the company’s television-glass businessand serving as CFO.

Freeman found a business in shambles. Receivables sat onthe books interminably; cash flow was plummeting at analarming pace. Questionable lab results and billing practiceshad made the company (along with others in the industry) atarget of government investigations. Freeman’s drastic man-date was not to rescue the business but to get it ready to besold. However, the troubles were so pronounced that no cred-ible buyer stepped forward, and Corning was forced to adopta Plan B: a spin-off of the clinical labs as an independent pub-lic company with Freeman as its chairman and CEO.

Freeman made clear to his management team that billingpractices that were common in the testing industry threat-ened the business’s survival. He quickly installed a rigorousquality process, assembled a new board, and generally pulledthe company together. Having created stability, he embarkedon an expansion program that culminated in the acquisi-tion of the lab’s largest competitor, SmithKline BeechamClinical Laboratories. When the dust settled, the now re-named Quest Diagnostics was the industry leader in size,geographic reach, market share, and quality. Its stock pricesoared. Then, in 1999, with Quest still gathering momentum,Freeman went out to find a successor and worked with theboard to put in place an orderly succession process. In 2003,at the still youthful age of 53, Freeman passed the baton toSurya Mohapatra and left the company he had built.

Why, unlike Fiorina, did Freeman leave before he had to,when in fact the board, investors, and employees wanted himto stay? Reflecting on his decision later, Freeman observedthat the company’s future growth would have to be organic(for one thing, Freeman had exhausted the supply of majoracquisition targets).A deep understanding of medical technol-ogy, which Mohapatra possessed and Freeman lacked, wasgoing to be a more crucial qualification for leading Quest thana flair for turnaround situations or a gift for deal making, Free-man realized.

But if so, why didn’t Freeman, like O’Neal, decide to turnhimself into the kind of executive Quest required? The differ-ence was that Freeman felt most alive in the high-pressuresituations of crisis and M&A. Gently moving the tiller fromside to side after he had prevented the vessel from capsizingwas Freeman’s idea of boredom. Being not only an effective

executive but a wise one, he didn’t invent or precipitate crisesor make ill-considered acquisitions simply to keep himself en-gaged.Instead he went looking for a new arena where he couldfind excitement and success. Today he is with KKR, engineer-ing turnarounds at companies such as Masonite International.

The Obstacles to CopingCEOs often face enormous challenges in their first months onthe job. In her Act I, Fiorina had to symbolize leadership, aswell as lead effectively, in order to achieve the transforma-tion she sought. In his, O’Neal had to be almost inhumanlytough to shatter the culture that was impeding Merrill’sprogress. In theirs, Brin and Page had to devise the algo-rithms that would produce the most germane search resultson the Internet. And in his, Freeman had to envision a com-pany that in no way resembled the existing one.

Each of these executives performed brilliantly, as do manyother CEOs who are brought in to fix specific problems. Butas predictably as in a play of Shakespeare’s, a successful CEO’sAct I will end, and a second act will begin, sometimes imper-ceptibly. It usually happens before the first two years are up.(Of course, there are plenty of chief executives who are un-suited to solving the problems they were hired to overcomeand who fail within the first year and a half; see the article“When CEOs Step Up to Fail,”by Jay A. Conger and David A.Nadler, in the Spring 2004 issue of Sloan Management Review.)A career-testing ordeal arose after two years in O’Neal’s case,three years in Page and Brin’s, and five years in Fiorina’s.

Why do so many high performers – not just those men-tioned here but hundreds of others too–meet their end whenAct II begins? There are several reasons. First, some CEOs aresimply oblivious to the shift in its early stages. The extraordi-nary commitment they must make to solving the first set ofproblems, and their tendency to attack those aspects mostlikely to yield to their proven methods, somehow blind themto less familiar realities, as well as to the new leadership ap-proaches that are required.Second, some CEOs sense the shiftbut fail to understand how much damage they can cause bysticking to their original approaches. CEOs are notoriouslypoor observers of their own behavior, and they rarely noticeits unintended consequences or invite feedback. Third, somerecognize the new circumstances and thus the need for achange in their modes of leadership but are incapable oftransforming themselves enough to make a difference. Fi-nally, some don’t change in Act II because they don’t want to.Freeman may have been capable of leading differently inQuest’s next phase – he certainly understood the need to doso–but making that transformation had little appeal for him.

Leadership style is a function of years of development andexperiences, and it is an outgrowth of personality and char-acter. Achieving a dramatic change in leadership style is dif-ficult for anyone, but it’s particularly hard for people in theirfifth or sixth decade who have been responsible for a long




string of successes. Personality and charac-ter aside, such people have developed sys-tems for leading, so to speak, that they can’tbring themselves to jettison. In fact, whenfaced with resistance during Act II to theircustomary modes of acting, some leadershang on more tightly than ever to the de-vices that have long kept them afloat.

Another way of looking at this phe-nomenon is that these leaders’ well-wornmanagement techniques have become in-separable from their prevailing view ofthemselves. In a series of landmark stud-ies, organizational psychologist Joseph L.Moses observed the different ways inwhich managers deal with emerging andunfamiliar challenges. “Stylized” leaders,as he called them, cling to old and discred-ited approaches that have become part oftheir identities as executives. These lead-ers believe that if they were to feel theirway by trial and error to a new set of re-sponses, they would sacrifice the skills andpersonal qualities that gave them theirsuccesses and reputations.“Adaptive”lead-ers, by contrast, spend time understandingthe situations confronting them and con-trive strategies and approaches that fit thecircumstances. Stylized managers can be extremely effectiveuntil they encounter a situation that is too dissimilar to itspredecessors to yield to the proven approach. Not surpris-ingly, Moses found adaptive managers to be more effectiveoverall in a range of different situations.

Psychology and learned behavior, reinforced by experi-ence, are only half the story, however. The limitations in ex-ecutives’ cognitive abilities also have a role to play in CEOs’Act II reversals. A longitudinal study published by Andrew D.Henderson, Danny Miller, and Donald C. Hambrick in May2006 compared the tenures of 98 CEOs in branded foods, anindustry that the researchers describe as comparatively sta-ble, with 228 CEOs in computers. The food companies’ per-formance tended to improve over the course of the CEO’stenure; in computers, performance tended to peak early anddiminish steadily thereafter. The authors’ hypothesis is thatevery CEO comes to the job with a “relatively fixed” ap-proach–a view of the world and a matching set of skills. Themore dynamic the business environment, the faster thoseworldviews and abilities become mismatched to present re-alities, both competitive and organizational, and “it will bethe rare executive who can greatly transform his or her mind-set, aptitudes, and skills.”

As the researchers suggest, a senior executive who hasbuilt her career on being the most effective mass producer ofthe lowest-cost products would find it extremely difficult to

adopt a strategy based on providing luxury offerings. Shewould be hampered by her mental habits, her values, her un-derstanding of and interest in particular kinds of customers,and her entrenched notions of what works. Executives in thepublishing industry are experiencing those pains right now.Despite their grand visions of migrating content from printto digital platforms, the majority of longtime print executivesare finding it difficult to make the wrenching decisions re-quired to facilitate the transition.

Companies that successfully identify and develop talentrecognize that stylized and otherwise limited managers canbe effective if matched to the right situations. They also rec-ognize that people often need to be moved laterally when sit-uations change or when it becomes clear that an executivehas been put in the wrong position. But there is no lateral po-sition in the company to which a CEO can be moved. Whena chief executive is inflexible or unable to see a change in cir-cumstances, the board must take actions that are inherentlyunpleasant and disruptive.

Four Steps to RenewalDespite the personal and professional limitations that affectexecutives’ ability to adapt, there are steps executives cantake to discern that they have entered new territory and torespond accordingly. Here are the four essential ones.



Recognition. Evidence that your leadership style and ap-proach are no longer working can take several forms. Youmay notice that people aren’t responding as they once did toyour speeches, especially those in which you lay out your vi-sion for the next two or three or five years, and that your ini-tiatives are faltering. You may also find yourself clashing withyour team or with your board. You may start to feel fatiguedand emotionally disengaged from your work, which hasstarted to seem like a job rather than a calling. While none ofthe above by itself would be proof positive that the groundhas shifted, an accumulation of these factors would bestrongly indicative.

Acceptance. For a successful, confident, and assertiveleader, it is tempting to see failure as the result of others’neg-ligence or mistakes and to believe that poor performancemerely calls for redoubled courage and persistence. But suchbeliefs are often self-deceiving and even delusional. It istherefore important that leaders rely on more than just theirown impressions. Advice can come from a variety of sources:the full board, selected directors, or, as in O’Neal’s case, out-side consultants.

Analysis and understanding. Once you recognize that ActII has arrived and that it requires a new type of leadership,the next step is to understand the nature of the shift. Whatwould an Act II of your own making look like, and what areits implications for your leadership approach? An objectiveevaluation is often beneficial.

Decision and action. I’ve seen CEOs employ a number ofdifferent strategies at this stage:

Personal change. In some cases, the CEO is able to stepback, understand the requirements of Act II, and adjust hisapproach accordingly, as Stan O’Neal did. However, thismodest-sounding goal requires a rare ability to reflect onone’s own behavior and a willingness to reveal one’s weak-nesses and admit shortcomings. Then the leader must takeon the task of self-transformation with all the determinationand tenacity he formerly directed at pushing the organiza-tion forward. A CEO who can do that will no longer be thecaptive of strategies that have outlived their usefulness.

Structural change. Page and Brin’s handoff to Schmidt canbe seen as a classic case of redesigning the managementstructure to complement the strengths of the top people.Hewlett-Packard’s board appears to have attempted thesame thing with Fiorina. The board recognized the need fora change in leadership style and initially proposed not to re-

move Fiorina but to put in place a structure that would de-volve some of her duties to subordinates better suited tooverseeing day-to-day management. Fiorina, by most re-ports, rejected this approach, asserting that her own leader-ship style was best suited to institutionalizing the changesshe had initiated.

Accelerated succession. Finally, a leader can acknowledgethat the shift has begun and that it will call for a differentchief executive. Such a decision requires a high degree of self-and situational awareness. Many CEOs suffer from a mis-placed sense of obligation to stick it out and complete themission, even when signs are plentiful that hanging around

would actually imperil it. Frankly, in 30 years of working withCEOs, I’ve hardly ever come across an occasion in which peo-ple thought the CEO had chosen to leave prematurely. Theconsensus is usually that the CEO has stuck around too long.

• • •A smart board and a thorough search process will often turnup the right person to solve the company’s immediate prob-lems. But today’s marketplace, in which buying patterns cansuddenly shift and new technologies can materialize out ofnowhere, will surely test a new CEO before long. Removinga maladaptive CEO before his time is messy and traumatiz-ing for all concerned, including the ranks of employees. Con-sequently, boards have a duty to choose and cultivate leaderswho can negotiate the transition from the first act to the sec-ond and, for that matter, from the second to the third, and soon. Moreover, boards can make sure that up-and-coming ex-ecutives develop an awareness of, and receive training for,Act II transitions, so that if and when the individuals get tothe C-suite, they are potentially more adaptive. Boards can dothis by seeing to it that promising executives rotate throughvarious locations, functions, and businesses; after all, divi-sions and subsidiaries present their top managers with Act IIsthat are similar to, if less wrenching than, the crises that facecorporate CEOs.

Such an approach expresses the ideal. In reality, there’s ascarcity of CEOs who can repeatedly refashion themselves.The board therefore must respect the limitations of the meremortal who has served the company well, if only for a fewyears. By the same token, proud CEOs must come to recog-nize when their time has passed.

Reprint R0701F




Some CEOs sense the shift to Act II but fail to understand how muchdamage they can cause by sticking to their original approaches.


Break free. Start thinking and acting differently. As a participant in the Comprehensive Leadership Programs

at Harvard Business School Executive Education, you’ll gain new insights from our global curriculum, our renowned

faculty, and your peers. You’ll also grapple with complex business issues that leaders must understand today.

Ultimately, you’ll change and grow in ways that impact both your company and your career. You’ll return with

a whole new perspective, reenergized, and equipped to lead.

It’s your time. Invest it wisely. Learn more at www.exed.hbs.edu/pgm/clphbr/

ADVANCED MANAGEMENT PROGRAM

GENERAL MANAGEMENT PROGRAM

PROGRAM FOR LEADERSHIPDEVELOPMENT

BEGINS MARCH 2007

BEGINS JULY 2007

BEGINS JULY 2007


Up to theChallengeIt has been wisely said that the world is not interested in the stormsyou encountered but in whether youbrought the ship in safely.

Norman R. Augustine“Managing the Crisis You Tried to Prevent”Harvard Business ReviewNovember–December 1995

“OK, Turlington, it’s time to see if you can pullthe executive washroom key from the stone.”

C.C

over

t Dar

bysh

ire, D

avid

Har

baug

h, P

atric

k H

ardi

n, a

nd S

cott

Art

hur M

asea

r

“Our first test for CEO candidates: We watch how they handle curveballs.”

THE TESTS OF A LEADER | STRATEGIC HUMOR



“Of all the obstacles on my way to the top, the Invisible Fence was the toughest.”

“It’s out of my hands, Peterson – the Magic 8 Ballhireth and the Magic 8 Ball fireth.”


“Wait for me right here.”


FIRINGBACK

THE LEADER’S FALL FROM “WHO’S WHO” TO “WHO’S THAT?” IS FULL OF STIGMA AND SHAME. BUT THE STORY DOESN’T HAVE TO END THERE.

BY JEFFREY A. SONNENFELD AND ANDREW J. WARD

HOW GREAT LEADERS REBOUND AFTER CAREER DISASTERS


MONG THE TESTS OF A LEADER, few are more challenging – and more painful – than recovering from a career catastrophe, whether it is caused by natural disaster, illness, misconduct, slipups, or unjust conspiratorial overthrow. But real leaders don’t cave in. Defeat

energizes them to rejoin the fray with greater determination and vigor.Take the case of Jamie Dimon, who was fired as president of Citigroup

but now is CEO of JPMorgan Chase. Or look at Vanguard founder JackBogle, who was removed from his position as president of Wellington Man-agement but then went on to create the index fund and become a leadingvoice for governance reform. Similarly, there’s former Coca-Cola presidentSteve Heyer, who was surprisingly passed over for the CEO position at Coke

A

Yuko

Shi

miz

u


but then was quickly named head of Starwood Hotels. Mostcolorful, perhaps, is Donald Trump, who recovered from tworounds of financial distress in his casino businesses and isadmired today both as a hugely successful estate developerand as a producer and star of popular reality TV shows.

These stories are still the exception rather than the rule.F. Scott Fitzgerald’s famous observation that there are no sec-ond acts in American lives casts an especially dark shadowover the derailed careers of business leaders. In our re-search – analyzing more than 450 CEO successions between1988 and 1992 at large, publicly traded companies–we foundthat only 35% of ousted CEOs returned to an active executive

role within two years of departure; 22% stepped back andtook only advisory roles, generally counseling smaller orga-nizations or sitting on boards. But 43% effectively ended theircareers and went into retirement.

What prevents a deposed leader from coming back? Lead-ers who cannot recover have a tendency to blame themselvesand are often tempted to dwell on the past rather than lookto the future. They secretly hold themselves responsible fortheir career setback, whether they were or not, and getcaught in a psychological web of their own making, unableto move beyond the position they no longer hold. This dy-namic is usually reinforced by well-meaning colleagues,and even by family and friends, who may try to lay blame inan attempt to make sense of the chaos surrounding the di-saster. Sadly, their advice can often be more damaging thanhelpful.

In every culture, the ability to transcend life’s adversity isan essential feature of becoming a great leader. In his in-fluential 1949 book, The Hero with a Thousand Faces, anthro-pologist Joseph Campbell showed us that the various sto-ries of great leaders around the world, in every culture andevery era, are all essentially the same story–the “hero myth.”This myth is embodied in the life stages of such universalarchetypes as Moses, Jesus, Muhammad, Buddha, Aeneas,Odysseus, and the Aztecs’ Tezcatlipoca. Transformationalleaders follow a path that entails a call to greatness, earlysuccesses (involving tough choices), ongoing trials, profoundsetbacks, and, ultimately, triumph as they reintegrate into

society. If Campbell were writing today, he might want to in-clude business leaders in his study, as they must confrontsimilar trials on their way to greatness.

This article is intended to help leaders – or anyone suffer-ing from an unexpected setback–examine their often abruptfall from grace and to give them a process through whichthey can recover, and even exceed their past accomplish-ments. From our 22 years of interviews with 300 fired CEOsand other derailed professionals, our scholarly study of lead-ership, our consulting assignments, and our own searing per-sonal experiences, we are convinced that leaders can triumphover tragedy, provided they take conscious steps to do so. For

a start, they must carefully decide how to fight back. Once thiscrucial decision has been taken, they must recruit others intobattle. They must then take steps to recover their heroic sta-tus, in the process proving to themselves and others thatthey have the mettle necessary to rediscover their heroic mission.

Few people exemplify this journey better than PresidentJimmy Carter. After his devastating 1980 reelection loss toRonald Reagan, Carter was emotionally fatigued. As he toldus sometime later,“I returned to Plains, Georgia, completelyexhausted, slept for almost 24 hours, and then awoke to analtogether new, unwanted, and potentially empty life.”While proud of his achievements–his success in deregulatingenergy, for example, his efforts to promote global humanrights, and his ability to broker peace between Israel andEgypt through the Camp David Accords–postelection, Carterneeded to move past his sense of frustration and rejection,particularly his failure to secure the timely release of theAmerican hostages in Iran.

Despite his pain and humiliation, Carter did not retreatinto anger or self-pity. He realized that his global prominencegave him a forum to fight to restore his influential role inworld events. Accordingly, he recruited others into battle byenlisting the enthusiastic support of his wife, Rosalynn; sev-eral members of his administration; academic researchers inthe sciences and social sciences; world leaders; and financialbackers to build the Carter Center. He proved his mettle byrefusing to remove himself from the fray. Indeed, he contin-ued to involve himself in international conflict mediation in


THE TESTS OF A LEADER | Firing Back: How Great Leaders Rebound After Career Disasters

Jeffrey A. Sonnenfeld ([email protected]) is the senior associate dean for executive programs, the Lester Crown Professor of Man-

agement Practice at the Yale School of Management, and the president of the Executive Leadership Institute at Yale University in New Haven,

Connecticut. Andrew J. Ward ([email protected]) is an assistant professor of management at the University of Georgia in Athens, Georgia.

This article is drawn from their book of the same title, forthcoming from Harvard Business School Press in February 2007.

In our research, 35% of ousted CEOs returned to an active executive role within two years of departure, but 43% effectivelyended their careers.


Ethiopia and Eritrea, Liberia, Haiti, Bosnia, and Venezuela,demonstrating in the process that he was not a has-been.He regained his heroic stature when he was awarded theNobel Peace Prize in 2002 “for his decades of untiring effortto find peaceful solutions to international conflicts, to ad-vance democracy and human rights,and to promote economicand social development.” And he has rediscovered his heroicmission by using the Carter Center to continue his drive to advance human rights and alleviate needless suffering.

Let us look now at how some great business leaders havefollowed the same path to recover from their own disastrouscareer setbacks.

Decide How to Fight BackThe first decision you will facein responding to a career disas-ter is the question of whetherto confront the situation thatbrought you down – with an ex-hausting, expensive, and per-haps embarrassing battle –or totry to put it behind you asquickly as possible, in the hopethat no one will notice or re-member for long. In some cases,it’s best to avoid direct and im-mediate confrontation. HomeDepot cofounder Bernie Mar-cus, for example, decided tosidestep the quicksand of liti-gation against Sandy Sigoloff,the conglomerateur who firedMarcus from Handy Dan HomeImprovement. Marcus made hisbattleground the marketplacerather than the courtroom.Thanks to this strategy, he wasfree to set the historic coursefor the Home Depot, whichnow under his successor is ap-proaching $100 billion in sales,with several hundred thousand employees.

Other comeback kids alsobegan with a graceful retreat. Jamie Dimon was sacked aspresident of Citigroup by then chairman Sandy Weill follow-ing 16 years of partnership in building the institution. Whenhe spoke to us and to others, he did not dwell on his disap-pointment or sense of injustice. Monica Langley in her 2003book Tearing Down the Walls describes what happened whenWeill asked Dimon to resign. Dimon was shocked butreplied, “You’ve obviously thought this through, and there’snothing I can do.” As he scanned the already-prepared press

release, Dimon saw that the board agreed with Weill. Thefirm offered Dimon a generous, nonrestrictive severancepackage, so a battle with Weill seemed pointless.

While he was unemployed, Dimon read biographies ofgreat national leaders who had truly suffered. He also tookup boxing – another way, perhaps, of dealing with the stressand pain. After a year of this, Dimon decided he neededclosure, so he invited Weill to lunch at the Four Seasons to thank him. As Dimon recounts in Harvey Mackay’s 2004book, We Got Fired!: “I had mellowed by then. Sandy wasn’tgoing to call me…. I knew I was ready to say thank you for

what he did for me. I also knewhe and I should talk about whathappened. I wanted to get thisevent behind me so I couldmove on. Part of me said I hadspent sixteen years with him.Twelve or thirteen were prettygood. You can’t just look at oneside and not the other. I mademy own mistakes; I acknowl-edged I was partly to blame.Whether I was 40 percent or 60percent to blame really didn’tmatter. I felt very good aboutmy meeting with him.” In thisway, Dimon was able to turnhis ouster into an event thatyielded both helpful perspec-tive and reassuring resolution.

About six months after thatlunch, in March 2000, Dimonbecame CEO of Bank One, ahuge Chicago bank that sur-vived the merger of First Chi-cago and the original Banc One.That year,Bank One posted a lossof $511 million. Three years later,under Dimon’s leadership, BankOne was earning record profitsof $3.5 billion, and its stockprice had soared 85%. Addingto the sweetness of vindication,the following year Bank Onemerged with JPMorgan Chase,

an institution with which Weill had long wanted Citigroup tomerge. Dimon became CEO of the new company and is nowwidely regarded as one of the most influential financial ex-ecutives in the world.

Of course, it’s not always a good decision to sit on the side-lines and presume that justice will prevail. The highly re-spected Nick Nicholas, outmaneuvered as CEO of TimeWarner by his skilled rival Gerald Levin, never challenged hisold firm. He went off to Vail to ski at the time, awaiting a call



back to service, soon becoming a very successful investorin new businesses, a professor, and a board director. But henever regained his role as the leader of a great public enter-prise. Other deposed CEOs, such as Ford’s Jacques Nasser,Hewlett-Packard’s Carly Fiorina, IBM’s John Akers, UnitedAir Lines’ Richard Ferris, and Apple’s John Sculley have sim-ilarly failed to return to lead major public firms. They wereconsidered brilliant leaders by many and were never accusedof plundering the shareholders’ wealth, like some rogueCEOs of recent years. But they never fought back, and theydisappeared from the corner office.

The key determinant in the fight-or-flight question is thedamage (or potential damage) incurred to the leader’s repu-tation–the most important resource of all leaders. While de-parted CEOs and other leaders may have enough other re-sources and experience to rebound, it is their reputation thatwill make the difference between successful career recoveryand failure.

Fights that will result only in a Pyrrhic victory are bestavoided. Battles of pure revenge can resemble Shakespeareantragedies, where all parties lose. Hewlett-Packard boardmember Tom Perkins, for example, in trying to defend hisfriend and fellow director George Keyworth from allega-tions of leaking confidential board discussions, not onlybrought down HP chairman Patricia Dunn but also causedhis friend far greater humiliation, forcing him off the boardas well. A leader must consider whether fighting the allega-tions will exacerbate the damage by making the accusationsmore public.

When, however, the allegations are not only sufficient tocause a catastrophic career setback but would also block acareer comeback, then leaders need to fight back. Considerformer Israeli prime minister Ariel Sharon. He was a tri-umphant commander on the Egyptian front in the Six DayWar of 1967. Fifteen years later, as minister of defense,Sharon initiated an attack on the Palestine Liberation Orga-nization in Lebanon. Christian militias seized the opportu-nity to massacre hundreds of Palestinians in acts of revengeagainst the PLO in the Israeli-controlled Sabra and Shatilarefugee camps.

In a February 21, 1983, cover story, Time magazine re-ported that these massacres were the result of a plot betweenSharon and the militias to avenge the killing of Lebanon’sChristian president Bashir Gemayel. Sharon sued Time inIsrael and in New York in lengthy litigation. In both places,juries found Time’s accusations to be false and defamatory.The magazine settled and apologized. “It was a very longand hard struggle and was worth it,”Sharon said publically atthe time.“I came here to prove that Time magazine lied: Wewere able to prove that Time did lie.”

A ferocious warrior, Sharon took on this carefully calcu-lated battle for his reputation and executed it with focus anddetermination. He knew that if he did not vigorously defendhimself, no one else would be able to help him. Sharon could



GETTING BEYOND RAGE AND DENIAL

One of the most important steps on the route to recoveryis to confront and acknowledge failure. This can be as simple as understanding the Machiavellian politics ofothers. So as you set about rebuilding your career, makesure you:

• Remember that failure is a beginning, not an end.

Comeback is always possible. • Look to the future. Preemptive actions are oftenmore effective than reactive ones – even if they onlytake the form of standing back and reflecting on whatto do next.

• Help people to deal with your failure. Even closefriends may avoid you because they don’t knowwhat to say or do. Let them know that you are readyfor assistance and what kind of aid would be mostuseful.

• Know your narrative. Reputation building involvestelling and retelling your story to get your account ofevents out there and to explain your downfall. Beconsistent.

not have regained his honor and returned to public office ifhe had not challenged these false charges and then moved onwith his life.

Recruit Others into BattleWhether you fight or tactically retreat for a while, it is essen-tial to engage others right from the start to join your battleto put your career back on track.

Friends and acquaintances play an instrumental role inproviding support and advice in the process of recovery.Those who really care for you can help you gain perspectiveon the good and bad choices you have made. You are alsomore likely to make yourself vulnerable with those you trust.Without such vulnerability, you cannot hope to achieve thecandid, self-critical perspective you will need to learn fromyour experience. Still, although family and friends can pro-vide invaluable personal support, they may be less effectivewhen it comes to practical career assistance. Research hasshown that slight acquaintances are actually more helpfulthan close friends in steering you toward opportunities fornew positions in other organizations.

In an acclaimed study, Stanford University’s Mark Grano-vetter discovered that of those individuals who landed jobsthrough personal contacts, only 16.7% found them throughpeople they saw at least twice a week; 55.6% found positionsthrough acquaintances seen at least once a year. But 27.8% ofjob candidates found work through distant acquaintances,



“I was drowning in my sorrow,” Bernie Marcus told us, “going severalnights at a time without sleeping.” But Marcus had an unexpectedresource.

whom they saw less than once a year–old college friends, for-mer workmates, or people known through professional asso-ciations. In other words, more job contacts will come to youthrough people you see less than once a year than from peo-ple you see twice or more a week. That’s because close friendsshare the same networks as you do, whereas acquaintancesare more likely to introduce you to new people and contacts.Indeed, through the power of acquaintance networks, youcan reach almost anyone within a few steps. Thus, distant ac-quaintances that don’t appear to have any connection to youmay prove key to your recovery when you are trying to getback on your feet.

But it’s not enough to have a wide network of acquain-tances. The quality of the connections, even the more distantones, matters as well. That was the case for Home Depot’sBernie Marcus. Marcus was devastated when he was fired asCEO of Handy Dan on what he felt were trumped-up chargesmade by Sandy Sigoloff, the threatened boss of the parent com-pany, Daylin.“There was a lot of self-pity on my part,” Marcustold us. “I was drowning in my sorrow, going several nightsat a time without sleeping. For the first time in my adult life,instead of building, I was more concerned with surviving.”

Marcus, however, had an unexpected resource. Whetherthey were close friends and colleagues with whom he workedor acquaintances he dealt with on a casual basis, Marcustreated others with uncommon honesty, respect, and trust.This consideration was reciprocated by people in his networkwhen he needed help; it was one of his less frequent acquain-tances, Rip Fleming at Security Pacific National Bank, whomade it possible for Marcus to launch Home Depot.

Marcus had raised $2 million in seed money for the HomeDepot venture, but this was not enough to get his new com-pany off the ground. He applied to several banks for a line ofcredit but was turned down every time. Eventually, heknocked at Fleming’s door at Security Pacific National. BothMarcus and Fleming believed that the relationship betweenbanker and client should amount to more than just the busi-ness transactions they conducted. Consequently, Fleming hadbecome an adviser to Marcus at Handy Dan. Despite thesestrong professional ties, though, Fleming was initially reluc-tant to issue a line of credit until Marcus flew out to Los An-geles and sold Fleming on the idea. In the end,Security PacificNational provided a $3.5 million line of credit, which enabledHome Depot to get up and running.Unbeknownst to Marcus,the proposal was repeatedly turned down by the bank’s loancommittee and was approved only when Fleming marchedinto the president’s office with his resignation letter in hand.

How you build relationships has a huge impact on yourprospects for career recovery. Marcus had a way of buildingrelatively strong relationships even in circumstances whenmost people would settle for weak acquaintanceships. Thiscapacity for affiliation is a litmus test of a leader’s ability tobounce back. People who can create connections are muchmore likely to engender the kind of help they need when fateturns against them.

Recover Your Heroic StatusIt’s not enough for you to recruit others to advance your ca-reer. To launch your comeback, you must actually do thingsto win back the support of a wider audience. To manage this,you must regain what we call your heroic status.

The great leader has a heroic persona that confers a larger-than-life presence. You can achieve this status by developinga personal dream that you offer as a public possession. Ifyour dream is accepted, you achieve renown. If for whateverreason your public vision is ultimately discarded, you sufferthe loss of both your private dream and your public identity.After a career disaster, you can rebound only if you are ableto rebuild your heroic stature – that is, the public reputationwith which you were previously perceived. An intrinsic partof recovering this heroic status involves getting your storyout. This calls for a public campaign to educate and inform.

When a CEO is fired, the true causes for the dismissal areoften deliberately hidden, as the board seeks to protect thereputation of the firm and itself. The organization often en-gages in elaborate face-saving activities to disguise the realnature of the exit. Euphemistically, the press reports that theCEO resigned “for personal reasons” or “to spend more timewith family.” In our interviews with dismissed CEOs, wefound that their greatest frustration stemmed from not beingable to rebuild their heroic stature by telling their side of thestory. We have interviewed several people who had seven-figure separation agreements that were contingent on theirtoeing the party line when they left. That’s a problem whenCEOs are publicly sacrificed even though they are not guiltyof the accusations that led to their ouster. In such cases,CEOs’ inability to challenge and set the record straight canlead to destructive speculation in the press, which can dam-age their reputations so much that it becomes all but impos-sible to recover.

Popular wisdom holds that a deposed leader should signthe nondisparagement agreement, accept the noncompeteclause, take the money, and run. Our strong belief is that


just and valiant quest against the Goliath of government.Her fans, far from abandoning a fallen star, rallied aroundher. The astounding strength of this sentiment is measuredin the stock price of Martha Stewart Living Omnimedia.Even at the midpoint of Stewart’s prison sentence, the stockhad not merely rebound–it was 50% higher than before any-body had heard of ImClone and the ill-fated stock transac-tion. Upon her release from prison, the share price neared anall-time high, ad revenue at her magazines picked up, and she

launched two national network TV shows. The more Stewartgot her story out, the more loyal her public became.

Stewart managed to provide a reassuring account of whatreally happened in her case. But what if you can’t? What ifyou have truly stumbled? If you cannot refute the facts ofyour dismissal because they are so condemning, show au-thentic remorse. The public is often enormously forgivingof genuine contrition and atonement.

Prove Your MettleProtecting your reputation by knowing how to fight unjustaccusations and bringing others on board are both essentialprecursors to relaunching a career in the aftermath of ca-tastrophe. Ultimately, however, you will recover fully onlywhen you take on that next role or start a new organiza-tion. When you show that you can still perform at a credibleor superior level, others will begin to think of you as havingthe mettle to triumph over your career calamity.

Showing mettle is not easy. Fallen leaders face manybarriers on the path to recovery, not least of which aredoubts in their own ability to get back to the top. As one firedCEO told us,“I’d never sit here and say, ‘Geez, all I have to dois just replicate and do it again.’ The chances of doing itagain are pretty small.”Yet leaders who rebound are unfail-ingly those who get over this doubt about their ability todo it again. Even when forced from familiar arenas into to-tally new fields, some leaders remain unafraid of tryingnew ventures. This capacity to bounce back from adversity–to prove your inner strength once more by overcomingyour shattered confidence – is critical to earning lasting greatness.

Take Mickey Drexler. When Gap founder Donald Fisherpoached Drexler away from Ann Taylor in 1983, the Gapwas struggling to compete, since it sold the same brands ofclothing as everyone else and was caught in a pricing game.Drexler expanded the retailer beyond the core Gap stores



such agreements are a mistake. In the end, your cash will dis-appear, and you won’t be able to get your story out. If youagree not to speak out, be prepared to be unemployed for a number of years.

A lesser-known player in the Enron saga, Daniel Scotto,comes to mind. Scotto was the financial analyst who headedup the research department for the large global investmentbank Paribas. Early on, Scotto said that Enron was losingmoney in all its mainstream businesses and that it was only

through offshore finagling that the company was creatingthe image of profitability. Paribas, which was underwritinga large part of the debt, asked Scotto to recant. When hewouldn’t, Paribas put him on an imposed medical leave forthree weeks and then fired him. He was forced to sign a non-disparagement agreement that hurt his ability to get hisstory out. Scotto has been unemployed for five years.

Martha Stewart is the best reminder that it doesn’t haveto be that way. As the most public example in recent timesof a CEO who got her story out, Stewart is a model for howto regain your heroic status. She did it by carefully orchestrat-ing a multitiered campaign to restore her reputation.

The day after she was indicted for obstruction of justicein the federal government’s insider-trading investigation ofImClone stock, Stewart took out a full-page advertisementin USA Today and the New York Times, and launched a newWeb site, marthatalks.com. In an open letter to her public,Stewart clearly proclaimed her innocence and her intentionto clear her name. She understood intuitively that when ahero stumbles, constituents have to reconcile two conflictingimages of the person – the larger-than-life presence the heroonce commanded and the hero’s new fallen state. In her let-ter, Stewart managed to eliminate the confusion by makingsure that people knew her side of the story. She openly de-nied any charges of insider trading and hammered home theunreliability of the three witnesses upon which the govern-ment based its case. Stewart very proactively helped otherscontinue to believe in her heroic status.

Stewart’s open letter was supported by a statement on herWeb site by her attorneys, Robert G. Morvillo and John J.Tigue, Jr., who challenged the media to investigate why thegovernment waited nearly a year and a half to file thecharges. “Is it because she is a woman who has successfullycompeted in a man’s business world by virtue of her talent,hard work, and demanding standards?” they asked.

With the aid of her attorneys, Stewart ingeniously – andsuccessfully – portrayed herself as a David struggling in a

If you cannot refute the facts of your dismissal, show authentic remorse.The public is enormously forgiving of genuine contrition.


pany was now too large for Drexler’s hands-on manage-ment style.

Drexler was by this time independently wealthy, but hewas nonetheless determined to prove that the failures of theprevious two years were not primarily his fault and did notreflect his abilities. He knew that the only way to restore hisbelief in himself, as well as other people’s confidence in him,was to return to a role in which he could once again demon-strate his expertise. He turned down a multimillion-dollarseverance package from Gap because it contained a noncom-pete clause. After he explored a few other avenues, opportu-nity came knocking in the guise of struggling fashion re-tailer J.Crew.

With only about 200 stores, J.Crew was a small fraction ofthe Gap’s size and consequently much more amenable toDrexler’s hands-on style, giving him a greater opportunity to make an impact. Drexler invested $10 million of his ownmoney to buy a 22% stake in the company from the retailer’sprivate owner, the investment firm Texas Pacific. He took a salary that was less than a tenth of what he had earned athis former employer. “You’ve no idea how much it’s costingme to run this company,” he joked in a New York magazinearticle shortly after taking over.

The results more than proved that Drexler still had theright stuff. J.Crew rebounded from a $30 million operatingloss in 2003 to an operating profit of over $37 million in 2004.Same-store sales per square foot, one of the key metrics inretailing, rose 18% from $338 to $400, while at his old em-ployer, sales per square foot dropped 3%. By the summer of2006, Drexler had increased both sales and profits 20% andlaunched a wildly embraced IPO to take J.Crew public. Themedia celebrated his recovery and acknowledged his obvi-ous talent.

For Drexler, as for others, the comeback required him toprove his worth in a situation that was perceived to be enor-mously difficult. Start-ups or turnarounds are common con-texts in which fallen leaders can recover grace. It is in thesedemanding situations that leaders find the mettle to proveto themselves and to others that they have not lost theirmagic touch and that no obstacle is too great to overcome intheir quest for return.

Rediscover Your Heroic MissionMost great leaders want to build a legacy that will last be-yond their lifetime. This does not mean having their namesetched on an ivy-clad university ediface but rather advanc-ing society by building and leading an organization. This iswhat we call the leader’s heroic mission.

Most of the leaders we have profiled in this article weredeeply engaged in building a lasting legacy even before theysuffered their career setbacks. It is the loss of this missionthat really raises a derailment to catastrophic proportions inthe leader’s own mind, since it puts at risk a lifetime of


HOW TO COME BACK

Our interviews with some 300 derailed CEOs and otherprofessionals, as well as our scholarly leadership re-search, consulting assignments, and personal experi-ences, have brought to light five key steps for rebound-ing from career disaster. Anyone trying to recover from a catastrophic setback can use these steps to match, oreven exceed, their past accomplishments:

• Decide how to fight back. Pyrrhic victories will hurtyou by calling attention to the accusations leveledagainst you. But when your reputation is unfairlydamaged, you must take quick action.

• Recruit others into battle. Friends and family canprovide comfort and, perhaps, some perspective inyour hour of need. But acquaintances may be moreimportant in landing that next job.

• Recover your heroic status. Deposed leaders areoften advised to sign nondisparagement agree-ments. Don’t do it. Engage instead in a multitieredcampaign to clear your reputation and restore yourstature.

• Prove your mettle. After suffering career disaster,you will probably have doubts about your ability toget back to the top. You must overcome that insecu-rity and in the process find the courage to prove toothers – and yourself – that you have not lost yourmagic touch.

• Rediscover your heroic mission. It is the single-minded pursuit of a lasting legacy that sets greatleaders apart. To recover from a disastrous setback,find a new heroic mission that renews your passionand creates new meaning in your life.

to brand extension such as GapKids, babyGap, and GapBody,as well as introducing other complementary brands, includ-ing Banana Republic and Old Navy. Between the time he ar-rived in 1983 and 2000, Gap’s sales increased from $480 mil-lion to $13.7 billion, and its stock rose 169-fold.

Then things began to go awry. Drexler was accused ofhaving lost his touch as a prescient merchant; suspicion arosein the minds of analysts and in the media that the goodshad become too trendy. Although some people have sug-gested that the real problem was that Fisher’s brother hadbuilt too many stores too close to one another, Drexler wasblamed for the slump, as same-store sales dropped everyquarter for two years, and the stock plummeted 75%. OnMay 21, 2002, Drexler presented the upcoming season’smerchandise to the board, confident that he had a greatselling line for the fall. It wasn’t enough for the directors, andthe next morning Fisher fired him, believing that the com-


achievement. On the day Steve Jobs was fired from Apple in1985, for example, his friend Mike Murray was so concernedabout Jobs’ reaction that he went over to Jobs’ house and satwith him for hours until Murray was convinced that Jobswould not commit suicide.

Jobs did not wallow in despair for long. A week after hisouster from Apple, he flew to Europe and, after a few daysin Paris, headed for the Tuscan hills of northern Italy, wherehe bought a bicycle and a sleeping bag and camped outunder the stars, contemplating what he would do next.From Italy, he went to Sweden and then to Russia before re-turning home. Once back in California, with his passion andambition renewed, Jobs set about re-creating himself as a

force in the IT world. He went on to found another com-puter company, NeXT, which Apple purchased in 1996 for$400 million, at which point Jobs returned to Apple and atthe same time became the driving force behind the hugelysuccessful computer-graphics studio Pixar. Once back atApple, Jobs revived and reenergized the company with break-through, high-design products, such as the iMac, iBook, andiPod and took the company into emerging businesses, suchas iTunes.

Like Martha Stewart, Steve Jobs was able to recapture hisoriginal heroic mission. Other deposed leaders, however,must truly start again because the door to their familiar fieldis firmly closed, and they must seek new opportunities andcreate a totally new heroic mission.

That’s what Drexel Burnham Lambert financier MichaelMilken, the imaginative “king of the junk bonds,” had to do.Milken’s life was almost the incarnation of the Americandream. Born on the Fourth of July, Milken had become abillionaire by his mid-forties and one of the most influentialfinanciers in the world. Then it all came tumbling down. Hewas charged with a 98-count criminal indictment, and a mas-sive civil case was brought against him by the SEC for insidertrading, stock parking, price manipulation, racketeering, anddefrauding customers, among other crimes. He ended uppleading guilty to six relatively minor counts. In November1990, he was sentenced to ten years in prison, agreed to pay$600 million at the time, and ended up paying a further$42 million over a probation violation. After serving 22months, Milken was released early for cooperating withother inquiries. But he was barred from the securities indus-try for life.

A week later, Milken was diagnosed with prostate cancerand was told he had 12 to 18 months to live. He immediately

turned his maniacal zeal into a new heroic mission to con-quer this disease. Through aggressive treatment and his owndietary research, he survived to build a huge foundationsupporting research to battle prostate cancer. He also createdan economic research institute that attracts the world’s topscientific, political, religious, and business leaders. Milkenstill argues that he was wrongly accused. Others may dis-agree, but few would doubt that he has earned restitution.The public has come to accept that he has paid for his crimes,and there has even been some reconsideration of their actualseverity.

It is the single-minded, passionate pursuit of a heroic mis-sion that sets leaders like Steve Jobs and Michael Milken and

Jimmy Carter apart from the general population, and it iswhat attracts and motivates followers to join them. In theworst of cases, to have that life purpose ripped from youand to be prohibited from its further pursuit can leave an un-bearable void and doubts as to your reason for being. Find-ing a new mission to replace your lifelong purpose can be agreat struggle, but one that is necessary if you are to recover.

• • •The tragedies and triumphant comebacks of the leaders wehave profiled in this article can seem remote, bordering onthe mythological, perhaps. But their stories point to impor-tant lessons about recovering from career catastrophe. Stun-ning comeback is possible in all industries, though the chal-lenges vary according to the leadership norms of each field’sculture. For example, clergy ensnarled in publicized sex scan-dals will probably see their careers dissolve, whereas enter-tainment figures may not only recover but actually benefitfrom notoriety. Where one profession values trust, anothervalues celebrity. Thus, recovery plans must be adapted to thecultures of different industries.

Whatever the arena in which your recovery takes shape,the important thing to remember is that we all have choicesin life, even in defeat. We can lose our health, our loved ones,our jobs, but much can be saved. No one can truly define suc-cess and failure for us–only we can define that for ourselves.No one can take away our dignity unless we surrender it. Noone can take away our hope and pride unless we relinquishthem. No one can steal our creativity, imagination, and skillsunless we stop thinking. No one can stop us from rebound-ing unless we give up.

Reprint R0701G




We all have choices in life, even in defeat. We can lose our health, ourloved ones, our jobs, but much can be saved.


INNOVATE MORE

Know your signs of innovation.

MOVE FASTER GET OPTIMIZED GO GLOBAL

Take the UGS InnovationDriver’s Test at

www.ugs.com/innovate.

There’s no single road to innovation, but there are signs

you’re headed in the right direction. Leading innovators get to

market faster, optimize resources and achieve globalization.They’re

also four times more likely to use product lifecycle management (PLM)

software to plan, define, build and support their products. UGS’ family of

PLM solutions helps businesses establish Global Innovation Networks that

transform their process of innovation. Find out how to drive your business

to greater innovation and accelerate your growth.

© Copyright 2006 UGS Corp. All rights reserved. UGS,Transforming the process of innovation and the Signs of Innovation trade dress aretrademarks or registered trademarks of UGS Corp. or its subsidiaries in the United States and in other countries.



by Robert S. KaplanFr

edrik

Bro

dén

F YOU’RE LIKE MOST SUCCESSFUL LEADERS, you were, in the early stages of your career, given plenty of guidance and support. You were closely monitored, coached, and men-

tored. But as you moved up the ladder, the sources of honestand useful feedback became fewer, and after a certain point,you were pretty much on your own. Now, your boss – if youhave one – is no longer giving much consideration to yourday-to-day actions. By the time any mistakes come to light,it’s probably too late to fix them – or your boss’s perceptionsof you. And by the time your management missteps nega-tively affect your business results, it’s usually too late to makecorrections that will get you back on course.

I

There comes a point in your career when the best way to figure outhow you’re doing is to step back and ask yourself a few questions.Having all the answers is less important than knowing what to ask.

AskWhat to

the Person in the Mirror


No matter how talented and successful you are, you willmake mistakes. You will develop bad habits. The world willchange subtly, without your even noticing, and behaviorsthat once worked will be rendered ineffective. Over a 22-yearcareer at Goldman Sachs, I had the opportunity to run vari-ous businesses and to work with or coach numerous businessleaders. I chaired the firm’s senior leadership training effortsand cochaired its partnership committee, which focused onreviews, promotions, and development of managing direc-

tors. Through this experience and subsequent interviewswith a large number of executives in a broad range of indus-tries, I have observed that even outstanding leaders invari-ably struggle through stretches of their careers where theyget off track for some period of time.

It’s hard to see it when you’re in the midst of it; changes inthe environment,competitors,or even personal circumstancescan quietly guide you off your game. I have learned that a keycharacteristic of highly successful leaders is not that theyfigure out how to always stay on course, but that they de-velop techniques to help them recognize a deteriorating sit-uation and get back on track as quickly as possible. In my ex-perience, the best way to do that is to step back regularly, sayevery three to six months (and certainly whenever thingsfeel as though they aren’t going well), and honestly ask your-self some questions about how you’re doing and what youmay need to do differently. As simple as this process sounds,people are often shocked by their own answers to basic man-agement and leadership questions.

One manager in a large financial services company whohad been passed over for promotion told me he was quitesurprised by his year-end performance review, which high-lighted several management issues that had not been previ-ously brought to his attention.His boss read several commentsfrom the review that faulted him for poor communication,failure to effectively articulate a strategy for the business,and a tendency to isolate himself from his team. He believedthat the review was unfair. After 15 years at the company, hebegan to feel confused and misunderstood and wonderedwhether he still had a future there. He decided to seek feed-back directly from five of his key contributors and longtimecollaborators. In one-on-one meetings, he asked them forblunt feedback and advice. He was shocked to hear that they

were highly critical of several of his recent actions, were con-fused about the direction he wanted to take the business, andfelt he no longer valued their input. Their feedback helpedhim see that he had been so immersed in the day-to-day busi-ness that he had failed to step back and think about what hewas doing. This was a serious wake-up call. He immediatelytook steps to change his behavior and address these issues.His review the following year was dramatically better, he wasfinally promoted, and his business’s performance improved.

The manager was lucky to have received this feedback intime to get his career back on track, although he regrettedthat he had waited for a negative review to ask basic ques-tions about his leadership activities. He promised himself hewould not make that mistake again.

In this article, I outline seven types of questions that lead-ers should ask themselves on some periodic basis. I am notsuggesting that there is a “right” answer to any of them orthat they all will resonate with a given executive at any pointin time. I am suggesting that successful executives can regu-larly improve their performance and preempt serious busi-ness problems by stepping back and taking the time to askthemselves certain key questions.

Vision and PrioritiesIt’s surprising how often business leaders fail to ask them-selves: How frequently do I communicate a vision and priori-ties for my business? Would my employees, if asked, be able toarticulate the vision and priorities? Many leaders have, onpaper, a wealth of leadership talents: interpersonal, strate-gic, and analytic skills; a knack for team building; and cer-tainly the ability to develop a vision. Unfortunately, in thepress of day-to-day activities, they often don’t adequatelycommunicate the vision to the organization, and in particu-lar, they don’t convey it in a way that helps their people un-derstand what they are supposed to be doing to drive thebusiness. It is very difficult to lead people if they don’t havea firm grasp of where they’re heading and what’s expectedof them.

This was the problem at a large Fortune 200 company thathad decided to invest in its 1,000 top managers by havingthem attend an intensive, two-day management-training pro-gram, 100 at a time. Before each session, the participantswent through a 360-degree nonevaluative review in whichcritical elements of their individual performance wereranked by ten of their subordinates. The company’s senior


THE TESTS OF A LEADER | What to Ask the Person in the Mirror

Robert S. Kaplan ([email protected]), formerly vice chairman of the

Goldman Sachs Group, is the Thomas S. Murphy Senior Lecturer of

Business Administration at Harvard Business School in Boston.

The fact is, having 15 priorities is the same as having none at all.


management looked at the results, focusing onthe top five and bottom five traits for eachgroup. Despite this being an extremely well-managed firm, the ability to articulate a visionranked in the bottom five for almost everygroup. Managers at that company did articu-late a vision, but the feedback from their sub-ordinates strongly indicated that they were notcommunicating it frequently or clearly enoughto meet their people’s tremendous hunger forguidance.

Employees want to know where the busi-ness is going and what they need to focus on.As the world changes, they want to know howthe business vision and priorities might changealong with it. While managers are taught to ac-tively communicate, many either unintention-ally undercommunicate or fail to articulatespecific priorities that would give meaning totheir vision. However often you think you dis-cuss vision and strategy, you may not be doingit frequently enough or in sufficient detail tosuit the needs of your people. Look at the CEOof an emerging biotechnology company, whowas quite frustrated with what he saw as alack of alignment within his top managementteam. He strongly believed that the companyneeded to do a substantial equity financingwithin the next 18 months, but his senior man-agers wanted to wait a few years until two orthree of the company’s key drugs were furtheralong in the FDA approval process. They pre-ferred to tell their story to investors when thecompany was closer to generating revenue.When I asked him about the vision for thecompany, the CEO sheepishly realized that he had neveractually written down a vision statement. He had a well-articulated tactical plan relating to each of the company’sspecific product efforts but no fully formed vision that wouldgive further context to these efforts. He decided to organizean off-site meeting for his senior management team to dis-cuss and specifically articulate a vision for the company.

After a vigorous debate, the group quickly agreed on a vi-sion and strategic priorities. They realized that in order toachieve their shared goals, the business would in fact requiresubstantial financing sooner rather than later– or they wouldneed to scale back some of the initiatives that were central totheir vision for the company. Once they fully appreciatedthis trade-off, they understood what the CEO was trying toaccomplish and left the meeting united about their financingstrategy. The CEO was quite surprised at how easy it hadbeen to bring the members of his leadership team together.Because they agreed on where they were going as a company,specific issues were much easier to resolve.

A common pitfall in articulating a vision is a failure to boilit down to a manageable list of initiatives. Culling the list in-volves thinking through and then making difficult choicesand trade-off decisions. These choices communicate volumesto your people about how they should be spending theirtime. I spoke with the manager of a national sales force whofelt frustrated that his direct reports were not focusing on thetasks necessary to achieve their respective regional salesgoals. As a result, sales were growing at a slower rate thanbudgeted at the beginning of the year. When I asked him toenumerate the three to five key priorities he expected hissalespeople to focus on, he paused and then explained thatthere were 15 and it would be very difficult to narrow the listdown to five.

Even as he spoke, a light went on in his head. He realizedwhy there might be a disconnect between him and his peo-ple: They didn’t know precisely what he wanted because hehad not told them in a prioritized, and therefore actionable,manner. He reflected on this issue for the next two weeks,



thinking at length about his own experience as a regionalmanager and consulting with various colleagues. He thenpicked three priorities that he felt were crucial to achievingsales growth. The most important of these involved a majornew-business targeting exercise followed by a substantial new-prospect calling effort. The regional managers immediatelyunderstood and began focusing on these initiatives. The factis that having 15 priorities is the same as having none at all.Managers have a responsibility to translate their vision intoa manageable number of priorities that their subordinatescan understand and act on.

Failing to communicate your vision and priorities has di-rect costs to you in terms of time and business effectiveness.It’s hard to delegate if your people don’t have a good senseof the big picture; hence you end up doing more work your-self. This issue can cascade through the organization if yourdirect reports are, in turn, unable to communicate a visionand effectively leverage their own subordinates.

Managing TimeThe second area to question is painfully simple and closelyrelates to the first: How am I spending my time? Once you

know your priorities, you need to determine whether you’respending your time– your most precious asset– in a way thatwill allow you to achieve them. For example, if your twomajor priorities are senior talent development and global ex-pansion but you’re spending the majority of your time on do-mestic operational and administrative matters that could bedelegated, then you need to recognize there is a disconnectand you’d better make some changes.

It’s such a simple question, yet many leaders, myself in-cluded, just can’t accurately answer at times. When leaders fi-nally do track their time, they’re often surprised by whatthey find. Most of us go through periods where unexpectedevents and day-to-day chaos cause us to be reactive ratherthan acting on a proscribed plan. Crises, surprises, personnelissues, and interruptions make the workweek seem like ablur. I have recommended to many leaders that they trackhow they spend each hour of each day for one week, then cat-egorize the hours into types of activities: business develop-ment, people management, and strategic planning, for exam-ple. For most executives, the results of this exercise arestartling – even horrifying – with obvious disconnects be-tween what their top priorities are and how they are spend-ing their time.



TESTINGYOURSELF

To assess your

performance and

stay on track, you

should step back

and ask yourself

certain key

questions.

VISION AND PRIORITIES

In the press of day-to-day activities, leaders often fail toadequately communicate theirvision to the organization, andin particular, they don’t com-municate it in a way that helpstheir subordinates determinewhere to focus their own efforts.

How often do I communicatea vision for my business?

Have I identified and com-municated three to five keypriorities to achieve that vision?

If asked, would my employ-ees be able to articulate thevision and priorities?

MANAGING TIME

Leaders need to know howthey’re spending their time.They also need to ensure thattheir time allocation (and that of their subordinates) matchestheir key priorities.

How am I spending my time? Does it match my keypriorities?

How are my subordinatesspending their time? Doesthat match the key prioritiesfor the business?

FEEDBACK

Leaders often fail to coach employees in a direct andtimely fashion and, instead,wait until the year-end review.This approach may lead to unpleasant surprises and canundermine effective profes-sional development. Just asimportant, leaders need to cultivate subordinates who cangive them advice and feedbackduring the year.

Do I give people timely anddirect feedback that they canact on?

Do I have five or six juniorsubordinates who will tellme things I may not want to hear but need to hear?


For example, the CEO of a midsize manufacturing com-pany was frustrated because he was working 70 hours a weekand never seemed to catch up. His family life suffered, and,at work, he was constantly unavailable for his people andmajor customers. I suggested he step back and review howhe was managing his time hour-by-hour over the course ofa week. We sat down to examine the results and noticed thathe was spending a substantial amount of time approvingcompany expenditures, some for as little as $500 – this in a business with $500 million in sales. Sitting in my office, hestruggled to explain why he had not delegated some portionof this responsibility; it turned out that the activity was aholdover from a time when the company was much smaller.By delegating authority to approve recurring operating ex-penses below $25,000, he realized he could save as much as15 hours per week. He was amazed that he had not recog-nized this issue and made this simple change much earlier.

How you spend your time is an important question notonly for you but for your team. People tend to take their cuesfrom the leader when it comes to time management– there-fore, you want to make sure there’s a match between your ac-tions, your business priorities, and your team’s activities. TheCEO of a rapidly growing, 300-person professional services

firm felt that, to build the business, senior managers neededto develop stronger and more substantive relationships withclients. This meant that senior professionals would need tospend significantly more time out of their offices in meetingswith clients. When asked how his own time was being spent,the CEO was unable to answer. After tracking it for a week,he was shocked to find that he was devoting a tremendousamount of his time to administrative activities related tomanaging the firm. He realized that the amount of attentionhe was paying to these matters did not reflect the business’spriorities and was sending a confusing message to his people.He immediately began pushing himself to delegate a num-ber of these administrative tasks and increase the amount oftime he spent on the road with customers, setting a power-ful example for his people. He directed each of his seniormanagers to do a similar time-allocation exercise to ensurethey were dedicating sufficient time to clients.

Of course, the way a leader spends his or her time must betailored to the needs of the business, which may vary de-pending on time of year, personnel changes, and externalfactors. The key here is, whatever you decide, time allocationneeds to be a conscious decision that fits your vision andpriorities for the business. Given the pressure of running a


SUCCESSION PLANNING

When leaders fail to activelyplan for succession, they donot delegate sufficiently andmay become decision-makingbottlenecks. Key employeesmay leave if they are not ac-tively groomed and challenged.

Have I, at least in my ownmind, picked one or morepotential successors?

Am I coaching them and giving them challenging assignments?

Am I delegating sufficiently?Have I become a decision-making bottleneck?

EVALUATION

AND ALIGNMENT

The world is constantly chang-ing, and leaders need to beable to adapt their businesses accordingly.

Is the design of my companystill aligned with the key suc-cess factors for the business?

If I had to design my businesswith a clean sheet of paper,how would I design it? Howwould it differ from the cur-rent design?

Should I create a task forceof subordinates to answerthese questions and makerecommendations to me?

LEADING UNDER

PRESSURE

A leader’s actions in times ofstress are watched closely bysubordinates and have a pro-found impact on the culture ofthe firm and employees’ be-havior. Successful leadersneed to be aware of their ownstress triggers and consciouslymodulate their behavior duringthese periods to make surethey are acting in ways that areconsistent with their beliefsand core values.

What types of events createpressure for me?

How do I behave under pressure?

What signals am I sendingmy subordinates? Are thesesignals helpful, or are theyundermining the success ofmy business?

STAYING TRUE TO

YOURSELF

Successful executives developleadership styles that fit theneeds of their business butalso fit their own beliefs andpersonality.

Is my leadership style com-fortable? Does it reflect who I truly am?

Do I assert myself sufficiently,or have I become tentative?

Am I too politically correct?

Does worry about my nextpromotion or bonus causeme to pull punches or hesi-tate to express my views?


business, it is easy to lose focus, so it’s important to ask your-self this question periodically. Just as you would step backand review a major investment decision, you need to dispas-sionately review the manner in which you invest your time.

FeedbackWhen you think about the ways you approach feedback, youshould first ask: Do I give people timely, direct, and constructivefeedback? And second: Do I have five or six junior people whowill tell me things I don’t want to hear but need to hear?

If they’re like most ambitious employees, your subordi-nates want to be coached and developed in a truthful and di-rect manner. They want to get feedback while there’s still anopportunity to act on it; if you’ve waited until the year-endreview, it’s often too late. In my experience, well-intentionedmanagers typically fail to give blunt, direct, and timely feed-back to their subordinates.

One reason for this failure is that managers are often afraidthat constructive feedback and criticism will demoralizetheir employees. In addition, critiquing a professional in afrank and timely manner may be perceived as overly con-frontational. Lastly, many managers fear that this type offeedback will cause employees not to like them.Consequently,leaders often wait until year-end performance reviews. Theyear-end review is evaluative (that is, the verdict on the year)and therefore is not conducive to constructive coaching. The

subordinate is typically on the defensive and not as open tocriticism. This approach creates surprises, often unpleasantones, which undermine trust and dramatically reduce theconfidence of the subordinate in the manager.

The reality is that managers who don’t give immediateand direct feedback often are “liked” until year-end – atwhich time they wind up being strongly disliked. If employ-ees have fallen short of expectations, the failing is reflectedin bonuses, raises, and promotions. The feeling of injusticecan be enormous. What’s worse is the knowledge that if anemployee had received feedback earlier in the year, it is likelythat he or she would have made meaningful efforts to im-prove and address the issues.

While people do like to hear positive feedback, ultimately,they desperately want to know the truth, and I have rarelyseen someone quit over hearing the truth or being chal-

lenged to do better – unless it’s too late. On the contrary,I would argue that people are more likely to stay if they un-derstand what issues they need to address and they trust youto bring those issues to their attention in a straightforwardand prompt fashion. They gain confidence that you willwork with them to develop their skills and that they won’t beblindsided at the end of the year. Employees who don’t landa hoped-for promotion will be much more likely to forgiveyou if you’ve told them all along what they need to do bet-ter, even if they haven’t gotten there yet. They may well re-double their efforts to prove to you that they can overcomethese issues.

During my career at Goldman Sachs, I consistently foundthat professional development was far more effective whencoaching and direct feedback were given to employeesthroughout the year – well in advance of the annual perfor-mance review process. Internal surveys of managing direc-tors showed that, in cases where feedback was confined tothe year-end review, satisfaction with career developmentwas dramatically lower than when it was offered throughoutthe year.

As hard as it is to give effective and timely feedback, manyleaders find it much more challenging to get feedback fromtheir employees. Once you reach a certain stage of your ca-reer, junior people are in a much better position than yourboss to tell you how you’re doing. They see you in your day-to-day activities, and they experience your decisions directly.

Your boss, at this stage, is much more removed and, as a re-sult, typically needs to talk to your subordinates to assessyour performance at the end of the year. In order to avoidyour own year-end surprises, you need to develop a networkof junior professionals who are willing to give you construc-tive feedback. The problem is that, while your direct reportsknow what you are doing wrong, most of them are not dyingto tell you. With good reason – there’s very little upside anda tremendous amount of downside. The more senior and themore important you become, the less your subordinates willtell you the “awful truth” – things that are difficult to hearbut that you need to know.

It takes a concerted effort to cultivate subordinates whowill advise and coach you. It also takes patience and some re-lentlessness. When I ask subordinates for constructive feed-back, they will typically and predictably tell me that I’m



While your direct reports know what you are doing wrong, most of them are not dying to tell you. It takes a concerted effort

to cultivate subordinates who will advise and coach you.


doing “very well.” When I follow up and ask “What should Ido differently?” they respond,“Nothing that I can think of.”If I challenge them by saying, “There must be something!”still they say, “Nothing comes to mind.” I then ask them tosit back and think – we have plenty of time. By this time,beads of sweat begin to become visible on their foreheads.After an awkward silence, they will eventually come upwith something – and it’s often devastating to hear. It’s dev-astating because it’s a damning criticism and because youknow it’s true.

What you do with this feedback is critical. If you act onit, you will improve your performance. Equally important,you will take a big step in building trust and laying thegroundwork for a channel of honest feedback. When subor-dinates see that you respond positively to suggestions, theywill often feel more ownership in the business and in yoursuccess. They’ll learn to give you criticisms on their own ini-tiative because they know you will actually appreciate itand do something with it. Developing a network of “coach-ing” subordinates will help you take action to identify your own leadership issues and meaningfully improve your performance.

Succession PlanningAnother question that managers know is important yetstruggle to answer affirmatively is: Have I, at least in my ownmind, picked one or more potential successors? This issue iscritical because if you aren’t identifying potential successors,you are probably not delegating as extensively as you shouldand you may well be a decision-making bottleneck. Being abottleneck invariably means that you are not spendingenough time on vital leadership priorities and are failing todevelop your key subordinates. Ironically, when leaders be-lieve they are so talented that they can perform tasks far bet-ter than any of their subordinates and therefore insist ondoing the tasks themselves, they will typically cause theirbusinesses to underperform, and, ultimately, their careerswill suffer as well.

The succession question also has significant implicationsthat cascade through an organization: If leaders do not de-velop successors, then the organization may lack a sufficientnumber of leaders to successfully grow the business. Worse,if junior employees are not developed, they may leave thefirm for better opportunities elsewhere. For these reasons,many well-managed companies will hesitate to promote ex-ecutives who have failed to develop successors.

It is sufficient to identify possible successors without actu-ally telling them you’ve done so– as long as this identificationcauses you to manage them differently. In particular, youwill want to delegate more of your major responsibilities tothese professionals. This will speed their maturation and pre-pare them to step up to the next level. By giving demandingassignments to these subordinates, you strongly signal an in-

terest in their development and career progression – whichwill encourage them to turn down offers from competitors.Leaders who do this are much better able to keep theirteams together and avoid losing up-and-coming stars tocompetitors.

A loss of talent is highly damaging to a company. It is par-ticularly painful if you could have retained key employees bysimply challenging them more intensively. I spoke with a di-vision head of a large company who was concerned aboutwhat he perceived to be a talent deficit in his organization.He felt that he could not use his time to the fullest becausehe viewed his direct reports as incapable of assuming someof his major responsibilities. He believed this talent deficitwas keeping him from launching several new product andmarket initiatives. In the midst of all this, he lost two essen-tial subordinates over six months – each had left to take onincreased responsibilities at major competitors. He had triedto persuade them to stay, emphasizing that he was activelyconsidering them for significant new leadership assignments.Because they had not seen evidence of this previously, theywere skeptical and left anyway. I asked him whether, prior tothe defections, he had identified them (or anyone else) as po-tential successors, put increased responsibilities in theirhands, or actively ratcheted up his coaching of these profes-sionals. He answered that, in the chaos of daily events and inthe effort to keep up with the business, he had not done so.He also admitted that he had underestimated the potentialof these two employees and realized he was probably under-estimating the abilities of several others in the company. Heimmediately sat down and made a list of potential stars andnext to each name wrote out a career and responsibilitygame plan. He immediately got to work on this formativesuccession plan, although he suspected that he had probablywaited too long already.

When you’re challenging and testing people, you delegateto them more often, which frees you to focus on the mostcritical strategic matters facing the business. This will makeyou more successful and a more attractive candidate for yourown future promotion.

Evaluation and AlignmentThe world is constantly changing. Your customers’ needschange; your business evolves (going, for instance, from highgrowth to mature); new products and distribution methodsemerge as threats. When these changes happen, if you don’tchange along with them, you can get seriously out of align-ment. The types of people you hire, the way you organizethem, the economic incentives you offer them, and even thenature of the tasks you delegate no longer create the cultureand outcomes that are critical to the success of your busi-ness. It’s your job to make sure that the design of your orga-nization is aligned with the key success factors for the busi-ness. Ask yourself: Am I attuned to changes in the business



environment that would require a change in the way we orga-nize and run our business?

Such clear-sightedness is, of course, hard to achieve. As aleader, you may be too close to the business to see subtlechanges that are continually occurring. Because you proba-bly played a central role in building and designing the busi-ness, it may be emotionally very difficult to make meaning-ful changes. You may have to fire certain employees– peopleyou recruited and hired. You may also have to acknowledgethat you made some mistakes and be open to changing yourown operating style in a way that is uncomfortable for someperiod of time.

Because of the difficulty in facing these issues, it’s some-times wise to call on high-potential subordinates to take afresh look at the business. This approach can be quite effec-tive because junior employees are often not as emotionallyinvested as you are and can see more objectively what needsto be done.This approach is also a good way to challenge yourfuture leaders and give them a valuable development expe-rience. You’ll give them a chance to exercise their strategicskills; you’ll get a glimpse of their potential (which relates tothe earlier discussion of succession planning), and you mightjust get some terrific new ideas for how to run the business.

This approach worked for the CEO of a high technologybusiness in northern California, whose company had beenone of the early innovators in its product space but, in recentyears, had begun to falter and lose market share. In its earlydays, the company’s primary success factors had been prod-uct innovation and satisfying customer needs. It had aggres-sively hired innovative engineers and marketing personnel.As new competitors emerged, customers began to focusmore on cost and service (in the form of more sophisticatedapplications development). Stepping back, the CEO sensedthat he needed to redesign the company with a different mixof people, a new organization, and a revised incentive struc-ture. Rather than try to come up with a new model himself,he asked a more junior group of executives to formulate anew company design as if they had a “clean sheet of paper.”Their study took a number of weeks, but upon completion,it led to several recommendations that the CEO immediatelybegan to implement. For example, they suggested colocatingthe engineering and sales departments and creating inte-grated account coverage teams. They also recommended thatthe company push more of its engineers to interact with cus-tomers and focus on this skill in recruiting. The CEO regret-ted that he had not asked the question – and conducted thisassignment – 12 months earlier.

Even the most successful business is susceptible to newchallenges posed by a changing world. Effective executivesregularly look at their businesses with a clean sheet ofpaper – seeking advice and other perspectives from peoplewho are less emotionally invested in the business – in orderto determine whether key aspects of the way they run theirorganizations are still appropriate.

Leading Under PressurePressure is a part of business. Changes in business conditionscreate urgent problems. New entrants in the market demanda competitive response. Valued employees quit, often at themost inopportune times. Leaders and their teams, no matterhow smart they are, make mistakes.

The interesting thing about stressful events is that they af-fect each person differently – what causes you anxiety maynot bother someone else, and vice versa. For some, extremeanxiety may be triggered by the prospect of a promotion; forothers, by making a serious mistake; still others, by losing apiece of business to a competitor. Regardless of the source ofstress, every leader experiences it, so a good question to askyourself is: How do I behave under pressure, and what signalsam I sending my employees?

As a leader, you’re watched closely. During a crisis, yourpeople watch you with a microscope, noting every move youmake. In such times, your subordinates learn a great dealabout you and what you really believe, as opposed to whatyou say. Do you accept responsibility for mistakes, or do youlook for someone to blame? Do you support your employees,or do you turn on them? Are you cool and calm, or do youlose your temper? Do you stand up for what you believe, ordo you take the expedient route and advocate what you thinkyour seniors want to hear? You need to be self-aware enoughto recognize the situations that create severe anxiety for youand manage your behavior to avoid sending unproductivemessages to your people.

I’ve met a number of leaders who behave in a very com-posed and thoughtful manner the great majority of the time.Unfortunately, when they’re under severe stress, they react inways that set a very negative tone. They inadvertently traintheir employees to mimic that behavior and behave in a sim-ilar fashion. If your instinct is to shield yourself from blame,to take credit rather than sharing it with your subordinates,or to avoid admitting when you have made a mistake, youwill give your employees license to do the same.

The CEO of a large asset-management firm was frustratedthat he was unable to build a culture of accountability andteamwork in his growing business. At his request, I spoke toa number of his team members. I asked in particular aboutthe actions of the CEO when investments they recom-mended declined in value. They recounted his frequent tem-per tantrums and accusatory diatribes, which led to an over-whelming atmosphere of blame and finger-pointing. Theinvestment decisions had, in fact, been made jointly througha carefully constructed process involving portfolio managers,industry analysts, and the CEO. As a result of these episodes,employees learned that when investments went wrong itwould be good to try to find someone else to blame. Hearingthese stories, the CEO realized his actions under pressurewere far more persuasive to employees than his speechesabout teamwork and culture. He understood that he would




have to learn to moderate his behavior under stress and, sub-sequently, took steps to avoid reacting so angrily to negativeinvestment results. He also became more aware that subor-dinates typically felt quite regretful and demoralized whentheir investments declined and were more likely to need apat on the back and coaching than a kick in the pants.

It’s extremely difficult to expect employees to alert you tolooming problems when they fear your reaction – and evenmore so when they think it’s better to distance themselvesfrom potential problems. This can create an atmospherewhere surprises are, in fact, more likely as the company’s

natural early-warning system has been inadvertently dis-armed. If you have created this kind of culture, it is quite un-likely that you will learn about problems from subordinatesspontaneously – unless they want to commit career suicide.

Part of the process of maturing as a leader is learning tostep back and think about what creates pressure for you,being self-aware in these situations, and disciplining yourbehavior to ensure that you act in a manner consistent withyour core values.

Staying True to YourselfMost business leaders ask themselves whether their leader-ship style fits the needs of their business. Fewer managers askwhether their style also fits their own beliefs and personality.The question here is: Does my leadership style reflect who Itruly am?

A business career is a marathon, not a sprint, and if youaren’t true to yourself, eventually you’re going to wear down.As you are developing in your career, it is advisable to ob-serve various leadership styles, and pick and choose elementsthat feel comfortable to you. Bear in mind, though, that ob-serving and adopting aspects of other styles does not meanyou should try to be someone else. During my career, I wasfortunate to have had several superb bosses and colleagueswith distinctive and unique leadership skills. While I tried toadopt some of their techniques, I also learned that I neededto develop an overall style that fit my unique skills and per-sonality. Your style needs to fit you; even an unorthodox stylecan be enormously effective if it reflects your skills, values,and personality.

As you become more senior, you’ll need to ask yourself anadditional set of questions relating to style: Do I assert myself

sufficiently, or have I become tentative? Am I too politically cor-rect? Does worry about my next promotion or my year-endbonus cause me to pull punches or hesitate to clearly express myviews? In many companies, ambitious executives may try toavoid confronting sensitive issues or making waves. Worsethan that, they may spend an inordinate amount of energytrying to ascertain what their boss thinks and then act likethey think the same thing. If they’re very skilled at this, theymay even get a chance to make their comments before theboss has a chance to express his opinion– and feel the warmglow of approval from the boss.

The problem is that confrontation and disagreement arecrucial to effective decision making. Some of the worst deci-sions I’ve been involved in were made after a group of intel-ligent people had unanimously agreed to the course of ac-tion – though, later, several participants admitted that theyhad misgivings but were hesitant to diverge from the appar-ent group consensus. Conversely, it’s hard for me to recall apoor decision I was involved in that was made after a thor-ough debate in which opposing views were vigorously ex-pressed (even if I disagreed with the ultimate decision). Com-panies need their leaders to express strongly held viewsrather than mimic what they believe to be the party line. Asa leader, therefore, you must ask yourself whether you are ex-pressing your views or holding back and being too politic. Atthe same time, leaders must encourage their own subordi-nates to express their unvarnished opinions, make waves asappropriate, and stop tiptoeing around significant issues.

• • •

Successful leaders periodically struggle during stretches oftheir careers. To get back on track, they must devise tech-niques for stepping back, getting perspective, and developinga new game plan. In this process, having the answers is oftenfar less important than taking time to ask yourself the rightquestions and gain key insights. The questions posed in thisarticle are intended to spark your thinking. Only a subset ofthese may resonate with you, and you may find it more use-ful to come up with your own list. In either event, a self-questioning process conducted on a periodic basis will helpyou work through leadership challenges and issues that youinvariably must tackle over the course of your career.

Reprint R0701H; HBR OnPoint 1730



If you aren’t identifying potential successors, you are probably not delegating as extensively as you should.


VER THE PAST DECADE, I have watched more than 100 companies try to remake themselves into significantly better competitors. They have included large organiza-tions (Ford) and small ones (Landmark Communications),

companies based in the United States (General Motors) and else-where (British Airways), corporations that were on their knees(Eastern Airlines), and companies that were earning good money(Bristol-Myers Squibb). These efforts have gone under many ban-ners: total quality management, reengineering, rightsizing, re-structuring, cultural change, and turnaround. But, in almostevery case, the basic goal has been the same: to make fundamen-tal changes in how business is conducted in order to help copewith a new, more challenging market environment.

A few of these corporate change efforts have been very suc-cessful. A few have been utter failures. Most fall somewhere in be-tween, with a distinct tilt toward the lower end of the scale. Thelessons that can be drawn are interesting and will probably be rel-evant to even more organizations in the increasingly competitive

O

Leading Change Why Transformation Efforts Fail Leaders who successfully transform businesses do eight things right (and they do them in the right order).

by John P. Kotter

Editor’s Note: Guiding change may be the ultimate test of a leader – no businesssurvives over the long term if it can’t reinvent itself. But, human nature beingwhat it is, fundamental change is often resisted mightily by the people it mostaffects: those in the trenches of the business. Thus, leading change is bothabsolutely essential and incredibly difficult.

Perhaps nobody understands the anatomy of organizational change betterthan retired Harvard Business School professor John P. Kotter. This article,originally published in the spring of 1995, previewed Kotter’s 1996 book Leading

Change. It outlines eight critical success factors – from establishing a sense ofextraordinary urgency, to creating short-term wins, to changing the culture (“theway we do things around here”). It will feel familiar when you read it, in partbecause Kotter’s vocabulary has entered the lexicon and in part because itcontains the kind of home truths that we recognize, immediately, as if we’dalways known them. A decade later, his work on leading change remainsdefinitive.

THE TESTS OF A LEADER | BEST OF HBR | 1995




business environment of the comingdecade.

The most general lesson to belearned from the more successful casesis that the change process goes througha series of phases that, in total, usuallyrequire a considerable length of time.Skipping steps creates only the illusionof speed and never produces a satisfy-ing result. A second very general lessonis that critical mistakes in any of thephases can have a devastating impact,slowing momentum and negating hard-won gains. Perhaps because we haverelatively little experience in renewingorganizations, even very capable peopleoften make at least one big error.

Error 1: Not Establishing a GreatEnough Sense of UrgencyMost successful change efforts beginwhen some individuals or some groupsstart to look hard at a company’s com-petitive situation, market position, tech-nological trends, and financial perfor-mance. They focus on the potentialrevenue drop when an important pat-

ent expires, the five-year trend in declin-ing margins in a core business, or anemerging market that everyone seemsto be ignoring. They then find ways tocommunicate this information broadlyand dramatically, especially with re-spect to crises, potential crises, or greatopportunities that are very timely. Thisfirst step is essential because just get-ting a transformation program startedrequires the aggressive cooperation ofmany individuals. Without motivation,people won’t help, and the effort goesnowhere.

Compared with other steps in thechange process, phase one can soundeasy. It is not. Well over 50% of the com-panies I have watched fail in this firstphase. What are the reasons for thatfailure? Sometimes executives under-estimate how hard it can be to drivepeople out of their comfort zones.Sometimes they grossly overestimatehow successful they have already beenin increasing urgency. Sometimes theylack patience: “Enough with the prelim-inaries; let’s get on with it.” In manycases, executives become paralyzed by

the downside possibilities. They worrythat employees with seniority will be-come defensive, that morale will drop,that events will spin out of control, thatshort-term business results will be jeop-ardized, that the stock will sink, andthat they will be blamed for creatinga crisis.

A paralyzed senior managementoften comes from having too manymanagers and not enough leaders.Management’s mandate is to mini-mize risk and to keep the current sys-tem operating. Change, by definition,requires creating a new system, whichin turn always demands leadership.Phase one in a renewal process typi-cally goes nowhere until enough realleaders are promoted or hired into senior-level jobs.

Transformations often begin, andbegin well, when an organization has anew head who is a good leader and whosees the need for a major change. If therenewal target is the entire company,the CEO is key. If change is needed in adivision, the division general manageris key. When these individuals are notLa

wre

nce

Zeeg

en


new leaders, great leaders, or changechampions, phase one can be a hugechallenge.

Bad business results are both a bless-ing and a curse in the first phase. On thepositive side, losing money does catchpeople’s attention. But it also gives lessmaneuvering room. With good businessresults, the opposite is true: Convincingpeople of the need for change is muchharder, but you have more resources tohelp make changes.

But whether the starting point isgood performance or bad, in the moresuccessful cases I have witnessed, an individual or a group always facilitatesa frank discussion of potentially un-pleasant facts about new competition,shrinking margins, decreasing marketshare, flat earnings, a lack of revenuegrowth, or other relevant indices of adeclining competitive position. Becausethere seems to be an almost universalhuman tendency to shoot the bearer ofbad news, especially if the head of theorganization is not a change champion,executives in these companies oftenrely on outsiders to bring unwanted in-formation. Wall Street analysts, custom-ers, and consultants can all be helpfulin this regard. The purpose of all this ac-tivity, in the words of one former CEOof a large European company, is “tomake the status quo seem more danger-ous than launching into the unknown.”

In a few of the most successful cases,a group has manufactured a crisis. OneCEO deliberately engineered the largestaccounting loss in the company’s his-tory, creating huge pressures from WallStreet in the process. One division pres-ident commissioned first-ever customersatisfaction surveys, knowing full wellthat the results would be terrible. Hethen made these findings public. On thesurface, such moves can look undulyrisky. But there is also risk in playing ittoo safe: When the urgency rate is notpumped up enough, the transformationprocess cannot succeed, and the long-

term future of the organization is put injeopardy.

When is the urgency rate highenough? From what I have seen, theanswer is when about 75% of a com-pany’s management is honestly con-vinced that business as usual is totallyunacceptable. Anything less can pro-duce very serious problems later on inthe process.

Error 2: Not Creating a PowerfulEnough Guiding CoalitionMajor renewal programs often start withjust one or two people. In cases of suc-cessful transformation efforts, the lead-ership coalition grows and grows overtime. But whenever some minimummass is not achieved early in the effort,nothing much worthwhile happens.

It is often said that major change isimpossible unless the head of the orga-nization is an active supporter. WhatI am talking about goes far beyond that.In successful transformations, the chair-man or president or division generalmanager, plus another five or 15 or 50people, come together and develop ashared commitment to excellent perfor-mance through renewal. In my experi-ence, this group never includes all of thecompany’s most senior executives be-cause some people just won’t buy in, atleast not at first. But in the most success-ful cases, the coalition is always prettypowerful – in terms of titles, informa-tion and expertise, reputations, and relationships.

In both small and large organiza-tions, a successful guiding team mayconsist of only three to five people dur-ing the first year of a renewal effort. Butin big companies, the coalition needs togrow to the 20 to 50 range before muchprogress can be made in phase threeand beyond. Senior managers alwaysform the core of the group. But some-times you find board members, a repre-sentative from a key customer, or evena powerful union leader.

Because the guiding coalition in-cludes members who are not part of se-nior management, it tends to operate

outside of the normal hierarchy by def-inition. This can be awkward, but it isclearly necessary. If the existing hierar-chy were working well, there would beno need for a major transformation. Butsince the current system is not working,reform generally demands activity out-side of formal boundaries, expectations,and protocol.

A high sense of urgency within themanagerial ranks helps enormously inputting a guiding coalition together.But more is usually required. Someoneneeds to get these people together, helpthem develop a shared assessment oftheir company’s problems and opportu-nities, and create a minimum level oftrust and communication. Off-site re-treats, for two or three days, are onepopular vehicle for accomplishing thistask. I have seen many groups of five to35 executives attend a series of these re-treats over a period of months.

Companies that fail in phase two usu-ally underestimate the difficulties ofproducing change and thus the impor-tance of a powerful guiding coalition.Sometimes they have no history ofteamwork at the top and therefore un-dervalue the importance of this type ofcoalition. Sometimes they expect theteam to be led by a staff executive fromhuman resources, quality, or strategicplanning instead of a key line manager.No matter how capable or dedicatedthe staff head, groups without strongline leadership never achieve the powerthat is required.

Efforts that don’t have a powerfulenough guiding coalition can make ap-parent progress for a while. But, sooneror later, the opposition gathers itself to-gether and stops the change.

Error 3: Lacking a VisionIn every successful transformation ef-fort that I have seen, the guiding coali-tion develops a picture of the futurethat is relatively easy to communicateand appeals to customers, stockhold-ers, and employees. A vision alwaysgoes beyond the numbers that aretypically found in five-year plans. A vi-


THE TESTS OF A LEADER | BEST OF HBR | Leading Change: Why Transformation Efforts Fail

Now retired, John P. Kotter was the Kono-

suke Matsushita Professor of Leadership at

Harvard Business School in Boston.


sion says something that helps clarifythe direction in which an organizationneeds to move. Sometimes the firstdraft comes mostly from a single in-dividual. It is usually a bit blurry, atleast initially. But after the coalition

works at it for three or five or even 12 months, something much betteremerges through their tough analyticalthinking and a little dreaming. Eventu-ally, a strategy for achieving that visionis also developed.

In one midsize European company,the first pass at a vision contained two-thirds of the basic ideas that were in thefinal product. The concept of globalreach was in the initial version fromthe beginning. So was the idea of be-coming preeminent in certain busi-nesses. But one central idea in the finalversion–getting out of low value-addedactivities – came only after a series ofdiscussions over a period of severalmonths.

Without a sensible vision, a transfor-mation effort can easily dissolve into a list of confusing and incompatibleprojects that can take the organizationin the wrong direction or nowhere atall. Without a sound vision, the reengi-neering project in the accounting department, the new 360-degree per-formance appraisal from the human re-sources department, the plant’s qualityprogram, the cultural change projectin the sales force will not add up in ameaningful way.

In failed transformations, you oftenfind plenty of plans, directives, and pro-grams but no vision. In one case, a com-pany gave out four-inch-thick note-books describing its change effort. Inmind-numbing detail, the books spelledout procedures, goals, methods, anddeadlines. But nowhere was there aclear and compelling statement ofwhere all this was leading. Not surpris-ingly,most of the employees with whomI talked were either confused or alien-ated. The big, thick books did not rallythem together or inspire change. Infact, they probably had just the oppo-site effect.

In a few of the less successful casesthat I have seen, management had asense of direction, but it was too complicated or blurry to be useful. Re-cently, I asked an executive in a midsizecompany to describe his vision and re-ceived in return a barely comprehensi-ble 30-minute lecture. Buried in his an-swer were the basic elements of a soundvision. But they were buried – deeply.

A useful rule of thumb: If you can’tcommunicate the vision to someone infive minutes or less and get a reaction


EIGHT STEPS TO TRANSFORMINGYOUR ORGANIZATION

Establishing a Sense of Urgency

• Examining market and competitive realities• Identifying and discussing crises, potential crises, or major opportunities

Forming a Powerful Guiding Coalition

• Assembling a group with enough power to lead the change effort• Encouraging the group to work together as a team

Creating a Vision

• Creating a vision to help direct the change effort• Developing strategies for achieving that vision

Communicating the Vision

• Using every vehicle possible to communicate the new vision and strategies• Teaching new behaviors by the example of the guiding coalition

Empowering Others to Act on the Vision

• Getting rid of obstacles to change• Changing systems or structures that seriously undermine the vision• Encouraging risk taking and nontraditional ideas, activities, and actions

Planning for and Creating Short-Term Wins

• Planning for visible performance improvements• Creating those improvements• Recognizing and rewarding employees involved in the improvements

Consolidating Improvements and Producing Still More Change

• Using increased credibility to change systems, structures, and policies thatdon’t fit the vision

• Hiring, promoting, and developing employees who can implement the vision• Reinvigorating the process with new projects, themes, and change agents

Institutionalizing New Approaches

• Articulating the connections between the new behaviors and corporate success

• Developing the means to ensure leadership development and succession

1

2

3

4

5

6

7

8


that signifies both understanding andinterest, you are not yet done with thisphase of the transformation process.

Error 4: Undercommunicating theVision by a Factor of TenI’ve seen three patterns with respect tocommunication, all very common. Inthe first, a group actually does developa pretty good transformation vision andthen proceeds to communicate it byholding a single meeting or sending outa single communication. Having usedabout 0.0001% of the yearly intracom-pany communication, the group is star-tled when few people seem to under-stand the new approach. In the secondpattern, the head of the organizationspends a considerable amount of timemaking speeches to employee groups,but most people still don’t get it (notsurprising, since vision captures only0.0005% of the total yearly communi-cation). In the third pattern, muchmore effort goes into newsletters andspeeches, but some very visible seniorexecutives still behave in ways that areantithetical to the vision. The net resultis that cynicism among the troops goesup, while belief in the communicationgoes down.

Transformation is impossible unlesshundreds or thousands of people arewilling to help, often to the point ofmaking short-term sacrifices. Employ-ees will not make sacrifices, even if theyare unhappy with the status quo, unlessthey believe that useful change is possi-ble. Without credible communication,and a lot of it, the hearts and minds ofthe troops are never captured.

This fourth phase is particularlychallenging if the short-term sacrificesinclude job losses. Gaining understand-ing and support is tough when downsiz-ing is a part of the vision. For this rea-son, successful visions usually includenew growth possibilities and the com-mitment to treat fairly anyone who islaid off.

Executives who communicate wellincorporate messages into their hour-by-hour activities. In a routine discus-

sion about a business problem, theytalk about how proposed solutions fit(or don’t fit) into the bigger picture.In a regular performance appraisal,they talk about how the employee’s behavior helps or undermines the vi-sion. In a review of a division’s quarterlyperformance, they talk not only aboutthe numbers but also about how thedivision’s executives are contributingto the transformation. In a routineQ&A with employees at a company facility, they tie their answers back torenewal goals.

In more successful transformationefforts, executives use all existing com-munication channels to broadcast thevision. They turn boring, unread com-pany newsletters into lively articlesabout the vision. They take ritualistic,tedious quarterly management meet-ings and turn them into exciting dis-cussions of the transformation. Theythrow out much of the company’s generic management education and replace it with courses that focus onbusiness problems and the new vision.The guiding principle is simple: Useevery possible channel, especially those

that are being wasted on nonessentialinformation.

Perhaps even more important, mostof the executives I have known in suc-cessful cases of major change learn to“walk the talk.” They consciously at-tempt to become a living symbol of thenew corporate culture. This is often noteasy. A 60-year-old plant manager whohas spent precious little time over 40years thinking about customers will notsuddenly behave in a customer-orientedway. But I have witnessed just such aperson change, and change a great deal.In that case, a high level of urgencyhelped.The fact that the man was a partof the guiding coalition and the vision-creation team also helped. So did all thecommunication, which kept remindinghim of the desired behavior, and all thefeedback from his peers and subordi-nates, which helped him see when hewas not engaging in that behavior.

Communication comes in both wordsand deeds, and the latter are often themost powerful form. Nothing under-mines change more than behavior byimportant individuals that is inconsis-tent with their words.




Error 5: Not Removing Obstacles to the New VisionSuccessful transformations begin to in-volve large numbers of people as theprocess progresses. Employees are em-boldened to try new approaches, to de-velop new ideas, and to provide leader-ship. The only constraint is that theactions fit within the broad parametersof the overall vision. The more peopleinvolved, the better the outcome.

To some degree, a guiding coalitionempowers others to take action simplyby successfully communicating thenew direction. But communication isnever sufficient by itself. Renewal alsorequires the removal of obstacles. Toooften, an employee understands thenew vision and wants to help make ithappen, but an elephant appears to beblocking the path. In some cases, theelephant is in the person’s head, andthe challenge is to convince the indi-vidual that no external obstacle exists.But in most cases, the blockers are very real.

Sometimes the obstacle is the orga-nizational structure: Narrow job cate-gories can seriously undermine effortsto increase productivity or make itvery difficult even to think about cus-tomers. Sometimes compensation orperformance-appraisal systems make

people choose between the new visionand their own self-interest. Perhapsworst of all are bosses who refuse tochange and who make demands thatare inconsistent with the overall effort.

One company began its transforma-tion process with much publicity andactually made good progress throughthe fourth phase. Then the change ef-fort ground to a halt because the officerin charge of the company’s largest divi-sion was allowed to undermine most of

the new initiatives. He paid lip serviceto the process but did not change hisbehavior or encourage his managers tochange. He did not reward the uncon-ventional ideas called for in the vision.He allowed human resource systems toremain intact even when they were

clearly inconsistent with the new ideals.I think the officer’s motives were com-plex. To some degree, he did not believethe company needed major change. Tosome degree, he felt personally threat-ened by all the change. To some degree,he was afraid that he could not produceboth change and the expected operat-ing profit. But despite the fact that theybacked the renewal effort, the other of-ficers did virtually nothing to stop theone blocker. Again, the reasons were

If you can’t communicate the vision to someone in five

minutes or less and get a reaction that signifies both

understanding and interest, you are not done.



complex. The company had no historyof confronting problems like this. Somepeople were afraid of the officer. TheCEO was concerned that he might losea talented executive. The net result wasdisastrous. Lower-level managers con-cluded that senior management hadlied to them about their commitment

to renewal, cynicism grew, and thewhole effort collapsed.

In the first half of a transformation,no organization has the momentum,power, or time to get rid of all obstacles.But the big ones must be confrontedand removed. If the blocker is a person,it is important that he or she be treatedfairly and in a way that is consistentwith the new vision. Action is essential,both to empower others and to main-tain the credibility of the change effortas a whole.

Error 6: Not SystematicallyPlanning for, and Creating, Short-Term WinsReal transformation takes time, and arenewal effort risks losing momentumif there are no short-term goals to meetand celebrate. Most people won’t go onthe long march unless they see com-pelling evidence in 12 to 24 months thatthe journey is producing expected re-sults. Without short-term wins, toomany people give up or actively join theranks of those people who have beenresisting change.

One to two years into a successfultransformation effort, you find qualitybeginning to go up on certain indices orthe decline in net income stopping. Youfind some successful new product intro-ductions or an upward shift in marketshare. You find an impressive productiv-ity improvement or a statistically highercustomer satisfaction rating. But what-ever the case, the win is unambiguous.

The result is not just a judgment callthat can be discounted by those oppos-ing change.

Creating short-term wins is differentfrom hoping for short-term wins. Thelatter is passive, the former active. In asuccessful transformation, managers ac-tively look for ways to obtain clear per-

formance improvements, establish goalsin the yearly planning system, achievethe objectives, and reward the peopleinvolved with recognition, promotions,and even money. For example, the guid-ing coalition at a U.S. manufacturingcompany produced a highly visible andsuccessful new product introductionabout 20 months after the start of its re-newal effort. The new product was se-lected about six months into the effortbecause it met multiple criteria: Itcould be designed and launched in arelatively short period, it could be han-dled by a small team of people whowere devoted to the new vision, it hadupside potential, and the new product-development team could operate out-side the established departmental struc-ture without practical problems. Littlewas left to chance, and the win boostedthe credibility of the renewal process.

Managers often complain aboutbeing forced to produce short-term wins,but I’ve found that pressure can be auseful element in a change effort. Whenit becomes clear to people that majorchange will take a long time,urgency lev-els can drop. Commitments to produceshort-term wins help keep the urgencylevel up and force detailed analyticalthinking that can clarify or revise visions.

Error 7: Declaring Victory Too SoonAfter a few years of hard work, manag-ers may be tempted to declare victorywith the first clear performance im-provement. While celebrating a win is

fine, declaring the war won can be cat-astrophic. Until changes sink deeplyinto a company’s culture, a process thatcan take five to ten years, new ap-proaches are fragile and subject to regression.

In the recent past, I have watched adozen change efforts operate under the

reengineering theme. In all but twocases, victory was declared and the ex-pensive consultants were paid andthanked when the first major projectwas completed after two to three years.Within two more years, the usefulchanges that had been introducedslowly disappeared. In two of the tencases, it’s hard to find any trace of thereengineering work today.

Over the past 20 years, I’ve seen thesame sort of thing happen to hugequality projects, organizational devel-opment efforts, and more. Typically, theproblems start early in the process: Theurgency level is not intense enough,the guiding coalition is not powerfulenough, and the vision is not clearenough. But it is the premature victorycelebration that kills momentum. Andthen the powerful forces associatedwith tradition take over.

Ironically, it is often a combinationof change initiators and change resis-tors that creates the premature victorycelebration. In their enthusiasm over a clear sign of progress, the initiators go overboard. They are then joined byresistors, who are quick to spot any opportunity to stop change. After thecelebration is over, the resistors point tothe victory as a sign that the war hasbeen won and the troops should be senthome. Weary troops allow themselvesto be convinced that they won. Oncehome, the foot soldiers are reluctant toclimb back on the ships. Soon there-after, change comes to a halt, and tradi-tion creeps back in.

After a few years of hard work, managers may be tempted to declare victory with the first

clear performance improvement.While celebrating a win is fine, declaring the war won can

be catastrophic.



Instead of declaring victory, leadersof successful efforts use the credibilityafforded by short-term wins to tackleeven bigger problems. They go after sys-tems and structures that are not consis-tent with the transformation vision andhave not been confronted before. Theypay great attention to who is promoted,who is hired, and how people are devel-oped. They include new reengineeringprojects that are even bigger in scopethan the initial ones. They understandthat renewal efforts take not monthsbut years. In fact, in one of the mostsuccessful transformations that I haveever seen, we quantified the amountof change that occurred each year overa seven-year period. On a scale of one(low) to ten (high), year one receiveda two, year two a four, year three athree, year four a seven, year five aneight, year six a four, and year seven atwo. The peak came in year five, fully36 months after the first set of visiblewins.

Error 8: Not Anchoring Changes in the Corporation’s CultureIn the final analysis, change sticks whenit becomes “the way we do thingsaround here,” when it seeps into thebloodstream of the corporate body.Until new behaviors are rooted in socialnorms and shared values, they are sub-ject to degradation as soon as the pres-sure for change is removed.

Two factors are particularly impor-tant in institutionalizing change in cor-porate culture. The first is a consciousattempt to show people how the newapproaches, behaviors, and attitudeshave helped improve performance.When people are left on their own tomake the connections, they sometimescreate very inaccurate links. For exam-ple, because results improved whilecharismatic Harry was boss, the troopslink his mostly idiosyncratic style withthose results instead of seeing how theirown improved customer service andproductivity were instrumental. Help-ing people see the right connections re-quires communication. Indeed, one

company was relentless, and it paid offenormously. Time was spent at everymajor management meeting to discusswhy performance was increasing. Thecompany newspaper ran article after ar-ticle showing how changes had boostedearnings.

The second factor is taking suffi-cient time to make sure that the nextgeneration of top management reallydoes personify the new approach. Ifthe requirements for promotion don’tchange, renewal rarely lasts. One badsuccession decision at the top of an or-ganization can undermine a decade ofhard work. Poor succession decisionsare possible when boards of directorsare not an integral part of the renewaleffort. In at least three instances I haveseen, the champion for change was theretiring executive, and although hissuccessor was not a resistor, he was not a change champion. Because theboards did not understand the trans-formations in any detail, they couldnot see that their choices were not goodfits. The retiring executive in one casetried unsuccessfully to talk his boardinto a less seasoned candidate who bet-ter personified the transformation. Inthe other two cases, the CEOs did notresist the boards’ choices, because theyfelt the transformation could not beundone by their successors. They werewrong. Within two years, signs of re-newal began to disappear at both companies.

• • •There are still more mistakes that peo-ple make, but these eight are the bigones. I realize that in a short articleeverything is made to sound a bit toosimplistic. In reality, even successfulchange efforts are messy and full ofsurprises. But just as a relatively sim-ple vision is needed to guide peoplethrough a major change, so a vision ofthe change process can reduce theerror rate. And fewer errors can spellthe difference between success andfailure.

Reprint R0701J; HBR OnPoint 1710


“Firing Back should be read by anyone

who has success on their agenda.”

Donald Trump

“I strongly recommend it.”

Clayton M. Christensen, author,The Innovator’s Dilemma and The Innovator’s Solution

“Filled with ideas and methods that can

help any company.”

Jong-Yong Yun, Vice Chairman and CEO,Samsung Electronics

Available wherever books are sold.

www.HBSPress.org

Open up togreat ideas



HE SUBSIDIARY WAS IN SERIOUS TROUBLE, so top manage-ment hired a young vice president of marketing with an enviable track record in another industry and gave him carte blanche. He reorganized the marketing function

using a brand management concept, restructured the sales divi-sion, and devised new marketing strategies. Margins continued toerode, however, and after nine months he lost his job.

In another company, top management also hired a managerfrom a different industry to turn around a subsidiary’s heavylosses and gave him considerable latitude. He too formulated anentirely new marketing strategy along brand lines. Within ayear’s time, margins improved, and within three years the subsid-iary was very profitable and sales had doubled.

On the surface, these two situations are strikingly similar. Bothexecutives were in their middle thirties, and neither had expe-rience in his new industry. The two men implemented majorchanges that were remarkably alike. Furthermore, both worked

T

When a New Manager Takes Charge Managers who take the helm of new businesses or large divisions must go throughpredictable stages before they’ve truly mastered the job.

by John J. Gabarro

Editor’s Note: A great deal has been written about first managerial jobs and theirattendant woes; similarly, there are whole shelves of books devoted to the artand science of becoming a CEO. Fewer publications address what happenswhen general managers take over a division or function in large organizations.Yet these are the transitions through which a manager becomes – or fails tobecome – a leader.

More than 20 years ago, Harvard Business School professor John J. Gabarroconducted a research project to examine what happens when general manag-ers take on big new jobs. The project consisted of a three-year longitudinalstudy followed by a set of ten historical case studies of management succes-sions. Specifically, Gabarro was trying to sort out why some managers failedbut others succeeded. In this 1985 article, he reported on his findings: Manag-ers took much longer than predicted to get up to speed; successful transitionsfollowed predictable stages (including two sit-back-and-watch periods of immer-sion and refinement); industry insiders took charge much faster than outsiders;and a good working relationship with a boss dramatically increased the likeli-hood of success. Gabarro’s most important finding overall was that taking chargetakes a long, long time. Given the now common practice of shortened general-management assignments, are organizations paying a huge, hidden cost?

THE TESTS OF A LEADER | BEST OF HBR | 1985


do you subscribe to the power of ideas?www.hbr.org


for difficult bosses. Yet one succeededand the other failed. What factors ac-count for the different outcomes?

To answer this question, we need tolook deeper and explore the contextsthe two managers faced, their back-grounds, and the taking-charge processitself.

Although only dramatic examplesmake headlines, a recent study showsthat by the time general managersreach their late forties, they have al-ready taken charge of three to ninemanagement posts.1 Despite the fre-

quency, however, and because situa-tions are unique and managers so dif-ferent, it is difficult to generalize aboutthe taking-charge process.

Having studied 14 management suc-cessions, though, I have found issuescommon to all and factors that notonly affect them but also influence howsuccessful a new person is likely to be.(See the exhibit “The Managers TakingCharge,” which details the research process.)

In using the term taking charge, I amreferring to the process of learning andtaking action that a manager goesthrough until he (or she) has mastereda new assignment in sufficient depth tobe running the organization as well asresources and constraints allow.

The taking-charge process occurs in several predictable stages, each ofwhich has its own tasks, problems, anddilemmas. My study’s findings also putto rest the myth of the all-purpose gen-eral manager who can be dropped intoany situation and triumph. To the con-trary, my observations indicate thatmanagers’ experiences have a profoundand inescapable influence on how theytake charge, what areas they focus on,and how successful they are likely to bein mastering the new situation.

The New Manager ArrivesWhen I looked at the taking-charge pro-cess for a period of time, two patternsstood out. First, the process can be long.In the cases studied, for senior U.S. man-agers, it took from two to two and a halfyears; some European and UK seniormanagers took even longer. Second, thetaking-charge process does not involvesteadily more learning or action.Rather,it is a series of alternating phases of in-tense learning and intense action. Also,the nature of both the managers’ learn-ing and actions changes over time.

With few exceptions, most new man-agers’organizational changes tended tocluster in three bursts of activity. Ex-hibit I shows these periods quite clearly.Exhibit II illustrates that the same burstsoccur regardless of the type of succes-sion. The data presented in Exhibits I,II, III, and IV are for completed succes-sions only, in other words, those inwhich the new manager lasted in thejob for two and a half years or longer. Assuch, the exhibits do not include datafrom three of the failed successions.The organizational activity measure isa composite of both structural and per-sonnel changes managers made.

What accounts for this pervasivepattern? Why were the major changesmade almost invariably in three wavesof action? My observations suggest thatthe underlying patterns of learningand action account for these periodsof intense change. They are natural con-sequences of how new managers learnand act as they try to master strange


THE TESTS OF A LEADER | BEST OF HBR | When a New Manager Takes Charge

John J. Gabarro is the UPS Foundation Pro-

fessor of Human Resource Management in

Organizational Behavior at Harvard Business

School in Boston. Cha

rles

Hes

s



THE MANAGERS TAKING CHARGE

Summary description of managers studied

Unit’s business

Longitudinal case studies

Industrial and office products division

Machine tool division

Consumer products division

Construction products division

Historical case studies

Cable televisionsubsidiary

Wholesale food distributor

District sales organization (communications)

Beverage manufacturer

Plastic and metal products


Synthetic fibers

Computer andtechnical products

Industrial and consumerproducts

Public education

Unit revenues*

$260 million

175 million

70 million

55 million

$1.2 million

21 million

30 million

90 million

100 million

110 million

200 million

780 million

3 billion

Not available

Manager’sjob

Divisionpresident

Divisionpresident

Divisionpresident

Divisionpresident

Generalmanager

Functionalhead

Functionalhead

Generalmanager

Generalmanager

Functionalhead

Functionalhead

Generalmanager

Generalmanager

Functionalmanager

Predecessoras superior

yes

no

no

yes

no

no

no

no

yes

yes

yes

no

no

no

Turnaroundsituation

no

yes

yes

no

no

yes

no

yes

no

no

yes

no

yes

yes

Industry-specific experience

yes

no

no

no

no

no

yes

no

yes

no

yes

yes

yes

yes

Insider (I) or outsider (O) to organization

I

O

O

O

O

O

I

O

I

O

I

I

I

I

This article is based on a research project that consisted of twosets of field studies totaling 14 management successions. Thefirst set was a longitudinal study of four newly assigned divisionpresidents whom I studied over a three-year period as they wentabout the process of taking charge. The second set consisted often historical case studies of management successions, whichwere used to expand on and verify the longitudinal studies’ re-sults. The 14 cases were chosen to get a range of different kindsof management successions involving both functional and gen-

eral managers. The successions included American and Euro-pean organizations varying in sales from $1.2 million to $3 billion.The sample included turnarounds and normal situations and successions that failed as well as those that succeeded.

I studied the longitudinal cases using company documents, on-site observation, and field interviews with the new presidentsand their subordinates at the end of three, six, 12, 15, 18, 24, 27,30, and 36 months. For the historical studies, field interviewswere conducted and company documents were used.

Location

U.S.

U.S.

U.S.

U.S.

U.S.

U.S.

U.S.

Netherlands

UK

Italy

UK

Switzerland

UK

U.S.

Succession success (S) or failure (F)†

S

S

S

S

F

F

S

S

F

F

S

S

S

S

† A succession was considered a failure if the new manager was fired within the first 36 months because of his inability to meet top management’s expectations of performance.

* Unit revenues expressed in 1982 U.S. dollars.


situations. More specifically, the datasuggest that the taking-charge processoccurs in five predictable stages: takinghold, immersion, reshaping, consolida-tion, and refinement. The length of timethe executives I studied spent in eachstage varied. Some spent as long as 11months and others as little as four inthe same stage.Thus, time doesn’t definea stage; rather, the nature of learningand the action that characterizes it does.Let’s look at each stage more carefully.

Taking hold. The first stage, takinghold, typically lasts from three to sixmonths and often sets the tone, if notthe direction, for the rest of the taking-charge process. (Exhibit III shows thepercentages of personnel and structuralchanges by six-month periods, whichthe managers made during their succes-sions.) Taking hold is a period of intenseaction and learning. If the new assign-ment is a big promotion or change, thenewcomer may at times feel over-whelmed. A new division presidentcommented:

“You’re on the edge of your seat allthe time. It feels like you have no knowl-edge base whatsoever. You have to learnthe product, the people, and the prob-lems. You’re trying like hell to learnabout the organization and the peopleawfully fast,and that’s the trickiest thing.At first you’re afraid to do anything forfear of upsetting the apple cart. Theproblem is you have to keep the businessrunning while you’re learning about it.”

During this period, a manager isgrappling with the nature of the newsituation, trying to understand the tasksand problems and assessing the organi-zation and its requirements. Managersorient themselves, evaluate the situa-tion, and develop a cognitive map. Forexample, one division president whowas an industry outsider described hislearning task as so large that even lock-ing himself up for four days to reviewstrategic, financial, marketing, and in-dustry reports barely made a dent. Earlyin this stage, he also reported that ittook him several hours to go throughthe morning mail, not only because theissues were new to him but also because

the industry had its own technical jar-gon and nomenclature. Another man-ager in a similar situation voiced his ex-asperation by saying resignedly,“Therearen’t enough hours in the day.” (All ofthe managers in the study happened tobe men. I have every reason to believethat female managers would go throughthe same stages.)

Evaluation and orientation in thetaking-hold stage are important evenfor insiders who already know of the or-ganization and the product. A divisionpresident with more than 25 years in hisorganization spent the first threemonths in his new job testing his as-sumptions about key people and the di-vision’s problems. He came to severalconclusions, one of which was that a se-nior vice president in his group was inover his head. The division presidentbased his assessment on a number ofmeetings with the senior vice president,his subordinates’ opinions, his plan forthe previous five years, complaintsabout cliques in his area, problems withdivision functions, and the senior VP’sinsensitive treatment of two of the com-pany’s major overseas distributors. Thelast item was particularly troublesomebecause it made the new presidentdoubt the man’s judgment. Questioningprevious perceptions and beliefs charac-terized most insider successions duringthis stage.

Actions taken during the taking-holdstage tend to be corrective. Based on

their experience and what they havelearned about the new situation, man-agers fix what problems they can. Obvi-ously, corrective actions vary–some areshort-term interventions, others takelonger. For instance, in one case, al-though it took nearly five months be-fore the new manager had developeda strategy for turning around the divi-sion, because of his experience, withina month he knew that the divisionneeded both a cost system and a product-line reduction immediately.

A group CEO approached this stagequite differently, however. Having beenpromoted from within and having him-self previously turned around the busi-ness’s manufacturing operation, he didnot make significant short-term correc-tions his first priority. Rather, focusingon product strategy and planning, he es-tablished committees and teams to ad-dress these areas. Although his actionsdid not have the same fix-it quality ofthe other turnaround, they were none-theless corrective in that they dealt withareas the new CEO considered criticalto the group’s success.

The magnitude of corrective actionalso varies. In his third month in office,a division president with 25 years of ex-perience in the company reorganizedhis new area. In contrast, the divisionpresidents who were outsiders did notimplement comparable changes untiltheir second year in office, when theywere well beyond the taking-hold stage.



Changes

Months

5

4

3

2

1

0 3 6 9 12 15 18 21 24 27 30 33 36

EXHIBIT IAverage Number of Organizational Changes perThree-Month Period Following Succession


Immersion. Compared with the taking-hold stage, the immersion period isquiet. Exhibit III shows a dramatic de-crease in changes after the first sixmonths: Only 6% of organizational and9% of personnel changes occurred dur-ing the second six months, a time pe-riod that generally coincided with thebeginning of the immersion phase. Alull between bursts of activity, immer-sion is a very significant time, however,during which executives acquire greaterunderstanding of their new situations.In the U.S. cases I studied, this stagelasted four to 11 months.

During immersion, new managersrun the organization in a more informedfashion and steep themselves in a lesshectic, finer-grained learning processthan was possible when they were tak-ing hold. Consequently, by the end ofthis stage, they have developed a newconcept or at least have greatly revisedtheir ideas of what they need to do.

More focused learning happens dur-ing this period because managers immerse themselves in running the or-ganization, and they learn from the in-teractions and conflicts they deal withday to day. As their experience basegrows, they can see patterns they didn’tsee before. In one case, for example,even though the new division managermade several momentous changes – re-organizing manufacturing by productlines and implementing better control,scheduling, and cost systems – duringthe taking-hold stage, manufacturingcost problems persisted. During the im-mersion stage, he was able to see thatmany of these had their roots in theproduct’s design and, ultimately, in howthe division’s engineering group wasstructured. It took, however, six to eightmonths of exploration before this un-derlying cause became clear.

Even when changes made in the taking-hold stage work, the immersionperiod still offers opportunities for further learning. New problems thathad been masked or overshadowed bylarger problems emerge. For example,after a division president had reorga-nized his division from a functional to


a geographic structure, with a domestic-international split, a new set of prob-lems surfaced during the immersionperiod that neither he nor his manage-ment team had foreseen. The earlier re-organization significantly increasedthe responsiveness, productivity, andcoordination between functions in theUnited States and abroad, but as theseareas improved, the U.S. sales force’s or-ganization and its distribution channelsshowed weaknesses. The old structure’scross-functional problems had hiddenthese weaknesses.

During immersion, new managersalso question whether they have theright people in place. Obvious ques-tions about competence arose in thetaking-hold stage, but now they wereeasier to discern. Similarly, in morethan half the cases studied, the new-comers explored uncertainties they had

about staff members and discussedthem with others.

The analysis, probes, discussions,and, in some cases, agony of the immer-sion stage result in new managers’arriv-ing at a better understanding of themore basic dynamics of the organiza-tion, people, and the industry. The con-cept that emerges from this stage(whether new or refined) is not neces-sarily radical. In six of the 14 cases, how-ever, the revised concept had implica-tions for radical changes in eitherstrategy or organization or both. Inmost of the cases, it also resulted in asharper plan of action for improvingthe situation further.

Reshaping. During the third stage, re-shaping, the second important – and inmost cases the largest–burst of activitytakes place. Learning continues but in amore diminished and routine fashion.

Changes 10

Months0 6 12 18 24 30 36

9

8

7

6

5

4

3

2

1

Insider* Outsider Turnaround Nonturnaround Sample average

* Insider successions are those

in which the new manager had

five or more years’ experience in

the new organization’s industry.

EXHIBIT IIAverage Number of Organizational Changes per Six-Month Period Following Succession,Categorized




In the reshaping period, new managersdirect their attention toward reconfig-uring one or more aspects of the organi-zation to implement the concept theydeveloped or made final during the im-mersion stage.

The reshaping stage, like the taking-hold period, involves a great deal of or-ganizational change. Exhibit III showsthat more than 32% of the personnelchanges and 29% of the structuralchanges were made during the thirdsix-month period. Again I should cau-tion that the stages did not neatly ap-portion themselves out into six-monthperiods. Nonetheless, after 13 to 18months, most managers studied hadreached the reshaping stage, wherethey were eager to act on the learningand exploration they had experiencedin the immersion period. Indeed, im-mersion activities usually pave the wayfor reshaping-stage changes.

Immersion is a transition, and by theend of it, new managers and often theirkey subordinates are impatient to geton with things. In one case, for example,a new division president had to fend offgrowing pressure from two of his vicepresidents while he commissioned sev-eral task forces to focus on the areas ofintended change. As he put it,“The taskforce reports will take us to the pointwhere there will be no surprises and alot of added insights. The nice part ofthis is that everyone will know whatneeds to be done, and they’ll have own-ership of the changes we decide tomake. If the obvious answer is wrong,the reports will flush it out. In themeantime, I have to convince the guysdown the hall that the added time thisrequires is worth it.”

Reshaping-stage changes may in-volve altering processes as well as mak-ing major structural shifts. Two divi-sions studied went from product tofunctional structures.

As one would imagine, the reshapingstage is very busy,especially if it involvesmajor changes. For example, when onemanager was reorganizing both mar-keting and sales, he had to call two se-ries of meetings (one with the affected

managers and another with the districtsales forces to explain the changes),workout details where positional changesand relocations were involved, and callon key customers and distributors.Thus,although management announcedplans for the changes at the outset ofthis stage, their implementation tooknearly eight weeks of sustained activityon the part of the new president, hisnew marketing VP, and his domesticsales manager. As one would expect, thelearning in the reshaping stage consistsmainly of feedback, for example, on theimpact the sales reorganization had onkey distributors and on orders.

Reshaping ends when new managershave implemented as much of theirconcept as circumstances allow. In prac-tice, several factors (the most commonis the unavailability of people for keypositions) often prevent them fromcompleting the job.

Consolidation. The third and finalwave of action in the taking-charge pro-cess occurs during the fourth stage, con-solidation. Throughout this period,much of new managers’ learning andaction focuses on consolidating and fol-lowing through on the changes theymade during reshaping. The process isevaluative; for example, new managersand their key subordinates judge theconsequences of the actions they tookin the reshaping burst of activity andtake corrective measures.

Learning at this point involves twosets of issues, the first of which is identi-fying what the leftover follow-throughimplementation problems are and howto deal with them. For instance, duringhis reshaping stage, a new president hadreorganized his division from a productto a functional structure. But he had de-ferred integrating one of the formerproduct group’s manufacturing depart-

28%

9%

32%

15%

11%

4%

Percentageof personnel changes

29% 29%

6%

16% 17%

3%

Percentageof structural changes

Months0 6 12 18 24 30 36

Months0 6 12 18 24 30 36

EXHIBIT IIIPersonnel and Structural Changes Made (by six-month periods)


Refinement is a calm period. Fromthis stage onward, managers’ learningwill be more incremental and routine.Important developments in the econ-omy, the marketplace, or technologymay destroy this calmness, but what-ever additional learning and actionsuch factors lead to, they do not resultfrom newness. For better or worse, themanager has taken charge.

What Makes a Difference?A number of factors shape how execu-tives progress through these stages andhow successfully they take charge. Im-portant determinants include a newmanager’s experience,whether the busi-ness needs turning around, the person’smanagerial style and personal needs,his relationships with key people by theend of the first year, and whether themanager’s management style conflictswith that of his boss. Let me describeeach of these in more detail.


ments into the divisional manufactur-ing function until several other changeshad been completed. When most of thereorganization had been accomplished,he and his manufacturing vice presi-dent began to study how the productgroup could be integrated.

A second set of issues evolves fromunanticipated problems resulting fromchanges made during the reshapingstage. Much of the consolidation pe-riod’s extraordinary activity involves di-agnosing and studying these problems,then correcting them.

Finally, during consolidation, newmanagers deal with those aspects oftheir concept that they could not imple-ment before. In several situations, forinstance, managers had to wait to find aperson for an important position or totransfer one of the organization’s man-agers who could not move earlier.

Refinement. The refinement stage isa period of little organizational change.By this point, executives have taken

charge, and their learning and actionstend to focus either on refining opera-tions or on looking for opportunitiesin the marketplace, in technology, or inother areas. In one case, the managerlooked at potential acquisitions; in an-other, the manager seriously considereddivesting part of the business.

This stage marks the end of the taking-charge process. By this timemanagers can no longer be considerednew. They no longer feel new, nor dotheir subordinates perceive or speak ofthem as new. Whatever the problemsthe executives now face, they do not re-sult from newness. By now, they have ei-ther established credibility and a powerbase, or they have not. They have hadenough time to shape their situations,and they will be judged by the results oftheir actions. If they are still uncomfort-able, usually it is because of pressingbusiness problems such as a recessionor mounting interest rates rather thanunfamiliarity with their jobs.

X = yesNO = no NA = not available

Actions taken Initial actionsInitial activities were in area of prior functional experience.

First structural change affected area of prior functional experience.

Major actionMost significant change made in first three years affected areaof prior functional experience.

Most significant structuralchange affected area of priorfunctional experience.

Longitudinal studies

Division presidents

1 2 3 4

X X X X

X X X X

X X X X

X X X X

Historical studies

Other general managers

5 6 7 8 9

X X X X X

X NO NA X X

X X X X X

X X NA X X

Functional managers

10 11 12 13 14

X X NO X X

X NA NO X NA

X X NO X X

X NA X X NA

EXHIBIT IVSummary of How Managers’ Functional Experience AffectedTheir Actions


Roots that endure. All other thingsbeing equal, managers’ functional back-grounds, managerial experiences, andspecial competencies appear to deter-mine how they take charge: what ac-tions they take and how competentlythey implement them.

The extent to which managers’ func-tional experience influences their ac-tions is quite surprising. For 13 of the 14new managers studied, their initial ac-tions were in areas where they had hadfunctional experience, and the mostsignificant changes they made duringthe three years also were in the areaswhere they had experience (see ExhibitIV). This pattern is not surprising forfunctional managers. But emergenceof the same pattern among the generalmanagers reveals the extent to whichexperience influences actions and pointsof view.

Because Exhibit IV is a summary, itunderstates both the specificity and per-vasiveness of how much the new man-agers’ experience affected their actions.Exhibit V looks at ten managers’experi-ence and actions in some detail.

If one thinks in terms of the fivetaking-charge stages, this pattern is notso surprising. Indeed, one could predictthat any significant additional experi-ence base managers gain as a result of

taking charge of a new assignment willnot be firm until after they have experi-enced the deeper learning of the im-mersion stage, acted on this knowledgein the reshaping stage, and learned fromthese actions in the consolidation stage.

Insiders versus outsiders. New man-agers’experience in their organization’sindustry also affected significantly howthey took charge and what problemsthey encountered. First, industry insid-ers (managers who have five or moreyears’ experience in the new organiza-tion’s industry) take hold much morequickly than do outsiders. Insiders beginwith a larger wave of action and theiractions tend to be more basic. For ex-ample, fully 33% of all of the structuralchanges industry insiders made oc-curred during their first six months.Second, the number of actions insiderstake is greater not only in the taking-hold stage (in the study, on average, in-siders’ actions were twice as frequent)but throughout the entire taking-chargeprocess. Moreover, whereas three offour of the managers who did not suc-ceed in their jobs lacked industry expe-rience, only four of ten successful man-agers lacked such experience (I defineda failed appointment as one in whichthe new manager was fired within threeyears of taking charge).

One case, in which a marketing man-ager with more than 15 years’ experi-ence in packaged goods and toiletriesbecame marketing and sales director ofa $110 million beverage division, illus-trates an outsider’s difficulties. On thesurface, his background looked like agood fit, but the new industry was dif-ferent from traditional packaged goodsin a number of important ways. Theoutsider’s experience had served himwell in product planning and changingsystems during the taking-hold periodand later in restructuring the salesforce. It had not, however, prepared himfor dealing with the sales force or hismajor distributors, both of which re-quired a hands-on approach. By theend of the taking-hold stage, he was in serious trouble with both groups.By the end of his first year, his cool,



Business, manager’s title, and company sales

Cable television subsidiary

General manager

$1.2 million

Wholesale food distribution

Vice president–marketing and sales

$21 million

District sales service organization

District manager

$30 million


Division general manager

$80 million

Plastic and metal products

Group managing director

$100 million


Director of marketing and sales

$110 million

Synthetic fibers

Director of manufacturing

$300 million

Computer and technical products

Group vice president and general manager

$780 million

Industrial and consumer

Group CEO

$3 billion

Public education

Administrator



Prior assignment

Communications engineer (in anothercompany)

Vice president-marketing and planning (in anothercompany)

Sales service administrator (in samecompany)

Division general manager (in anothercompany)

Division general manager (in samecompany)

Marketing and salesdirector (in anothercompany)

Works manager (insame company)

Group general market-ing manager (in samecompany)

Group manufacturingdirector (in same company)

Administrator (in samesystem)

Functional experience

Engineering

Marketing and productmanagement

Customer service

Marketing and market planning (also experience intwo prior turnarounds as general manager)

Manufacturing andengineering

Marketing

Manufacturing andengineering

Marketing, sales operations, and engineering

Manufacturing management and production control(turnaround experience)

Educational administration (turn-around experience)

Initial area of majorinvolvement

Construction and engineering

Planning

Product planning andreduction of salesforce

Sales service audit

Sales force and marketing

Manufacturing rationalization

Sales and sales procedures and information systems

Restructuring of manufacturing management

Marketing and sales operations

Product strategy andproduct planning,manufacturing opera-tions, and productionengineering

School discipline, athletics and activi-ties, accreditation, and community involvement

Areas affected by firststructural change

Engineering installa-tion and construction

Creation of productmanager’s positionand reorganization ofproduct sales groups

(No structuralchanges made)

Sales force


Sales force

Manufacturing

Group staff functions(finance, controller,group support functions)

Manufacturing and production engineering

(Not applicable)

Areas affected bymajor structuralchange

Same

Marketing (creation of product manager’sresponsibilities)


Creation of marketingfunction and reorgani-zation of sales force


Sales and marketing

Same

Sales operations and marketing

Manufacturing, product engineering,and product planning

(Not applicable)

Areas affected by mostsignificant changes offirst three years

Reorganization of chiefengineer’s departmentaffecting engineering,construction, and installation

Introduction of product management

Sales service training

Revision of missionscope and revampingof marketing strategyaffecting marketingand sales

Manufacturing rationalization

Sales systems and procedures

Rationalization and restructuring of production operations

Restructuring of sales operations

Manufacturing opera-tions, production engineering, qualitycontrol, and productplanning

Discipline, academicstandards, student activities, and commu-nity involvement

EXHIBIT V Comparison of Managers’ Functional Experience and Actions Taken (historical studies)




professional, managerial style had alien-ated some key distributors so much thatthe division general manager had to in-tervene in several critical situations.These incidents undermined the newmanager’s ability to develop credibilitywith customers and subordinates.

Turning things around. How unfavor-able a new situation was also influencedthe taking-charge process in the casesI studied. In turnarounds managers feela great deal of pressure to act on prob-lems quickly. One might expect that ina turnaround, because of the urgencyof the situation, executives would havea shorter taking-hold stage, but neitherthe aggregated data nor the individualcase data support this. If anything, thedata suggest that the taking-hold waveactually lasts longer in a turnaround.

Although the action waves are ofcomparable duration, the activity in thereshaping and consolidation stagespeaks earlier in the turnarounds byabout three to six months, a patternwhich no doubt reflects the urgency ex-perienced in turnarounds.

None of these differences betweennormal successions and turnaroundsthat the data uncovered is surprising.Others, which surfaced in manager in-terviews, are. For one thing, turnaroundmanagers told me they knew theywould have to redo later some of thechanges they were making in the taking-hold stage.

In one case, the new general man-ager reported he knew from experience(this was his third turnaround) that itwould take five to six months to designand implement a cost system that wassophisticated enough to provide all theinformation he needed on which prod-ucts were losing money and why. Heconcluded that he simply did not havethe time to do it perfectly and opted in-stead for a system that would give him,as quickly as possible, a better vision ofthe problems.

Managers don’t make such subopti-mal decisions gladly. When new manag-ers and their subordinates had fewerproblems to deal with (usually in theconsolidation period), they would go

Taking Charge:Tasks and Dilemmas

I Taking hold: orientation and evaluation, corrective actions

II Immersion: fine-grained, exploratory learning and managing the business

III Reshaping: acting on the revised concept

IV Consolidation: evaluative learning, follow-through, and corrective action

V Refinement: refining operations, looking for new opportunities

Tasks Develop an understanding of the new situation

Take corrective actions

Develop initial set of priorities and “map” of the situation

Develop initial set of expectations with key subordinates

Establish the basis for effective working relationships

Dilemma How quickly to act on apparent problems?

Act too quickly – risks:Make a poor decision because of lack of adequate information or knowledge

Take actions that constrain subsequent decisions that cannot be anticipated yet

Act too slowly – risks:Lose advantages of the “honeymoon” period

Lose credibility because of apparent indecisiveness

Lose valuable time

Tasks Develop a deeper, finer-grained understanding of the new situation and the people

Assess consequences of taking-hold period actions

Reassess priorities

Settle questions and problems concerning key personnel

Reconfigure “map” of the situation;fill out or revise the concept

Prepare for reshaping actions

Tasks Reconfigure organization based on finer-grained understanding

Deal with underlying causes of residual problems

Be open to unanticipated problems that emerge as a result of second-wave changes

Tasks Follow through on reshaping actions

Deal with unanticipated problems of reshaping stage

Remain open to new developments


back and improve the tourniquet sys-tems and processes they had installedearlier.

Although the turnaround managerswere under much greater pressure thantheir nonturnaround counterparts, theybenefited from certain advantages. Gen-erally speaking, their companies gavethem much more latitude in taking ac-tion than the managers had in the nor-mal successions. This was particularlytrue during the taking-hold stage. Thetwo situations I described in the begin-ning of the article illustrate this well.

In the first case, after six weeks onthe job, the new marketing vice presi-dent proposed a wholly new marketingstrategy that top management rapidlyapproved. Such agreeableness is rare innonturnaround successions. In the sec-ond case, the new manager’s head of-fice not only gave him a much greaterdegree of freedom than it usually gaveits division general managers, but it alsobuffered him from corporate staff inter-vention for the first two years. After themanager completed the turnaround,top management told him he now hadto play by the rules and conform moreclosely to corporate policies.

Generally, because of the urgency ofthe situations, the turnaround manag-ers started with a larger power basethan their counterparts and faced lessrivalry from key subordinates who mighthave wanted their jobs. But several turn-around managers reported feeling theirorganizations were fearful and tense,which put additional pressure on themto settle things as quickly as possible.

The new manager’s style. The 14 menI studied varied significantly in theirstyles, including how they spent theirtime – alone, in meetings, on tours –what kinds of meetings and interactionsthey preferred–one-to-one, recurrentlyscheduled or specially scheduled meet-ings, planned meetings versus ad hocmeetings–and their preferences for for-mality or informality.

Managerial style affects how peoplerespond to an executive initially and in-fluences the entire taking-charge pro-cess, including how the person makes

decisions. The most dramatic exampleof this was one president who had afairly hands-on approach to problemsand needed control. Because he thoughtthat the product organization preventedhim from seeing problems at the func-tional level, he struggled throughoutthe immersion stage. Finally, he reor-ganized the division from a product toa functional structure. The implemen-tation of this change was painful for theorganization and required that severalfunctional vice presidents split theirtime among three businesses, two ofwhich were geographically separated,so that they had to travel every week.Nonetheless, the total succession wentvery well.

For this president, acting accordingto his style was a necessity. During thefinal debriefing in the study’s fourthyear, he told me that he believed hecould not have turned the companyaround without restructuring it to fithis needs. His successor introduced a se-ries of changes, which again made theorganization more product oriented.

Relationships with key people. Per-haps the single most salient differencebetween the successful and the failedtransitions was the quality of the newmanager’s working relationships at theend of his first year. For example, at thispoint, three of four managers in thefailed successions had poor working re-lationships with two or more of theirkey subordinates and with two or morepeers, and all had poor working rela-tionships with their superiors. In con-trast, in the same time frame, only oneof the new administrators in the suc-cessful transitions had a poor relation-ship with his boss and none had poorrelationships with two or more peoplewho reported directly to them.

Many reasons were given for theseinterpersonal problems, such as rivalryissues, disagreement about goals, differ-ent beliefs about what constituted ef-fective performance, and conflicts inmanagement style. The underlyingcommon problem, however, was thenew managers’ failure to develop a setof shared expectations with their key

subordinates or their bosses. Withoutcommon understanding, each side inthe relationships inevitably stoppedtrusting the other.

The studies showed that developingeffective working relationships was acritical task in the taking-hold and im-mersion stages. If managers didn’t ex-plore important differences in the verybeginning of their successions, furtherproblems would crop up. Managers inthe successful transitions usually con-fronted problems by the end of the im-mersion stage and resolved them eitherby attaining agreement or by partingcompany.

Conflicts in management style. Sur-prisingly, many of the new managersstudied (six of 14) described a conflictin styles with their bosses as being a major problem in taking charge.Although conflicts and differences instyles also existed in relationships withsubordinates, I am highlighting theproblem between new managers andtheir bosses because this type of discordcharacterized all but one of the failedsuccessions.

The conflicts always involved controland delegation. In one case, for exam-ple, a new general manager five monthsinto the job was exasperated becausehis boss wouldn’t stop a capital requestthat the manager’s predecessor hadsubmitted. The boss had asked his tech-nical and financial staffs to review thesituation and was waiting for their re-port before acting. This manager alsoreported difficulty in getting quick an-swers from his boss about operationalquestions. The manager thought hisboss delegated too much and wasn’t ontop of details.

In contrast, another new executivefelt he couldn’t get his boss off his back.The situation finally exploded at theend of the first year when his boss gavehim a poor performance evaluation fornot being involved enough in detailsand for delegating too much to his sub-ordinates.

In both these cases, the conflictsarose partly because managers hadn’tclarified expectations with their bosses



planners factor them in and give themthe weight they deserve.

Let me be more specific about thefindings’ implications for both man-agers who are taking charge and or-ganizations that must be concernedwith succession planning and careerdevelopment.

When you are taking charge. For amanager in the middle of taking charge,this article may be a mixed blessing. Onthe one hand, it may be a relief to knowthat the process occurs in stages thatconsist of predictable learning and ac-tion tasks (see the exhibit “TakingCharge: Tasks and Dilemmas” for asummary). On the other, to realize thatthere may still be considerable learningand action to accomplish after the firstthree to six months on the job can bea bit dismaying.

The other potentially unsettling im-plication is that in each of these stagesthe manager is on a tightrope. For ex-ample, if the taking-hold stage is a bit ofa honeymoon, it is also a period inwhich new managers must establishtheir credibility. If they act too slowly,they risk losing the honeymoon pe-riod’s advantages as well as valuabletime, and they can appear indecisive.But if new executives act too quickly,they risk making poor decisions be-cause of inadequate knowledge, or theytake actions that preclude options theymay later wish they had.

Managers who are industry outsidersare on particularly slippery ground. Inthe absence of good advice or data, theymay be better off deferring majorchanges until they have learned morein the immersion stage. The small firstwaves of action and large second wavesin the outsider successions I studiedprobably reflect an intuitive recogni-tion of this dilemma.

Finally, interpersonal factors emergein one fashion or another. If, for exam-ple, newcomers find themselves in amanagerial style conflict, they shouldnot think it’s bizarre; it occurred in al-most half the situations I studied.

In general, a comparison of failedand effective transitions indicates that

but mainly because of less rational fac-tors, including profound beliefs aboutwhat is good management. Namely, agood executive sets goals clearly anddelegates responsibility to subordinateswithout interfering, while a good man-ager gets involved in details and is ac-tion oriented and decisive.

How can new managers deal withdifferences in style? In the cases stud-ied, the new managers had to take the

initiative to work out differences andmake the accommodations needed forworking effectively with their bosses. Inthe first case, for example, the new man-ager stopped pressing his boss about thecapital project; instead he worked withthe two staff groups who were conduct-ing the review. The second manager de-fined his performance targets specifi-cally with his boss, so the boss coulddelegate to him more comfortably.

In the three successful transitionsmarked by sharp style conflicts, themanagers employed similar means todeal with them.

How stacked is the deck? As we cansee, many variables influence how wellmanagers take charge. Critical factorsrange from managers’ experience tohow effectively they deal with key sub-ordinates and their bosses. Althoughsome are more critical than others, noone factor dominates. Evaluated to-gether, however, they can indicate howmuch difficulty a new manager willface. Let me illustrate this by returningto the two vignettes that began this ar-ticle. On the surface they looked so sim-ilar, but they turned out so differently.

In the first case, in which the newmarketing vice president lasted onlynine months, his lack of industry expe-rience hurt him considerably, especiallysince both his immediate boss and thedivision’s parent management alsolacked industry experience. His boss’sfailure to clarify his expectations about

performance and a major conflict inmanagement style between the twomen further exacerbated the situation.Finally, a poor working relationshipwith an important peer, who sought toundermine the new manager, compli-cated his difficulties.

If the deck is stacked, as it was in thiscase, unless the new manager or hisboss is insightful enough to defuse,compensate for, or in some other way

minimize problems, the succession isdoomed. In the other case, although theparameters were the same, the dynam-ics among the players were quite differ-ent, so that the second new managerprospered where the other failed.

Managing the New ManagerThis study’s findings offer several impli-cations that, taken together, challengea number of assumptions and currentpractices. First, we can see clearly thatunderstanding a situation and havingan impact on it do not occur overnight.Fast-track developmental assignmentsdo not, in the end, benefit the individ-ual, the new unit, or the organization.

Second, the all-purpose general man-ager who can parachute into any situa-tion and succeed is a myth. Experienceand special competencies do matter.

Finally, human variables such asmanagerial styles make a difference,not only to the organization’s climatebut also to the business decisions a newmanager makes and to how he imple-ments them.

Other soft factors, such as potentialconflicts in managerial styles and a new-comer’s ability to develop effectiveworking relationships, also seriously af-fect outcomes. These are, however, sub-jective factors that often fall into thenondiscussable category that seniormanagement seldom considers when itplans successions. Only the savviest



The all-purpose general manager who can parachute into

any situation and succeed is a myth.


front-end work is crucial, especially inworking out parameters and expecta-tions with bosses. In the successful suc-cessions, the new managers made theirmandates as specific and explicit as pos-sible. They also made a point of keepingtheir superiors informed, for example,discussing with them changes theywere proposing in detail – particularlyduring the early taking-charge stages.In contrast, the managers who failedcarried vague mandates.

The successful managers were alsomore aware of their limitations in expe-rience or skills and compensated forthem either with selective learning orby drawing on their colleagues’abilities.

Succession planning and career de-velopment. As the preceding discussionsuggests, top management can take anumber of steps to help minimize newadministrators’ problems. The most ob-vious of these is making the new per-son’s charter explicit. If this is not possi-ble (because top management doesn’tunderstand the unit’s business or the in-dustry is in a period of turmoil), thenew manager should know it. For exam-ple, in the opening vignette in whichthe new manager failed after ninemonths, headquarters hadn’t told himthat the most urgent priority was to re-verse a decline in the newly acquiredsubsidiary’s margins. The innocent newvice president started off buying mar-ket share, which inevitably eroded fur-ther the margins in the short term.

There are other things companiescan do to facilitate the taking-chargeprocess. General Electric, for example,runs assimilation meetings to acceler-ate working out expectations betweennew managers and their key subordi-nates. Conducted by the human re-source staff, these meetings give newmanagers and those who report di-rectly to them the opportunity to talkabout expectations and other concernsearly in a new manager’s tenure. Topmanagement can also anticipate thepotential problems new managers wholack relevant experience face, particu-larly during the taking-charge stages,and lessen them by providing ade-

quate – subordinate or corporate –backup support.

An important implication of this re-search for succession planning is thattaking charge (defined in terms of im-pact and learning) takes time. Compa-nies that make brief assignments atupper and middle levels will get quickfixes. If assignments are too short for anew manager to go beyond the taking-hold stage, the new manager will dealonly with those problems that he or sheknows how to fix. That may be enoughif a manager’s experience base is broadand deep, but when short-term assign-ments become company policy, both in-dividual units and the organization as awhole suffer eventually. Taken to its ex-treme, such a policy feeds the obsessionwith short-term results that many ob-servers have criticized.2

Short-term assignments also makelittle sense from a career developmentpoint of view. In most brief assignments,managers can’t progress beyond the im-mersion stage. Yet the payoffs for theorganization in substantive change andfor the individual in important residuallearning and added experience don’tcome until later. Significant new learn-ing begins in the immersion stage whenthe outsider is familiar enough to probeunderlying issues and subtle cause-and-effect relationships. Managers cannottest this new learning, though, untilthey act in the reshaping stage, evaluatetheir actions, and learn more in the con-solidation and refinement stages.

The importance of experience alsohas several implications for successionplanning and career development. Allother factors being equal, an insiderwith industry-specific or other relevantexperience is more likely to take chargewith fewer difficulties than an outsiderwithout industry-specific experience.Three of the four managers who failedwere industry outsiders in well-run U.S.and European companies.

The importance of experience, whichthe study highlighted, also challengesthe concept of the professional man-ager. Although turnaround specialistscan succeed in a variety of situations,

they are the exception, not the rule; in fact, they are themselves specialistsof a kind.

I am not arguing that general man-agement skills don’t exist or that peoplecan’t transfer them into new settings.I am pointing out that lack of relevantindustry or functional experience willmake the taking-charge process moredifficult, and companies should con-sider this when planning successions.

When choosing successors to mana-gerial posts, top management has tomake some difficult trade-offs in termsof what is good for the person, the unit,and the organization. If one of the orga-nization’s objectives is to develop awell-trained pool of managerial talent,then the head office should put execu-tives in assignments that stretch themby broadening their experience. Thiswill inevitably mean putting peoplewith less than optimal experience incharge of units whose performancemay suffer, at least in the short term.The question is whether the benefits tothe person and to the larger organiza-tion are worth the costs. Also, becausemanagers, like all human beings, learnfrom the feedback of bad as well asgood experiences (some may argue theylearn more from the ones that turn outbadly), top management has to judgehow long to keep executives in situa-tions where they are having problems.

On the other hand, if managementalways assigns people with strong rele-vant experience, it forfeits giving execu-tives broadening experiences, which be-come increasingly important at middleand upper levels. The guideline shouldbe to provide developmental assign-ments that are not totally out of linewith a manager’s experience and thatlast long enough to produce importantlessons.

1. John P. Kotter, The General Managers (Free Press,1982).

2. Robert H. Hayes and William J. Abernathy, “Manag-ing Our Way to Economic Decline,” HBR July–August1980.

Reprint R0701K





Letters to the Editor

Can Science Be a Business?I enjoyed Gary P. Pisano’s critique of the“anatomy” of the biotechnology indus-try and his suggestions for improve-ment in “Can Science Be a Business?:Lessons from Biotech” (October 2006),but his analysis omits some importantdistinctions between biotechnology andtraditional pharmaceutical firms. By in-appropriately applying pharmaceuticaldrug statistics and analyses to biotech-nology drugs, Pisano fails to support hiscentral thesis that the biotechnology

industry hasn’t delivered and that busi-nesses engaged in basic science as a coreactivity need a new design.

Pisano’s assertions stem from the timeand money needed to develop drugs,an incompatibility with venture-capitalfunding cycles, and the number of com-pounds in clinical trials. Pisano says thatdrug development costs $800 million to$1 billion over ten to 12 years, and thatventure capitalists invest much less in

biotechnology firms and have a three-year time horizon. The figure $800 mil-lion, often cited, comes from the TuftsCenter for Drug Development. It isworth noting that half this amount re-flects the opportunity cost of capitalover the duration of development. Moreimportant, this estimate is derived byexamining drugs from pharmaceuticalfirms, not biotechnology firms.

Because many biotechnology prod-ucts are first-in-class drugs and haverelatively more discrete applicationsthan pharmaceutical drugs, they bene-fit from shorter development times andlower development costs. Anecdotal ev-idence from biotechnology CEOs I havequeried suggests that a biotechnologydrug can be developed for $40 million to$200 million. Furthermore, venture cap-ital is not the only source of fundingavailable to biotechnology companies.Entrepreneurs routinely make use ofequity-free capital from federal R&D,Small Business Innovation Researchfunds, and Small Business TechnologyTransfer grants in early stages, and tapother sources such as state funds, angelcapital, and corporate partnerships. Ad-ditionally, objective measures of prog-ress in Phases I, II, and III of the clinicaltrial process enable companies to raisefunding or to determine value and selldrugs that are still in development.

Perhaps most vital to Pisano’s thesis ishis analysis of the impact of biotechnol-ogy on clinical trials. He examines datafrom the Food & Drug Administration’sCenter for Drug Evaluation and Re-

We welcome letters from all readers wishing to comment on articles in this issue. Early re-sponses have the best chance of being published. Please be concise and include your title, com-pany affiliation, location, and phone number. E-mail us at [email protected]; sendfaxes to 617-783-7493; or write to The Editor, Harvard Business Review, 60 Harvard Way,Boston, MA 02163. HBR reserves the right to solicit and edit letters and to republish letters asreprints.

114 harvard business review | hbr.org

that they are significantly more produc-tive at drug R&D than the much ma-ligned behemoths of the pharmaceuti-cal industry.

This disappointing performance raisesa question: Can organizations motivatedby the need to make profits and pleaseshareholders successfully conduct basicscientific research as a core activity? For30 years, debate has been intense aboutwhether business’s invasion of basicscience–long the domain of universitiesand other nonprofit research institu-tions – is limiting access to discoveries,

thereby slowing scientific advance. Butthe question of whether science can bea profitable business has largely beenignored.

As always, the prevailing outlook inthe industry itself is that the revolutionin drug creation will succeed; it will justtake a little longer than anticipated.That may be wishful thinking. Over thepast 20 years, I have conducted exten-sive research on the strategies, structure,performance, and evolution of the bio-technology and pharmaceutical sec-tors. I learned that the “anatomy”of the

biotech sector – much of it borrowedfrom models that worked quite well insoftware, computers, semiconductors,and similar industries – is fundamen-tally flawed and therefore cannot servethe needs of both basic science andbusiness. Unless that anatomy changesdramatically, biotech won’t be able toattract the investments and talent re-quired to realize its potential for trans-forming health care.

By “anatomy,” I mean the sector’s di-rect participants (start-ups, establishedcompanies, not-for-profit laboratories,

october 2006 115

n its 30 years of life, the biotech-nology industry has attracted more

than $300 billion in capital. Much ofthis investment has been based on thebelief that biotech could transformhealth care. The original promise wasthat this new science, harnessed to new forms of entrepreneurial busi-nesses that were deeply involved in ad-vancing basic science, would produce a revolution in drug therapy. Unencum-bered by the traditional technologiesand organizations of the establishedpharmaceutical giants, these nimble,

focused, science-based businesses wouldbreak down the wall between basic andapplied science and produce a trove ofnew drugs; the drugs would generatevast profits; and, of course, investorswould be handsomely rewarded.

So far, the promise remains largelythat. Financially, biotech still looks likean emerging sector. Despite the com-mercial success of companies such asAmgen and Genentech and the stun-ning growth in revenues for the industryas a whole, most biotechnology firmsearn no profit. Nor is there evidence JO

E M

AG

EE

I

B I G P I C T U R E

CanScienceBeaBusiness?Lessons from Biotechby Gary P. Pisano

Biotech has not delivered on its promise because the industry’s structure – much of it borrowed fromSilicon Valley – is flawed. Businesses engaged in advancing basic science as a core activity need a new design.


search (CDER) from 1986 through 2003and, finding no significant increase inthe number of compounds in clinicaltrials, concludes that the industrializa-tion of R&D in the mid-1990s failed onits promise to improve drug discovery.A fundamental flaw in this analysis isthat the CDER did not regulate drugstypical of biotechnology firms untilJune 30, 2003. Such drugs were previ-ously regulated by the Center for Bio-logics Evaluation and Research (CBER).An analysis of data from the CBERshows that the industrialization of R&Din the mid-1990s had a significant im-pact. The mean number of approvedbiologic products (a more direct mea-sure of impact than the number ofcompounds in clinical trials) in the fiveyears from 1990 through 1994 was 5.4,and the mean number of biologics ap-proved in the five years from 1995through 1999 was 19.6.

Yali FriedmanChief Knowledge Officer

New Economy StrategiesWashington, DC

Gary Pisano is correct that biotech busi-nesses cannot be built using the SiliconValley model. The fact that their prod-ucts require FDA approval sets biotechapart from other high-tech sectors andmaterially increases risk. That risk is re-warded with enforceable, long-term in-tellectual property protection. And bio-tech has become the primary source ofmost approved drugs: Last year morethan 60% of all new medical entities approved had biotech origins.

Consequently, venture investing strat-egies in this sector are distinctive. Al-though drug discovery to approval maytake a decade or more, the process ismodular, offering incremental rewardsalong the way. Each of the three phases

Strategy and Innovation

Management and Leadership

Technology, Operations, and Value Chain Management

MIT Sloan Executive Certificates

[email protected] • +1 617.253.7166

innovation@workTM

Upcoming Programs:

Driving Strategic Innovation: Achieving Breakthrough Performance Throughout the Value Chain (in partnership with IMD)

Managing the Extended Supply Chain:Beyond Productivity and Efficiency(in partnership with IMD)

Product Design, Development,and Management

Leading Change in Complex Organizations

Corporate Strategy

Business Dynamics: MIT’s Approach to Diagnosing and Solving Complex Business Problems

Mar 18–23, 2007 Sep 16–21, 2007

Apr 15–20, 2007 Nov 11–16, 2007

May 7–11, 2007

Jun 3–8, 2007

Jun 10–15, 2007

Jun 18–22, 2007

MIT Sloan Executive Education

At MIT Sloan, we provide senior executives and managers with the

tools and frameworks to drive innovation and turn today’s good

ideas into tomorrow’s successful products and services. From

technology strategy to system dynamics, financial engineering

to life sciences, we offer cutting-edge programs that reflect the

depth and expertise of our faculty and MIT’s research distinction.

http://mitsloan.mit.edu/hbr


of drug development – early-stage plat-forms (scientific concept though valida-tion in vivo); proof of concept (demon-stration of drug efficacy and safety inclinical trials); and commercialization(large-scale confirmatory trials andproduct launch) – has a unique risk-reward profile and rotating attractive-ness to public markets and pharmaceu-tical companies.

Disciplined, stage-directed investinghas been successful at each of thesethree phases. TransForm (sold to John-son & Johnson), Biovitrum (public), andPharmion (public) are representativeexamples. It is remarkable that even plat-form companies, out of favor since 2000,are now the darlings of pharmaceuticalcompanies that are themselves movinginto protein therapeutics – long the do-main of biotech. Since the beginningof 2006, $16 billion worth of protein-focused biotech companies have beenacquired by traditional pharma.

Venture investing in biotech accountsfor a quarter of the $20 billion raised an-

nually from private and public markets.Biotech-pharma alliances add another$5 billion to $10 billion each year. Thisis a very capital-intensive business, butit is well financed even in difficulttimes. Moreover, there has been noshortage of inventiveness in creatingpartnerships and special-purpose fi-nancing structures to fund product development.

Pisano is correct that the industryneeds a new structure to adapt to thepublic markets and the ever-changingreality of the pharmaceutical industry.His article should stimulate a healthy di-alogue on how to further improve ourresilient industry’s productivity and in-vestment returns.

Nick GalakatosManaging Director

Clarus VenturesCambridge, Massachusetts

My career has included nearly everypoint along the biomedical product-development continuum,from academic

technology transfer to clinical-trialsmanagement to business developmentfor one of the “big biotechs”Gary Pisanomentions. Thus I read his article withgreat interest and more than a little in-sider understanding. He captures thecomplexity and interconnectedness oftrying to monetize life-science discover-ies beautifully, but he doesn’t giveenough ink to several other factors thathave slowed the pace of biomedicalcommercialization.

First, biotechnology is simply a newmeans to an old end–in this case, a newroute to marketable therapeutics anddiagnostics. But that “old end”is heavilycontrolled by an FDA that is learninghow to regulate these new products inparallel with their development. Theold rules don’t apply anymore, and newrules can work efficiently only withpractice. The FDA has also undergonenumerous leadership changes just whenthe industry most needs a dialogue –hardly a prescription for timely reviewand approval.

THE TESTS OF A LEADER | LETTERS TO THE EDITOR

Programs where the business world’s mostcourageous minds tackle its most challengingissues. execed.kellogg.northwestern.edu

847-491-3100

Advanced Executive Programmarch 4–30june 24–july 20

Executive Development Programjuly 8–27october 14–november 2


Second, the “other regulator” – thehealth insurance industry–has even lessexperience with biotech products thanthe FDA does. The successful biotechcompanies have learned that educatingprospective payers about the benefits ofinnovative therapies that often cost farmore than their traditional medicinal-chemistry predecessors is as critical toan on-time product launch and uptakeas are regular meetings with the FDA.

And we can’t forget the physician-provider segment. The science may beelegant, but a biotech drug with finickydosing or storage requirements is oftenless likely to be incorporated quicklyinto mainstream practice. The numberof products that are doomed for lackof clinical relevance (which has noth-ing to do with how well the scienceworks) contributes to the perception thatbiotech’s R&D productivity is lacking.

Finally, what about the myriad suc-cessful agricultural, industrial, and envi-ronmental applications of biotechnol-ogy? Sure, drug discovery is inherentlyunpredictable and risky. But to ignorethe aspects of the “business of science”that do work well, and to represent thatthe risks are mostly the fault of the sci-ence itself, seems unfairly dismissive.

Nan DoyleAssociate Vice President

Museum of Science Boston

Pisano responds: It is true, as Yali Fried-man says, that the Tufts data come pri-marily from large drug companies andthat a significant fraction of those costsare opportunity costs. However, I builtmy analysis from the ground up withdata from both biotechnology andpharmaceutical companies, using theexact same methodology to calculatethe costs of drug development foreach. Friedman mentions “anecdotal ev-idence” from some biotech CEOs sug-gesting that drugs can be developed foras little as $40 million to $200 million.I do not doubt that is possible. CEOs ofmajor pharmaceutical companies mightsay the same about a particular success-ful drug. But any meaningful measureof R&D productivity must also take into

account the costs of all the drugs thatfail. Finally, one simply cannot assumethat biotech drugs are likely to be firstin class and therefore to move throughthe regulatory process more quickly.Many biotech drugs, such as Herceptin,Avastin, Cerazyme, and erythropoietin,have been first in class, but many havenot. Indeed, biotech’s early drugs – re-combinant insulin, recombinant humangrowth hormone, and recombinant fac-tor VIII – largely replaced drugs that werealready on the market but manufac-tured through different means. Further-more, there is no correlation betweennovelty and speed of development andapproval. In fact, drugs based on novelbiology or novel molecules often face atougher road through both clinical de-velopment and the regulatory process.

The complex, long-term, and highlycostly nature of R&D in biotechnologymeans that this sector needs very dif-ferent approaches for financing. As NickGalakatos says, the sector has been suc-cessful at raising capital even in difficulttimes. It will need to keep doing so if weare to realize the potential of biotech totransform health care.

I do not agree with Nan Doyle thatthe problems of the biotechnology in-dustry are rooted in the FDA’s approvalprocess. First, a clarification: In my arti-cle, I use the term “biotechnology sec-tor” very broadly to include firms thatentered the industry after 1976 (start-ing with Genentech). Many of thesecompanies develop biology-based drugs(recombinant proteins and monoclonalantibodies), but many also developmore traditional, chemical-based drugs.The latter category is one with whichthe FDA has quite a bit of regulatory ex-perience. Second, the decline in drug ap-provals does not appear to be linked tolonger review times; quite simply, fewerdrugs are submitted. Critics of the FDAoften ignore the fact that failed drugsubmissions consume as much in theway of reviewer resources as successfulsubmissions. A drug application that isvoted down 0–12 by an expert advisorypanel is much more likely a case of badscience than of unnecessary regulatoryoversight.

Strategic MarketingCommunicationsapril 1–4

Managing CustomerRelationships for Profitapril 1–4

Business Marketing Strategyapril 15–20

Full Engagement:Maximizing Performancein Business and Lifeapril 15–18

Finance for Executives april 15–20

Consumer Marketing Strategyapril 22–27

Merger Week: Creating Value throughStrategic Acquisitionsand Alliancesapril 22–27

Corporate Governance:Effectiveness andAccountability in the Boardroomapril 24–27

Upcoming programs where the business

world’s most courageous minds tackle

its most challenging issues.

execed.kellogg.northwestern.edu

847-491-3100


COVER STORY

48 | Becoming the Boss Linda A. Hill

Even for the most gifted individuals, the process of becoming a leader is an arduous, albeit rewarding, journey of continuous learning and self-development. The initial test along the path is sofundamental that we often overlook it: becoming a boss for the first time. That’s a shame, becausethe trials involved in this rite of passage have seri-ous consequences for both the individual and the organization.

For a decade and a half, the author has studiedpeople – particularly star performers – making majorcareer transitions to management. As firms havebecome leaner and more dynamic, new managershave described a transition that gets more difficultall the time. But the transition is often harder thanit need be because of managers’ misconceptionsabout their role. Those who can acknowledge their misconceptions have a far greater chance ofsuccess.

For example, new managers typically assumethat their position will give them the authority andfreedom to do what they think is best. Instead, theyfind themselves enmeshed in a web of relationshipswith subordinates, bosses, peers, and others, allof whom make relentless and often conflicting demands. “You really are not in control of anything,”says one new manager.

Another misconception is that new managersare responsible only for making sure that their oper-ations run smoothly. But new managers also needto realize they are responsible for recommendingand initiating changes – some of them in areas out-side their purview – that will enhance their groups’performance.

Many new managers are reluctant to ask forhelp from their bosses. But when they do ask(often because of a looming crisis), they are relievedto find their superiors more tolerant of their ques-tions and mistakes than they had expected.Reprint R0701D; HBR OnPoint 1723

JANUARY 2007

ExecutiveSummaries


LEADERSHIP

Until they give up the myth of authority for the reality ofnegotiating interdependencies,new managers will not be ableto lead effectively.– page 48


15 | Moments of Truth: GlobalExecutives Talk About theChallenges That Shaped Them as LeadersWhen did you realize you had the rightstuff to lead? HBR’s editors put that question to a group of business leadersrepresenting different industries, nation-alities, executive tenures, and companysizes. The answers were as diverse as thegroup itself.

Nokia CEO Olli-Pekka Kallasvuo re-counts a lesson in humility, learned whenhe was a young CFO and it wasn’t cleareach month that the company would beable to pay salaries the next. Gary Jacksondescribes the challenge of preserving hismilitary-training company’s high-energyculture, largely through his own example.Arthur Gensler’s story highlights the im-portance of vision in growing his architec-tural firm and refusing to be constrainedby the traditions of a hidebound industry.

A world away, Alexander Cummingstells the harrowing tale of withstandingquarter after quarter of declining marginsand market share – and intense pressurefrom his boss, and his boss’s boss – be-cause he had conviction that a controver-sial decision he made at Coca-Cola Africawould prove right in the end. Roche CEOFranz Humer recounts how he learned to trust his intuition, particularly when therest of his organization was inclined tosee only the downside risk in a deal.

Other leaders’ moments of truth in-volved tests of still different qualities.Duleep Aluwihare of Ernst & Young inPoland learned from painful encounterswith a mentor in his old firm, Arthur An-dersen, that he must change his leader-ship style. Sergey Petrov, the founder ofRussia’s largest car importer, developedthe perspective required of a leader whenhe was a young dissident held for ques-tioning by the KGB. Finally, Alan Klapmeierof private-aircraft manufacturer Cirrus Design tells of the passion required tobring something truly innovative to marketdespite recalcitrant board members andthe catastrophic loss of a prototype.Reprint R0701A

MANAGEMENT DEVELOPMENT

HBR CASE STUDY

27 | The Very Model of a ModernSenior ManagerMike Morrison

A leadership crisis has erupted at BarkerFoods. Doug Lothian, the national sales director of the chocolates and confectionsdivision, was just fired for making somebad marketing choices, engaging in ques-tionable selling behaviors, and, ultimately,losing the confidence of his customersand his staff. As a result, there’s a schismin Sales. Senior managers are wonderingwhether a competency model would helpthe company replace Doug with the rightkind of leader and prevent other leader-ship problems from cropping up.

HR director Anne Baxter thinks Doug’ssituation is the perfect example of whyBarker Foods needs to define exactlywhat it’s looking for from its top people.Colin Anthony, the CEO, has given Annethe go-ahead to work with a special taskforce on a framework that would not onlyhighlight the critical values, knowledge,and skills necessary to lead any of thecompany’s divisions but also identify thecorresponding tasks, behaviors, and mea-sures of success.

Colin has asked Anne and her team topresent their findings to the executivecommittee, which has voiced mixed opin-ions about competency modeling. On theone hand, it makes sense to hire and de-velop the right people to execute the com-pany’s strategy; on the other, it doesn’tseem wise to oversimplify the work thatsenior executives do – and boiling downgreat leadership to a checklist of qualitiescould be a step in that direction.

Should the executive committee go for-ward with plans for competency modeling?Commenting on this fictional case studyare Reuben Mark, chairman of Colgate-Palmolive; Rebecca Ray, senior vice presi-dent for global learning and organizationaldevelopment at MasterCard Worldwide;George Manderlink, a partner in Heidrick& Struggles Leadership Consulting; andDave Ulrich, a cofounder of the RBLGroup, a leadership consultancy.Reprint R0701B

Reprint Case only R0701X

Reprint Commentary only R0701Z

LEADERSHIP


40 | How Leaders Create and Use NetworksHerminia Ibarra and Mark Hunter

Most people acknowledge that network-ing – creating a fabric of personal contactsto provide support, feedback, insight, andresources – is an essential activity for anambitious manager. Indeed, it’s a require-ment even for those focused simply ondoing their current jobs well. For some,this is a distasteful reality. Working throughnetworks, they believe, means relying on“who you know” rather than “what youknow” – a hypocritical, possibly unethical,way to get things done. But even peoplewho understand that networking is a legit-imate and necessary part of their jobs canbe discouraged by the payoff – becausethey are doing it in too limited a fashion.

On the basis of a close study of 30emerging leaders, the authors outlinethree distinct forms of networking. Opera-tional networking is geared toward doingone’s assigned tasks more effectively. Itinvolves cultivating stronger relationshipswith colleagues whose membership inthe network is clear; their roles definethem as stakeholders. Personal network-ing engages kindred spirits from outsidean organization in an individual’s efforts tolearn and find opportunities for personaladvancement. Strategic networking putsthe tools of networking in the service ofbusiness goals. At this level, a managercreates the kind of network that will helpuncover and capitalize on new opportuni-ties for the company. The ability to moveto this level of networking turns out to bea key test of leadership.

Companies often recognize that net-works are valuable, and they create explicitprograms to support them. But typicallythese programs facilitate only operationalnetworking. Likewise, industry associa-tions provide formal contexts for personalnetworking. The unfortunate effect is togive managers the impression that theyknow how to network and are doing sosufficiently. A sidebar notes the implica-tion for companies’ leadership develop-ment initiatives: that teaching strategicnetworking skills will serve their aspiringleaders and their business goals well.Reprint R0701C; HBR OnPoint 1727

58 | Courage as a SkillKathleen K. Reardon

A division vice president blows the whis-tle on corruption at the highest levels ofhis company. A young manager refuses towork on her boss’s pet project becauseshe fears it will discredit the organization.A CEO urges his board, despite push backfrom powerful, hostile members, to investin environmentally sustainable technology.What is behind such high-risk, oftencourageous acts?

Courage in business, the author hasfound, seldom resembles the heroic im-pulsiveness that sometimes surfaces inlife-or-death situations. Rather, it is a spe-cial kind of calculated risk taking, learnedand refined over time. Taking an intelligentgamble requires an understanding of whatshe calls the “courage calculation”: sixdiscrete decision-making processes thatmake success more likely while avertingrash or unproductive behavior. These in-clude setting attainable goals, tipping thepower balance in your favor, weighingrisks against benefits, and developing con-tingency plans.

Goals may be organizational or per-sonal. Tania Modic had both types in mindwhen, as a young bank manager, she over-stepped her role by traveling to New York –on vacation time and on her own money –to revitalize some accounts that her seniorcolleagues had allowed to languish. Herhigh-risk maneuver benefited the bankand gained her a promotion.

Lieutenant General Claudia J. Kennedyweighed the risks and benefits before de-ciding to report a fellow officer who hadplagiarized a research paper at a profes-sional army school. In her difficult couragecalculation, loyalty to army standardsproved stronger than the potential dis-comfort and embarrassment of “snitch-ing” on a fellow officer.

When the skills behind courageous decision making align with a personal, organizational, or societal philosophy,managers are empowered to make boldmoves that lead to success for their com-panies and their careers.Reprint R0701E; HBR OnPoint 1726

SELF-MANAGEMENT LEADERSHIP


66 | The CEO’s Second ActDavid A. Nadler

When a CEO leaves because of perfor-mance problems, the company typicallyrecruits someone thought to be betterequipped to fix what the departing execu-tive couldn’t – or wouldn’t. The boardplaces its confidence in the new personbecause of the present dilemma’s similar-ity to some previous challenge that he orshe dealt with successfully. But familiarproblems are inevitably succeeded by lessfamiliar ones, for which the specially se-lected CEO is not quite so qualified. Moreoften than not, the experiences, skills, andtemperament that yielded triumph in Act Iturn out to be unequal to Act II’s difficul-ties. In fact, the approaches that workedso brilliantly in Act I may be the very oppo-site of what is needed in Act II.

The CEO has four choices: refuse tochange, in which case he or she will be replaced; realize that the next act requiresnew skills and learn them; downsize or cir-cumscribe his or her role to compensatefor deficiencies; or line up a successorwho is qualified to fill a role to which theincumbent’s skills and interests are nolonger suited. Hewlett-Packard’s Carly Fiorina exemplifies the first alternative;Merrill Lynch’s Stanley O’Neal the second;Google’s Sergey Brin and Larry Page thethird; and Quest Diagnostics’ Ken Freemanthe fourth. All but the first option are rea-sonable responses to the challenges pre-sented in the second acts of most CEOs’tenures. And all but the first require apower of observation, a propensity for in-trospection, and a strain of humility thatare rare in the ranks of the very peoplewho need those qualities most.

There are four essential steps execu-tives can take to discern that they haveentered new territory and to respond ac-cordingly: recognition that their leadershipstyle and approach are no longer working;acceptance of others’ advice on why per-formance is faltering; analysis and under-standing of the nature of the Act II shift;and, finally, decision and action.Reprint R0701F

76 | Firing Back: How GreatLeaders Rebound After CareerDisasters Jeffrey A. Sonnenfeld and Andrew J. Ward

Among the tests of a leader, few are morechallenging – and more painful – than re-covering from a career catastrophe. Mostfallen leaders, in fact, don’t recover. Still,two decades of consulting experience,scholarly research, and their own personalexperiences have convinced the authorsthat leaders can triumph over tragedy – ifthey do so deliberately.

Great business leaders have much incommon with the great heroes of univer-sal myth, and they can learn to overcomeprofound setbacks by thinking in heroicterms. First, they must decide whetheror not to fight back. Either way, they mustrecruit others into their battle.They mustthen take steps to recover their heroic sta-tus, in the process proving, both to othersand to themselves, that they have themettle necessary to recover their heroicmission.

Bernie Marcus exemplifies this pro-cess. Devastated after Sandy Sigolofffired him from Handy Dan, Marcus de-cided to forgo the distraction of litigationand instead make the marketplace his bat-tleground. Drawing from his network ofcarefully nurtured relationships with bothclose and more distant acquaintances,Marcus was able to get funding for a newventure. He proved that he had the met-tle, and recovered his heroic status, bybuilding Home Depot, whose entrepre-neurial spirit embodied his heroic mission.

As Bank One’s Jamie Dimon, J.Crew’sMickey Drexler, and even Jimmy Carter,Martha Stewart, and Michael Milken haveshown, stunning comebacks are possiblein all industries and walks of life. Whateverthe cause of your predicament, it makessense to get your story out. The alterna-tive is likely to be long-lasting unemploy-ment. If the facts of your dismissal cannotbe made public because they are damn-ing, then show authentic remorse. Thepublic is often enormously forgiving whenit sees genuine contrition and atonement. Reprint R0701G

LEADERSHIP LEADERSHIP

TO ORDER AND FOR MORE DETAILS, VISIT:

WWW.HBR2006CD.ORG

NOT A SUBSCRIBER to

Harvard Business Review?Here’s a CD packed with all the

insights from 2006. You can

browse through the issues or use

the handy Reader’s Guide to go

first to lists of articles by topic or

author name, then jump to the

executive summary, then go to

the article itself. All for $79.

And if you’re already a subscriber,

here’s an easy way to save space

on your bookshelf.

WonderWhatYou’ve BeenMissing?


86 | What to Ask the Person in the Mirror Robert S. Kaplan

Every leader gets off track from time totime. But as leaders rise through the ranks,they have fewer and fewer opportunitiesfor honest and direct feedback. Theirbosses are no longer monitoring their ac-tions, and by the time management mis-steps have a negative impact on busi-ness results, it’s usually too late to makecourse corrections that will set thingsright. Therefore, it is wise to go through aself-assessment, to periodically step backfrom the bustle of running a business andask some key questions of yourself.

Author Robert S. Kaplan, who duringhis 22-year career at Goldman Sachschaired the firm’s senior leadership train-ing efforts and cochaired its partnershipcommittee, identifies seven areas for self-reflection: vision and priorities, managingtime, feedback, succession planning, eval-uation and alignment, leading under pres-sure, and staying true to yourself. The au-thor sets out a series of questions in eachof the areas, illustrating the impact of self-assessment through vivid accounts of realexecutives.

Although the questions sound simple,people are often shocked – even horrified –by their own answers. Executives areaware that they should be focusing ontheir most important priorities, for in-stance, but without stepping back to re-flect, few actually know where they are allocating their time. Kaplan advocateswriting down what you do every workinghour for a week and checking how wellyour actions match up with your inten-tions. As for feedback, managers shouldask themselves whether they’re gettingtruthful evaluations from their subordi-nates. (In all likelihood, they aren’t.) Ittakes time and discipline to persuade youremployees to tell you about your failings. Reprint R0701H; HBR OnPoint 1730;

OnPoint collection “Habits of Highly

Effective Managers, 2nd edition” 1728

96 | Leading Change: WhyTransformation Efforts FailJohn P. Kotter

Businesses hoping to survive over thelong term will have to remake themselvesinto better competitors at least once alongthe way. These efforts have gone undermany banners: total quality management,reengineering, rightsizing, restructuring,cultural change, and turnarounds, to namea few. In almost every case, the goal hasbeen to cope with a new, more challeng-ing market by changing the way businessis conducted. A few of these endeavorshave been very successful. A few havebeen utter failures. Most fall somewherein between, with a distinct tilt toward thelower end of the scale.

John P. Kotter is renowned for his workon leading organizational change. In 1995,when this article was first published, hehad just completed a ten-year study ofmore than 100 companies that attemptedsuch a transformation. Here he shares theresults of his observations, outlining theeight largest errors that can doom theseefforts and explaining the general lessonsthat encourage success.

Unsuccessful transitions almost alwaysfounder during at least one of the follow-ing phases: generating a sense of urgency,establishing a powerful guiding coalition,developing a vision, communicating the vision clearly and often, removing obsta-cles, planning for and creating short-termwins, avoiding premature declarations ofvictory, and embedding changes in thecorporate culture.

Realizing that change usually takes a long time, says Kotter, can improve thechances of success. Reprint R0701J; HBR OnPoint 1710;

OnPoint collection “Lead Change –

Successfully, 3rd edition” 1908

104 | When a New Manager Takes ChargeJohn J. Gabarro

When some managers take over a newjob, they hit the ground running. Theylearn the ropes, get along with theirbosses and subordinates, gain credibility,and ultimately master the situation. Oth-ers, however, don’t do so well. What accounts for the difference?

In this article, first published in 1985,Harvard Business School professor JohnJ. Gabarro relates the findings of two sets of field studies he conducted, cover-ing 14 management successions. The firstset was a three-year study of four newlyassigned division presidents; the secondconsisted of ten historical case studies.The project comprised American and European organizations with sales varyingfrom $1.2 million to $3 billion. It includedturnarounds, normal situations, failures,and triumphs.

According to the author, the taking-charge process follows five predictablestages: taking hold, immersion, reshap-ing, consolidation, and refinement. Thesephases are characterized by a series of alternating periods of intense learning (im-mersion and refinement) and action (tak-ing hold, reshaping, and consolidation).The study’s results put to rest the myth ofthe all-purpose general manager who canbe dropped into any situation and emergetriumphant. Understanding a situation andeffecting change do not occur overnight,says Gabarro, and human variables suchas managerial styles and effective workingrelationships make a difference. Reprint R0701K


CHANGE MANAGEMENT SELF-MANAGEMENT LEADERSHIP


Reprints and Subscriptions

Subscriber Online AccessHarvard Business Review subscribers can access the online version of HBR at www.hbr.org. Subscribers visiting thesite for the first time will need to verifysome subscription information such astheir subscriber ID number, which can befound through the “look up” function onthe Web page.

Subscription ServicesSubscribe online: www.hbr.org

Orders, inquiries, and address changesU.S. and Canada Phone: 800-274-3214Fax: 813-354-3467E-mail: [email protected] site: www.hbrcustomerservice.comAddress: Harvard Business ReviewP.O. Box 62270Tampa, FL 33662-2701

Overseas and MexicoPhone: 31-20-4874465Fax: 31-20-4874412E-mail: [email protected] site: www.hbr.org/customerserviceAddress: Harvard Business ReviewP.O. Box 205011001 NM AmsterdamThe Netherlands

Rates per yearU.S., $119; Canada, U.S. $139International, U.S. $165; Mexico, U.S. $139

Payments acceptedVisa, MasterCard, American Express; checks in U.S. dollars payable to HarvardBusiness Review. Bills and other receiptsmay be issued.

Library AccessLibraries offer online access to current andback issues of Harvard Business Reviewthrough EBSCO host databases.

Article Reprints and PermissionsReprint numbers appear at the ends ofarticles and executive summaries. Contactour customer service team to order reprintsor to obtain permission to copy, quote, ortranslate Harvard Business Review articles.Reprints are available in hard copy, aselectronic downloads with permission toprint, and in customized versions.

For information or to orderCustomer Service DepartmentHarvard Business School Publishing Corporation60 Harvard WayBoston, MA 02163Phone: 617-783-7500U.S. and Canada: 800-988-0886(8 AM – 6 PM ET weekdays)Fax: 617-783-7555E-mail: [email protected]

Reprint prices1–9 copies $6.00 each10–49 $5.5050–79 $5.0080–99 $4.50100–499 $4.00(Minimum order, $10. Discounts apply to multiple copies of the same article.)

Harvard Business ReviewOnPoint Articles and CollectionsMany articles are available in enhanced HarvardBusiness Review OnPoint editions, whichinclude a one-page synopsis highlighting keyideas and company examples, the full text ofthe article, and an annotated bibliography.Harvard Business Review OnPoint numbers arelisted at the ends of articles and executivesummaries.

Harvard Business Review OnPoint collectionsinclude three OnPoint articles with a one-pageoverview comparing the articles’ perspectiveson a topic. Collection numbers appear at theends of executive summaries.

Harvard Business Review OnPoint pricesArticles1–9 copies $7.00 each10–49 $6.5050–79 $6.0080–99 $5.50100–499 $5.00(Minimum order, $10. Discounts apply to multiple copies of the same article.)

Collections1–9 copies $16.95 each10–49 $13.5650–99 $11.86100–499 $10.17

Postmaster:Send domestic address changes, orders, and inquiries to: Harvard Business Review, Subscription Service, P.O. Box 62270, Tampa, FL 33662. GST Registration No.124738345. Periodical postage paid at Boston, Massa-chusetts, and additional mailing offices. Printed in theU.S.A. Harvard Business Review (ISSN 0017-8012; USPS0236-520), published monthly (with a combined July–August issue) for professional managers, is an educationprogram of the Harvard Business School, Harvard Univer-sity; Jay O. Light, dean. Published by Harvard BusinessSchool Publishing Corporation, 60 Harvard Way, Boston,MA 02163. Copyright © 2006 Harvard Business School Publishing Corporation. All rights reserved.Volume 85, Number 1

For subscriptions, reprints, and Harvard Business Review OnPointorders, go to www.hbr.org.

Custom and Quantity OrdersFor quantity estimates or quotes on customized reprints and Harvard Business ReviewOnPoint products, call Rich Gravelin at 617-783-7626, fax him at 617-783-7658, or e-mailhim at [email protected].



The FinalTest

leader’s work is never done. Putting out a fire, reaching a summit, slaying a monster only clears the way for the next and greater challenge, be it organiza-tional or personal. As Linda A. Hill writes in “Becoming the Boss,” in this issue, “The process of becoming a leader is an arduous, albeit rewarding, journey of

continuous learning and self-development.”The last – and arguably the most important – leadership test is likely to be the most tax-

ing because it is so different from those that precede it: sharing what you have learnedwith the next generation. Many leaders fail this test. Slaying monsters is a very differentskill from teaching others how to do it. And, as Kenneth W. Freeman writes in “The CEO’sReal Legacy” (HBR November 2004), it takes a well-managed ego to help a successor be-come, in the best case, an even better leader than you are.

This last test actually begins long before you are ready to leave the arena. In “What toAsk the Person in the Mirror,” also in this issue, Robert S. Kaplan recounts the trials of anexecutive who indefinitely delayed several new product initiatives because, he said, his direct reports weren’t capable of assuming some of his duties. The problem, he later real-ized, was in himself: He had failed to coach those who might be able to step up.

Don Moyer can be reached at [email protected].


A

THE TESTS OF A LEADER | PANEL DISCUSSION | by Don Moyer


Harvard Business Review 2007 January · Leading Change: Why Transformation Efforts Fail John P....

Documents

Transcript of Harvard Business Review 2007 January · Leading Change: Why Transformation Efforts Fail John P....