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Enabling The Leader’s Are Your Bridging Leading How to Bold New Work: Subordinates Faultlines at the Lead a Visions Building Setting You In Diverse Enterprise Self-Managing Learning Up To Fail? Times Level Team Organizations WINTER 2008 VOL.49 NO.2

Douglas A. Ready and Jay A. Conger Enabling Bold Visions

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REPRINT NUMBER 49202 LEADERSHIP Enabling Bold Visions

t was a beautiful, sunny day in Miami. Inside a darkened auditorium, however, I3,500 senior executives of one of the world’s largest financial companies, flown in for just this purpose, sat awaiting their new CEO. The scene resembled the beginning of a pro basketball game: Loud rock music set the beat, and laser im- ages peppered the crowd and the stage. As the audience members stomped their feet and swayed with the music, the CEO appeared on stage. His task? To pitch his newly minted enterprise vision to the already energized crowd. His speech, as well choreographed as the buildup, was brief and upbeat. The message was simple: “We will become ‘the breakout firm.’ And to achieve breakout status, we will rely on the three I’s of innovation, integration, and inspiration.” Given the tight schedule of events for this one-day meeting, the CEO took no questions. But the speech had caught the executives’ attention, and the new vision created a buzz of excitement. Months later, the buzz had worn off. Reality had intruded, as it always does. The company, successful for more than a hundred years, had always proceeded conservatively. Its organizational culture was anything but “break- out.” It wasn’t innovative; its businesses, products and customers were not integrated; and its leaders were not known for being inspirational. In short, following their initial enthusiasm, the company’s senior execu- A CEO’s new vision often tives were having a hard time reconciling the new vision with day-to-day realities as they met in planning sessions with the next levels of management blurs into an indistinct and front-line employees. Within the top executive team, there were few role models for the three I’s, and there were no signs of rewards for behaving as image once the initial breakout leaders. blitz is over. To ensure Within a year, the term “breakout” had slipped quietly into the back- ground. Few senior executives could even remember the three I’s. About two that the vision is more years after the speech in Miami, the CEO declared victory and went on to lead than just a daydream, another company. But the confusion sowed by the unrealized vision cost the company both market share and the harder to quantify elements of trust and companies should follow momentum with employees and customers. This gap between inspiration and implementation is a common one. We set a five-phase model that out to find out why, and what CEOs and their top teams could do to translate some organizations have bold visions into operational realities. (See “About the Research,” p. 72.) In this article, we’ll first explain several common reasons behind the derailment of used successfully to avoid Douglas A. Ready is visiting professor of organizational behavior at London Business disaster or complacency. School and president of the International Consortium for Executive Development Re- search, based in Lexington, Massachusetts. Jay A. Conger is the Henry Kravis Douglas A. Ready Research Professor of Leadership Studies at Claremont McKenna College in Claremont, California. Professors Ready and Conger have collaborated on several articles, including and Jay A. Conger “Why Leadership-Development Efforts Fail,” MIT Sloan Management Review, spring 2003. Comment on this article or contact the authors through [email protected].

70 MIT SLOAN MANAGEMENT REVIEW WINTER 2008 SLOANREVIEW.MIT.EDU bold visions. We will then offer a framework that executives can cesses and organizational performance measures often remain use to ensure that their visions become more than just pipe unchanged, even though newly articulated visions require new dreams. Examples of companies that have successfully followed behaviors and mindsets. this path will both illustrate the challenges and provide guidance to those who want to actively address them. Clashing Powers In many cases, an organization’s political dynamics and culture can become a major barrier to the success Why Many Bold Visions Derail of the new vision. Powerful groups are often tied to existing core New visions can fade away for many apparently unique reasons. activities that made the company thrive in the past. If the new However, as a result of a search of the literature on organiza- vision threatens the supremacy of the old guard, political in- tional change and our discussions with executives from 40 fighting may stall it out and defeat the change agents. companies, we were able to categorize the reasons for failure into a set of themes.1 Neglecting the Talent Pipeline According to the managers in our study, the challenge of bringing about a new vision is, in Failing to Focus How many initiatives can any company handle at essence, a change management challenge. What’s needed to make once? In our experience, an organization can be confronted with it work? Layers of change agents, from top to bottom — a critical a dozen or more major initiatives at a time. If the top team mass of people who embody the behaviors and values of the new attempts to wrestle with all of them at once, middle managers call to action. But many companies lack such pipelines of talent, and front-line employees will likely be confused. The bold vision filled with people who are capable of this critical task. will get mired in a haze of other priorities, with various initiative These six problem areas explain why many bold visions fail champions roaming through the company like prophets crying to produce measurable change, far less ignite their companies to in the wilderness. reach new heights. But a model of change can help companies avoid this trap. Sitting Out This Dance It’s awkward dancing without a partner. But that’s essentially what too many leaders of the companies we The Change Model researched tried to do: They started the dance by explaining the While our research uncovered reasons for the failure of bold vision but didn’t engage a partner to make it work. They didn’t visions, it also led us to discern a pattern followed by compa- communicate how others in the company could learn the steps to nies that successfully translated a vision into action. We the new dance. Moreover, employees could walk away from the observed five critical activities, performed in sequence, that dance floor without fear, since there was no short-term price to together form a systems approach to enabling visions. This pay for not engaging to make the new vision an operating reality. approach can be described as a framework for leading large- scale, enterprisewide change initiatives. (See “The Five-Phase Skipping the Skill Building By its nature, a bold vision can’t simply Model for Enabling Visions,” p. 73.) be retrofitted onto a company. (If it could, it would be a tame or gentle new vision.) But many of the companies we examined did Phase I: Framing the Agenda If an organization’s top executives are not invest to develop the new skills their people would need to spending much of their time attending to competing “top priorities,” realize the vision. Some leaders didn’t even want to hear that their they’ll gradually put the CEO’s vision on the back burner, where it organizations lacked the capability to execute it. For example, the will slowly simmer down to nothing. The leaders in our study who CEO of the “breakout” financial services company didn’t want to successfully brought about change framed their organizations’ chal- talk about the need to develop collaborative managers and leaders lenges as compelling stories that created an urgent agenda for action. — an obvious prerequisite for the integration plank of his vision. They used the stories to set priorities among the many challenges facing their organizations, with a laser focus on the need to drive Mismatching Messages and Metrics Much is made of people’s ten- performance and to develop the right organizational climate. They dency to talk the talk without walking the walk — and that often cast the need to drive performance in present and future terms general problem applies in this instance, too. Many executives — as a matter of finding pathways to future growth while maintain- told us that a bold new vision often bumped up against subtle ing the edge that enabled the company to deliver value to customers reinforcements of business as usual. For example, it would in the short term. In addressing the need to create an organizational become clear through the stories floating through the organiza- climate that was consistent with the company’s performance objec- tion that yesterday’s leadership behaviors were still seen to be of tives, these change leaders took into consideration both external paramount importance in spite of the need for changes to fit the (brand, corporate social responsibility) and internal (culture, values, vision. Further, we learned that performance management pro- behaviors) concerns. (See “The Enterprise Agenda,” p. 74.)

SLOANREVIEW.MIT.EDU WINTER 2008 MIT SLOAN MANAGEMENT REVIEW 71 LEADERSHIP

Consider the approach to change taken by the British Broad- casting Corp. Like many established media companies, the BBC About the Research has been under assault by the proliferation of media options, a problem that has intensified with the advent of inexpensive and To gain a better understanding of the challenges compa- easy-to-use digital technology. Customer choice has fragmented, nies face in enabling bold visions, we conducted research and the network’s market share has steadily eroded. Gone are the on approximately 40 global companies. We conducted sur- days when a popular sitcom could attract more than 28 million veys within the companies and then came up with an viewers, as one did in the 1960s. initial research protocol for the dialogue component of the The company needed to change to meet these challenges, but project. We then met with representatives from those com- it had to navigate risks. It had to chart a course that would not panies to engage in discussions — mostly in groups, but destroy its proud heritage or instigate a flight of the talent that sometimes individually — about how to move bold visions had always been the bedrock of its core competence. from the initial phase of inspiration to a sustainable aspect When Mark Thompson was hired as the BBC’s new director of company operations. Our goal: to determine a best- general a few years ago, he inherited an organization deeply en- practice model. Finally, we gathered in-depth detail from trenched in the analog world. Innovators elsewhere in the people in several companies that had successfully turned industry were already moving with dispatch into the digital visions into reality. world. But Thompson didn’t move immediately to bring about big changes. He took some time to make sure he understood the core competencies of the organization and how they matched up have to undergo two major transformations — from domestic to against the future direction of the industry. He got to know the global player and from a narrow focus to a broad one, as a fully cutting-edge elements of the future of the business as well as the integrated financial services institution with new core competen- best way to frame the BBC’s new vision for success. cies in capital markets and investment banking. After a great deal of listening to industry experts, customers Facing possible extinction if it continued on its present path, and employees, Thompson framed the BBC’s new enterprise Deutsche Bank, led by Josef Ackermann, responded with a bold new agenda: Creative Future. His message was simple. In order to vision: the One Bank initiative. Ackermann, chairman of the Deutsche drive performance, the BBC would invest heavily in digital tech- Bank Group’s executive committee, knew that One Bank wouldn’t nology and become leaner and smaller (by becoming better at work if it was just a slogan. “We had to make sure that we were mov- aligning programming with an improved customer segmentation ing from a one-culture bank to a one-bank culture.” And today the capability). And in order to create the climate suitable to achieve bank’s executives are quick to point out that One Bank is only a part these performance objectives, the BBC’s leaders and managers of the story of the company’s impressive transformation. would need to become more agile and collaborative. This fram- In framing the bank’s enterprise agenda, Ackermann launched ing of the agenda was clear: As the competitive landscape shifted, the Business Realignment Program in conjunction with the One the BBC would not sacrifice quality, but it would make tough Bank initiative. This program ensured that the Group’s executives decisions about programming and head count. and managers would know precisely what the company’s priori- Another storied company facing the imperative to change ties were and where the Group was heading over the next decade. recently was Deutsche Bank AG, based in Frankfurt, Germany. The program also placed the capital markets and investment In this case, globalization, not technology, was the primary force banking divisions at the core of the bank’s growth strategy while at work. By the early 1990s, the 150-year-old retail and commer- stressing the importance of integration. Again, driving perfor- cial bank still had its roots firmly planted in Germany. Its top mance and creating climate — within a construct of ruthless executives and managers were virtually all German, and nearly prioritization — were the twin goals. 70% of its core business was conducted in Germany. But a stra- As Ackermann put it, “We must view ourselves as one bank and tegic analysis of the company’s future prospects revealed the one team with one shared goal. We intend to implement the idea of likelihood of trouble in the near future: The bank’s growth po- ‘One Bank-One Team’ as swiftly as possible. Utmost priority will be tential in both retail and commercial banking in Germany given to removing the silo mentality.”2 To reinforce this dual em- amounted to roughly 2% per year. phasis, Ackermann approved new leadership standards and cultural In contrast, growth prospects in other areas were much more values that were directly linked to the One Bank initiative. With robust: 10% per year in capital markets and investment banking, these changes, Ackermann made it clear that performance and cli- 5% in asset and wealth management, and unquantifiably huge mate would go hand in hand at Deutsche Bank. growth prospects in the Asia Pacific region and throughout the Sometimes companies find themselves in dire situations but rest of Europe. But to exploit these opportunities, the bank would still need a leader to spell out, in detail, just how serious the

72 MIT SLOAN MANAGEMENT REVIEW WINTER 2008 SLOANREVIEW.MIT.EDU problems are. This bad-news-first approach can be critical to the started at the top. The director general engaged the BBC’s board framing of a bold vision that will get a company moving away of directors in a series of dialogues that eventually produced a set from the status quo as quickly as possible. In 1999, when Carlos of recommendations for restructuring the BBC along four crite- Ghosn took the helm at Nissan Motor Co. Ltd., he stressed sev- ria: creative, digital, simple and open. The board owned the eral dismal facts. Nissan had just lost its position as Japan’s overarching direction of the restructuring. It left to Thompson second-largest carmaker. Market share had, in fact, been declin- the task of engaging his managers and executives so that the re- ing for two and a half decades. Fewer than one Nissan model in structuring would come to life in day-to-day operations. 10 was profitable. Against this background, Ghosn told the com- Thompson followed through by bringing teams together from pany that the Nissan Revival plan was the company’s “last different BBC groups — Vision, Journalism, Audio & Music and chance.” Employees got the message. Future Media and Technology. The task was to work through the details of how the BBC would transform itself from a collection Phase II: Engaging the Organization Once change leaders have of separate units to a unified organization that relied heavily on framed their agendas, they must do whatever they can to distrib- cross-unit collaboration. Eventually this engagement process also ute “ownership” of that vision as broadly as possible. But this has paved the way for Thompson to restructure the company into to be done the right way. We found that while managers and even three multimedia output groups and to merge the Future Media executives yearn for more leadership in their organizations, they and Technology team with the new Operations team. Collabora- don’t want to be cast simply as followers. Instead, they want a tion moved from being an articulated but unrealized value to an different style of leadership, one characterized by authentic col- ingrained way of working at the BBC. laboration and broad-based engagement. Similarly, Deutsche Bank’s Ackermann launched a variety of This finding gets to the heart of why we emphasize that bold engagement initiatives to enable his vision. For senior-level lead- visions must be enabled rather than merely executed. Visions that ers, he led a series of dialogues called the Spokesman’s Challenge. are truly bold will create tension and anxiety within an organiza- These were open discussions led by Ackermann and his top ex- tion’s business-as-usual stakeholders. Great change leaders ecutive team that focused on listening to the concerns of his understand this, and they don’t make those who have succeeded enterprise leadership team. The outcome? A better understand- under yesterday’s business model enemies of the new vi- sion. They invite differing views and perspectives and listen carefully to those who contribute legitimate argu- The Five-Phase Model for Enabling Visions ments concerning the tensions created by the newly framed enterprise agenda. Carlos Ghosn was particularly keen to solicit new Companies that successfully put new visions of the enterprise into ideas and to get new voices to speak up. At the beginning practice follow a process that takes the organization through five phases. In today’s competitive landscape, this is an iterative pro- of his tenure at Nissan, he created nine cross-functional cess: While companies may be able to stick with a single vision for teams and staffed them with middle managers in their a few years, most will need to return to the process regularly. 30s and 40s from different functions, divisions and coun- tries. Each team had only 10 members. To keep discussions Framing the fluid, a facilitator was assigned to each; to ensure that the Enterprise teams had authority and were not influenced by a single Agenda function, each had two board-level sponsors. Only three guidelines were set out for the teams’ work. They had one goal: to make proposals to reduce costs and Energizing the Engaging develop the business. They had one rule: no sacred cows, Organization Multiple Layers of Through the Power the Organization no constraints. And they had one deadline: three months of People for final recommendations. In the end, the cross-func- tional teams were a powerful vehicle for returning Nissan to profitability. Critically, Ghosn had not simply issued orders from the top about how to realize the new vision. Connecting the Building Instead, he had engaged the company’s managers to find Dots by Creating Mission-Critical Capabilities their own routes to success. Alignment Mark Thompson’s strategy to engage the BBC’s stake- holder communities with his Creative Future vision

SLOANREVIEW.MIT.EDU WINTER 2008 MIT SLOAN MANAGEMENT REVIEW 73 LEADERSHIP ing of the tensions that might get in the way of making the One adopted by the organization. Just as important to the success of Bank initiative come to life. One Mattel: the engagement of the company’s line managers. Ackermann also created the One Bank Task Force, a group focused on engaging successive layers of management so that Phase III: Building Mission-Critical Capabilities While engagement they would also own the vision and become part of the solution. with the new vision is critical, it’s not enough. The development In addition, he skillfully used Deutsche Bank’s Learning and of new capabilities is also necessary, as companies usually have Leadership Development Operation to initiate programs that gaps in what they want to do and what they can do. were directly linked to implementing the One Bank vision. The process of building mission-critical capabilities is no While Deutsche Bank and the BBC faced compelling reasons to small challenge, however. We identified two significant problems change, their situations were not as dire as that of Mattel Inc. in in the course of our research. First, there are the practical con- 2000. In May of that year, Bob Eckert became CEO of an organiza- cerns: How do you go about identifying which capabilities will tion that was in deep trouble. The company had fired its previous provide differentiated competitive advantage? Second, there are CEO over the disastrous acquisition of an electronic games com- political concerns: How do you identify and address capability pany. Morale was low and finger-pointing was high. Eckert set out gaps without turning the process into an enterprisewide blame to engage the organization with a vision of greater collaboration game? Either or both of these concerns can become cancerous if — a vision that would eventually be called One Mattel. In that matched with a CEO with a short attention span who “just wants spirit, a team of line managers approached Eckert and asked if to get on with it.” This underscores the importance of following they could craft a set of new values for the company conveying the phases sequentially. After all, it is difficult for a CEO to have collaboration. The team came back with four values that all built a serious conversation about building new capabilities without on the word “play” — Play Fair, Play Together, Play with Passion first framing the enterprise agenda and engaging the organiza- and Play to Grow. Since these values accurately captured the aspi- tion in an active dialogue. rations of many employees, they were quickly and enthusiastically Without proper leadership, the BBC’s Creative Future initia- tive could have foundered during this phase. In order to realize the full benefits of Thompson’s bold vision, the BBC required The Enterprise Agenda new skills and capabilities and cross-unit collaboration. But the organization was constructed of durable silos with a “craftsman- An enterprise agenda must take into account, on one axis, ship culture” in each silo that guided career development decisions both present and future performance — both the compa- of its managers and employees. ny’s future growth strategy and its current customer value Addressing these challenges was not the work of a moment proposition. This reflects the company’s focus on “doing.” — or of a single program. Thompson attacked the problems in a On the other axis, the agenda must reflect an organiza- variety of ways. He brought the BBC’s technologists together tion’s state of “being” — the way employees and other from across the organization to create what he referred to as a insiders are affected by the climate of change, as well as “powerhouse resource.” He brought in or developed the expertise the way customers and other external stakeholders per- required to launch new multiplatform initiatives — that is, initia- ceive the company’s new vision. tives that transcended a single medium or product. He oversaw the introduction of Stepping Stones, a program to create a better un- derstanding of different parts of the Vision Studios and to enable Growth Strategy BBC producers to work more flexibly. He launched Hot Shoes, a developmental program that encouraged hundreds of staff to try out their expertise in other disciplines throughout the BBC, allow-

Driving ing them to see what new skills they might need to span Performance boundaries or develop capabilities for new growth areas in the in- External Internal “Doing” dustry. Finally, he initiated the Journalism College Web site, enabling more than 8,500 journalists to sharpen their skills in edi- torial policy and in emerging fields of the craft. The sum of these

Value Proposition programs was a newly skilled base of employees who could work across platforms and had a deep understanding of digital media. Despite the differences in industry, Deutsche Bank’s capabil- Creating Climate ity-building challenges were strikingly similar to those of the “Being” BBC. Its organizational structure was also formed by silos, and

74 MIT SLOAN MANAGEMENT REVIEW WINTER 2008 SLOANREVIEW.MIT.EDU its future depended upon how well Ackermann could break The agreement set the stage for a them down. robust collaboration between the But in Deutsche Bank’s case, more than just skill building was two divisions. The two business needed. The bank also had to cut costs deeply in order to become heads figured out how to work more operationally efficient. Ackermann shed some of the bank’s together to satisfy clients’ needs, portfolio of businesses and acquired and reorganized new busi- as well as how to share revenues nesses that would serve as growth platforms. He targeted markets and profits from those clients. in other parts of Europe, the Americas and particularly Asia. He This wasn’t the only example made English the official language of Deutsche Bank and care- Most leadership of parts of the bank learning to fully moved executives and managers across business and collaborate. Other approaches to geographic boundaries to build a global mind-set and a collab- studies focus aligning the company’s systems, orative culture. And he used the leadership and learning programs processes and mind-sets with the not only as phase II engagement mechanisms but also as critical on individuals. One Bank vision include: capability-building tools for his managers. ■ executive development activi- But all too ties undertaken as a team, with Phase IV: Connecting the Dots By Creating Alignment Bold visions often, the leaders from different divisions rarely succumb to frontal attacks. The companies that collabo- taking part; rated with us in our study mentioned repeatedly that bold visions problem is not ■ the establishment of a unit-by- get derailed by more subtle means: by mind-sets, systems and unit performance measurement processes that are out of sync or, ironically, by the unintentional that leaders process that tracked business gen- messages sent out by the very executives who are trying to enable are failing their erated by boundary spanning; the visions to take root. ■ changes to the executive succes- For example, one of us was engaged by one of Korea’s leading companies, but sion process that took into “chaebols” (conglomerates) to facilitate a leadership initiative. consideration the extent to which The goal was to build a global mind-set among the group’s senior rather that a emerging leaders exhibited cross- executive team. In the audience were 55 Korean business-unit company’s talent boundary behaviors; presidents, all men. The discussion was proceeding well until the ■ and the institution of the One topic of reconstructing the top team came up. The suggestion was policies are Bank award, a formal recognition made to establish a guideline metric that would call for one or by the Group Executive Commit- two of the group’s presidents to be either female or non-Korean. failing its leaders. tee of exceptional behavior in The suggestion was greeted with amused disbelief. But that service of the new vision. response illuminates a broad problem that afflicts people in any The alignment of vision and country: Companies and their employees are hard-wired to resist process can also be reinforced by changing organizational struc- change. We have observed similar roadblocks when companies ture and its support mechanisms. For example, following the attempt to align processes — such as those for performance man- restructuring of the BBC’s departments, Mark Thompson cre- agement and rewards — with new visions. ated a new Operations Group. The group was set up to bring For example, many companies today are trying to break down leadership, direction and consistency to the BBC’s big infra- silos to deliver integrated solutions to their customers. They are structure projects, a critical element of the Creative Future trying to enact “one company” visions. And yet they frequently vision. Thompson also linked cost-cutting measures in func- continue to measure and reward their managers solely on their tional departments to the enablement of the vision, since cost ability to meet unit objectives. Such outdated processes do noth- savings could be funneled directly into new investments. Thus, ing to encourage cross-unit collaboration in the service of members of the finance department could see how their efforts enhanced customer-value propositions. to develop new accounting and finance systems were contribut- What can be done to align processes with a new vision? When ing $100 million toward the Creative Future initiative. By such Josef Ackermann first launched Deutsche Bank’s One Bank ini- simple yet creative means are the hearts and minds of large or- tiative, there was a good deal of discussion but little actual ganizations won. business transacted as a result of cross-unit collaboration. That began to change when two of the bank’s executives, Anshu Jain, Phase V: Energizing the Organization Through the Power of People No head of Global Markets, and Pierre de Weck, head of Private vision of the enterprise can come to life without the enthusiastic Wealth Management, signed a Global Partnership Agreement. support and follow-through of literally thousands of managers

SLOANREVIEW.MIT.EDU WINTER 2008 MIT SLOAN MANAGEMENT REVIEW 75 LEADERSHIP and employees. Individuals in every business, function and re- building support for enterprisewide initiatives that build on this gion play a critical role in enabling a bold vision to move from common ground. inspiration to implementation. But do companies have the talent they need to see a vision Continuous Revision through to completion? The respondents in our study expressed Just a few decades ago, organizations could stay the course with a deep concern about this issue. Specifically, they worried that their strategy for a period of years. The idea that a new vision would leaders were placing too little emphasis on identifying and nur- be needed, perhaps with some frequency, would have been treated turing the talent pools that would be needed. The problem was with mild amusement, if not outright derision. But competitive not a lack of talent management and succession systems — 97% realities have forced executives to rethink what their companies of those participating in the research indicated that their compa- are doing, and how they are doing it, over and over again. Auto nies had such systems in place. However, an almost equally large manufacturers like Nissan see profitability and market share percentage indicated that their companies lacked a free and flow- evaporating. Media companies like the BBC face the hostile ing pipeline of talent sufficient to execute their organizations’ world of disruptive technology. Financial institutions like competitive strategies. Pressed further, the respondents indicated Deutsche Bank discover that a one-country focus is a path to that most companies’ talent management systems were not in extinction. In such conditions, bold visions are called for — and sync with their future capability requirements. will be called for again, probably sooner than any executive This finding leads us to conclude that leadership failures are would like. not so much a matter of struggling individuals, the focus of most Let’s stipulate: A bold vision that fundamentally misreads the leadership studies. Instead, such failures stem from executive in- competitive landscape has no chance of success, regardless of the attention to the connections between talent requirements and process used to make it reality. The vision has to be on target, so- competitive capability requirements. All too often, the problem is phisticated, inspiring and far-seeing. Once those difficult criteria not that leaders are failing their companies, but rather that a have been met, however, a process is needed to take the vision from company’s talent policies are failing its leaders. its birth — as words thundered from a podium by the CEO as rock Great change leaders are deeply committed to, engaged in and star, for example — to a new way of doing business. By following accountable for building robust talent processes. They do not the model outlined here, executives can sustain the momentum, delegate this job to the human resources department. The BBC’s and see through the changes, of enabling bold new visions. Mark Thompson brought in a new head of BBC People, as it is called, with the express purpose and mandate to create a human REFERENCES capital strategy that is directly linked to the corporation’s Creative 1. See, for example, J.P. Kotter, “Leading Change: Why Transformation Future vision. All division heads engaged in and signed off on the Efforts Fail,” Harvard Business Review (March-April 1995): 59-67; L. strategy and committed to implement it with the same rigor they Bossidy, R. Charan and C. Burck, “Execution: The Discipline of Getting would apply to their marketing or operations strategies. Things Done” (New York: Crown Business, 2002); D.A. Ready, “Leading at the Enterprise Level,” MIT Sloan Management Review 45, no. 3 Deutsche Bank’s Ackermann demanded that the company’s (spring 2004): 87-91; D.A. Ready, “How Storytelling Builds Next-Gener- entire leadership curriculum be re-engineered in accordance ation Leaders,” MIT Sloan Management Review 43, no. 4 (summer with the Business Realignment Program and the One Bank vi- 2002): 63-69; J.C. Collins and J.I. Porras, “Building Your Company’s Vi- sion,” Harvard Business Review (September 1996): 65-77; M.A. sion. The bank’s programs now are focused directly on global Roberto and L.C. Levesque, “The Art of Making Change Initiatives leadership, managing networks and organizational complexity Stick,” MIT Sloan Management Review 46, no. 4 (summer 2005): 53-60; and leading across business and geographic boundaries — all C.K. Prahalad and G. Hamel, “The Core Competence of the Corpora- tion,” Harvard Business Review 68, no. 3 (May-June 1990): 79-91; M. essential ingredients in making the One Bank vision a sustain- Beer and N. Nohria, “Cracking the Code of Change,” Harvard Business able success. Review (May-June 2000): 133-141; D.A. Ready and J. Conger, “Make Even companies that do not face immediate threats need to Your Company a Talent Factory,” Harvard Business Review (June 2007): 68-77; E.G. Chambers, M. Foulon, H. Handfield-Jones, S.M. consider how to keep their people energized. Starbucks Corp., for Hankin and E.G. Michaels III, “The War for Talent,” McKinsey Quarterly example, has yet to face major barriers to its growth. In 2006, 3 (August 1998): 44-57; D.C. Hambrick, “The Top Management Team: however, the company launched the Grow and Stay Small initia- Key to Strategic Success,” California Management Review 30, no. 1 (fall 1987): 88-108; and G. Probst and K. Marmenout, “Deutsche Bank: Be- tive. Its focus has been to determine how Starbucks ensures that coming a Global Leader With European Tradition,” European Case its partners (employees) and customers have the same positive Clearing House no. 306-529-1 (Geneva: University of Geneva, 2007). experiences that they had when the company was much smaller 2. Probst, “Deutsche Bank.” as well as identify the forces affecting the culture. Through the engagement of partners and customers, the company is identify- Reprint 49202. ing the common ground needed to “stay small” culturally while Copyright © Massachusetts Institute of Technology, 2008. All rights reserved.

76 MIT SLOAN MANAGEMENT REVIEW WINTER 2008 SLOANREVIEW.MIT.EDU MIT Massachusetts Institute of Technology Fall 1990 Volume 32 Number 1

Peter M. Senge The Leader’s New Work: Building Learning Organizations

Reprint 3211 The Leader’s New Work: Building Learning Organizations

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OVER THE PAST two years, business academics and senior managers have begun talking about Sloan the notion of the learning organization. Ray Stata of Analog Devices put the idea succinctly in these pages last spring: “The rate at which organizations learn may become the only substan- Management tial source of competitive advantage.” And in late May of this year, at an MIT-sponsored con- Review ference entitled “Transforming Organizations,” two questions arose again and again: How can we build organizations in which continuous learning occurs? and, What kind of person can best lead 7 the learning organization? This article, based on Senge’s recently published book, The Fifth Fall 1990 Discipline: The Art and Practice of the Learning Organization, begins to chart this new territory, de- scribing new roles, skills, and tools for leaders who wish to develop learning organizations.

UMAN BEINGS are designed for learning. Ironically, by focusing on performing for No one has to teach an infant to walk, someone else’s approval, corporations create the Hor talk, or master the spatial relation- very conditions that predestine them to mediocre ships needed to stack eight building blocks that performance. Over the long run, superior perfor- don’t topple. Children come fully equipped with mance depends on superior learning. A Shell an insatiable drive to explore and experiment. study showed that, according to former planning Unfortunately, the primary institutions of our director Arie de Geus, “a full one-third of the society are oriented predominantly toward con- Fortune ‘500’ industrials listed in 1970 had van- trolling rather than learning, rewarding individu- ished by 1983.”2 Today, the average lifetime of als for performing for others rather than for cul- the largest industrial enterprises is probably less tivating their natural curiosity and impulse to than half the average lifetime of a person in an learn. The young child entering school discovers industrial society. On the other hand, de Geus quickly that the name of the game is getting the and his colleagues at Shell also found a small right answer and avoiding mistakes — a man- number of companies that survived for seventy- date no less compelling to the aspiring manager. five years or longer. Interestingly, the key to their “Our prevailing system of management has survival was the ability to run “experiments in destroyed our people,” writes W. Edwards the margin,” to continually explore new business Deming, leader in the quality movement. 1 and organizational opportunities that create po- “People are born with intrinsic motivation, self- tential new sources of growth. esteem, dignity, curiosity to learn, joy in learn- If anything, the need for understanding how ing. The forces of destruction begin with tod- organizations learn and accelerating that learn- dlers — a prize for the best Halloween costume, ing is greater today than ever before. The old grades in school, gold stars, and on up through days when a Henry Ford, Alfred Sloan, or Tom the university. On the job, people, teams, divi- Watson learned for the organization are gone. In sions are ranked — reward for the one at the top, an increasingly dynamic, interdependent, and punishment at the bottom. MBO quotas, incen- unpredictable world, it is simply no longer pos- tive pay, business plans, put together separately, sible for anyone to “figure it all out at the top.” division by division, cause further loss, unknown The old model, “the top thinks and the local and unknowable.” acts,” must now give way to integrating thinking Peter M. Senge is Director of the Systems Thinking and Organiza- and acting at all levels. While the challenge is tional Learning program at the MIT Sloan School of Management. great, so is the potential payoff. “The person who figures out how to harness the collective ge- requires new ways of looking at the world, nius of the people in his or her organization,” ac- whether in understanding customers or in un- cording to former Citibank CEO Walter Wriston, derstanding how to better manage a business. “is going to blow the competition away.” For years, U.S. manufacturers sought competi- tive advantage in aggressive controls on invento- ries, incentives against overproduction, and rigid adherence to production forecasts. Despite these Adaptive Learning and incentives, their performance was eventually Generative Learning eclipsed by Japanese firms who saw the chal- lenges of manufacturing differently. They real- The prevailing view of learning organizations ized that eliminating delays in the production emphasizes increased adaptability. Given the ac- process was the key to reducing instability and celerating pace of change, or so the standard Learning improving cost, productivity, and service. They view goes, “the most successful corporation of worked to build networks of relationships with Organizations the 1990s,” according to Fortune magazine, trusted suppliers and to redesign physical pro- “will be something called a learning organiza- duction processes so as to reduce delays in mate- 3 tion, a consummately adaptive enterprise.” As rials procurement, production set up, and in- 8 the Shell study shows, examples of traditional process inventory — a much higher-leverage Senge authoritarian bureaucracies that responded too approach to improving both cost and customer slowly to survive in changing business environ- loyalty. ments are legion. As Boston Consulting Group’s George Stalk But increasing adaptiveness is only the first has observed, the Japanese saw the significance stage in moving toward learning organizations. of delays because they saw the process of order The impulse to learn in children goes deeper entry, production scheduling, materials pro- than desires to respond and adapt more effective- curement, production, and distribution as an ly to environmental change. The impulse to integrated system. “What distorts the system so learn, at its heart, is an impulse to be generative, badly is time,” observed Stalk — the multiple to expand our capability. This is why leading delays between events and responses. “These corporations are focusing on generative learning, distortions reverberate throughout the system, which is about creating, as well as adaptive learn- producing disruptions, waste, and 4 ing, which is about coping. inefficiency.”6 Generative learning requires see- The total quality movement in Japan illus- ing the systems that control events. When we trates the evolution from adaptive to generative fail to grasp the systemic source of problems, learning. With its emphasis on continuous ex- we are left to “push on” symptoms rather than penmentation and feedback, the total quality eliminate underlying causes. The best we can movement has been the first wave in building ever do is adaptive learning. learning organizations. But Japanese firms’ view of serving the customer has evolved. In the early years of total quality, the focus was on “fitness to standard,” making a product reliably so that it The Leader’s New Work would do what its designers intended it to do and what the firm told its customers it would “I talk with people all over the country about do. Then came a focus on “fitness to need,” un- learning organizations, and the response is al- derstanding better what the customer wanted ways very positive,” says William O’Brien, CEO and then providing products that reliably met of the Hanover Insurance companies. “If this those needs. Today, leading edge firms seek to type of organization is so widely preferred, why understand and meet the “latent need” of the don’t people create such organizations? I think customer—what customers might truly value the answer is leadership. People have no real comprehension of the type of commitment it re- but have never experienced or would never think 7 to ask for. As one Detroit executive commented quires to build such an organization.” recently, “You could never produce the Mazda Our traditional view of leaders — as special Miata solely from market research. It required a people who set the direction, make the key de- leap of imagination to see what the customer cisions, and energize the troops — is deeply might want.”5 rooted in an individualistic and nonsystemic Generative learning, unlike adaptive learning, worldview. Especially in the West, leaders are heroes — great men (and occasionally women) who rise to the fore in times of crisis. So long as ways: by raising current reality toward the vision, such myths prevail, they reinforce a focus on or by lowering the vision toward current reality. short-term events and charismatic heroes rather Individuals, groups, and organizations who learn than on systemic forces and collective learning. how to work with creative tension learn how to Leadership in learning organizations centers use the energy it generates to move reality more on subtler and ultimately more important work. reliably toward their visions. In a learning organization, leaders’ roles differ The principle of creative tension has long dramatically from that of the charismatic deci- been recognized by leaders. Martin Luther sion maker. Leaders are designers, teachers, and King, Jr., once said, “Just as Socrates felt that stewards. These roles require new skills: the abili- it was necessary to create a tension in the ty to build shared vision, to bring to the surface mind, so that individuals could rise from the and challenge prevailing mental models, and to bondage of myths and half truths . . . so must Sloan foster more systemic patterns of thinking. In we . . . create the kind of tension in society Management short, leaders in learning organizations are re- that will help men rise from the dark depths Review sponsible for building organizations where people of prejudice and racism.”9 are continually expanding their capabilities to Without vision there is no creative tension. shape their future — that is, leaders are responsi- Creative tension cannot be generated from cur- 9 ble for learning. rent reality alone. All the analysis in the world will never generate a vision. Many who are oth- Fall 1990 erwise qualified to lead fail to do so because they try to substitute analysis for vision. They believe Creative Tension: The that, if only people understood current reality, Integrating Principle they would surely feel the motivation to change. They are then disappointed to discover that peo- Leadership in a learning organization starts with ple “resist” the personal and organizational 8 the principle of creative tension. Creative tension changes that must be made to alter reality. What comes from seeing clearly where we want to be, they never grasp is that the natural energy for our “vision,” and telling the truth about where we changing reality comes from holding a picture of are, our “current reality.” The gap between the what might be that is more important to people two generates a natural tension (see Figure 1). than what is. Creative tension can be resolved in two basic But creative tension cannot be generated from vision alone; it demands an accurate picture of current reality as well. Just as King had a dream, so too did he continually strive to “dramatize the shameful conditions” of racism and prejudice so that they could no longer be ignored. Vision without an understanding of current reality will more likely foster cynicism than creativity. The principle of creative tension teaches that an accu- rate picture of current reality is just as important as a compelling picture of a desired future. Leading through creative tension is different than solving problems. In problem solving, the energy for change comes from attempting to get away from an aspect of current reality that is undesirable. With creative tension, the ener- gy for change comes from the vision, from what we want to create, juxtaposed with cur- rent reality. While the distinction may seem small, the consequences are not. Many people and organizations find themselves motivated to change only when their problems are bad enough to cause them to change. This works for a while, but the change process runs out of steam as soon as the problems driving the change become less pressing. With problem benefits far in the future. Those who aspire to solving, the motivation for change is extrinsic. lead out of a desire to control, or gain fame, or With creative tension, the motivation is intrin- simply to be at the center of the action, will find sic. This distinction mirrors the distinction be- little to attract them to the quiet design work of tween adaptive and generative learning. leadership. But what, specifically, is involved in organiza- tional design? “Organization design is widely mis- construed as moving around boxes and lines,” says New Roles Hanover’s O’Brien. “The first task of organization The traditional authoritarian image of the leader design concerns designing the governing ideas of as “the boss calling the shots” has been recognized purpose, vision, and core values by which people as oversimplified and inadequate for some time. will live.” Few acts of leadership have a more en- Learning According to Edgar Schein, “Leadership is inter- during impact on an organization than building a foundation of purpose and core values. Organizations twined with culture formation” Building an orga- nization’s culture and shaping its evolution is the In 1982, Johnson & Johnson found itself fac- “unique and essential function” of leadership.10 In ing a corporate nightmare when bottles of its best- a learning organization, the critical roles of lead- selling Tylenol were tampered with, resulting in 10 several deaths. The corporation’s immediate re- Senge ership — designer, teacher, and steward — have antecedents in the ways leaders have contributed sponse was to pull all Tylenol off the shelves of re- to building organizations in the past. But each tail outlets. Thirty-one million capsules were de- role takes on new meaning in the learning orga- stroyed, even though they were tested and found nization and, as will be seen in the following sec- safe. Although the immediate cost was significant, tions, demands new skills and tools. no other action was possible given the firm’s credo. Authored almost forty years earlier by presi- dent Robert Wood Johnson, Johnson & Johnson’s credo states that permanent success is possible Leader as Designer only when modern industry realizes that: • service to its customers comes first; Imagine that your organization is an ocean liner • service to its employees and management and that you are “the leader.” What is your role? comes second; I have asked this question of groups of man- • service to the community comes third; and agers many times. The most common answer, • service to its stockholders, last. not surprisingly, is “the captain.” Others say, Such statements might seem like motherhood “The navigator, setting the direction.” Still oth- and apple pie to those who have not seen the ers say, “The helmsman, actually controlling the way a clear sense of purpose and values can affect direction,” or, “The engineer down there stoking key business decisions. Johnson & Johnson’s cri- the fire, providing energy,” or, “The social direc- sis management in this case was based on that tor, making sure everybody’s enrolled, involved, credo. It was simple, it was right, and it worked. and communicating.” While these are legitimate If governing ideas constitute the first design leadership roles, there is another which, in many task of leadership, the second design task in- ways, eclipses them all in importance. Yet rarely volves the policies, strategies, and structures does anyone mention it. that translate guiding ideas into business deci- The neglected leadership role is the designer of sions. Leadership theorist Philip Selznick calls the ship. No one has a more sweeping influence policy and structure the “institutional embodi- than the designer. What good does it do for the ment of purpose.”11 “Policy making (the rules captain to say, “Turn starboard 30 degrees,” that guide decisions) ought to be separated when the designer has built a rudder that will from decision making,” says Jay Forrester.12 only turn to port, or which takes six hours to “Otherwise, short-term pressures will usurp turn to starboard? It’s fruitless to be the leader in time from policy creation.” an organization that is poorly designed. Traditionally, writers like Selznick and The functions of design, or what some have Forrester have tended to see policy making and called “social architecture,” are rarely visible; they implementation as the work of a small number take place behind the scenes. The consequences of senior managers. But that view is changing. that appear today are the result of work done Both the dynamic business environment and the long in the past, and work today will show its mandate of the learning organization to engage people at all levels now make it clear that this The initial tool used was “scenario analysis,” second design task is more subtle. Henry through which planners encouraged operating Mintzberg has argued that strategy is less a ratio- managers to think through how they would nal plan arrived at in the abstract and imple- manage in the future under different possible mented throughout the organization than an scenarios. It mattered not that the managers be- “emergent phenomenon.” Successful organiza- lieved the planners’ scenarios absolutely, only tions “craft strategy” according to Mintzberg, as that they became engaged in ferreting out the they continually learn about shifting business implications. In this way, Shell’s planners condi- conditions and balance what is desired and what tioned managers to be mentally prepared for a is possible.13 The key is not getting the right shift from low prices to high prices and from sta- strategy but fostering strategic thinking. “The bility to instability. The results were significant. choice of individual action is only part of . . . the When OPEC became a reality, Shell quickly re- Sloan policymaker’s need,” according to Mason and sponded by increasing local operating company Management 14 Mitroff. “More important is the need to control (to enhance maneuverability in the new Review achieve insight into the nature of the complexity political environment), building buffer stocks, and to formulate concepts and world views for and accelerating development of non-OPEC coping with it.” sources — actions that its competitors took 11 Behind appropriate policies, strategies, and much more slowly or not at all. structures are effective learning processes; their Somewhat inadvertently, Shell planners had Fall 1990 creation is the third key design responsibility in discovered the leverage of designing institution- learning organizations. This does not absolve se- al learning processes, whereby, in the words of nior managers of their strategic responsibilities. former planning director de Geus, Actually, it deepens and extends those responsi- “Management teams change their shared men- bilities. Now, they are not only responsible for tal models of their company, their markets, and ensuring that an organization have well-devel- their competitors.”16 Since then, “planning as oped strategies and policies, but also for ensuring learning” has become a byword at Shell, and that processes exist whereby these are continually Group Planning has continually sought out improved. new learning tools that can be integrated into In the early 1970s, Shell was the weakest of the planning process. Some of these are de- the big seven oil companies. Today, Shell and scribed below. Exxon are arguably the strongest, both in size and financial health. Shell’s ascendance began with frustration. Around 1971, members of Shell’s “Group Planning” in London began to Leader as Teacher foresee dramatic change and unpredictability in “The first responsibility of a leader,” writes re- world oil markets. However, it proved impossi- tired Herman Miller CEO Max de Pree, “is to ble to persuade managers that the stable world of define reality.”17 Much of the leverage leaders can steady growth in oil demand and supply they actually exert lies in helping people achieve more had known for twenty years was about to accurate, more insightful, and more empowering change. Despite brilliant analysis and artful pre- views of reality. sentation, Shell’s planners realized, in the words Leader as teacher does not mean leader as au- of Pierre Wack, that they “had failed to change thoritarian expert whose job it is to teach peo- 15 behavior in much of the Shell organization.” ple the “correct” view of reality. Rather, it is Progress would probably have ended there, had about helping everyone in the organization, the frustration not given way to a radically new oneself included, to gain more insightful views view of corporate planning. of current reality. This is in line with a popular As they pondered this failure, the planners’ emerging view of leaders as coaches, guides, or view of their basic task shifted: “We no longer facilitators.18 In learning organizations, this saw our task as producing a documented view of teaching role is developed further by virtue of the future business environment five or ten years explicit attention to people’s mental models and ahead. Our real target was the microcosm (the by the influence of the systems perspective. ‘mental model’) of our decision makers.” Only The role of leader as teacher starts with bring- when the planners reconceptualized their basic ing to the surface people’s mental models of im- task as fostering learning rather than devising portant issues. No one carries an organization, a plans did their insights begin to have an impact. market, or a state of technology in his or her head. What we carry in our heads are assump- but they do occur. “Trend analysis” is an exam- tions. These mental pictures of how the world ple of seeing patterns of behavior. A good edito- works have a significant influence on how we rial that interprets a set of current events in the perceive problems and opportunities, identify context of long-term historical changes is anoth- courses of action, and make choices. er example. Systemic, structural explanations go One reason that mental models are so deeply even further by addressing the question, “What entrenched is that they are largely tacit. Ian causes the patterns of behavior?” Mitroff, in his study of General Motors, argues In some sense, all three levels of explanation that an assumption that prevailed for years was are equally true. But their usefulness is quite dif- that, in the United States, “Cars are status sym- ferent. Event explanations — who did what to bols. Styling is therefore more important than whom — doom their holders to a reactive stance quality.”19 The Detroit automakers didn’t say, “We toward change. Pattern-of-behavior explanations Learning have a mental model that all people care about is focus on identifying long-term trends and assess- styling.” Few actual managers would even say ing their implications. They at least suggest how, Organizations publicly that all people care about is styling. So over time, we can respond to shifting conditions. long as the view remained unexpressed, there was Structural explanations are the most powerful. little possibility of challenging its validity or form- Only they address the underlying causes of be- 12 ing more accurate assumptions. havior at a level such that patterns of behavior Senge But working with mental models goes beyond can be changed. revealing hidden assumptions. “Reality,” as per- By and large, leaders of our current institu- ceived by most people in most organizations, tions focus their attention on events and patterns means pressures that must be borne, crises that of behavior, and, under their influence, their or- must be reacted to, and limitations that must be ganizations do likewise. That is why contempo- accepted. Leaders as teachers help people restruc- rary organizations are predominantly reactive, or ture their views of reality to see beyond the super- at best responsive — rarely generative. On the ficial conditions and events into the underlying other hand, leaders in learning organizations pay causes of problems — and therefore to see new attention to all three levels, but focus especially possibilities for shaping the future. on systemic structure; largely by example, they Specifically, leaders can influence people to teach people throughout the organization to do view reality at three distinct levels: events, pat- likewise. terns of behavior, and systemic structure.

Systemic Structure (Generative) Leader as Steward This is the subtlest role of leadership. Unlike the Patterns of Behavior roles of designer and teacher, it is almost solely a (Responsive) matter of attitude. It is an attitude critical to learning organizations. While stewardship has long been recognized as Events an aspect of leadership, its source is still not wide- (Reactive) ly understood. I believe Robert Greenleaf came closest to explaining real stewardship, in his semi- The key question becomes where do leaders pre- nal book Servant Leadership.20 There, Greenleaf dominantly focus their own and their organization’s argues that “The servant leader is servant first. . . . attention? It begins with the natural feeling that one wants Contemporary society focuses predominantly to serve, to serve first. This conscious choice on events. The media reinforces this perspective, brings one to aspire to lead. That person is with almost exclusive attention to short-term, sharply different from one who is leader first, per- dramatic events. This focus leads naturally to ex- haps because of the need to assuage an unusual plaining what happens in terms of those events: power drive or to acquire material possessions.” “The Dow Jones average went up sixteen points Leaders’ sense of stewardship operates on two because high fourth-quarter profits were an- levels: stewardship for the people they lead and nounced yesterday.” stewardship for the larger purpose or mission that Pattern-of-behavior explanations are rarer, in underlies the enterprise. The first type arises from contemporary culture, than event explanations, a keen appreciation of the impact one’s leadership can have on others. People can suffer economi- hologram, the three-dimensional image created cally, emotionally, and spiritually under inept by interacting light sources. leadership. If anything, people in a learning or- If you cut a photograph in half, each half ganization are more vulnerable because of their shows only part of the whole image. But if you commitment and sense of shared ownership. divide a hologram, each part, no matter how Appreciating this naturally instills a sense of re- small, shows the whole image intact. Likewise, sponsibility in leaders. The second type of stew- when a group of people come to share a vision ardship arises from a leader’s sense of personal for an organization, each person sees an individ- purpose and commitment to the organization’s ual picture of the organization at its best. Each larger mission. People’s natural impulse to learn shares responsibility for the whole, not just for is unleashed when they are engaged in an en- one piece. But the component pieces of the deavor they consider worthy of their fullest com- hologram are not identical. Each represents the Sloan mitment. Or, as Lawrence Miller puts it, whole image from a different point of view. It’s Management “Achieving return on equity does not, as a goal, something like poking holes in a window shade; Review mobilize the most noble forces of our soul.”21 each hole offers a unique angle for viewing the Leaders engaged in building learning organiza- whole image. So, too, is each individual’s vision tions naturally feel part of a larger purpose that goes unique. 13 beyond their organization. They are part of changing When you add up the pieces of a hologram, the way businesses operate, not from a vague philan- something interesting happens. The image be- Fall 1990 thropic urge, but from a conviction that their efforts comes more intense, more lifelike. When more will produce more productive organizations, capable people come to share a vision, the vision be- of achieving higher levels of organizational success comes more real in the sense of a mental reality and personal satisfaction than more traditional orga- that people can truly imagine achieving. They nizations. Their sense of stewardship was succinctly now have partners, co-creators; the vision no captured by George Bernard Shaw when he said, longer rests on their shoulders alone. Early on, when they are nurturing an individual vision, This is the true joy in life, the being used for a people may say it is “my vision.” But, as the purpose you consider a mighty one, the being shared vision develops, it becomes both “my vi- a force of nature rather than a feverish, selfish sion” and “our vision.” clod of ailments and grievances complaining The skills involved in building shared vision that the world will not devote itself to making include the following: you happy. • Encouraging Personal Vision. Shared vi- sions emerge from personal visions. It is not that people only care about their own self-interest — New Skills in fact, people’s values usually include dimen- sions that concern family, organization, commu- New leadership roles require new leadership nity, and even the world. Rather, it is that skills. These skills can only be developed, in my people’s capacity for caring is personal. judgment, through a lifelong commitment. It is • Communicating and Asking for Support. not enough for one or two individuals to devel- Leaders must be willing to continually share op these skills. They must be distributed widely their own vision, rather than being the official throughout the organization. This is one reason representative of the corporate vision. They also that understanding the disciplines of a learning must be prepared to ask, “Is this vision worthy of organization is so important. These disciplines your commitment?” This can be difficult for a embody the principles and practices that can person used to setting goals and presuming com- widely foster leadership development. pliance. Three critical areas of skills (disciplines) are • Visioning as an Ongoing Process. Building building shared vision, surfacing and challenging shared vision is a never-ending process. At any mental models, and engaging in systems thinking.22 one point there will be a particular image of the future that is predominant, but that image will evolve. Today, too many managers want to dis- pense with the “vision business” by going off and Building Shared Vision writing the Official Vision Statement. Such How do individual visions come together to cre- statements almost always lack the vitality, fresh- ate shared visions? A useful metaphor is the ness, and excitement of a genuine vision that comes from people asking, “What do we really generalization, “customers care only about want to achieve?” price,” as if it were absolute fact rather than an • Blending Extrinsic and Intrinsic Visions. assumption (very likely an assumption reflecting Many energizing visions are extrinsic — that is, her own views of customers and the market). they focus on achieving something relative to an This thwarts future learning because she starts to outsider, such as a competitor. But a goal that is focus on how to offer attractive discounts rather limited to defeating an opponent can, once the than probing behind the customers’ statements. vision is achieved, easily become a defensive pos- For example, the customers may have been so ture. In contrast, intrinsic goals like creating a disgruntled with the firm’s delivery or customer new type of product, taking an established prod- service that they are unwilling to purchase again uct to a new level, or setting a new standard for without larger discounts. customer satisfaction can call forth a new level of • Balancing Inquiry and Advocacy. Most man- Learning creativity and innovation. Intrinsic and extrinsic agers are skilled at articulating their views and visions need to coexist; a vision solely predicated presenting them persuasively. While important, Organizations on defeating an adversary will eventually weaken advocacy skills can become counterproductive as an organization. managers rise in responsibility and confront in- • Distinguishing Positive from Negative creasingly complex issues that require collabora- 14 Visions. Many organizations only truly pull to- tive learning among different, equally knowl- Senge gether when their survival is threatened. edgeable people. Leaders in learning Similarly, most social movements aim at elimi- organizations need to have both inquiry and ad- nating what people don’t want: for example, anti- vocacy skills.24 drugs, anti-smoking, or anti-nuclear arms move- Specifically, when advocating a view, they ments. Negative visions carry a subtle message of need to be able to: powerlessness: people will only pull together — explain the reasoning and data that led to when there is sufficient threat. Negative visions their view; also tend to be short term. Two fundamental — encourage others to test their view (e.g., Do sources of energy can motivate organizations: fear you see gaps in my reasoning? Do you disagree and aspiration. Fear, the energy source behind with the data upon which my view is based?); negative visions, can produce extraordinary and changes in short periods, but aspiration endures — encourage others to provide different views as a continuing source of learning and growth. (e.g., Do you have either different data, different conclusions, or both?). When inquiring into another’s views, they need to: Surfacing and Testing Mental Models — actively seek to understand the other’s view, Many of the best ideas in organizations never get rather than simply restating their own view and put into practice. One reason is that new insights how it differs from the other’s view; and and initiatives often conflict with established men- — make their attributions about the other and the tal models. The leadership task of challenging as- other’s view explicit (e.g., Based on your statement sumptions without invoking defensiveness requires that . . . ; I am assuming that you believe . . . ; reflection and inquiry skills possessed by few lead- Am I representing your views fairly?). ers in traditional controlling organizations.23 If they reach an impasse (others no longer ap- • Seeing Leaps of Abstraction. Our minds lit- pear open to inquiry), they need to: erally move at lightning speed. Ironically, this — ask what data or logic might unfreeze the im- often slows our learning, because we leap to gen- passe, or if an experiment (or some other inquiry) eralizations so quickly that we never think to test might be designed to provide new information. them. We then confuse our generalizations with • Distinguishing Espoused Theory from the observable data upon which they are based, Theory in Use. We all like to think that we hold treating the generalizations as if they were data. certain views, but often our actions reveal deeper The frustrated sales rep reports to the home of- views. For example, I may proclaim that people fice that “customers don’t really care about quali- are trustworthy, but never lend friends money ty, price is what matters,” when what actually and jealously guard my possessions. Obviously, happened was that three consecutive large cus- my deeper mental model (my theory in use), dif- tomers refused to place an order unless a larger fers from my espoused theory. Recognizing gaps discount was offered. The sales rep treats her between espoused views and theories in use (which often requires the help of others) can be problems. They react to each new move as an pivotal to deeper learning. isolated event, not as part of a process. So long as • Recognizing and Defusing Defensive they fail to see the interrelationships of these ac- Routines. As one CEO in our research program tions, they are trapped. puts it, “Nobody ever talks about an issue at the • Moving beyond Blame. We tend to blame 8:00 business meeting exactly the same way they each other or outside circumstances for our talk about it at home that evening or over drinks problems. But it is poorly designed systems, not at the end of the day.” The reason is what Chris incompetent or unmotivated individuals, that Argyris calls “defensive routines,” entrenched cause most organizational problems. Systems habits used to protect ourselves from the embar- thinking shows us that there is no outside — rassment and threat that come with exposing our that you and the cause of your problems are part thinking. For most of us, such defenses began to of a single system. Sloan build early in life in response to pressures to have • Distinguishing Detail Complexity from Management the right answers in school or at home. Dynamic Complexity. Some types of complexi- Review Organizations add new levels of performance ty are more important strategically than others. anxiety and thereby amplify and exacerbate this Detail complexity arises when there are many defensiveness. Ironically, this makes it even more variables. Dynamic complexity arises when cause 15 difficult to expose hidden mental models, and and effect are distant in time and space, and thereby lessens learning. when the consequences over time of interven- Fall 1990 The first challenge is to recognize defensive tions are subtle and not obvious to many partici- routines, then to inquire into their operation. pants in the system. The leverage in most man- Those who are best at revealing and defusing de- agement situations lies in understanding fensive routines operate with a high degree of dynamic complexity, not detail complexity. self-disclosure regarding their own defensiveness • Focusing on Areas of High Leverage. Some (e.g., I notice that I am feeling uneasy about how have called systems thinking the “new dismal sci- this conversation is going. Perhaps I don’t under- ence” because it teaches that most obvious solu- stand it or it is threatening to me in ways I don’t tions don’t work — at best, they improve mat- yet see. Can you help me see this better?) ters in the short run, only to make things worse in the long run. But there is another side to the story. Systems thinking also shows that small, well-focused actions can produce significant, en- Systems Thinking during improvements, if they are in the right We all know that leaders should help people see place. Systems thinkers refer to this idea as the the big picture. But the actual skills whereby lead- principle of “leverage.” Tackling a difficult prob- ers are supposed to achieve this are not well under- lem is often a matter of seeing where the high stood. In my experience, successful leaders often leverage lies, where a change — with a mini- are “systems thinkers” to a considerable extent. mum of effort — would lead to lasting, signifi- They focus less on day-to-day events and more on cant improvement. underlying trends and forces of change. But they • Avoiding Symptomatic Solutions. The pres- do this almost completely intuitively. The conse- sures to intervene in management systems that quence is that they are often unable to explain are going awry can be overwhelming. their intuitions to others and feel frustrated that Unfortunately, given the linear thinking that others cannot see the world the way they do. predominates in most organizations, interven- One of the most significant developments in tions usually focus on symptomatic fixes, not management science today is the gradual coales- underlying causes. This results in only tempo- cence of managerial systems thinking as a field of rary relief, and it tends to create still more pres- study and practice. This field suggests some key sures later on for further, low-leverage interven- skills for future leaders: tion. If leaders acquiesce to these pressures, they • Seeing Interrelationships, Not Things, and can be sucked into an endless spiral of increasing Processes, Not Snapshots. Most of us have intervention. Sometimes the most difficult lead- been conditioned throughout our lives to focus ership acts are to refrain from intervening on things and to see the world in static images. through popular quick fixes and to keep the This leads us to linear explanations of systemic pressure on everyone to identify more enduring phenomenon. For instance, in an arms race each solutions. party is convinced that the other is the cause of While leaders who can articulate systemic ex- planations are rare, those who can will leave their mited, become burned out. Eventually, cynicism stamp on an organization. One person who had comes to pervade the organization. People have this gift was Bill Gore, the founder and long- no control over their time, let alone their destiny. time CEO of W.L. Gore and Associates (makers Similar problems arise with the “visionary of GoreTex and other synthetic fiber products). strategist,” the leader with vision who sees both Bill Gore was adept at telling stories that showed patterns of change and events. This leader is bet- how the organization’s core values of freedom ter prepared to manage change. He or she can and individual responsibility required particular explain strategies in terms of emerging trends, operating policies. He was proud of his egalitari- and thereby foster a climate that is less reactive. an organization, in which there were (and still But such leaders still impart a responsive orienta- are) no “employees,” only “associates,” all of tion rather than a generative one. whom own shares in the company and partici- Many talented leaders have rich, highly sys- Learning pate in its management. At one talk, he ex- temic intuitions but cannot explain those intu- plained the company’s policy of controlled itions to others. Ironically, they often end up Organizations growth: “Our limitation is not financial re- being authoritarian leaders, even if they don’t sources. Our limitation is the rate at which we want to, because only they see the decisions that can bring in new associates. Our experience has need to be made. They are unable to conceptual- 16 been that if we try to bring in more than a 25 ize their strategic insights so that these can be- Senge percent per year increase, we begin to bog down. come public knowledge, open to challenge and Twenty-five percent per year growth is a real lim- further improvement. itation; you can do much better than that with an authoritarian organization.” As Gore tells the story, one of the associates, Esther Baum, went home after this talk and reported the limitation New Tools to her husband. As it happened, he was an as- Developing the skills described above requires tronomer and mathematician at Lowell new tools — tools that will enhance leaders’ Observatory. He said, “That’s a very interesting conceptual abilities and foster communication figure.” He took out a pencil and paper and cal- and collaborative inquiry. What follows is a culated and said, “Do you realize that in only sampling of tools starting to find use in learning fifty-seven and a half years, everyone in the organizations. world will be working for Gore?” Through this story, Gore explains the systemic rationale behind a key policy, limited growth rate — a policy that undoubtedly caused a lot of stress Systems Archetypes in the organization. He suggests that, at larger rates of growth, the adverse effects of attempting One of the insights of the budding, managerial to integrate too many new people too rapidly systems-thinking field is that certain types of sys- would begin to dominate. (This is the “limits to temic structures recur again and again. Countless growth” systems archetype explained below.) The systems grow for a period, then encounter prob- story also reaffirms the organization’s commit- lems and cease to grow (or even collapse) well be- ment to creating a unique environment for its as- fore they have reached intrinsic limits to growth. sociates and illustrates the types of sacrifices that Many other systems get locked in runaway vicious the firm is prepared to make in order to remain spirals where every actor has to run faster and true to its vision. The last part of the story shows faster to stay in the same place. Still others lure in- dividual actors into doing what seems right local- that, despite the self-imposed limit, the company 25 is still very much a growth company. ly, yet which eventually causes suffering for all. The consequences of leaders who lack systems Some of the system archetypes that have the thinking skills can be devastating. Many charis- broadest relevance include: matic leaders manage almost exclusively at the • Balancing Process with Delay. In this level of events. They deal in visions and in crises, archetype, decision makers fail to appreciate the and little in between. Under their leadership, an time delays involved as they move toward a organization hurtles from crisis to crisis. goal. As a result, they overshoot the goal and Eventually, the worldview of people in the organi- may even produce recurring cycles. Classic ex- zation becomes dominated by events and reactive- ample: Real estate developers who keep starting ness. Many, especially those who are deeply com- new projects until the market has gone soft, by which time an eventual glut is guaranteed by customers get increasingly unhappy, slowing de- the properties still under construction. mand growth and thereby making the needed • Limits to Growth. A reinforcing cycle of investment (apparently) unnecessary or impossi- growth grinds to a halt, and may even reverse it- ble. Classic example: Countless once-successful self, as limits are approached. The limits can be growth firms that allowed product or service resource constraints, or external or internal re- quality to erode, and were unable to generate sponses to growth. Classic examples: Product life enough revenues to invest in remedies. cycles that peak prematurely due to poor quality The Archetype template is a specific tool that or service, the growth and decline of communi- is helping managers identify archetypes operat- cation in a management team, and the spread of ing in their own strategic areas (see Figure 2).27 a new movement. The template shows the basic structural form of • Shifting the Burden. A short-term “solution” the archetype but lets managers fill in the vari- Sloan is used to correct a problem, with seemingly ables of their own situation. For example, the Management happy immediate results. As this correction is shifting the burden template involves two bal- Review used more and more, fundamental long-term ancing processes (“B”) that compete for control corrective measures are used less. Over time, the of a problem symptom. The upper, symptomatic mechanisms of the fundamental solution may solution provides a short-term fix that will make 17 atrophy or become disabled, leading to even the problem symptom go away for a while. The greater reliance on the symptomatic solution. lower, fundamental solution provides a more en- Fall 1990 Classic example: Using corporate human re- during solution. The side effect feedback (“R”) source staff to solve local personnel problems, around the outside of the diagram identifies un- thereby keeping managers from developing their intended exacerbating effects of the symptomatic own interpersonal skills. solution, which, over time, make it more and • Eroding Goals. When all else fails, lower your more difficult to invoke the fundamental solu- standards. This is like “shifting the burden,” ex- tion. cept that the short-term solution involves letting Several years ago, a team of managers from a a fundamental goal, such as quality standards or leading consumer goods producer used the shift- employee morale standards, atrophy. Classic ex- ing the burden archetype in a revealing way. The ample: A company that responds to delivery problem they focused on was financial stress, problems by continually upping its quoted deliv- ery times. • Escalation. Two people or two organizations, who each see their welfare as depending on a rela- tive advantage over the other, continually react to the other’s advances. Whenever one side gets ahead, the other is threatened, leading it to act more ag- gressively to reestablish its advantage, which threat- ens the first, and so on. Classic examples: Arms race, gang warfare, price wars. • Tragedy of the Commons.26 Individuals keep intensifying their use of a commonly available but limited resource until all individuals start to experience severely diminishing returns. Classic examples: Sheepherders who keep increasing their flocks until they overgraze the common pasture; divisions in a firm that share a common salesforce and compete for the use of sales reps by upping their sales targets, until the salesforce burns out from overextension. • Growth and Underinvestment. Rapid growth approaches a limit that could be elimi- nated or pushed into the future, but only by ag- gressive investment in physical and human ca- pacity. Eroding goals or standards cause investment that is too weak, or too slow, and which could be dealt with in two different ways: since “the admission that dilemmas even exist by running marketing promotions (the symp- tends to be difficult for some companies.” tomatic solution) or by product innovation (the • Mapping. Locating the opposing values as two fundamental solution). Marketing promotions axes and helping managers identify where they see were fast. The company was expert in their de- themselves, or their organization, along the axes. sign and implementation. The results were high- • Processing. Getting rid of nouns to describe ly predictable. Product innovation was slow and the axes of the dilemma. Present participles formed much less predictable, and the company had a by adding “ing” convert rigid nouns into processes history over the past ten years of product-inno- that imply movement. For example, central con- vation mismanagement. Yet only through inno- trol versus local control becomes “strengthening vation could they retain a leadership position in national office” and “growing local initiatives.” their industry, which had slid over the past ten to This loosens the bond of implied opposition be- Learning twenty years. What the managers saw clearly was tween the two values. For example, it becomes that the more skillful they became at promo- possible to think of “strengthening national ser- Organizations tions, the more they shifted the burden away vices from which local branches can benefit.” from product innovation. But what really struck • Framing/Contextualizing. Further softening home was when one member identified the un- the adversarial structure among different values 18 intended side effect: the last three CEOs had all by letting “each side in turn be the frame or con- Senge come from advertising function, which had be- text for the other.” This shifting of the “figure- come the politically dominant function in the ground” relationship undermines any implicit corporation, thereby institutionalizing the symp- attempts to hold one value as intrinsically superi- tomatic solution. Unless the political values or to the other, and thereby to become mentally shifted back toward product and process innova- closed to creative strategies for continuous im- tion, the managers realized, the firm’s decline provement of both. would accelerate — which is just the shift that • Sequencing. Breaking the hold of static has happened over the past several years. thinking. Very often, values like low cost and high quality appear to be in opposition because we think in terms of a point in time, not in terms of an ongoing process. For example, a Charting Strategic Dilemmas strategy of investing in new process technology Management teams typically come unglued and developing a new production-floor culture when confronted with core dilemmas. A classic of worker responsibility may take time and example was the way U.S. manufacturers faced money in the near term, yet reap significant the low cost-high quality choice. For years, most long-term financial rewards. assumed that it was necessary to choose between • Waving/Cycling. Sometimes the strategic the two. Not surprisingly, given the short-term path toward improving both values involves pressures perceived by most managements, the cycles where both values will get “worse” for a prevailing choice was low cost. Firms that chose time. Yet, at a deeper level, learning is occurring high quality usually perceived themselves as aim- that will cause the next cycle to be at a higher ing exclusively for a high quality, high price mar- plateau for both values. ket niche. The consequences of this perceived ei- • Synergizing. Achieving synergy where signifi- ther-or choice have been disastrous, even fatal, as cant improvement is occurring along all axes of U.S. manufacturers have encountered increasing all relevant dilemmas. (This is the ultimate goal, international competition from firms that have of course.) Synergy, as Hampden-Turner points chosen to consistently improve quality and cost. out, is a uniquely systemic notion, coming from In a recent book, Charles Hampden-Turner the Greek syn-ergo or “work together.” presented a variety of tools for helping manage- ment teams confront strategic dilemmas creative- 28 ly. He summarizes the process in seven steps: “The Left-Hand Column”: • Eliciting the Dilemmas. Identifying the op- posed values that form the “horns” of the dilem- Surfacing Mental Models ma, for example, cost as opposed to quality, or The idea that mental models can dominate busi- local initiative as opposed to central coordina- ness decisions and that these models are often tion and control. Hampden-Turner suggests that tacit and even contradictory to what people es- humor can be a distinct asset in this process pouse can be very threatening to managers who Bill’s limitations have been reinforced. I resort to pride themselves on rationality and judicious de- a manipulative strategy to move things forward. cision making. It is important to have tools to The exercise not only reveals the need for help managers discover for themselves how their skills in surfacing assumptions, but that we are mental models operate to undermine their own the ones most in need of help. There is no one intentions. right way to handle difficult situations like my One tool that has worked consistently to help exchange with Bill, but any productive strategy managers see their own mental models in action revolves around a high level of self-disclosure and is the “left-hand column” exercise developed by willingness to have my views challenged. I need Chris Argyris and his colleagues. This tool is es- to recognize my own leaps of abstraction regard- pecially helpful in showing how we leap from ing Bill, share the events and reasoning that are data to generalization without testing the validity of our generalizations. When working with managers, I start this ex- The Left-Hand Column: An Exercise ercise by selecting a specific situation in which I Imagine my exchange with a colleague, Bill, after he made a big am interacting with other people in a way that is presentation to our boss on a project we are doing together. I had not working, that is not producing the learning to miss the presentation, but I’ve heard that it was poorly received. that is needed. I write out a sample of the ex- change, with the script on the right-hand side of Me: How did the presentation go? the page. On the left-hand side, I write what I Bill: Well, I don’t know. It’s really too early to say. Besides, we’re am thinking but not saying at each stage in the breaking new ground here. exchange (see sidebar). Me: Well, what do you think we should do? I believe that the is- The left-hand column exercise not only sues you were raising are important. brings hidden assumptions to the surface, it Bill: I’m not so sure. Let’s just wait and see what happens. shows how they influence behavior. In the exam- Me: You may be right, but I think we may need to do more than ple, I make two key assumptions about Bill: he just wait. lacks confidence and he lacks initiative. Neither Now, here is what the exchange looks like with my “left-hand may be literally true, but both are evident in my column”: internal dialogue, and both influence the way I handle the situation. Believing that he lacks con- What I’m Thinking What Is Said fidence, I skirt the fact that I’ve heard the presen- tation was a bomb. I’m afraid that if I say it di- Everyone says the presentation Me: How did the presenta- rectly, he will lose what little confidence he has, was a bomb. tion go? or he will see me as unsupportive. So I bring up Does he really not know how Bill: Well, I don’t know. It’s the subject of the presentation obliquely. When I bad it was? Or is he not will- too early to say. Besides, we’re ask Bill what we should do next, he gives no spe- ing to face up to it? breaking new ground here. cific course of action. Believing he lacks initia- tive, I take this as evidence of his laziness; he is Me: Well, what do you think content to do nothing when action is definitely we should do? I believe that the required. I conclude that I will have to manufac- issues you were raising are im- ture some form of pressure to motivate him, or portant. else I will simply have to take matters into my own hands. He really is afraid to see the Bill: I’m not so sure. Let’s just The exercise reveals the elaborate webs of as- truth. If he only had more wait and see what happens. sumptions we weave, within which we become confidence, he could probably our own victims. Rather than dealing directly learn from a situation like this. with my assumptions about Bill and the situa- tion, we talk around the subject. The reasons for my avoidance are self-evident: I assume that if I I can’t believe he doesn’t realize Me: You may be right, but I raised my doubts, I would provoke a defensive how disastrous that presenta- think we may need to do more reaction that would only make matters worse. tion was to our moving ahead. than just wait. But the price of avoiding the issue is high. I’ve got to find some way to Instead of determining how to move forward to light a fire under the guy. resolve our problems, we end our exchange with no clear course of action. My assumptions about Learning at Hanover Insurance

Hanover Insurance has gone from the bot- an ennobling mission. But developing shared tom of the property and liability industry visions and values is not the end, only the to a position among the top 25 percent of beginning. U.S. insurance companies over the past Next we had to get beyond mechanical, twenty years, largely through the efforts of linear thinking. The essence of our jobs as CEO William O’Brien and his predeces- managers is to deal with “divergent” prob- sor, Jack Adam. The following comments lems — problems that have no simple an- are excerpted from a series of interviews swer. “Convergent” problems — problems Learning Senge conducted with O’Brien as back- that have a “right” answer — should be ground for his book. solved locally. Yet we are deeply condi- Organizations Senge: Why do you think there is so much tioned to see the world in terms of conver- change occurring in management and organi- gent problems. Most managers try to zations today? Is it primarily because of in- force-fit simplistic solutions and under- 20 creased competitive pressures? mine the potential for learning when di- Senge vergent problems arise. Since everyone O’Brien: That’s a factor, but not the most sig- handles the linear issues fairly well, com- nificant factor. The ferment in management panies that learn how to handle divergent will continue until we find models that are issues will have a great advantage. more congruent with human nature. The next basic stage in our progression One of the great insights of modern psy- was coming to understand inquiry and ad- chology is the hierarchy of human needs. vocacy. We learned that real openness is As Maslow expressed this idea, the most rooted in people’s ability to continually in- basic needs are food and shelter. Then quire into their own thinking. This requires comes belonging. Once these three basic exposing yourself to being wrong — not needs are satisfied, people begin to aspire something that most managers are rewarded toward self-respect and esteem, and toward for. But learning is very difficult if you can- self-actualization — the fourth- and fifth- not look for errors or incompleteness in order needs. your own ideas. Our traditional hierarchical organizations What all this builds to is the capability are designed to provide for the first three levels, throughout an organization to manage men- but not the fourth and fifth. These first three tal models. In a locally controlled organiza- levels are now widely available to members of tion, you have the fundamental challenge of industrial society but our organizations do not learning how to help people make good de- offer people sufficient opportunities for cisions without coercing them into making growth. particular decisions. By managing mental Senge: How would you assess Hanover’s models, we create “self-concluding” deci- progress to date? sions — decisions that people come to O’Brien: We have been on a long journey themselves — which will result in deeper away from a traditional hierarchical cul- conviction, better implementation, and the ture. The journey began with everyone un- ability to make better adjustments when the derstanding some guiding ideas about pur- situation changes. pose, vision, and values as a basis for Senge: What concrete steps can top managers participative management. This is a better take to begin moving toward learning organiza- way to begin building a participative cul- tions? ture than by simply letting people in on “de- O’Brien: Look at the signals you send cision making.” Before there can be mean- through the organization. For example, one ingful participation, people must share critical signal is how you spend your time. It’s certain values and pictures about where we hard to build a learning organization if peo- are trying to go. We discovered that people ple are unable to take the time to think have a real need to feel that they’re part of through important matters. I rarely set up an appointment for less than one hour. If the I’ve got to keep things moving fast, because I’ve subject is not worth an hour, it shouldn’t be got to keep people working.” In a learning or- on my calendar. ganization, the manager shoulders an almost Senge: Why is this so hard for so many sacred responsibility: to create conditions that managers? enable people to have happy and productive lives. If you understand the effects the ideas we O’Brien: It comes back to what you believe are discussing can have on the lives of people in about the nature of your work. The authoritar- your organization, you will take the time. ian manager has a “chain gang” mental model: “The speed of the boss is the speed of the gang. Sloan Management leading to my concern over the project, and be Second, the factors that thwart learning about Review open to Bill’s views on both. The skills to carry complex business issues must be eliminated in on such conversations without invoking defen- the learning lab. Chief among these is the inabil- siveness take time to develop. But if both parties ity to experience the long-term, systemic conse- 21 in a learning impasse start by doing their own quences of key strategic decisions. We all learn left-hand column exercise and sharing them with best from experience, but we are unable to expe- Fall 1990 each other, it is remarkable how quickly every- rience the consequences of many important or- one recognizes their contribution to the impasse ganizational decisions. Learning laboratories re- and progress starts to be made. move this constraint through system dynamics simulation games that compress time and space. Third, new learning skills must be developed. One constraint on learning is the inability of man- Learning Laboratories: Practice agers to reflect insightfully on their assumptions and Fields for Management Teams to inquire effectively into each other’s assump- tions. Both skills can be enhanced in a learning One of the most promising new tools is the laboratory, where people can practice surfacing learning laboratory or “microworld”: constructed assumptions in a low-risk setting. A note of cau- microcosms of real-life settings in which man- tion: It is far easier to design an entertaining learn- agement teams can learn how to learn together. ing laboratory than it is to have an impact on real The rationale behind learning laboratories can management practices and firm traditions outside best be explained by analogy. Although most the learning lab. Research on management simu- management teams have great difficulty learning lations has shown that they often have greater en- (enhancing their collective intelligence and ca- tertainment value than educational value. One of pacity to create), in other domains team learning the reasons appears to be that many simulations is the norm rather than the exception — team do not offer deep insights into systemic structures sports and the performing arts, for example. causing business problems. Another reason is that Great basketball teams do not start off great. they do not foster new learning skills. Also, there They learn. But the process by which these is no connection between experiments in the learn- teams learn is, by and large, absent from modern ing lab and real life experiments. These are signifi- organizations. The process is a continual move- cant problems that research on learning laboratory ment between practice and performance. design is now addressing. The vision guiding current research in man- agement learning laboratories is to design and construct effective practice fields for manage- Developing Leaders and Learning ment teams. Much remains to be done, but the Organizations broad outlines are emerging. First, since team learning in organizations is In a recently published retrospective on or- an individual-to-individual and individual-to- ganization development in the 1980s, system phenomenon, learning laboratories must Marshall Sashkin and N. Warner Burke ob- combine meaningful business issues with mean- serve the return of an emphasis on develop- ingful interpersonal dynamics. Either alone is ing leaders who can develop organizations.29 incomplete. They also note Schein’s critique that most top executives are not qualified for the task of 8 developing culture.30 Learning organizations rep- The principle of creative tension comes from Robert Fritz’ work on resent a potentially significant evolution of orga- creativity. See R. Fritz, The Path of Least Resistance (New York: nizational culture. So it should come as no sur- Ballantine, 1989) and Creating (New York: Ballantine, 1990). prise that such organizations will remain a 9 distant vision until the leadership capabilities M.L. King, Jr., “Letter from Birmingham Jail,” American they demand are developed. “The 1990s may be Visions, January–February 1986, pp. 52–59. the period,” suggest Sashkin and Burke, “during which organization development and (a new sort 10 of) management development are reconnected.” E. Schein, Organizational Culture and Leadership (San Francisco: I believe that this new sort of management devel- Jossey-Bass, 1985). Similar views have been expressed by many opment will focus on the roles, skills, and tools for leadership theorists. For example, see: P. Selznick, Leadership in Learning leadership in learning organizations. Undoubtedly, Administration (New York: Harper & Row, 1957); W. Bennis the ideas offered above are only a rough approxima- and B. Nanus, Leaders (New York: Harper & Row, 1985); and Organizations tion of this new territory. The sooner we begin seri- N.M. Tichy and M.A. Devanna, The Transformational Leader ously exploring the territory, the sooner the initial (New York: John Wiley & Sons, 1986). map can be improved — and the sooner we will re- 22 alize an age-old vision of leadership: 11 Senge Selznick (1957). The wicked leader is he who the people despise. The good leader is he who the people revere. 12 The great leader is he who the people say, “We J.W. Forrester, “A New Corporate Design,” Sloan did it ourselves.” Management Review (formerly Industrial Management Review), Fall 1965, pp. 5–17. —Lao Tsu 13 References See, for example, H. Mintzberg, “Crafting Strategy,” 1 Harvard Business Review, July–August 1987, pp. 66–75. P. Senge, The Fifth Discipline: The Art and Practice of the Learning 14 Organization (New York: Doubleday/Currency, 1990). R. Mason and I. Mitroff, Challenging Strategic Planning 2 Assumptions (New York: John Wiley & Sons, 1981), p. 16. A.P. de Geus, “Planning as Learning,” Harvard Business 15 Review, March–April 1988, pp. 70–74. P. Wack, “Scenarios: Uncharted Waters Ahead,” Harvard 3 Business Review, September–October 1985, pp. 73–89. B. Domain, Fortune, 3 July 1989, pp. 48–62. 16 4 de Geus (1988). The distinction between adaptive and generative learning has its 17 roots in the distinction between what Argyris and Schon have called M. de Pree, Leadership Is an Art (New York: Doubleday, 1989), p. 9. their “single-loop” learning, in which individuals or groups adjust their behavior relative to fixed goals, norms, and assumptions, and 18 “double-loop” learning, in which goals, norms, and assumptions, as For example, see T. Peters and N. Austin, A Passion for Excellence Reprint 3211 well as behavior, are open to change, e.g., see C. Argyris and D. (New York: Random House, 1985) and J.M. Kouzes and B.Z. Copyright © Massachusetts Institute of Schon, Organizational Learning: A Theory-in-Action Perspective Posner,The Leadership Challenge(San Francisco: Jossey-Bass, 1987). Technology, 1990. All rights reserved. (Reading, Massachusetts: Addison-Wesley, 1978). 19 5 1. Mitroff, Break-Away Thinking (New York: John Wiley & All unattributed quotes are from personal communications Sons, 1988), pp. 66–67. with the author. 20 6 R.K. Greenleaf, Servant Leadership: A Journey into the Nature of G. Stalk, Jr., “Time: The Next Source of Competitive Advantage,” Legitimate Power and Greatness (New York: Paulist Press, 1977). Harvard Business Review, July–August 1988, pp. 41–51. 21 7 L. Miller, American Spirit: Visions of a New Corporate Culture Senge (1990). (New York: William Morrow, 1984), p 15. 22 26 These points are condensed from the practices of the five This archetype is closely associated with the work of ecolo- disciplines examined in Senge (1990). gist Garrett Hardin, who coined its label: “The Tragedy of the Commons,” Science, 13 December 1968. 23 The ideas below are based to a considerable extent on the 27 work of Chris Argyris, Donald Schon, and their Action These templates were originally developed by Jennifer Science colleagues: Kemeny, Charles Kiefer, and Michael Goodman of Inno- C. Argyris and D. Schon, Organizational Learning: a vation Associates, Inc., Framingham, Massachusetts. Theory-in-Action Perspective (Reading, Massachusetts: Addison-Wesley, 1978); 28 C. Hampden-Turner, Charting the Corporate Mind (New C. Argyris, R. Putnam, and D. Smith, Action Science (San Sloan Francisco: Jossey-Bass, 1985); York: The Free Press, 1990). C. Argyris, Strategy, Change, and Defensive Routines (Boston: Management Pitman, 1985); and 29 Review C. Argyris, Overcoming Organizational Defenses (Englewood M. Sashkin and W.W. Burke, “Organization Development Cliffs, New Jersey: Prentice-Hall, 1990). in the 1980s” and “An End-of-the-Eighties Retrospective,” in Advances in Organization Development, ed. F. Masarik 23 24 (Norwood, New Jersey: Ablex, 1990). I am indebted to Diana Smith for the summary points Fall 1990 below. 30 E. Schein (1985). 25 The system archetypes are one of several systems diagramming and communication tools. See D.H. Kim, “Toward Learning Organizations: Integrating Total Quality Control and Systems Thinking” (Cambridge, Massachusetts: MIT Sloan School of Reprint 3211. Copyright © Massachusetts Institute of Management, Working Paper No. 3037-89-BPS, June 1989). Technology, 1990. All rights reserved. SUMMER 2009 VOL. 50 NO. 4

Jean-François Manzoni and Jean-Louis Barsoux

Setting You Up to Fail?

Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the ar- ticle appears as originally published. REPRINT NUMBER 50434 LEADERSHIP Are Your Subordinates Setting You Up to Fail? Subordinates sometimes make it extremely difficult for their bosses to be good leaders. Executives who fail to understand the forces at play may find their careers in jeopardy. BY JEAN-FRANÇOIS MANZONI AND JEAN-LOUIS BARSOUX

THE LAST 15 YEARS have seen an explo- sion in the number of popular books focusing on “bad bosses.” These publications have not only described the “leader from hell” but also advised subordinates on how to handle toxic or incompetent managers. THE LEADING More scholarly writers on management QUESTION have preferred to adopt the perspective of Plenty is written bosses, but much of their writing shares the about the mis- same underlying emphasis on “what man- takes leaders agers are doing wrong,” highlighting the make. But many ways that bosses fail to engage their sometimes they fail mainly employees, through lack of communica- because their tion, authenticity, imagination or emotional subordinates intelligence. No matter who is doing the undermine writing, the employees are usually portrayed them. How as well-intentioned, competent individuals can good who, if half-decently managed, will perform managers well. There is, of course, some talk about prevent that? the small proportion of “dead wood” — FINDINGS employees who cannot meet the company’s Employees — minimum performance threshold — but sometimes delib- erately, sometimes the rest are assumed to have what it takes subconsciously — take steps to to succeed under the “right kind” of lead- sabotage their ership. Implicitly or explicitly, subordinates boss’s success. Leaders make the are treated as receptive individuals waiting situation worse by only for the boss to offer a productive not understanding why an employee channel to their intrinsic energies. Indeed, might act this way. much of our own writing has highlighted Concerted efforts to engage employees in particular ways can forestall the Even reasonable subordinates sometimes play problem and help a leading role in triggering and perpetuating you keep your job. unproductive and often painful relationships with their bosses.

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the boss’s responsibility for creating unsatisfactory findings showed that subordinates’ expectations of relationships — a phenomenon we labeled the set- the boss measured in the first five days of their rela- up-to-fail syndrome.1 Bosses trigger this dynamic tionship were strong predictors of subordinate inadvertently through a combination of premature assessments of the quality of their working relation- labeling (“I know I’ve been working with him for ship measured two weeks, six weeks and six months only three weeks, but it looks like he won’t be very later.2 The problem with these first impressions, effective”); over-monitoring; and cognitive biases based as they are on the slender evidence of a few (expecting the employee to fail, the boss looks for early interactions, is that they serve as a prism for places where the employee is underperforming and processing ensuing information. Once subordinates attributes the employee’s successes to external ele- suspect that they have a “difficult boss,” they will find ments). These three factors distort the way bosses the necessary proof — and through their behavior notice, interpret and remember events. (passivity, defensiveness, aggressiveness) can eventu- Although we initially identified the subordi- ally turn the manager into a difficult boss — at which nate’s contribution to this dynamic, we saw it point the circle closes and the prophecy is fulfilled. mostly as retaliation for the boss’s actions. We did Here’s how the process unfolds. not suspect that reasonable subordinates would in some cases play a leading role in triggering and per- How Good Bosses Get Mislabeled petuating unproductive and often painful It is surprisingly easy for an individual or even a relationships with their bosses. group of subordinates to mistake a good boss for a Yet, working on boss-subordinate relationships bad one, thus initiating a downward spiral. The pro- for more than a decade, we have encountered many cess may be set in motion because of pre-existing situations where subordinates, individually or col- conditions or developments after the boss takes lectively, placed their bosses in no-win situations. charge. For example: (See “About the Research.”) Bosses need to under- stand why subordinates would engage in such 1. The Boss Walks in Prelabeled. This can occur self-defeating behavior in order to avert or inter- for two reasons: cept these dysfunctional dynamics — not only to Oversensitive Employees: The way individuals make sure their companies perform well but also, view their new boss is likely to be influenced by how sometimes, to save their own jobs. they’ve been (mis)managed previously. Certain indi- viduals may feel they have never received due credit, or Fast Impressions blame their failure to advance on a previous manager The appointment of a new boss creates anxiety for (perceptions that may or may not be totally un- subordinates. They feel a strong urge to size up the founded). This can breed a strong sense of betrayal and person to determine what they will have to do to cynicism.3 From day one, these subordinates may be thrive under the new regime. They closely scan the on the lookout for the same kind of disrespect or mis- new boss’s comments and behavior for signs of what treatment they received (or believe they received) from type of boss this is. Is she here for a while or just pass- the predecessor. For different reasons, former “favor- ing through? Is she approachable? Does she listen? Is ites” may also prove thin-skinned. Never having been she consistent? Subordinates rapidly form impres- challenged on their shortcomings by an overindulgent sions of their new boss’s competence, judgment, predecessor, they may be susceptible to negative feed- fairness, receptiveness and interest in developing oth- back and may find the incoming boss hypercritical or ers; these labels guide their interactions with the boss. unfair. New bosses also need to beware of subordinates How fast do subordinates start to make up their who were actual or undeclared contenders for the minds? Researchers asked employees to rate their leadership role, or allies of a manager who didn’t get first impressions of their boss, based on questions the promotion. They too may enter the relationship such as whether they and their boss shared their out- primed to focus on the new boss’s shortcomings rather look, perspective and values, or whether they than strengths. Consciously or not, these individuals expected the boss to do well in the organization. The may expect — or indeed want — the new boss to fail.

44 MIT SLOAN MANAGEMENT REVIEW SUMMER 2009 SLOANREVIEW.MIT.EDU Team Preconceptions: The new boss will some- ABOUT THE RESEARCH times be adversely affected by the reputation of his Our work in the area of boss-subordinate relations started with a field study of predecessor(s). In one company we studied, the new 50 boss-subordinate dyads working in four manufacturing operations of Fortune 100 companies.i The 50 subordinates and their bosses were interviewed at incumbent was the fourth general manager in three least twice and completed a questionnaire between the two interviews, in years. Team members had lost faith in bosses and were which the bosses evaluated the performance of their subordinates and the reluctant to reengage because they didn’t want to be subordinates described their boss’s behavior toward them. disappointed yet again. The new boss came in with a Several meetings and interactions were observed directly, and many individ- “dead man walking” label already hanging over him. uals working close to these dyads were also interviewed. In total, the study involved close to 400 hours of interviews and observations, 75% of which were At the other extreme, incoming leaders may suffer taped and later transcribed, providing a rich base of information. from the contrast with a much admired predecessor. The strength of this approach lies, of course, in its potential to illuminate a When the previous boss has created a strong collective gestalt or syndrome that is a set of mechanisms — subordinate expectations, view of what the ideal leader looks like, it’s difficult for emotions and behaviors, boss cognitions and responses — that combine and develop into a self-perpetuating process. An in-depth and longitudinal case a new leader to match that image, regardless of the study is able to capture causalities and potential feedback loops between leader traits and abilities the newcomer brings to the role. behaviors and subordinate responses that are unlikely to show up in large-scale Research shows that incompatibility between the ac- investigations, particularly those using cross-sectional designs. tual and ideal images of a boss strongly correlates with To test the generalizability of these initial findings, we discussed them with groups of executives participating in development programs, asking dissatisfaction with the boss and lower-quality rela- them to share their own experiences. These executives had come from all 4 tionships. The circumstances surrounding the over the world and from every level in their respective organizations, from predecessor’s departure also matter. The more unex- junior to senior, from a single company to mixed company groups. To date, pected the event, the more intense the employee we have questioned more than 5,000 international executives. emotional reaction. The new boss may have to con- Our understanding has been further enriched through coaching and consult- ing work with many executives and their entire teams of first reports, often tend with feelings of anger, grief, betrayal or anxiety, including discussions of each individual’s 360-degree feedback results. We especially among those who saw the outgoing leader believe that the combined use of in-depth case studies, interviews, field obser- as a mentor, friend or coach. Research suggests that vation and group discussions can yield insights and causalities that generate a negative emotions are associated with detailed gather- clearer picture of the evolution of dysfunctional workplace relationships. ing of evidence that typically leads to unfavorable evaluations of the target.5 Finally, even before the new subordinates to make too much of casual comments, boss arrives, team members may tap their internal and rushed feedback or perceived slights. Routine over- external social networks for information. Incoming sights — such as the boss’s failing to follow up on a bosses can find themselves preceded by their own rep- suggestion or remarking on a success without men- utations — or in some cases harsh nicknames (often tioning everyone who contributed — can prompt awarded for ripping out costs). Carlos Ghosn’s repu- speculation that the boss is a “phony,” a “hard-ass” or tation as “Le Cost Killer” preceded him at Nissan “plays favorites.” In their rush to protect themselves Motor Co., as did that of John Mack “the Knife” when from threats, subordinates may discern false or exag- he moved to Credit Suisse Group. gerated patterns in the new boss’s behavior. Such snap judgments reflect the “fundamental attribution 2. How the Boss Makes Things Worse. Subordi- error,” where people tend to latch onto and overesti- nates can also misconstrue the actions of their bosses. mate dispositional or personality-based factors when This can happen to new and established bosses alike. explaining the behavior of others, while underesti- New Bosses: Subordinates pay close attention to mating situational factors.6 The leader’s early how their boss behaves, not just toward the team col- decisions will also be scrutinized for meaning. Given lectively, but especially toward them as individuals. the new boss’s incomplete understanding of the con- They are on the lookout for indications of their rela- text, some of these decisions are bound to have tive standing within the group and how well they’re unforeseen consequences. Subordinates often under- doing. They watch their boss interact with their estimate the time and attention constraints on the colleagues. They notice who the boss spends time new boss, and the cost of delay or of acquiring more with, what the boss says or does not say. This ex- ample information. Consequently, if some individu- treme vigilance, particularly early on, can encourage als suffer as a result of an early decision, the boss may

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be assumed to have created the situation knowingly from reality. Whether for an incoming boss or an es- or else to be “sending a signal.” The decision process tablished one, once a negative label is activated, the may also come under scrutiny. The boss’s failure to situation tends to go from bad to worse. A number of consult or inform one or more subordinates about a reinforcing mechanisms kick in, making it unlikely decision may be enough to trigger an impression that that the negative label will be overturned. the boss “doesn’t seem very open.” At the same time, the new boss will be looking for areas of potential im- Perceiving the Boss’s Behavior provement. In some cases, the new leader will have Organizations are complex, ambiguous and information- been appointed with an explicit mandate to make rich environments. To avoid being overwhelmed, changes. As a result, the new boss may be tempted to people simplify, quickly identifying the most salient move too fast, under the mistaken assumption that characteristics or most plausible explanations and members of the team are aware of problems and discarding others. While this allows them to reduce agree on the level of urgency. Very quickly, the new information-processing requirements, it leaves them boss can elicit a negative label, branded as the “clue- open to well-established errors known as confirmatory less” newcomer who wants to “change everything” biases. These biases influence the information pro- and does not understand or respect the culture. cessing of subordinates in four ways. Established Bosses: While the mislabeling of a boss is more common early on in the relationship, it 1. What They Notice. Organizational reality pro- can also happen in the midst of previously satisfactory duces a constant flow of signals — some observed relationships. Established bosses may reach a point directly (both verbal and nonverbal), some reported where their style starts to irritate one or more of their by others and some inferred from data. With too subordinates, who may begin to feel as though the much information to process, individuals in organi- boss has “overstayed his welcome.” A hard-charging zations have to focus on what matters most. Labels style, for example, is terrific when the company is in help people to filter out data that seem “less relevant.” turnaround mode, but can be tiring once the ship has Classic experiments in social psychology and visual been righted. A subordinate’s negative reaction may cognition show how people’s attention is guided by be the result of a boss’s particular decision, action or their expectations — and to what extent they can re- comment that serves as a “final straw,” or it may sim- main oblivious to even the most discrepant ply be the result of residual wear and tear in the information (like the intrusion of someone in a gorilla relationship — a buildup of toxins that can no longer suit) when they’re concentrating on other things.7 If be evacuated by the social system. In another case, the such blindness can occur on straightforward, time- leadership needs of the situation may be perceived by bound and uninterrupted observation tasks, it’s all the some subordinates to have changed. Arguably, this is more likely in situations where people are under real what happened to Scott McNealy at Sun Microsys- pressure, tired, distracted, and have an emotional his- tems Inc. Well suited to the mobilizing role required tory with the person they’re observing. Under these during the boom years, he lost the confidence of close conditions, it is hardly surprising that subordinates colleagues as the right person to lead Sun out of the who regard their boss as meddling or coercive will problems caused when the tech bubble burst. Prob- tend to notice instances when the boss interferes or lems also may arise when the boss has led the team at speaks abrasively, but pay much less attention when an intense pace or pushed through a lot of painful the boss acts in a more empowering fashion. measures and has run out of good will with some or all of the team. At this point, it’s as though a switch has 2. What They Make of It. Organizational reality is tripped in subordinates’ minds. They lose both empa- not just rich but also highly ambiguous, leaving con- thy for the boss and confidence that this is the right siderable room for different readings of the same data. person to lead them into the next phase. The pep talks Subordinates who have an unfavorable impression of that used to create a buzz and re-energize employees the boss are liable to interpret the boss’s actions or com- may begin to feel forced and formulaic, and innova- ments negatively. For example, should the boss favor tive propositions may come across as disconnected them in some way, they will see it as having been forced

46 MIT SLOAN MANAGEMENT REVIEW SUMMER 2009 SLOANREVIEW.MIT.EDU upon the boss (“he had no choice”); if the boss does differential treatment of subordinates.9 Of course, them a disservice, they will exaggerate the intent (“he their choice of informants determines the kind of had lots of alternatives”). One of the psychological traps feedback they get. Their views of the boss are not only subordinates fall into is “over-intentionalizing” — corroborated but also reinforced by further reports of projecting hidden intent where there is none. The lapses or misdeeds. Discussions around the coffee ma- same actions can be interpreted very differently de- chine or water cooler ensure that disgruntled team pending on how subordinates view their boss. (See members develop an even more negative view of the “Boss Behavior From Different Angles.”) boss. If the boss puts a foot wrong, they will be told As a result of these attribution biases, bosses may about it. Over time, even subordinates who try to find that they are disproportionately blamed for ac- maintain a more balanced view may find themselves tions or decisions that have a negative impact on caught up in the general negative mood.10 subordinates, while they don’t receive due credit for positive initiatives. In one case we studied, the intro- Driving the Boss’s Behavior duction of a new working-from-home policy Beyond biasing their perceptions of the boss’s ac- intended to benefit employees was viewed by some tions, labels also guide subordinates’ behavior toward team members as yet another cost-cutting measure, the boss — and hence the boss’s responses toward since it reduced the company’s need for office space. them. Consciously or not, subordinates can provoke their bosses in two ways. 3. What They Remember. The tendency to “over- intentionalize” leads subordinates to make negative BOSS BEHAVIOR FROM DIFFERENT ANGLES inferences about boss behavior. Research on mem- Organizations are complicated, overwhelming environments. To survive, sometimes ory suggests that those inferences may be stored employees oversimplify — jumping to conclusions about a boss’s behavior based on away as likely causes and are later retrieved as actual whether they were already inclined to think the boss was “good” or “bad.” causes.8 In other words, suppositions gradually harden up to become facts. Moreover, information OBSERVED BEHAVIOR SUBORDINATE INTERPRETATION Good boss Bad boss that is stored away does not remain uncorrupted. It decays; it gets confused with other memories. It Gives critical feedback Honest Abrasive even becomes contaminated by information re- Makes a unilateral decision Decisive Autocratic ceived after the behavior has occurred. Instructs work to be redone Demanding Impossible Research on false memories shows that people to please can “remember” things that did not happen but are generally consistent with their view of how things Imposes performance metrics Disciplined Control freak are. Memory turns out to be a reconstruction of the Works weekends Driven Obsessive past, not simply a reproduction of it. Sticks with a dubious Persistent Stubborn course of action 4. What They Discuss and With Whom. The pre- Ignores his boss’s advice Self-confident Arrogant ceding cognitive biases can be reinforced by subordinates’ interaction patterns. What begins with a Gives unsolicited advice Helpful Meddlesome single detractor or strained relationship can easily Asks specific questions Informed Micromanager spread to the rest of the team. Subordinates compare notes. When they feel let down or disrespected by the Delays response to proposal Reflective Unsupportive boss, one of the first things they do is to seek a “reality Does not punish a mistake Compassionate Spineless check” with a colleague. Typically, to get such feed- Loses temper in public Passionate Temperamental back, they turn first to those who may be least inclined to defend the boss — rather than to the boss’s infor- Manages by walking about Empathic Clueless mal lieutenant(s). Research shows that members of Breaks a promise Opportunistic Untrustworthy the boss’s “out-group” spend more time than the “in- Limits interaction times Structured Unapproachable group” discussing and analyzing the leader’s

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Passive Provocation. Subordinates who begin to the boss’s critical feedback on the grounds that it is see their boss as incompetent (which incoming driven by the boss’s disposition rather than their bosses generally are for several weeks) or difficult own performance flaws.11 Of course, on realizing may be less forthcoming about problems and less that the feedback has been ignored, the boss may be prepared to ask the boss for help. The lack of contact tempted to turn up the volume and issue even more lessens the boss’s sensitivity to either the difficulties forceful instructions — thus further confirming the faced or the progress made by the subordinate. It subordinates’ negative view of the boss. also diminishes the boss’s ability to contribute to the decision-making process and to obtain reassurance Active Provocation. Subordinates who suspect that the subordinate has things well in hand. This that the new boss may be “just like” the old one may test out the new boss, perhaps by bringing up past injustices, including those related to pay or CAUSAL MAP It’s true that subordinates will sometimes form an inaccurate, negative picture of promotion decisions. Such behavior is clearly frus- their boss. But it’s also true that bosses can make the situation worse by the way trating for the new boss. Why should he be held they respond. Whether they withdraw or become more coercive, bosses typically responsible for or feel obliged to repair the alleged end up behaving in ways that match their subordinates’ negative expectations. The misdeeds of others? Yet the aggrieved subordinate ultimate result? The negative perception becomes a reality. is still living with the consequences — in terms of missed training or career opportunities, dimin- Anxiety over Preconceptions incoming boss based on past bosses ished status, lower pay and so on. Even if the boss sympathizes with the subordinate, it may be diffi- cult to “put matters right.” Hence, the new boss Fuels may be blamed not for what he has done, but for subordinate Subordinate(s) develop negative view of new boss anxiety what he “refuses” to do — while the subordinate Boss is quickly acquires a reputation for being “whiny” or “just like” predecessors “aggressive.” Going one step further, subordinates Boss forced to be more who view their boss as unreasonable have ways of Activates coercive Drives Prompts subordinate subordinate social confirmatory eliciting reactions from the boss that could be con- behavior corroboration biases strued as unreasonable or unfair. They may choose

Boss’s to raise issues that the boss does not want raised Boss’s good will perceptions balance drops (past hiring or promotion decisions) or that, in the become biased boss’s mind, have already been settled. Subordi- Boss feels he never Boss feels Emotional nates may make proposals in the wrong forum or gets benefit rift growing contagion Boss of the doubt at a time when the boss simply does not have the withdraws mental bandwidth to process what he perceives as a digression. Subordinates who think that their boss “never listens” can prove it to themselves and Boss develops negative view of subordinate(s) others by making a suggestion at a time when the boss cannot listen. Although “irrational” from the boss’s perspective, such behavior allows subordi- lack of contact is likely to raise the boss’s anxiety nates to deflect the blame for this dysfunctional about being blindsided and frustration with the relationship onto their “impossible” boss and to subordinate, who comes across as evasive or unco- lessen their own responsibility. This behavior can operative. As a result, the boss may feel compelled to be curiously reassuring for subordinates and is intensify monitoring and to ask more pointed ques- consistent with research into self-handicapping, tions of the subordinate, thus confirming the which suggests that people’s motivation to protect subordinate’s view that exchanges with the boss are their self-esteem and sense of competence will generally unpleasant. Similarly, subordinates who find sometimes lead them deliberately to sabotage their the boss “harsh” or “unfair” may decide to discount own chances of success.12

48 MIT SLOAN MANAGEMENT REVIEW SUMMER 2009 SLOANREVIEW.MIT.EDU How Unwary Bosses Get Trapped rather than conciliatory: “You think I’m being harsh? It’s easy for bosses to get drawn into this process. As I’ll show you harsh!” At which point the subordinates they start to sense that they’re not getting through to respond, “We rest our case.” Whether they withdraw some of their subordinates, they fall prey to the very or become more coercive, bosses typically end up be- same biases and blinders that afflict their subordi- having in ways that match their subordinates’ nates — including labeling, selective observation negative expectations. While a subordinate may be and recall and biased attributions. Research shows primarily responsible for triggering the process, both that people are more inclined to make simplistic parties keep it going with their mutual biases — and cognitive judgments when they are overstretched, become locked in a double self-fulfilling process. distracted or pressed for time.13 New bosses want to (See “Causal Map.”) know who they can depend on for support and will Because the resulting vicious circles are difficult quickly pick up on signals that certain relationships to interrupt and unlikely to self-correct, preventing are going to prove complicated or “high mainte- their occurrence must be a priority for bosses. nance.” The propensity of bosses to start sorting their subordinates into an “in-group” and an “out-group” Implications for Bosses is highlighted by a body of research known as leader- Our research shows that bosses must be mindful of, member exchange theory.14 Field studies suggest that and should explicitly manage, their own labeling, these distinctions emerge quickly and remain sur- expectations and biases. However, that is not prisingly stable over time.15 Once a boss has begun enough. For boss-subordinate relationships to to doubt the attitude or motives of certain subordi- work, bosses have to mind not only their own men- nates, he will distort the incoming evidence to match tal processes but also those of their subordinates. the existing label. The same behavior or actions from To avoid acquiring an undeserved negative label, subordinates will therefore trigger very different at- individual bosses must take four important steps. tributions depending on what the boss thinks of the individual(s) concerned. Working long hours, for 1. Understand the Situation. New bosses need to be example, can be interpreted as a sign of dedication aware of what they are walking into, both in business from a person the boss regards as “smart,” but as evi- and human terms. Is this a turnaround, a realignment dence of an inability to prioritize or a slow mind or an upholding-success challenge? Prior to taking from someone for whom the boss has less respect. As charge, bosses must find out whether there is a per- bosses develop a negative image of part or all of their ceived need for change in their organization and, if team, they will tend to adjust their behavior accord- so, how widely shared is that view. Prospective bosses ingly. New bosses who experience difficulty in should also ask how their arrival is likely to be perceived. engaging with a mistrustful team may overcompen- What was their predecessor like, and what were the cir- sate in other directions. They may invest their cumstances of the predecessor’s exit? Coming after a energies with other stakeholders (their bosses, cli- weak boss, a tough boss or someone who has grown ents, suppliers, analysts) or may choose to focus on stale, the newcomer is likely to be welcomed and to facets of their job that they have mastered (strategy, start out with a positive “opening balance.” Conversely, operations, marketing, finance). In other words, they the new boss who comes after several bad bosses may may retreat into a comfort zone and disconnect from start out “in the red.” Similarly, when succeeding a well- the team. Another common reaction when bosses liked boss who was removed for not being hard-nosed feel a lack of engagement from subordinates is to be- enough, the new boss can expect a cautious reception. come more forceful and coercive. Bosses may react Incoming leaders need to figure out where they stand. especially badly if the signals coming back are suffi- When Bob Eckert took over as CEO of Mattel Inc., he ciently disconnected from their own self-concept. asked his top team to submit anonymous questions. For example, if a boss is suspected of bias when she One question read: “I’ve heard you are an in-the- has done everything possible to be transparent or is trenches manager who listens to the lower levels. Does reproached for not listening when he thinks he has this mean you’ll go around us and make decisions with- been listening, the boss’s response may be aggressive out involving us?” Eckert realized, “I had completely

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underestimated their wariness … They had done as tested him on this over time, and he’s never reacted much homework on me as I had done on Mattel.”16 badly.” Managers need to establish and maintain a Fortunately, a question-and-answer session allowed positive goodwill balance with their subordinates, him to dispel that preconception. both individually and collectively. They draw on that store of good will every time they ask subordinates 2. Invest Early in Subordinates. New bosses must for special efforts, impose their will or make “un- spend significant time one-on-one with subordi- forced errors.” To be able to afford such withdrawals, nates for three reasons. managers need to make regular deposits — espe- To understand them. The new boss needs to cially by taking actions that help subordinates in find out how subordinates see the company’s chal- their work, demonstrating openness to subordinate lenges; how they related individually to the previous input or supporting them in their careers. The tim- boss and what they expect of the new boss; and ing of these deposits also matters. A few well-chosen what strengths, weaknesses and other characteris- efforts early on in the relationship will create mo- tics they bring to their jobs. mentum and help the boss to acquire a positive label. To get to know them. Incoming leaders can Once team members see the leader through a benign choose to be either more or less involved in the cre- lens, everything becomes simpler for the boss: posi- ation of their subordinates’ first impressions. tive actions receive more goodwill credit, while Frequent contacts in the developmental stages of unexpected demands and errors incur smaller losses. the relationship help bosses to establish the rules of Conversely, as we have seen, early errors can prove engagement with their subordinates, clarify their particularly damaging. expectations and explain key aspects of their lead- ership style. This kind of clarity goes a long way 4. Intervene Early. When bosses feel that they’re toward preventing bad dynamics, which are so not getting the credit they deserve from subordinates often fueled by unstated expectations and misun- or sense that certain subordinates are not engaging, derstandings over priorities. they have to make an effort on two fronts: To establish a rapport. Time is the new leader’s Beware of labeling. Some subordinates may be scarcest resource. Investing precious time in individ- more marked by past experiences than others and uals signals the boss’s commitment to them. may take longer to come around to the new leader’s Developing a rapport with subordinates reassures approach. This puts the onus on the boss to maintain them that employees will be respected as individuals sufficient mental bandwidth to react productively to even if their performance falls short of their own and the reticence of these subordinates and resist jump- their boss’s expectations. It also helps to decrease anxi- ing to hasty conclusions about them or writing them ety and defensiveness associated with feedback, as well off prematurely. Bosses must remind themselves why as reluctance to approach the boss for advice. they want to give subordinates — particularly those who had complicated interactions with prior leaders 3. Be Mindful of One’s Own Behavior. New lead- — a real chance to connect, and must realize that this ers often overestimate the extent to which their good process cannot be instantaneous. intentions and good character will shine through. Act quickly. If in spite of the leader’s proactive ef- Demonstrating one’s “authentic self” does not mean forts a malaise seems to be developing, it is critical to “being natural.” Rather, it requires managers to seize act quickly. Managers often withhold negative feed- everyday opportunities to demonstrate that they are back at the outset, assuming that it might spoil the trustworthy, supportive and fair. The subordinate of development of a working relationship. But if a sub- one outstanding leader in our study recalled: “When ordinate is doing something that concerns the boss, I first started working with him, I had the feeling that that employee needs to be told sooner rather than he was not very open to employee input. So I would later. While it may not be pleasant for either party, go: ‘Yes, yes, OK. I’ll do that. Whatever you say.’ And corrective feedback delivered early can be accepted as the second or third meeting he said: ‘You can push part of the normal adaptation process. Delayed inter- back on me, you know. I’m not always right.’ So I’ve vention only raises the threat and embarrassment

50 MIT SLOAN MANAGEMENT REVIEW SUMMER 2009 SLOANREVIEW.MIT.EDU attached to the issue. It gives the feedback a punitive 5. J.P. Forgas, “Affect and Information Processing Strate- edge and reduces the chances that the subordinate gies: An Interactive Relationship,” in “Feeling and Thinking: The Role of Affect in Social Cognition,” ed. J.P. Forgas will react constructively. Often, what prevents bosses (Cambridge: Cambridge University Press, 2000), 253-280. from entering this discussion is the assumption that 6. L. Ross, “The Intuitive Psychologist and His Shortcom- they know what is driving the behavior or outcome ings: Distortions in the Attribution Process,” in they perceive, be it lack of skill, judgment or effort. “Advances in Experimental Social Psychology,” ed. L. Berkowitz (New York: Academic Press, 1977), 173-220. When bosses make the effort to check, they often dis- 7. For example, H. Kelley, “The Warm-Cold Variable in cover that they have misread the situation, First Impressions of Persons,” Journal of Personality 18 misunderstood the subordinate’s conduct or motives (1950): 431-439; and D.J. Simons and C.F. Chabris, “Goril- or overlooked mitigating factors (e.g., lack of train- las in Our Midst: Sustained Inattentional Blindness for Dynamic Events,” Perception 28 (1999): 1059-1074. ing, lack of time, too many responsibilities, unclear 8. S.L. Hannigan and M.T. Reinitz, “A Demonstration and instructions or personal circumstances, such as fam- Comparison of Two Types of Inference-Based Memory ily problems). The fact that the boss is willing to Errors,” Journal of Experimental Psychology 27, no. 4 double-check to see if his initial reaction is right gives (2001): 931-940. employees proof that they will be evaluated fairly. 9. P.M. Sias, “Constructing Perceptions of Differential Treatment: An Analysis of Coworker Discourse,” Com- munication Monographs 63 (1996): 171-187. Forewarned Is Forearmed 10. S.G. Barsade and D.E. Gibson, “Why Does Affect While bosses certainly need to work on their own be- Matter in Organizations?” Academy of Management havior, the other side of the equation is equally Perspectives 21, no.1 (2007): 36-59. important: subordinates are not blameless or power- 11. K. Leung, S. Su and M. Morris, “When Is Criticism Not Constructive? The Roles of Fairness Perceptions and Dis- less victims. The fact is that they have collective positional Attributions in Employee Acceptance of Critical histories and individual sensitivities, as well as anxi- Supervisory Feedback,” Human Relations 54, no. 9 eties and mental biases, and that these sometimes (2001): 1155-1187. can make it extremely difficult for bosses to be effec- 12. E.R. Hirt, R.K. Deppe and L.J. Gordon, “Self-Reported Versus Behavioral Self-Handicapping: Empirical Evidence tive leaders. Bosses, therefore, must try to understand for a Theoretical Distinction,” Journal of Personality and the interpersonal context they are walking into be- Social Psychology 61, no. 6 (1991): 981-991. fore they get sucked into a vicious circle with one or 13. D.T. Gilbert, B.W. Pelham and D.S. Krull, “On Cogni- more subordinates. As Mahatma Gandhi famously tive Busyness: When Person Perceivers Meet Persons Perceived,” Journal of Personality and Social Psychology put it: “The moment there is suspicion about a per- 54, no. 5 (1988): 733-740. son’s motives, everything he does becomes tainted.” 14. R.M. Dienesch and R.C. Liden, “Leader-Member Exchange Model of Leadership: A Critique and Further Jean-François Manzoni is a professor of leadership Development,” Academy of Management Review 11 and organizational development at IMD in Lausanne, (1986): 618-634; and, more recently, M.C. Bolino, Switzerland. Jean-Louis Barsoux is a senior research “What About Us? Relative Deprivation Among Out- fellow at IMD. Comment on this article or contact the Group Members in Leader-Member Exchange authors at [email protected]. Relationships,” Academy of Management Proceedings (2007): 1-5. REFERENCES 15. F. Dansereau, G. Graen and W. J. Haga, “A Vertical Dyad Linkage Approach to Leadership Within Formal 1. For example, J.F. Manzoni and J.L. Barsoux, “The Set- Organizations: A Longitudinal Investigation of the Role Up-to-Fail Syndrome,” Harvard Business Review 76, no. Making Process,” Organizational Behavior and Human 2 (March-April 1998): 101-113. Performance 13 (1975): 46-78. 2. R.C. Liden, S.J. Wayne and D. Stilwell, “A Longitudinal 16. R.A. Eckert, “Where Leadership Starts,” Harvard Study on the Early Development of Leader-Member Business Review 79, no. 10 (November 2001): 53-60. Exchanges,” Journal of Applied Psychology 78, no. 4 i. J.F. Manzoni, “Use of Quantitative Feedback by (1993): 662-674. Superiors: Causes and Consequences” (D.B.A. diss., 3. L.M. Andersson, “Employee Cynicism: An Examination Harvard University Graduate School of Business Admin- Using a Contract Violation Framework,” Human Relations istration, 1993). 49, no. 11 (1996): 1395-1418. 4. K.J. Dunegan, “Leader-Image Compatibility: An Image Reprint 50434. Theory View of Leadership,” Journal of Business and Copyright © Massachusetts Institute of Technology, 2009. Management 9; no. 1(winter 2003): 61-77. All rights reserved.

SLOANREVIEW.MIT.EDU SUMMER 2009 MIT SLOAN MANAGEMENT REVIEW 51 SUMMER 2007 VOL.48 NO.4

Lynda Gratton, Andreas Voigt and Tamara Erickson

Bridging Faultlines in Diverse Teams

Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the article appears as originally published. REPRINT NUMBER 48411 O r g a n i z at i o n Bridging Faultlines in Diverse Teams

Project teams can fly

or founder on the ompanies create diverse teams to take on their most complex challenges — demographic attributes tasks across boundaries, functions and geographies that no single department or function could accomplish. Yet guiding these diverse teams to success re- of team members and C quires some counterintuitive management practices. In particular, team leaders should focus on tasks at the early stages, rather than on interpersonal relationships, the fractures they can and then switch to relationship building when the time is right. create. Here’s how to In a recent study of teams at large companies, we found that diverse membership of teams and task forces is becoming the order of the day. Take Nokia Corp., which frequently recognize the potential brings together disparate talent from different departments among its businesses around for division, and how the globe, while at the same time partnering with many external suppliers. Or consider the British Broadcasting Corporation, which routinely creates huge teams for events, such as to respond in time when the production and broadcast teams for the 2006 FIFA World Cup and the 2008 Olympic Games. These typically involve groups of more than 100 people, a high proportion of whom team fractures do arise. are not full-time employees. Team members often represent more than 15 different nation- alities, with skill sets ranging from electrical work to intellectual property, from scheduling to production. The BBC’s teams also face the daunting challenge of a one-shot deal for Lynda Gratton, which execution has to be right the first time. Andreas Voigt and The challenges that Nokia and the BBC face are by no means unique. Between 2004 and Tamara Erickson 2006, we partnered with executives from 15 large European and American companies to study 55 of their teams. What was most striking about these teams was their sheer size and complex- ity. The diversity of Nokia’s design team — with men and women of many nationalities and with a wide range of ages, representing multiple functions from many different businesses — was repeated in companies in many different industries from across the globe. Companies in the media industry (such as Reuters Group PLC and the BBC), in telecommunications (such as France Telecom and Canadian wireless giant Rogers Communications Inc.) and in banking (such as Royal Bank of Scotland and Lehman Brothers Inc.) all employ large and diverse teams to attack some of their most difficult problems. Many of the teams in the study numbered more than 50 people, all had more than three nationalities represented and most brought in people from several functions and businesses. (See “About the Research,” p. 24.)

Lynda Gratton is professor of management practice at London Business School. She is the author of Hot Spots: Why Some Teams, Workplaces and Organizations Buzz With Energy — and Others Don’t (San Fran- cisco: Berrett-Koehler Publishers, 2007). Andreas Voigt is a research assistant in organizational behavior at London Business School. Tamara Erickson is president of the Concours Institute, the research and education arm of the Concours Group, a professional services company headquartered in Kingwood, Texas, and a coau- thor of Workforce Crisis: How to Beat the Coming Shortage of Skills and Talent (Boston: Harvard Business School Press, 2006). Comment on this article or contact the authors through [email protected].

22 MIT SLOAN MANAGEMENT REVIEW SUMMER 2007 sloanreview.mit.edu sults. Some teams broke up in acrimony and bad feeling; some foundered in incompe- tence. They were a litany of what could go wrong. Many executives had been trained to manage rather simple teams but were sur- prised at just how hard it is to create a high-performing team of diverse people. Analyzing these problems uncovered two root failures. The first was a failure of collabo- ration, in which team members did not develop trust and goodwill among them- selves.3 The second was a failure of knowledge sharing, in which team members withheld their individual knowledge from other team members or from other teams.4 Why is it so fiendishly difficult to enable high-performing, diverse teams? To under- stand the nature of the collaborative and knowledge-sharing failures, we looked closely at the demography of the teams. Using com- plex statistical modeling, we created a unique demographic profile for each team that took into account team members’ ages, genders, nationalities, education levels, functions and tenures within the company. The model ex- amined the configurations as a whole and the interplay of different demographic attributes. Close examination of these team dem- ographic profiles revealed that in many cases the failures in collaboration and knowledge sharing were a direct result of faultlines — subgroups or coalitions that emerge naturally within teams, typically along various dem- ographic lines. (See “An Overview of Faultline Theory,” p. 25 for causes and characteristics Companies form these teams precisely because they bring to of faultlines.) These faultlines split the teams into subgroups bear the range of experiences and attitudes that will ensure that that were based on shared demographic characteristics. When the final product or service will be market-sensitive and innova- faultlines emerge, subgroups rarely collaborate with other sub- tive — more so than an offering designed by a group of people groups, instead tending to share knowledge only within their with similar characteristics.1 Paradoxically, however, the very subgroup. Yet knowledge sharing across subgroups is critical for nature of team diversity often creates challenges that reduce the complex teams to operate effectively.5 team’s innovative capacity and even significantly lessen its overall Despite the emergence of faultlines in many of the 55 teams, effectiveness. So while business heads may wish for innovation some teams were able to work collaboratively and share knowl- through diversity, what they sometimes achieve is reduced pro- edge. Deeper analysis of these productive and innovative teams ductivity and efficiency.2 showed that a defining factor was the behavior of the team leader and the way in which she or he structured the leadership role. How Diverse Teams Fail, and How Some Succeed Thus, although faultlines are a common hazard, some executives The teams in our study failed in many different ways. Some are able to reduce the problems associated with diverse teams could not deliver on time; others fell short of the hoped-for and, indeed, to enhance the benefits. productivity; still others were unable to produce innovative re- In particular, the executives’ leadership style and the manner

SUMMER 2007 MIT SLOAN MANAGEMENT REVIEW 23 O r g a n i z at i o n

clients. Many of the client’s needs were standard, but meeting About the Research their expectations would require the creation of a rather complex service and delivery process. A business unit head was assigned We studied 55 workgroups in 15 European and American leadership of the new project and given charge of a core group of companies (ABN AMRO, BBC, BP, Citigroup, France Telecom, 22 people. She had to bring together the remainder of the team, Lehman Brothers, Marriott, Nokia, PricewaterhouseCoopers, which was expected to total 48 people, from the four countries in Reuters, Rogers Communications, Royal Bank of Scotland, which the client had significant operations (Germany, the United Siemens AG, Standard Chartered Bank and XL Global Serv- States, Japan and France), drawing from three functions (tech- ices). The study was based on a quantitative survey of nology, marketing and operations). Although this may seem a 1,543 members of the workgroups and their leaders. The rather large and diverse team, many of the teams studied were of teams ranged in size from four to 184 people, with an av- a comparable size and complexity. erage team size of 43 members. Most of the teams were diverse in terms of gender (32% women), age (ranging Initial Faultline Formation Is Based On Surface-Level Attributes from 4% under 25 to 15% over 46), nationality (26% Brit- The telecom team members began to get to know one another ish, 23% American, 23% European, 15% Asian and 13% rest of world) and education level (7% high school diploma, through face-to-face encounters and e-mails. Within a short 50% undergraduate degree, 37% master’s degree, and 6% time, however, the initial faultlines began to emerge. These fault- doctorate). We achieved a 64% response rate. lines were drawn around readily detectable demographic We measured demographic faultline strength along six attributes — for example, the team members’ age, gender and demographic variables: gender, age, nationality, educa- functional background. Team members typically use obvious tion, work function and tenure in the company. We characteristics to assign themselves and others to subgroups. In applied a statistical procedure that produced an overall this team, an early faultline emerged between a subgroup of male quantitative index of faultline strength by combining the technical engineers and a subgroup of female marketing special- effects of all individual attributes. We used multiple re- ists. Other subgroups rapidly emerged: for example, between gression analyses to identify the faultlines and to control people of French nationality (many of whom had been in the for the size of the group, the degree of task complexity, company for years and were typically in their 40s and 50s) and the geographical distance between team members and Americans (many of whom had joined the company recently and industry-level differences. were in their 20s and 30s). Note that none of these subgroups was based on a unitary dimension but rather on the combination of multiple dimensions (gender and function in the first case; na- in which they prioritized actions significantly reduced the extent tionality, age and job tenure in the second). A strong faultline to which faultlines hindered collaboration and the flow of knowl- emerged because the team members fell into distinct, nonover- edge. By studying the way these executives behaved, we are able lapping subgroups based on demographic attributes. (See “The to make recommendations about leading diverse teams. How- Emergence of Faultlines in a Telecom Team,” p. 26.) ever, while some of the recommendations are straightforward, As a rule, when subgroups emerge within complex teams, each others are deeply counterintuitive and defy the received wisdom tends to see itself as an “in-group” — people like us, who we like about good management practice. because we have something in common — and those across the boundary of the faultline as an “out-group” — people not like us, The Emergence of Faultlines whose interests we may find puzzling. Each subgroup within the To illustrate this seeming paradox, consider a team from a tele- telecom team collaborated closely among its members, who all com company in our study. Think of the faultlines in this team got to know, like and trust one another. In a sense, what each as analogous to geologic fractures in the Earth’s crust. Like geo- subgroup was doing was learning more about what its members logic fractures, faultlines can remain dormant and invisible for already knew. This deepening of knowledge can be crucial as a some time. Geologic fractures explode as earthquakes when put team builds professional insight and muscle. However, for a team under immense pressure. The same is true of team faultlines, to become truly innovative, the combination of knowledge across which cross multiple layers of demography. In many cases, the subgroups is essential.6 tensions of the faultlines emerge under the pressure of a com- As members of the telecom team’s subgroups began to iden- plex, time-dependent task. tify more strongly with one another, the team leader came to The stated goal of the telecom team was to bring together understand that the emerging faultlines had negative conse- several parts of the business to build an innovative product and quences. The dealings across the subgroups became a source of service offering for one of the company’s major multinational tension and conflict, particularly under the pressure of task dead-

24 MIT SLOAN MANAGEMENT REVIEW SUMMER 2007 sloanreview.mit.edu lines. For example, the predominately male engineers at one stage orientation and switching to a task orientation. (See “The Four refused to allow the predominately female marketing group ac- Paths of Leadership Style,” p. 27.) cess to some of their product findings. The story was that this information was too technically sophisticated for the marketing Path 1: Task Orientation In this pathway, the team leader uses a function; the reality was that the engineering subgroup did not strong and consistent task-oriented leadership style, as perceived want to let go of their valuable knowledge. The subgroups just by team members, during the entire life of the team or project. didn’t seem to understand one another — they did not know the The leader can do this by creating a detailed project plan, build- other’s interior language, and they did not understand the other’s ing tight schedules for the work and emphasizing performance key concepts and models. goals that are high but realistic. This type of leader places great emphasis on the task at hand, so he or she strives to remain ac- Deep-Level Attributes Come Into Play At Later Stages of Team cessible at all times and provide information that team members Development As complex teams develop and group members get need to carry out their day-to-day work. Leaders who follow this to know more about one another, a deeper layer of faultlines pathway are often technically proficient — and they see their role becomes visible — this time based not on surface-level attri- as providing the team with the technical and specialist assistance butes but rather on subtler, deep-level attributes such as personal critical to the task. values, dispositions and attitudes. At the time of a team’s forma- tion, these deeper-level attributes are not visible. They emerge as Path 2: Relationship Orientation This type of leader places par- team members interact with one another and reveal themselves ticular emphasis on the culture of the team and on the extent through their actions, words and what they choose to disclose and depth of relationships among team members. They do this about their personal lives.7 by treating team members with kindness and respect, encourag- In the telecom company team, a later set of subgroups also ing a climate of trust and cooperation and providing recognition formed around values, disposition and attributes. A faultline surfaced between those members with cooperative values An Overview of Faultline Theory and a subgroup of people with more competitive values. Faultline theory explains how a combination and the configuration of the attributes of team members can influence the team’s behavior and ultimately its performance. The The Leader’s Role in Faultlines attributes that drive faultlines can be surface-level or deep-level. Readily detectable at- In the geological analogy to faultlines, tributes such as gender, age, nationality and education are surface-level. Underlying, various external factors (such as pres- or deep-level, attributes include values, personality and knowledge. sure) have an impact on how a fault Strong faultlines emerge in a team when there are a few fairly homogeneous actually fractures. Similarly, many as- subgroups that are able to identify themselves. Weak faultlines can emerge in two pects of a team’s context can affect the rather different configurations. Faultlines generally do not emerge, or do so only extent to which faultlines impact the weakly, when all the members of the team are rather similar (for example, the same age and job function). However, at the other end of the spectrum, faultlines also are team’s performance. Two examples are unlikely to emerge when there is heterogeneity — when the members of the team the extent of the cooperative culture in are all very different from one another (for example, different ages and working in which the team operates and the de- different job functions). gree to which team members believe Strong faultlines are particularly likely to emerge when all the demographic attrib- senior executives work across bound- utes of the members of the subgroups form distinct, nonoverlapping categories. For aries. The most important factor in example, a strong faultline will emerge if all women in a team are over 50 years old and determining whether destructive fault- all the men are under 30. In this example, gender and age have formed a single, strong lines emerged was the style of leader, faultline. and in particular the extent to which Whether a faultline emerges depends on how apparent the attribute is to members the group’s leader was task-oriented or of the team. As the team members get to know each other better and learn what is relationship-oriented.8 Some leaders in similar and what is different, the possible sources of potential faultlines increase. the study were able to adjust their lead- Strong faultlines can create a fracture in the social fabric of the team. This fracture ership styles as the project progressed, can become a source of tension and a barrier to the creation of trust and goodwill and to the exchange of knowledge and information. Inevitably, therefore, when strong beginning with a task orientation and faultlines emerge, the team’s creative and innovative capacity is severely limited. then switching to a relationship orien- tation, or beginning with a relationship sloanreview.mit.edu SUMMER 2007 MIT SLOAN MANAGEMENT REVIEW 25 O r g a n i z at i o n and appreciation for individual and group accomplishments. cialize, their differences become more apparent, and the fractures These leaders are often skilled communicators and listeners. in the team can solidify. In fact, a leader can significantly mitigate faultlines — but not Path 3: Task Orientation, Switching to Relationship Orientation In this in the most obvious manner. To increase collaboration and pathway, the leader begins with a strong task-oriented style by knowledge sharing across teams with strong faultlines, leaders setting targets and scheduling work. As the project progresses, need to vary their leadership style according to how long the these leaders encourage team members to collaborate with one team has been together. There are times when a task-oriented another and work to increase the general trust and goodwill style works very well and other times when a relationship orien- within the team. tation would be more appropriate.

Path 4: Relationship Orientation, Switching to Task Orientation This Recommendations For Leading Diverse Teams type of leader begins by creating a feeling of trust within the The leaders of complex teams should take four actions: team, putting an emphasis on socialization and meetings. As the project progresses, these leaders move to a more task-oriented 1. Diagnose the Probability of Faultlines Emerging At the outset of approach by setting clear goals and standards and carefully a project, team leaders should think very carefully about the monitoring the group’s progress. diversity in their team and strive to predict as accurately as pos- Which, if any, of these leadership paths is most appropriate sible the probability of faultlines emerging. (See “The when there are strong faultlines in a team? Where it is likely Probability of Strong Faultlines Emerging in a Team,” p. 28 for strong faultlines will emerge, the natural tendency of many lead- a short questionnaire that provides a way of gauging this likeli- ers is to encourage team members to come together through hood.) It is important to remember that faultlines are not a meetings and socializing. In effect, these leaders take Path 2. natural result of diversity per se but are found in situations of However, this leadership action actually increases the likelihood moderate diversity, when a team is neither very homogeneous that faultlines will strengthen: when team members simply so- nor very heterogeneous in member attributes. A medium de- gree of diversity leads to the emergence of only a few fairly homogeneous subgroups. The divides between these subgroups create the tensions that The Emergence of Faultlines in a Telecom Team can impede the team’s functioning. If there is a high probability of subgroups and Faultlines quickly emerged around obvious demographic attributes with faultlines emerging, then the leader should empha- the formation of a team in a telecommunications company. None of the size a task-oriented leadership style in the early subgroups was based on a unitary dimension but rather on the combina- stages of the project. tion of multiple dimensions (gender and function in the first case; nationality, age and job tenure in the second). 2. Focus on Task Orientation When a Team Is Newly Formed As previously mentioned, the inclination for many leaders when they saw faultlines emerg- French ing in a new team was to focus on the relationships between members of the subgroups. The leaders created opportunities for people to get to know one another better, hoping that socializing would American cause the faultlines to be bridged. Yet this exacer- bates the problem. Simply put, in a team’s early going, the more people interact with one another, the more likely they are to make snap judgments Male Engineers and to emphasize their differences. A better strategy for leaders of teams with poten- Female Marketers tial faultlines is to create energy around the task itself. This was clearly visible in teams at the Royal Bank of Scotland. In these teams — even those with strong faultlines — collaboration and knowledge sharing were strengthened through a host of task-

26 MIT SLOAN MANAGEMENT REVIEW SUMMER 2007 sloanreview.mit.edu began with a task orientation, coordinating the The Four Paths of Leadership Style team’s activities, creating clear schedules and providing technical support. This support from The most important factor in determining whether destructive faultlines the top initially ensured that the subgroups emerged in a team was the style of its leader and, in particular, the extent learned more about each other and began the to which the leader acted along a continuum of task orientation and rela- process of sharing knowledge. At the same tionship orientation. time, the leader’s capacity to clearly state the team’s mission and create a common goal en- Path 1 sured that the subgroups became strongly Task-Oriented Path 4 aligned to a common purpose despite the fault- lines already running through the team. The members of the team began to feel that they were united in a goal that was greater than the Time differences among the subgroups. Over time, however, deep-level faultlines in this complex and diverse team began to emerge Path 3 and become increasingly important. The major Path 2 faultlines initially had formed around func- tional specialization and nationality. The Relationship-Oriented media team’s creative designers came mostly from the West Coast of the United States, while the production teams were located on the East oriented characteristics. At the beginning of team formation, Coast and in Germany. These differences were bridged by the leaders created very detailed descriptions of realistic perfor- clear sense of a shared task and goals created by the team mance goals. Next, the work was planned and scheduled with leader. Later, though, subgroups began to form around the at- precision: Every project was on a 30-day, 60-day or 90-day time- tributes and personalities of group members. A subgroup of table. At this early stage, much effort was focused on providing high-energy, highly competitive people (known as Type A per- the necessary resources and coordinating team members’ activi- sonalities) began to form. These are people who like to work ties. Team members learned about one another’s skills and under pressure and create pressure for others, who enjoy the competencies rather than about their personalities and lives. rush of adrenaline and love competing.9 Members of this sub- This task orientation focused the attention of team members on group were drawn from the West and East coasts of the United performance and requirements. Subgroups did emerge, but they States and from Germany; some were men, some were women; revolved around task-oriented characteristics such as functional some old, some young. Their deep-level Type A characteristic expertise and education, rather than personality differences. By cut across the surface-level characteristics. learning who they could go to for particular types of informa- As the original faultlines began to be bridged through a tion, the subgroups at Royal Bank of Scotland were able to move shared task, this new personality-based, deep-level faultline be- swiftly into the task itself came an increasing source of conflict and tension. Those outside However, while this approach increases the early effectiveness the Type A category created names for them (“the crazies,” “the of teams, it is not as useful for dealing with some of the tensions no-lifers”), while the Type A subgroup became frustrated by that later emerge, such as around deeper personality traits and what they saw as slowness and a lack of focus from the others. differences in values. To do this, team leaders must learn how and The task-oriented leader — who also had a Type A personality when to switch leadership styles. — failed at this point to switch styles, instead continuing to plan, organize, schedule and create tasks. Since the Type A subgroup 3. Learn When to Make the Switch Focusing on the task is crucial was the most vocal (and the team leader was a member of the to the early effectiveness of a team in which strong faultlines are subgroup), the schedules simply became faster- and faster-paced expected to emerge. However, if the team is to be effective in the and the task demands more and more frequent. Conflicts arose longer term, then the leader has to switch styles from task ori- often, and those outside the Type A subgroup became more iso- entation to relationship orientation. If the leader fails to make lated, demotivated and unhappy. this switch, the team will slowly become less effective, as ob- This discord came to a head during a performance meeting. served in one of the media teams in our study. The team leader The business unit head overseeing the project criticized the team sloanreview.mit.edu SUMMER 2007 MIT SLOAN MANAGEMENT REVIEW 27 O r g a n i z at i o n leader for the lack of innovative ideas coming from the team. nance companies studied. At one point, tensions were coming The team was fast-paced, but the results were often boring and to the fore around different values and personalities among predictable. Looking back, this outcome should have been no team members. The team leader — who previously had been surprise: Some of the most creative members of the team were predominately task-oriented — was able to switch to a more not among the Type A subgroup, whose members were calling relationship-oriented style. Over the course of a few weeks, the all the shots. Yet those outside the dominant subgroup lacked the leader brought the team together for several social activities, power to slow down the program, argue for time for reflection surfaced and talked openly about the tensions the members of or get their creative ideas heard and discussed.10 the team felt and showed respect to the various work styles and The team leader had failed to read the signs that called values in the group. for switching from task-oriented leadership to relationship- oriented leadership. The Type A subgroup was able to dominate Developing Better Teams and Team Leaders by overly influencing the agenda and taking most of the So how does a team leader know when to switch from task ori- resources. entation to relationship orientation? The switch will be successful only at the point at which the team has sufficient 4. Switch to Relationship Building When the Time Is Right In the shared experience to have developed a clear protocol for com- media company example, the team leader had built an effective munication and coordination of activities and an established team but not an innovative team. The leader had failed to make operational structure.11 the switch that characterizes Path 3 of leadership. As a guideline, when all members of a team have developed A team leader did follow the third path in one of the fi- specific expectations for the project and have negotiated a

The Probability of Strong Faultlines Emerging in a Team

For team leaders: This short survey will show you the probability d. They are from different businesses and functions in the of a strong faultline emerging in your team. Rate your team company and from longstanding partners from outside the members against these four elements: company. e. They are from different parts of the company and include 1. The number of nationalities in the team longstanding partners of the company and new partners a. Team members are all of the same nationality. and customers of the company. b. There are two nationalities. 4. The values and aspirations of the team c. There are three to five nationalities. a. All members of the team have very similar values, disposi- d. There are six to 10 nationalities. tions and attitudes. e. There are more than 11 nationalities. b. Many members of the team share values, dispositions and 2. The current age, education and gender of the team members attitudes. a. The majority are the same gender and about the same age c. There is a clear divide between groups with regard to values, and have the same education level. dispositions and attitudes. b. The majority are the same gender and have the same educa- d. Many people have different values, dispositions and attitudes. tion level but are of different ages. e. There is a great deal of variety in values, dispositions and c. The majority are of the same age and have the same educa- attitudes. tion level and are both men and women. d. The majority are the same age and gender and have differ- Low probability of faultlines emerging: ent education levels. Scoring mostly a’s and b’s — The team is relatively simple and e. The team contains both men and women of different ages homogeneous, so it is unlikely that faultlines will emerge. and education levels. Scoring mostly e’s — The team is heterogeneous. Therefore, it is unlikely that faultlines will emerge. 3. The current business location of team members a. They are all from the same function and the same business. High probability of faultlines emerging: b. They are all from different functions in the same businesses. Scoring mostly c’s and d’s — This team has a high potential for fault- c. They are all from different functions and different busi- lines to emerge because a medium degree of diversity tends to lead nesses within the company. to the development of only a few fairly homogeneous subgroups.

28 MIT SLOAN MANAGEMENT REVIEW SUMMER 2007 sloanreview.mit.edu A leader can significantly mitigate faultlines. To increase collaboration and knowledge sharing across teams with strong faultlines, leaders need to vary their leadership style according to how long the team has been together.

widely accepted influence structure, then the time is right to 5. The challenge of team faultlines is currently being studied by several switch to a relationship-oriented leadership style. Instilling scholars. For an academic description of faultline theory, see D.C. Lau and J.K. Murnighan, “Demographic Diversity and Faultlines: The Com- confidence in the team and creating opportunities to socialize positional Dynamics of Organizational Groups,” Academy of at that point helps the development of new abilities and allows Management Review 23, no. 2 (1998): 325-340. the team to grow. However, if the team is still trying to learn 6. The study of in-groups and out-groups has been a central theme of the specifics of the project, clarify people’s roles and negotiate group analysis. For an overview of some of the key concepts, see, for example, H. Tajfel and J.C. Turner, “The Social Identity Theory of members’ status and authority, then the switch would come Inter-Group Behavior,” in “Psychology of Intergroup Relations,” ed. S. too early and would only amplify the underlying tensions be- Worchel and L.W. Austin (Chicago: Nelson-Hall, 1986), 7-24. tween subgroups. 7. The distinction between surface-level and deep-level attributes This provides important guidelines for managers who head has been explored in more detail in S.E. Jackson, K.E. May and K. diverse teams, which are tasked with some of the most impor- Whitney, “Understanding the Dynamics of Diversity in Decision-Mak- ing Teams,” in “Team Effectiveness and Decision Making in tant and difficult challenges that companies face. But it also Organizations,” ed. R.A. Guzzo and E. Salas (San Francisco: points to an important new development challenge for execu- Jossey-Bass, 1995), 204-261. For a more academic treatment of the tives. Not only do future leaders need to develop solid program theory, see D.A. Harrison, K.H. Price and M.P. Bell, “Beyond Rela- tional Demography: Time and the Effects of Surface- and Deep-Level management skills and confident interpersonal skills but they Diversity On Work Group Cohesion,” Academy of Management Jour- also need to learn which leadership style to emphasize, based on nal 41, no. 1 (1998): 96-107. their team’s needs and characteristics. Providing team leaders 8. Task orientation and relationship orientation are a continuum with a framework for assessing faultlines will give them the in- of leadership styles and have been examined in leadership re- search for more than a decade. For an overview of both, see G.A. sights needed to overcome the divisions and move teams toward Yukl, “Leadership in Organizations,” 6th ed. (Englewood Cliffs, achieving their, and the company’s, ultimate goals. New Jersey: Prentice-Hall, 2005). The distinction was first made in the 1950s in the seminal research by E.A. Fleishman, “The Descrip- References tion of Supervisory Behavior,” Journal of Applied Psychology, 37, no. 1 (1953): 1-6. 1. The power of integration on innovation has been described in L. 9. For a more detailed overview of Type A characters, see, for exam- Gratton, “Managing Integration Through Cooperation,” Human Re- ple, M.A. Chesney and R.H. Rosenman, “Type A Behavior in the source Management 44, no. 2 (2005): 151-158; and S. Ghoshal and L. Work Setting,” in “Current Concerns in Occupational Stress,” ed. C.L. Gratton, “Integrating the Enterprise,” MIT Sloan Management Review 44, Cooper and R. Payne (London: John Wiley, 1980), 187-212; and M. no. 1 (fall 2002): 31-38. Friedman and R.H. Rosenman, “Type A Behavior and Your Heart” (New York: Knopf, 1974), which provides a detailed description of the 2. Richard Hackman’s work on group dynamics provides early in- psychological construct. sights into the formation and maturation of teams; see, for example, J.R. Hackman, ed., “Groups That Work (and Those That Don’t): Cre- 10. The potentially negative impact of speed on creativity has been ating Conditions for Effective Teamwork” (San Francisco: explored by several scholars. See, for example, C. Mainemelis, Jossey-Bass, 1989). The difficulties of managing complex teams are “When the Muse Takes It All: A Model For the Experience of Time- described in L. Gratton, “Hot Spots: Why Some Teams, Workplaces lessness in Organizations,” Academy of Management Review 26, no. and Organizations Buzz With Energy — And Others Don’t” (San 4 (2001): 548-565. For an overview on time, see D.G. Ancona, P.S. Francisco: Berrett Koehler Publishers, 2007). Goodman, B.S. Lawrence and M.L. Tushman, “Time: A New Re- search Lens,” Academy of Management Review 26, no. 4 (2001): 3. The way in which teams collaborate with each other is increasingly 645-663. seen as central to their effectiveness. An overview of this argument is provided in S. Alper, D. Tjosvold and K.S. Law, “Interdependence and 11. For an overview of studies on the impact of time on group develop- Controversy in Group Decision Making: Antecedents to Effective Self- ment and processes, see S. Blount, ed., “Time in Groups,” vol. 6, Managing Teams,” Organizational Behavior and Human Decision “Research on Managing Groups and Teams” (Greenwich, Connecticut: Processes 74, no. 1 (1998): 33-52. JAI Press, 2004). 4. Knowledge sharing has been argued to be central to the innovative capacity of a company. See, for example, I. Nonaka and H. Takeuchi, “The Knowledge-Creating Company: How Japanese Companies Create Reprint 48411. For ordering information, see page 1. the Dynamics of Innovation” (New York: Oxford University Press, 1995). Copyright © Massachusetts Institute of Technology, 2007. All rights reserved. sloanreview.mit.edu SUMMER 2007 MIT SLOAN MANAGEMENT REVIEW 29 SPRING 2004 VOL.45 NO.3 MITSloan Management Review

Douglas A. Ready

Leading at the Enterprise Level

REPRINT NUMBER 45315 Leadingatthe Enterprise Level

or the past couple of decades, companies have focused on creating F strong leaders of business units and influential heads of functions — men and women responsible for achieving results in one corner of an organization. But they have not paid as much attention to a more important challenge: developing leaders who see the enterprise as a whole and act for its greater good. And that perspective has become increasingly necessary as companies seek to provide not just products but broad-based customer solutions. It is easy to understand why companies emphasized the development of strong unit and functional leaders. Since the 1980s, the dominant view has been that effective organizations are highly decentralized and therefore, in theory, able to respond more quickly to customers. As business units became increasingly autonomous, the leaders who reaped the most praise and attention were bold, independent business builders. The challenge for those in Many companies the corporate center was to manage, not to lead, and to be as hands-off as pos- have outstanding sible in their dealings with those running the businesses or the regions. But left unchecked, such autonomy can produce an organizational culture business-unit and defined by a take-it-or-leave-it, product-push mentality. The demise of com- panies that were icons of their industries, such as Digital Equipment Corp. or functional leaders Polaroid Corp., is evidence of this danger. These companies were once tech- but far fewer who nology leaders with great products, but the spirit of autonomy that they fos- tered eventually led to the creation of product silos overseen by powerful can act in the leaders. Customers had a choice: They could buy the products on offer or go elsewhere. When other companies began to offer better technologies, the two interests of the giants’ products were no longer competitive, and customers fled. corporate enterprise Today, even cutting-edge products are not enough to ensure customer loy- alty. Customers are stepping up demands for integrated solutions to their prob- as a whole. lems. While companies have developed new strategies for meeting those demands, many have yet to change their thinking about what constitutes effec- tive leadership in this environment. Decentralization itself is not the issue. The Douglas A. Ready main point is that solutions strategies cannot be implemented by leaders who have a product-push silo mentality. Until companies recognize this fact, they will be frustrated in their efforts to deliver integrated customer solutions by a gap between their strategies and their capabilities.

Douglas A. Ready is a senior lecturer on leadership development at the MIT Sloan School of Management. He also founded and leads the International Consortium for Executive Development Research in Lexington, Massachusetts. He can be reached at [email protected].

SPRING 2004 MIT SLOAN MANAGEMENT REVIEW 87 It is imperative, then, for companies to be able to identify and develop enterprise leaders — people who can deliver differenti- The Enterprise Leader’s Tasks ated value by bringing the total resources of their companies to their customers. In order to link strategy to leadership develop- Strategic competence and organizational character represent ment, they must be able to answer three questions: What are the what the company does and what the company is. Along these key elements of the enterprise leader’s job? Why is learning to two axes, enterprise leaders must articulate a compelling long- term strategic vision while inspiring people to execute in the lead at the enterprise level such a difficult challenge? And what short term; they must also create the cultural glue that bonds can companies do to identify and develop enterprise leaders? the company while serving as the catalysts of radical change.

The Enterprise Leader’s Job Strategic Vision On a simple level, an enterprise leader is anyone accountable for the economic and social welfare of the total enterprise, across divisions, businesses, functions and locations. An enterprise Building Strategic Capabilities leader might run a business unit or oversee a major function but Competence: Cohesive and Continuous “Doing” Identity Reconciling Reinvention will make decisions with the entire corporation in mind. In other Tensions words, “enterprise leader” is not a job title — the term represents a way of thinking and behaving. Effective enterprise leaders excel at four tasks that may be difficult to quantify but are essential to Competitiveness any company’s ability to compete. First, enterprise leaders focus organizational attention on the Organizational Character: customer, setting priorities and driving out distractions. Second, “Being” they build multiple organizational capabilities simultaneously, especially in the areas of strategic competence and organizational plexity brought on by so much opportunity. The group’s mantra character. Third, they reconcile the tensions — between growth for the next year was “ruthless prioritization.” PwC’s then-CEO, and stability, for example — which are embedded in any organi- James Shiro, was advocating an integration strategy to the firm’s zation. Finally, they create alignment by building consistency partners, but employees at the grass roots didn’t know what “inte- between an organization’s statements of purpose, its processes, gration” meant for them or what they were expected to do to bring and the skills and behaviors required of its people. These four it about. Absent a clear explanation, a generic term like integration broad tasks encapsulate some of the hardest work that a manager could be taken to mean “slow, bureaucratic decision making.” will ever attempt. A closer look at each aspect reveals the chal- The new team of senior leaders focused PwC’s businesses on lenges facing the enterprise leader. areas in which they could add value that would differentiate the firm from others in the industry. Given PwC’s emphasis on client Focusing Organizational Attention. Massive complexity is a service, the team made small but important changes to the strat- fact of life today, but successful enterprise leaders don’t ignore it egy: PwC would commit to becoming “intelligently integrated,” or run from it. Instead, they search it out and reduce it so that meaning it would integrate only if and when doing so would pro- others in the organization can focus on the firm’s customers. vide more value to its clients. The team also worked to repair the At PricewaterhouseCoopers, enterprise leaders brought order organization’s cultural compass. Although the two companies to chaos in order to successfully complete the merger that created had well-articulated values before the merger, PwC’s senior lead- the world’s largest professional services firm. In the late 1990s, ers created a compelling new set of core values that would serve when Price Waterhouse merged with Coopers & Lybrand, the as a code of employee conduct for the merged firm. They rallied newly combined company had 165,000 employees and con- the entire organization behind the new direction. Clients stopped ducted business in more than 120 countries. Demand for the new grumbling about the lack of focus and client knowledge, and firm’s services required the company to hire 1,000 professionals PwC, despite the slumping economy, emerged as the market force per week, on average, in order to keep up. But there was a down- envisioned by its leaders when they negotiated the merger. side, as within six months clients began complaining to senior executives that PwC’s client knowledge was slipping. The firm’s Building Capabilities. Companies can be thought of as what people were operating without the strategic purpose and cultural they do — as seen in their strategic vision and the way they exe- compass that they needed to be effective. cute it — and as who they are, as revealed by their organization’s PwC’s top 10 executives (the Global Leadership Team) then met code of conduct and cultural norms. The “doing” aspects of the with the top 50 senior managers at the next tier to reduce the com- enterprise leader’s job can be thought of as building strategic

88 MIT SLOAN MANAGEMENT REVIEW SPRING 2004 competence, while the “being” aspects are a matter of building Reconciling Tensions. It is all too common for a company’s top organizational character. Leaders with an enterprise perspective executives to play up the importance of managing innovation understand the importance of building strategic competence and and growth in order to remain competitive. Yet often in that same organizational character simultaneously. firm, the environment feels anything but innovative and the Consider how the enterprise leadership team at Continental focus of attention is on cost containment, not growth. Does that AG in Hanover, Germany, identified and built new organizational mean the company’s top team is deliberately deceptive or disin- capabilities when the company embarked on a large-scale strate- genuous? No, but the problem reveals one of the enterprise gic and cultural transformation. leader’s most difficult jobs: dealing with the inherent ambiguities In the mid-1990s, Continental was the world’s fourth-largest that stem from the notion of building strategic competence and tire manufacturer. It was an OEM supplier to many prestigious organizational character simultaneously. auto manufacturers and had a vibrant replacement business A couple of years ago, a large manufacturer with a well-devel- throughout Europe. But in a fiercely competitive market known oped culture of paternalism and a belief in lifetime employment for its tight margins, it was only modestly profitable. And the com- for its employees spotted an acquisition opportunity — a perfect pany’s newly appointed CEO, Hubertus von Grünberg, knew that fit for its growth strategy. The economic benefits of the deal, globalization would disrupt regional players such as Continental. however, would bear fruit only if the company shed 10,000 jobs He and his enterprise leadership team of 50 decided that the com- soon after the deal was struck. There was no chance to grow pany must transform itself from a European tire manufacturer into organically after the acquisition to salvage those jobs. The ana- something much more complex: a tier-one supplier of high-tech- lysts eyeing the deal, well aware of the paternalistic nature of the nology integrated wheel, brake and chassis systems to the global acquiring firm, signaled their uneasiness with the transaction in automobile industry. Cross-border strategic alliances and acquisi- the absence of major cost cutting beforehand. Even though the tions would be the key to the accomplishment of this objective. manufacturer was healthy and growing, its top management The obstacles to success were large. Continental had not grown team decided the deal was critical to its future. The company through partnerships or acquisitions, and thus its leadership then cut 5,000 of its own employees in order to win the analysts’ lacked both the mind-set and skills to carry out the new strategic approval of the purchase, guarding against a serious erosion of direction. Recognizing this reality, von Grünberg decided to its stock price. embark on a massive team-building and capability-building This example highlights the built-in tensions that top execu- effort. In conflict with his personal style (and level of comfort), he tives must wrestle with. In developing strategic capabilities, they engaged his enterprise leadership team in open dialogue on the have to balance their need to develop a vision of tomorrow with challenges facing the company. This was not as simple as it may the importance of making decisions that will satisfy customers sound: The monthly meetings were at first very tense — the exec- today. In managing organizational character, they need to build utives had to learn to trust von Grünberg, and the future direction strong cohesive cultures while being prepared to lead dramatic of the company was at stake. Over time, as it became clear that no change and reinvention. For the manufacturer, the success of its one would be punished for being honest, the tension abated and long-term strategy depended in part on a short-term path of the group’s members came to trust one another. cost cutting and job reductions — a move that was in direct The leadership group also worked intensively on practical conflict with the company’s longstanding organizational cul- matters, learning how to execute cross-border partnerships and ture. Although the company’s leaders went ahead with the acquisitions, to work across cultural boundaries and to lead reduction in head count, they eliminated as many jobs as possi- cross-border project teams. The company brought in some new ble through attrition and created outplacement centers for laid- executives who had such capabilities and dismissed others who off employees. demonstrated that they were unwilling or unable to change. Such ambiguities are never easily resolved, but they must not Within two years, Continental had achieved what it set out to get swept under the rug. The former CEO of British Petroleum do. After making several critical acquisitions from ITT Automo- (now BP Plc), Lord David Simon, once explained how he thought tive and undertaking a series of successful cross-border joint ven- of these tensions: “It’s very important for me and the other sen- tures in Indonesia and Eastern Europe, Continental continued to ior leaders here to behave in a manner that is deeply representa- make high-quality tires but was also well positioned to provide tive of BP’s culture, yet we must also be strangers in our own systems to the world’s automakers. A central ingredient of the company.” Only then would he and other top executives be able transformation’s success was the willingness and capacity of Con- to make necessary decisions in the company’s long-term inter- tinental’s leaders to subordinate the narrower interests of unit ests, even when they were at odds with the organization’s culture. and functional leaders and focus attention on doing what was More recently, BP’s current CEO, John Browne, has been quite right for the company as a whole and its customers. vocal about reinventing BP as an environmentally friendly com-

SPRING 2004 MIT SLOAN MANAGEMENT REVIEW 89 pany while it continues to explore aggressively for oil. Leadership satisfaction. Finally, the team identified mechanisms for renewal at the top today requires people who can handle tensions of the — committing to meet every few months, for example, to review type that are embedded in BP’s position. progress — which would help RBC avoid complacency. In less than one year, RBC’s enterprise leadership team reshaped Creating Alignment. One can find useful examinations of differ- the company’s strategy, changed relationships across divisions and ent aspects of the leader’s role in a variety of books and articles. revamped its performance and talent management processes. It Some stress how important it is for those at the top to provide successfully brought about the organizational alignment that was their organizations with purpose; others emphasize the need for needed to change RBC’s capabilities, culture and mind-set to one leaders to form culture or to stimulate innovation or growth. But that was focused on delivering integrated customer solutions. problems arise if companies treat such topics as stand-alone issues rather than as interlocking components of a system. Effective An Unnatural Act enterprise leaders are skilled at simultaneously managing five Having considered the key elements of the enterprise leader’s job, processes in order to create organizational alignment. This sys- companies then need to ask why developing such leaders is so dif- tems view of the enterprise leader’s role in creating organizational ficult. Indeed, there are three major obstacles built in to many alignment can be thought of as managing the five M’s: meaning, organizations that make developing enterprise leadership virtu- mind-set, mobilization, measurement and mechanisms for renewal. ally an unnatural act. In 2002, Canada’s RBC Financial Group had to realign the The first obstacle can be found in organizational culture, organization when it added a major new initiative to its shortlist which often favors unit over enterprise leadership. Senior leaders of strategic priorities. Having learned through research that its are role models, and the stories they tell and promotions they customers felt it was too focused on products, RBC planned to make build an implicit cultural image of what effective leadership transform itself into a firm that provided integrated solutions for means. In other words, when top teams make icons out of suc- all its clients’ financial needs. CEO Gordon Nixon referred to the cessful unit performers and reward them for their behaviors, they initiative as “implementing cross-platform leverage.” He con- create a powerful disincentive for managers to aspire to behave as vened RBC’s Group Council, made up of the company’s top 125 enterprise leaders. The cultural imagery of the unit leader as hero leaders, and asked for their help in creating the organizational makes it very difficult for a new model of leader to emerge. alignment needed to turn the new strategy into a reality. It takes leadership from the top to break the mold of cultural The enterprise leaders first had to acknowledge that there was norms. One of the first things Sam Palmisano did as IBM Corp.’s no shared sense of meaning in the company about the cross-plat- new chairman and CEO was to change the name of IBM’s Enter- form strategic initiative. There was no passion for the term and prise Leadership Group to the Enterprise Leadership Team. While little understanding of what cross-platform leverage would look that may sound trivial, this seemingly minor change sent a clear and feel like if it were operational throughout RBC. The enter- message that IBM’s culture of celebrating individual contributors prise leadership team met this challenge by shaping a collective and rewarding hero-leaders was coming to an end and would be definition of what cross-platform leverage would mean for every replaced by a strong emphasis on teamwork. business and in every function in the company. Next, the team A second obstacle to developing leaders with an enterprise conducted an audit of the company’s culture and mind-set and perspective is the emphasis on specialized expertise in many articulated the behavioral changes that would be needed, first by companies. Several consulting firms contend that the identifica- the team itself and then across the entire organization, to imple- tion, articulation and development of competencies should be ment the new strategy. The company would have to abandon the the cornerstone of a company’s leadership development efforts. strong unit-oriented culture that had been the norm at RBC for This view is so prevalent that it would be difficult to find a hand- decades. The profile of an effective executive at RBC would have ful of major companies whose leadership initiatives do not have to change from that of the strong individual performer to one competency frameworks as their foundation. And such frame- who mobilized resources across boundaries. works have much to recommend in them. The logic of compe- The enterprise leaders also examined which resources they tencies is linear, illustrating how company strategy is linked to would need to mobilize so that RBC could excel at the new strat- certain organizational capability requirements, which are con- egy. Processes and IT systems that didn’t support integration had nected to a set of skills and leadership behaviors that need to be to be replaced with knowledge-sharing processes that facilitated developed in order to execute the strategy. the improvement of client knowledge. The team also took a close Yet while competency frameworks provide anchors for under- look at metrics and incentives. Rewards that had been focused on standing leadership development requirements, they have tended individual and unit performance were replaced by those that to focus on individual rather than team development. The focus focused on enterprise performance and improvements in client on individual development can prevent people from taking the

90 MIT SLOAN MANAGEMENT REVIEW SPRING 2004 broader view and seeing the company as an interconnected whole, develop future enterprise leaders. This policy should also include with challenges that cannot be met by expertise in one area or suc- consequences for those who fail to cultivate such leaders. cess in one unit. Moreover, an excessive reliance on competencies tends to drive individuals to strengthen their particular expertise They create opportunities for next-generation enterprise lead- rather than to stretch themselves for new challenges, such as mak- ers to emerge. Top executives must reinforce the culture of ing the transition from unit to enterprise leadership. People end accountability by giving potential leaders the chance to develop up being overwhelmed by an ever-growing list of tasks and skills an enterprise view. While that may seem obvious, this critically in which they must demonstrate their competency. important step is often avoided on one pretext or another. At The third obstacle is that contrary to strategic goals, reward RBC, however, division leaders engaged in a widespread crossfer- systems — like many organizational cultures — often favor the tilization of talent to show they supported the company’s strat- accomplishments of individual units at the expense of corporate egy. They made key jobs available to high-potential senior success. Imagine a company in which the CEO and top team have executives in order to develop their enterprisewide perspectives. articulated an integration-based strategy that will require com- pany leaders to think and act across boundaries and on behalf of They install HR processes that support the company’s leader- the entire enterprise. Now imagine that the company’s reward ship development philosophies. Companies that effectively system offers leaders incentives for achieving unit success, even develop enterprise leaders create process infrastructures that sup- when they fail to behave as enterprise leaders. Which will win out port their leadership frameworks and leadership development in the end — a theoretical statement about integration or a pow- activities. Such infrastructures combat the “cream will rise to the erful incentive system that rewards unit performance? top” philosophy, in which leaders simply emerge because of their Senior executives create rewards to motivate employees to innate talent. They minimize the risk that their pool of enterprise pursue the business models established at the top. When those leaders will be too small for lack of enough cream. models change, changes to the reward structure often lag behind These companies differentiate between the skills and behav- changes to the strategy. Ironically, under those circumstances, the iors of unit and enterprise leaders. They have talent-tracking major problem with the system is that it is effective. Executives processes that spot “high potentials” as quickly as possible. They who have been rewarded for behaving as unit leaders for years provide multiple opportunities for those people to receive feed- will naturally struggle to behave as enterprise leaders. back early in their careers, enabling them to develop as unit or enterprise leaders. And they have career and performance man- Overcoming the Obstacles agement processes that don’t punish individuals for taking risks. Fortunately, companies are not helpless in the face of these This is important because companies often use the criterion of impediments to enterprise leadership development. The repeated success as a screen in determining who is, and who isn’t, approach to this issue taken by PwC, Continental, BP, RBC and a high-potential leader, making it risky for individuals to take on IBM holds lessons for other organizations. These companies, roles that might lead to their derailment. which differ by industry, size and strategic intent, have at least one thing in common: They focus attention on three ways of Bridging the Strategy-Capabilities Gap grooming individuals to be enterprise leaders. Many companies are populated with senior executives who are graduates of the leader-as-hero school of leadership. But as cus- They create cultures in which leaders are held accountable for tomers step up their demands for solutions, those companies will having an enterprise perspective. Top-team commitment is need to change their views on what constitutes effective leadership. critically important to the development of leaders with an enter- Increasingly, tomorrow’s senior executives will need to lead with an prise orientation. CEOs and top executive teams must not only enterprise perspective. It will take time to develop these leaders and believe in the importance of developing enterprise leaders, they even more time for them to learn how to come together in teams. must also do whatever it takes to create a culture of accountabil- Companies that fail to develop leaders who can work effec- ity — one that ensures that emerging leaders possess a cross- tively across unit, functional and geographic boundaries will be boundary enterprise perspective. unable to close the strategy-capabilities gap. But those that work To create that culture, top executives must develop a well- on identifying and developing their next generation of enterprise thought-out point of view on the importance and role of enter- leaders will be well prepared to deliver on the promise of provid- prise leadership in the company. The IBM Leadership ing innovative solutions for their customers. Framework is a prime example. Accountability-based cultures reward individuals for results, so it is important for companies to Reprint 45315. For ordering information, see page 1. make clear that they expect all leaders in the organization to Copyright  Massachusetts Institute of Technology, 2004. All rights reserved.

SPRING 2004 MIT SLOAN MANAGEMENT REVIEW 91 SUMMER 2004 VOL.45 NO.4 MITSloan ManagementReview

Vanessa Urch Druskat and Jane V. Wheeler

How To Lead a Self-Managing Team

Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the article appears as originally published.

REPRINT NUMBER 45410 How To Lead a Self-Managing Team

Teams that are basically left to run themselves can o get work done, many companies organize employees into self-managing teams be highly efficient and T that are basically left to run themselves with some guidance from an external leader. In fact, comprehensive surveys report that 79% of companies in the Fortune productive. To be successful, 1,000 and 81% of manufacturing organizations currently deploy such “empowered,” though, such autonomous “self-directed” or “autonomous” teams.1 Because of their widespread use, much groups require a specific research has been devoted to understanding how best to set up self-managing teams to maximize their productivity and effectiveness. Interestingly, though, relatively little type of external leadership. attention has been paid to the leaders who must oversee such working groups. At first, it seems contradictory: Why should a self-managing team require any lead- ership? After all, doesn’t the group manage itself? In actuality, though, self-managing By Vanessa Urch Druskat and teams require a specific kind of leadership. Even a team that is autonomous in terms Jane V. Wheeler of its activities and decision making must still continually receive direction from higher levels in the organization. And it also must report to that hierarchy through a person who is ultimately held accountable for the group’s performance. Many man- agers today are expected to fulfill the role of external leader, but most receive conflicting signals regarding how to go about it.2 Should they, for instance, be involved in their team’s decision-making process? If so, how should they par- ticipate without detracting from the group’s autonomy? To investigate such issues, we conducted a study of 300 self-managing teams at a large manufacturing plant of a For- tune 500 corporation. (See “About the Research.”) We investi- gated both average- and superior-performing external leaders at that site to determine the behaviors that separated one group from the other. Our research has shown that, contrary to common perception, the best external leaders were not necessarily the ones who had adopted a hands-off approach, nor were they simply focused on encouraging team members in various ways.3 Instead, the external leaders who had con- tributed most to their team’s success excelled at one skill: managing the boundary between the team and the larger organization. That process required specific behaviors that

Vanessa Urch Druskat is a professor of organizational behavior at the Whittemore School of Business and Economics at the University of New Hampshire. Jane V. Wheeler is professor of management at Bowling Green State University’s College of Business Administration. They can be reached at [email protected] and jvwheel@ cba.bgsu.edu.

SUMMER 2004 MIT SLOAN MANAGEMENT REVIEW 65 can be grouped into four basic functions: relating, scouting, telling them what to do, these teams gather and synthesize infor- persuading and empowering. (See “The Work of the External mation, make important decisions, and take collective responsi- Leader,”p. 69.) External leaders who excelled at those capabilities bility for meeting their goals. What’s left for the external leader to were able to drive their teams to superior performance. do? As one of the external leaders in our study remarked, “Maybe we’re not needed, you know?” Managing in No-Man’s Land But the reality is that the buck stops at the external leaders. As recently as the 1960s, self-managing teams were practically Specifically, companies hold them responsible for their team’s unheard of. Indeed, an early experiment by General Foods Corp. performance. If the quality or productivity of a team is substan- to deploy self-managing teams on its Gaines dog-food produc- dard, its external leader is taken to task. As another team leader in tion line more than 30 years ago was something of a sensation. our study noted, “The hardest part is that I’m also held account- Even, the company’s own senior management expected the proj- able. If they make the wrong decision, it still comes back on me.” ect to fail.4 Since then, self-managing teams have become an In essence, the job of external leader exists squarely in the middle increasingly popular way for companies to get work done. Even of a managerial no-man’s land. so, the role of the people in charge of those groups has remained Back in 1977, a field study published about that early experi- somewhat of a mystery. ment at General Foods revealed external leaders caught in the To be sure, leading a team that needs to manage itself is inher- middle: Their teams criticized them for being too controlling, ently tricky. The role is highly ambiguous by nature (and, on the while their own managers complained that they were being too face of it, oxymoronic). In general, self-managing teams tend to lax.5 Not long after, another research study looked at teams in have well-defined job functions and are responsible for monitor- other organizational settings and found that those three con- ing and managing their own performance. Instead of managers stituencies — team members, external leaders and their upper-

About the Research

We conducted a study of external lead- als selected, regarding critical incidents was demonstrated often by both average ers at a Fortune 500 durable-consumer- they recalled. The interviews were con- and superior performers.) goods manufacturing plant in the ducted blind to the “superior” or “aver- To help interpret the findings and Midwest. The facility employs more than age” status of the leaders. A content to develop our model of how these 11 3,000 people and is the world’s largest analysis of those interviews allowed us to behaviors emerge as the process of manufacturer of its particular product. develop an exhaustive list of actions and effective external leadership, we also We chose this site because it offered a behaviors that were noted consistently spoke with a total of 90 team members: rich research sample: The plant had tran- by superior leaders but not by average 52 in focus groups and 38 in one-on-one sitioned to self-managing work teams ones. Initially, our exhaustive list con- interviews. We supplemented that infor- almost five years prior to our data collec- tained approximately 30 behaviors that mation with interviews of the 10 man- tion, and there were 300 such teams we hypothesized made a difference agers to whom the external leaders reporting up through 66 external lead- between the “superior” and “average” reported, and we also collected informa- ers. This large pool of external leaders in performers. Iterative readings of the tion via questionnaires from the broader one location provided a wide range of interview transcripts helped us to win- group of senior managers and directors individuals in that role and allowed us to now down that list to the 11 distinct at the plant. control for organizational context. behaviors reported in this article. Two Furthermore, we later examined the Our method was to select samples of expert coders, who were blind to the applicability of our findings by interview- high-performing and average external “superior” and average” status of the ing external leaders at other organiza- leaders and to discover through inter- leaders, coded all transcripts for the tions and in different industries, views how their behaviors, strategies and presence of the 11 behaviors and deter- including those for product-development attitudes differed. We used three criteria mined the reliability of the codes. The groups in a design organization and for selecting our key participants: nomi- mean reliability was 92%. Statistical executive-level teams at a bank, a health- nations from team members, nomina- analyses also revealed that 10 of the care organization and a manufacturing tions from managers and objective behaviors were demonstrated signifi- company. This subsequent work suggests performance data for the leaders’ teams. cantly more often by the superior-per- that our results have broader applicabil- We then conducted intensive three-hour forming leaders. (The exception was ity for any leader of an empowered team, interviews with each of the 19 individu- “diagnosing member behavior,” which regardless of the group’s level or task.

66 MIT SLOAN MANAGEMENT REVIEW SUMMER 2004 External leaders find themselves caught in the middle: Their teams criticize them for being too controlling, while their own managers complain they are being too lax.

level managers — all had different ideas about the role.6 the superior ones tending to excel at relating, scouting, persuad- Unfortunately, that lack of consensus generally remains ing and empowering. Each function requires specific behaviors, today. Prior to and since our study, we have found confusion of which there are a total of 11. In the exhibit “The Work of the about the external-leader role in other companies and at all External Leader,” the relating activities are shown at the begin- organizational levels. Consider the senior executive of a large ning of the process because, without the formation of those rela- Midwestern bank who desperately wanted to empower his team tionships, external leaders will find scouting difficult. Scouting, of high-level bank executives but was unsure how to go about in turn, equips external leaders with the information they need that. When he attended meetings, he felt team members relied to persuade. And various aspects of scouting and persuading too heavily on his opinion, but when he stopped going to meet- help pave the way for greater empowerment of a team, which ings, he felt stuck in an information black hole. Even with his then contributes to the group’s ultimate effectiveness. many years of experience, he really did not know how to man- The well-known key to making self-managing teams work age that group. is to delegate considerable authority to the group, granting it The problem is that a self-managing team requires leadership tremendous flexibility in making its own decisions.11 What is of a very different sort. Researchers agree that the external-leader less well-known are the kinds of leadership activities and behav- role is more complex than the traditional manager role.7 This is iors that are needed to build the foundation for team empower- true partly because the typical external leader is in charge of sev- ment. Relating, scouting and persuading are those critical eral self-managing teams at any one time. (In our study, they building blocks. were responsible for as many as eight.) More importantly, the external leader absolutely must avoid Relating External leaders must continually move back and forth any heavy-handed attempts at managing. Case studies have between the team and the broader organization to build rela- shown that external leaders who struggle with their role usually tionships. Success in this area requires three behaviors: being end up exerting too much control, which then undermines the socially and politically aware, building team trust and caring for self-managing team’s ability to get work done.8 Because of that team members. and other issues, various researchers have labeled external lead- ers as the most common impediment to the success of self- Being socially and politically aware. During our research study, managing teams.9 we heard stories of both team triumphs and irritations. In one Confusion about the role of the external leader might be tol- case, an external leader recounted the time he allowed one of his erable if that function weren’t so crucial, but a variety of studies teams a freedom that was inconsistent with the company’s infor- have shown that the success of a self-managing team greatly mal policies. Later, he was taken aback by the backlash he experi- depends on its external leader.10 A newly created group, for enced from his peers in the organization. Recalls the leader, “This example, often needs both effective coaching and a champion person sends a note to my manager, to his manager and to my who can represent its decisions to other executives in the organi- colleagues … saying, ‘Since when did this policy change?’” The zation. Teams also depend on external leaders for help in acquir- leader was also vehemently attacked by another team leader for ing resources. That’s why it’s common to see an underperforming his “ineffective supervision.” team successfully turn itself around with only the change of its What happened? Clearly, the incident suggests a lack of external leader — or to see a once-great team suffer after its political awareness: The leader simply didn’t anticipate the external leader departs. impact of his decision on others. Nor did he perceive the need to build a broader consensus. Incidentally, in our study the per- Four Functions, 11 Behaviors formance of that leader had been categorized as average. By Although the essence of a self-managing team is autonomy, the contrast, the superior external leaders had consistently demon- quality of its link to the organization is pivotal to success. Some strated an understanding of the broader organization, including external leaders perform that role much better than others, with the individual concerns and decision-making criteria of impor-

SUMMER 2004 MIT SLOAN MANAGEMENT REVIEW 67 Average leaders tend to see team members’ personal problems as impediments, whereas superior leaders view them as opportunities to build relationships.

tant constituencies, such as the engineering and human decision making, especially when they wanted to persuade peo- resources groups. As one superior leader bluntly put it, “I’ve got ple to take into account broader organizational considerations. a good rapport with all those groups, and most things I ask for For example, when a team wanted to hire a colleague who had get done. … You can get moved to the top of the list for things filled in for absent members in the past, the group’s external in a hurry if you’re not [upsetting] people.” leader wisely decided to step in. The leader wanted his team members to be able to make their own choice, but he also sensed Building team trust. Superior external leaders also consistently that their lack of knowledge and respect for a new hiring policy recognized the value of building good relationships with their at the company could create problems with management. “I teams, even to the point of achieving insider status. Given that could tell this was going to be a sticky situation,” he recalls, the leaders had little time to spend with any one team, such because the new policy was more formal and favored candidates acceptance was far from automatic. In fact, one leader in our with greater seniority. So the leader talked to HR as well as other study was impeached by her team members, who did not trust external leaders as to how they filled their jobs. He then that she had their best interests in mind. Contrast that with the informed his boss about the situation and invited him to the experience of another leader who, when his team complained of team’s next meeting. At the meeting, the team members were problems with new equipment, said, “Whatever it costs, if you able to persuade the external leader’s boss to delay implement- guys aren’t happy with it, we’ll get another system in here … ing the new policy so that they could hire the person they because you’re the ones who are gonna have to work with it.”The wanted. By seeking and relaying all the pertinent information, team was incredulous. One member pointed out that the new the leader was able to enable his team to make its own decision system had cost $23,000 to install. (without disrupting the organization), which helped boost the team’s morale. Caring for team members. In our study, average leaders were Not surprisingly, external leaders who routinely sought more likely to see the personal problems of the team members as information from the broader organization were able to advo- impediments to getting work done, whereas superior leaders cate more effectively for their teams. They were able to help more often recognized them as opportunities to build relation- their teams gain valuable political awareness and build social ships. One superior leader described an incident in which one of capital for them — all of which would often pay off in less obvi- his employees had a problem with her disability leave. The leader ous, but no less important, ways. The team members themselves took it upon himself to call the insurance department in the realized the importance of having an external leader who could health center to clear the dispute, which had been an ongoing get information faster than they could, had access to data they source of worry for the worker. “It was … instant relief for that didn’t have and could easily make contact with upper manage- person,” recalls the leader. “It was not a big problem, but it was ment. On the other hand, when team members felt that an big to her.” external leader was not keeping them adequately informed, they tended to develop an “us against them” attitude. As one such Scouting To scout effectively, external leaders must demonstrate member put it, “[They] don’t want to give up information; it’s three behaviors: seeking information from managers, peers and their power.” specialists; diagnosing member behavior; and investigating prob- lems systematically. Diagnosing member behavior. Because external leaders are typically responsible for the performance of several teams, they Seeking information from managers, peers and specialists. are rarely on the scene when something critical occurs within a Superior leaders appeared to be significantly more likely to seek specific group. As a result, they must often gain insight after the information from others in the organization, whether as advice fact. To do so, they frequently need to add to their incomplete or simply in response to technical questions from the team. information by analyzing and making sense of verbal and non- Sometimes the leaders used that information to influence team verbal cues from team members. One leader described an

68 MIT SLOAN MANAGEMENT REVIEW SUMMER 2004 The Work of the External Leader

External leaders must perform 11 behaviors that can be grouped into four categories: relating, scouting, persuading and empower- ing. The behaviors are distinct but mutually reinforcing, and they require the external leader to continually cross the border between the team and the broader organization. In this model of external leadership, social and political awareness of the broader organiza- tion provides access to the individuals and groups that can help the leader best meet the team’s needs; strong relationships allow the leader access to information in the team and the organization, which aids the leader in making sense of the needs of both par- ties; good information enables the leader to encourage or persuade the team to behave in ways that facilitate the organization’s effectiveness; and the sense of control afforded by that influence allows the leader to empower the team more fully, resulting in greater team effectiveness.

Relating Scouting Persuading Empowering

1 Being 4 Seeking infor- 7 Obtaining socially and mation from external politically managers, support Organization- aware peers and Focused specialists Behavior Team Organization/Team Boundary Effectiveness Team- Focused 2 Building 5 Diagnosing 8 Influencing 9 Delegating Behavior team trust member the team authority 3 Caring for behavior 10 Exercising team 6 Investigating flexibility members problems regarding systematically team decisions 11 Coaching episode when his team had done months of benchmarking superior leader asserted. “When the line is down, I’m over there research to suggest a policy change to the directors of the organ- within a minute.” By collecting firsthand information from the ization. But the directors quickly shot down the proposal and team members, superior leaders were able to fully understand instead told the team members that their time might be better their group’s perspective, enabling them to make informed rec- spent improving their quality and productivity. When the ommendations that would be acceptable to their teams as well as leader heard the news he had mixed emotions. He was upset to external constituents. In contrast, average leaders were more because he knew how much time his team had spent on the pro- likely to attempt problem solving with less data or input from the posal, yet he also knew he had to support the directors’ decision team members. because, after all, he was part of management. So he went to the team members and started to give them a pep talk but quickly Persuading With respect to external leadership, effective persua- stopped himself. “I could tell they thought I was full of you- sion requires two behaviors: obtaining external support and know-what. You could see it in their eyes,” he recalls. So, he influencing the team. instead offered people a sympathetic ear and acknowledged their well-intentioned efforts. Obtaining external support. Teams often need support from Interestingly, both the superior and the average leaders in the broader organization, and superior leaders are able to per- our study talked about the need to read their team members form this advocacy role more effectively. One such leader accurately. In fact, it was the leadership capability they most remembered a time when his team members were having commonly identified as important. equipment problems. After talking with them, he used their ideas to sketch a new piece of machinery and came in during Investigating problems systematically. When superior leaders other shifts to gain additional input from other teams. He was got wind of a potential problem, they were significantly more then able to obtain management’s authorization to build the likely to deploy an inquisitive and systematic approach to inves- new piece of equipment. In our study, team members agreed tigate the matter. They would begin by asking the team members that leaders were most helpful when they were able to get the myriad questions to collect data and identify the issues, after attention of important external constituents. Average leaders which they might visit an external constituent to collect addi- seemed to seek such external support less frequently, and when tional information. “You’ve got to be down on the floor,” one they did they were less successful in obtaining it. One average

SUMMER 2004 MIT SLOAN MANAGEMENT REVIEW 69 Superior leaders develop strong relationships inside the team and across the organization; average leaders tend to relate well to one of those parties but not to both.

leader remembered an incident when he pleaded with the tant to note that the average leaders’ reluctance to delegate scheduling department to make a change for one of his teams. authority was not because they were leading the poorer-per- But because he had not built relationships with that department forming teams. In fact, many of the superior leaders in our and had not expended the effort to obtain the information nec- study had been transferred to a problem team and had worked essary to support his case, his request was denied. with it until they felt comfortable delegating authority. Eventu- ally, as the team gained more and more ownership, its perform- Influencing the team. Effective external leaders were also adept ance improved. at swaying their teams to decisions that best met the needs of the organization. Keep in mind that prior to doing so, these Exercising flexibility regarding team decisions. Sometimes a superior leaders had already established trust with their teams, team proposes something that is outlandish or that appears to had systematically investigated the problem at hand and had reflect poorly on its leader. In such situations, average leaders used their external contacts to obtain all necessary information. were likely to express their reservations, whereas superior leaders One superior leader, for example, collected statistics from the frequently replied with comments such as, “It’s not what I think; accounting department to persuade his struggling team to think it’s what you think.” One of the teams in our study, for example, of ways to improve its productivity. Using that data, the leader wanted to present its quarterly performance results at the depart- impressed upon his team how much the company lost in prof- ment meeting by performing a skit. At first, the team’s leader was its every minute a manufacturing line was down. “This is the a little hesitant because nothing like that had been done before money that we didn’t make,” the leader told the team. “If some- and the meeting would be attended by all of the managers in the body is cutting the line off just to eat a sandwich, it is costing organization. “I thought, ‘Oh, we could look so foolish on this,’” everybody.” Three months later, the group’s performance had she recalls. But she gave the team her approval and, as it turned improved markedly, and whenever the team was about to fall out, the skit went over well, which boosted the team’s sense of behind schedule, people would work a little longer to stay on cohesion and identity. Of course, teams don’t always make good track. Interestingly, those team members were going the extra decisions, and a major responsibility of external leaders is to pre- distance without their leader having to ask (let alone demand) vent serious mistakes. But even when a team has to be reined in, that they do so. superior leaders did so only after considering the proposal as open-mindedly as possible. Empowering External leaders of self-managing teams can empower those teams by demonstrating three behaviors: dele- Coaching. Coaching involves a number of activities, including gating authority, exercising flexibility regarding team decisions working one-on-one with employees, giving feedback to the and coaching. team and demonstrating certain behaviors (such as effective meeting facilitation) for others to model. Past research has Delegating authority. External leaders typically have great dis- found that superior leaders tend to be active in educating and cretion over the amount and type of authority that they dele- coaching others,12 and our study confirmed that. In particular, gate. In general, the superior leaders tended to empower their superior leaders focused on strengthening a team’s confidence, teams with more responsibility. For example, when one team its ability to manage itself and its contributions from individual was told by management that it had to move its assembly line, members. A common coaching behavior was for leaders to its leader left it up to the team to work out the details. “They work with people who had just taken on roles of greater respon- very much had ownership,” remembers the leader. “They knew sibility. For example, after a meeting in which people argued what we needed to do and took it from there. This needed to be for 20 minutes about coffee, one superior leader helped the their baby.” However, average leaders tended to be more fearful team member in charge to run more efficient meetings, first by about delegating authority, and they would often make deci- developing an agenda and then by keeping the group focused sions for the team and solve its problems covertly. It is impor- on that agenda.

70 MIT SLOAN MANAGEMENT REVIEW SUMMER 2004 Self-Management in the Long Run 2. M.M. Beyerlein, D.A. Johnson and S.T. Beyerlein, “Introduction,” in For external leaders to relate, scout, persuade and empower, M.M. Beyerlein, D.A. Johnson and S.T. Beyerlein, eds., “Advances in Interdisciplinary Studies of Work Teams,” vol. 3 (Greenwich, Connecti- they must frequently — but quietly — cross the boundary cut: JAI Press, 1996), ix-xv; C.C. Manz and H.P. Sims Jr., “Searching between the team and the broader organization. The idea that a for the ‘Unleader’: Organizational Member Views on Leading Self- leader must manage this boundary is certainly not new; past Managed Groups,” Human Relations 37 (1984): 409-424; and C.C. Manz and H.P. Sims Jr., “Leading Workers To Lead Themselves: The research has linked it to the effectiveness of traditionally man- External Leadership of Self-Managed Work Teams,” Administrative aged teams,13 and several studies of empowered teams have Science Quarterly 32 (1987): 106-128. proposed that it is the central focus of the external leader’s 3. See C.C. Manz, “Leading Workers To Lead Themselves.” role.14 Our own research supports those findings. Specifically, 4. R.E. Walton, “The Topeka Work System: Optimistic Visions, Pes- the superior leaders in our study were able to develop strong simistic Hypotheses and Reality,” in R. Zager and M.P. Rosow, eds., “The Innovative Organization: Productivity Programs in Action” (Elms- relationships both inside the team and across the organization. ford, New York: Pergamon Press, 1982): 260-287. In contrast, average performers tended to relate well to the team 5. R.E. Walton, “Work Innovations at Topeka: After Six Years,” Journal or to those in the broader organization, but not to both. of Applied Behavioral Science 13 (1977): 422-433; and R.E. Walton, The four functions — relating, scouting, persuading and “The Topeka Work System.” empowering — are important for the leader of any group but 6. C.C. Manz, “Searching for the ‘Unleader.’ ” particularly so for those in charge of self-managing teams. 7. M.M. Beyerlein, “Introduction”; and J.R. Hackman, “The Psychology of Self-Management in Organizations,” in M.S. Pallack and R.O. (After all, if a team has not been empowered, how can it man- Perloff, eds., “Psychology and Work: Productivity, Change and age itself?) And the same process would be useful for leaders of Employment” (Washington, D.C.: American Psychological Association, geographically dispersed teams, given their similar challenge of 1986), 89-136. having to rely on imperfect information to influence behavior 8. See, for example, E.E. Lawler III, “High Involvement Management”; R.E. Walton, “Work Innovations at Topeka”; and R.E. Walton, “The from a remote location. Topeka Work System.” An important thing to remember about team autonomy is 9. R.I. Beekun, “Assessing the Effectiveness of Sociotechnical Inter- that self-management is not an either-or condition. Instead, it’s ventions: Antidote or Fad?” Human Relations 47 (1989): 877-897; and a continuum, and external leaders should also be constantly R.E. Walton and L.A. Schlesinger, “Do Supervisors Thrive in Participa- tive Work Systems?” Organizational Dynamics 8 (winter 1979): 24-39. guiding and developing their teams so that they become 10. S.G. Cohen, L. Chang and G.E. Ledford Jr., “A Hierarchical Con- increasingly independent. In fact, the ultimate goal of the exter- struct of Self-Management Leadership and Its Relationship to Quality nal leader should be the delegation of all 11 of the behaviors of Work Life and Perceived Work Group Effectiveness,” Personnel described. For example, external leaders should be developing Psychology 50, no. 2 (summer 1997): 275-308; B.L. Kirkman and B. Rosen, “A Model of Work Team Empowerment,” in R.W. Woodman their teams’ relationships with relevant individuals and other and W.A. Pasmore, eds., “Research in Organizational Change and groups in the broader organization, eventually relinquishing Development,” vol. 10 (Greenwich, Connecticut: JAI Press, 1997), that primary activity to the teams themselves. And when teams 131-167; and B.L. Kirkman and B. Rosen, “Beyond Self-Management: Antecedents and Consequences of Team Empowerment,” Academy of do become less dependent on their external leaders, the leaders Management Journal 42 (1999): 58-74. will theoretically be freer to assume the responsibility for an 11. S.G. Cohen, G.E. Ledford Jr. and G.M. Spreitzer, “A Predictive even larger number of groups. Model of Self-Managing Work Team Effectiveness,” Human Relations The teams in our study had made the transition to self-man- 49 (1996): 643-676; B.L. Kirkman, “Beyond Self-Management”; and R.E. Walton, “The Topeka Work System.” agement five years before our research commenced. At that 12. C.C. Manz, “Leading Workers To Lead Themselves”; R. Wageman, time, the superior participants were already performing the 11 “Critical Success Factors for Creating Superb Self-Managing Teams,” essential behaviors of external leadership. We would not be sur- Organizational Dynamics 26 (summer 1997): 49-61; and R. Wageman, prised to learn today that those individuals have since moved “How Leaders Foster Self-Managing Team Effectiveness: Design Choices Versus Hands-On Coaching,” Organization Science 12, no. 5 their teams further along the continuum of increased autonomy (2001): 559-577. and independence. In fact, we would be greatly surprised if that 13. D.G. Ancona and D.F. Caldwell, “Bridging the Boundary: External were not the case. Activity and Performance in Organizational Teams,” Administrative Sci- ence Quarterly 37, no. 4 (December 1992): 634-665. 14. See S.G. Cohen, “A Hierarchical Construct of Self-Management REFERENCES Leadership”; J.L. Cordery and T.D. Wall, “Work Design and Supervi- 1. E.E. Lawler III, “High Involvement Management” (San Francisco: sory Practice: A Model,” Human Relations 38, no. 5 (1985): 425-441; Jossey-Bass, 1986); E.E. Lawler III, “Strategies for High Perfor- and J.R. 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