Change is like looking at one of those paintings made up of individual images; if you look at it close up, all you can see is a jumble of faces, but when you step back and look at the entire painting from a distance, you can see how all those pieces are interconnected and woven together to create a complete picture.

Most of the events of the past few years appear to be unpredictable because we are using a very short lens to view them. We must take a step back, and look at all of the pieces that make up the changes we face – like the example of the larger painting made up of individual images.

In the past few years, we have witnessed the devastation of natural disasters such as Hurricane Katrina. Add to that the drought in Australia that was followed by massive flooding, and recently the severe drought in Eastern Africa.

Has the world gone crazy? I don’t think so.

Step back and take a much longer view. Since 1950, carbon dioxide – so stable for hundreds of thousands of years – has been on a steady upward climb along right along with our energy consumption. At the same time, the number of weather disasters has steadily increased from less than 10 per year in 1900 to well over 400 per year in 2010.  

Let us consider a few other “unpredictable” events we have had to deal with in the past five years.

The crash of the financial system in 2008 touched off a global recession. Since then we have seen the collapse of Iceland’s banking system and the threat to the European Union as Greece struggles to come to terms with a crushing debt. 

Was the financial crisis truly a Black Swan – a truly unpredictable event? In a study Ivey conducted following the crisis, leaders across the world, particularly those in the financial sector, told us that they knew the boom could not last, that banks were over-leveraged, and it would eventually end.

While these events have touched our lives in mainly negative ways, few of us would have predicted the events of 2011.  The Arab Spring that began with the fall of the Tunisian government and was followed quickly by the revolts in Egypt and Libya that forced the resignations of Egyptian President, Hosni Mubarak, and Libyan strongman Muammar Gaddafi demonstrate the incredible power of ordinary citizens to change the course of history.

Unpredictable events are most often quite predictable, given a little perspective. Unfortunately for us, we find ourselves again in a very distinct period of change. It is a perfect storm — a convergence of a multitude of fundamental changes happening simultaneously across an increasingly flat world.

We must address what this means for us as Canadians and what we can do about driving change toward a more positive future. This journey begins with a positive step forward.

We must embrace strong leadership, creative solutions and a willingness to meet these challenges with a new perspective.  As in the past, the steps we take today will shape future opportunities and challenges.

Ed Clark, President and CEO of TD Canada Trust, and the honouree of the 2011 Ivey Business Leader Award, says there are three fundamental economic forces at work in our world that make change an imperative to survival for all Canadians: 

1. Long-term demographic forces are causing demands for government services to grow faster than revenues.
2. Globalization has produced massive increases in income around the world but its benefits have been unevenly distributed.
3. Today’s slow- growth economy is accentuating economic and social disparities, as well as exacerbating the gap between government revenues and expenses.

The changes required to meet these challenges are enormous.  So enormous they can feel overwhelming and leave many of us feeling powerless.

According to The Honourable John Manley, President and CEO of the Canadian Council of Chief Executives, Canadians can look forward to a bright future: “With smart public policy and innovative, far-sighted business leadership,” he says, “our country has the potential to lead the world’s major industrialized economies in growth and job creation …. if we move quickly to unleash investment at home and seize new markets abroad.”

So what are the big changes impacting Canadians?

The main challenge facing us is that the financial recovery initiatives, which so effectively moved us through the financial crisis, have now created huge deficit and debt challenges for both provincial and federal governments. This economic crisis has shed light on the need for a new role for government and a new approach to national and regional fiscal management.

We must also address our high youth unemployment rates, one of the motivating factors behind the Occupy movements that swept across Canada this past summer and an early indicator of potential unrest. When 17.2 per cent of youth between the ages of 18 and 25 are unemployed and losing hope, there are very fundamental changes must be made.

Fortunately, as Mr. Manley pointed out, both the opportunities and the resources to capture them are within our grasp.

Massive urbanization and the rapid growth in the ranks of Asia’s middle-class consumers between now and 2030 will generate big demand, not just for energy and natural resources but for financial services, education, cleaner technology and environmental improvements.  Canada is a country rich in the natural resources much needed and valued by emerging economies, particularly China. We have great infrastructure, a great education system, valued as one of the very best in the OECD countries, and outstanding relationships to continue to build on in North America, Europe and Asia.  We must capitalize on the opportunities in front of us.  This requires some change for business and perhaps for business schools as well.

These are times of great change, and it will not be easy. We must, as business and community leaders, encourage and support the government in making the tough choices for our future. When our children are sitting beside us in our final years, and we are reviewing the events of the day with them, I hope we can take great pride in where we are as a country. Knowing we did the right thing.

We took part in creating a promising future.

Transformational leadership remains for many the preferred model or typology of leadership. What better example is there of such leadership, at least in the early dawn of the 21^st century, than Barack Obama? But, as many believe, what better example is there of the power of a leader to “mobilize motivations and aspirations” and the ensuing hissing sound of disappointment, as the air leaks out of those inflated motivations and aspirations?

In recent months, “No you can’t” has become a kind of double entendre. Yes, it does mean that a leader can’t offer a solution. But it has also become a battle cry, where people – whether they’re in the U.S. Congress or the trenches of Occupy movements around the world — rise up to tell their leaders “No you can’t” pass this legislation or “No you can’t” ignore our pleas any longer.

To be sure, Barack Obama is not the only leader who has stumbled. Across the EU, leaders who saw the gathering momentum of unmanageable debt and default as clearly as though they were on an LCD screen still fiddle to find a solution. Even the vaunted rating agencies, once thought infallible, failed to correctly gauge the implosion of Greece and its domino-like impact. Never, it seems, have so many leaders, once potent or at least promising become so feckless and simply wrong.

To be sure, being a leader has never been more difficult. Complexity, interconnectedness and volatility have rendered what was once manageable mostly unmanageable. Doubt tyrannizes once supremely confident leaders. For not too much longer, we hope – and believe.

Stephen Bernhut

Editor

For various reasons, the management challenges ahead will require the skills of a collaborative leader. Many leaders, however, lack the required skills to collaborate meaningfully. Readers will learn what those skills are and how they can develop them in this article.

Organizations face an increasingly complex and unpredictable competitive landscape, and one that is filled with new, aggressive competitors. A few years ago, for example, who would have predicted that electronics manufacturer Samsung would offer stiff competition to GE in the appliance and lighting marketplaces?

In the years ahead volatility and uncertainty will tyrannize markets, and companies will need leaders who are highly adaptive, continuous learners, able to lead diverse groups across functional disciplines, regions and cultures. They will also need to accomplish the difficult feat of driving results even where they do not have formal direct control or authority over resources. Achieving more growth through greater innovation, searching for new business opportunities across customer segments and leveraging best business practices to improve operational efficiency demand that leaders know how to work across organizational boundaries.  Whether it’s across national boundaries or across teams, leaders will need to collaborate. This article will focus on the skills that leaders will need to develop if they are to collaborate successfully in the years ahead.

Getting to the root of collaboration challenges

The vast majority of participants in Hay Group’s recent global Best Companies for Leadership survey indicated that their organizations have become flatter and more matrixed.  Individuals may be assigned to work on different project teams and report to multiple managers. The advantages can be huge — new innovations, increased sharing of information and better capacity to solve complex problems.  And yet the more matrixed organizations become the greater the challenges in making lines of authority and accountability clear.  Decisions can take longer and the costs for bringing people together can add to a company’s bottom line.  In addition, the skills required for effective collaboration are not the same as knowing how to work effectively in a functional team.   These same companies also reported that their people had trouble understanding how to relate to each other and in a more collaborative way, as their new organizational structures required.

These survey results are not surprising, given that another Hay Group study of over 300 organizations covering almost 4,500 leaders found that executives still need the most development in competencies such as influence, inspirational leadership, coaching, mentoring and emotional self-awareness – the competencies that are critical for collaboration. Leadership skills and capabilities have not kept pace with the rapid evolution of flatter, more matrixed organizational structures.

Why has the development of collaborative leadership skills lagged the evolution of organizational structures?  Organizations usually get the kind of behaviour they reward, and they have historically rewarded achievement-oriented leaders who drive short-term results. As a result, companies have ended up with leaders who excel at the achievement orientation, teamwork and organizational awareness competencies that are associated with strong functional leadership.

The problem is that companies face a mismatch: They have developed a strong base of operational leaders who perform well when they have direct control over a specific set of resources that they can deploy to achieve accountable results. Unfortunately, the matrixed, global structure that is becoming the norm for many organizations requires leaders who can subordinate their agenda, yield power and give up resources for the greater good. These concepts are foreign to many leaders who attempt to lead collaborative efforts by applying their usual functional skill-set – and that predictably lead to poor results. Even leaders who possess some of the necessary competencies find themselves working at cross-purposes with an organizational structure and rewards system that discourages collaboration.

Collaborating in the matrix

Despite popular belief, collaboration is not the same as teamwork. Traditional functional leaders in hierarchical organizations may excel at “teamwork” in the sense of motivating their business unit or division toward collective action and consensus around a common goal.

But matrixed organizations are different. Matrixed companies group employees by both function and product. Matrixed organizations typically have moved away from hierarchy toward a much flatter structure in which employees operate with less direct supervision from functional leaders. Leaders in the matrixed organization need to know how to promote collaboration across business units and functional areas, and to coordinate and motivate employees, over whom they may have no direct authority, to achieve a goal whose value may not be immediately apparent to all team members.

In a matrixed world, good collaboration can lead to the rapid launch of next-generation, market-changing products. Bad collaboration can end up wasting time and money on a slow, tortuous path toward a “me-too” flop. In his seminal book Collaboration, UC Berkeley professor Morten Hansen illustrates the value of collaboration by tracing the success of Apple’s iPod music player versus the belated launch of a similar product by Sony. Hansen notes that it took Apple just eight months starting from scratch to collaborate across its organization and find a way to create the iPod. Sony, on the other hand, spent three years engaged in internal infighting before launching a competing MP3 player that had little success.

Apple did not win because it had better technology. In fact, Apple actually sourced its iPod battery from Sony! The success of the iPod can be attributed more to Apple’s ability to manage rapid innovation through excellent internal and external collaborative networks. At Sony, where the culture encouraged internal competition over collaboration, a digital music player did not make as much sense from a P&L standpoint for any individual business unit. As a result, the project did not move forward, even though it held the potential to deliver large P&L benefits for the entire organization.

It turns out that collaborative leaders are able to see past their own P&L calculations to recognize and pursue initiatives that have the potential to add value for the entire corporation. But companies should not expect such collaborative behaviour to materialize spontaneously. As mentioned earlier, organizations tend to exhibit the kind of behaviour that they reward. It is difficult to generate much enthusiasm for collaboration initiatives if managers are only rewarded based on their own P&L. Best-in-class organizations have recognized this problem and begun looking for ways to measure the global P&L impact of collaborative projects and reward leaders accordingly, even if those projects result in lower P&L for the manager’s own business unit.

Building a collaborative culture

Senior executives have both the responsibility and the power to encourage and foster a culture of collaboration. Consider the impact that collaboration had on Procter & Gamble (P&G). In early 2000, P&G was in disarray. The company’s share price had fallen by nearly 50 percent, wiping out $85 billion in market capital. Despite spending heavily on research & development (R&D), productivity had plateaued and the company’s innovation success rate (the percentage of new products that reached financial objectives) was stuck around an unsatisfactory 35 percent.

The company’s new CEO, A.G. Lafley, recognized that collaboration would be key to helping P&G recover its value and improve its innovation performance. He proclaimed that he was determined to make P&G known as the company that “collaborates, inside and out, better than any other company in the world.” Lafley and his team conducted an analysis showing that most of P&G’s most profitable innovations came either from internal collaboration across business units or from external collaboration with outside researchers. Determined to encourage both kinds of collaboration, Lafley established 20 cross-functional “communities of practice” within P&G and declared that 50 percent of P&G’s products, ideas and technologies would be developed by external sources.

These collaboration initiatives paid off handsomely. By 2008, P&G had improved its R&D productivity by nearly 60 percent, more than doubled its innovation success rate, and lowered its cost of innovation. From 2000 to 2008, R&D investment as a percentage of sales fell from 4.8 percent to 3.4 percent.[i]

Key collaborative competencies

Leadership and organizational structure matter in building a collaborative culture, but organizations still need the right people with the right skills to lead collaboration initiatives toward the desired outcomes. Hay Group research findings on matrixed organizations show that the best collaborative leaders have a strong understanding of both the organization and its people. They distinguish themselves on six key capabilities:

1. Enterprise perspective – they have a comprehensive understanding of the company’s overall business strategy and how the joint work they are leading aligns with that strategy. They use this understanding to resolve any conflicts that may arise.
2. Cross-functional perspective – they understand the needs, metrics, incentives and deliverables of different functions and business units. They can align these competing priorities within the operating model.
3. Customer perspective – they not only understand the customers’ interests and needs, they also know how to keep the team focused on making the decisions that enhance the overall customer experience.
4. Self-management – they exhibit self-control when challenged. They have patience when dealing with colleagues who may have trouble understanding the shared purpose of the collaboration initiative. They do not take disagreements personally.
5. Listen with respect – they listen objectively and respectfully to multiple opinions. They empathize with colleagues whose position, situation or perspective may differ from their own. They start with the assumption that collaborators are capable and will do their best.
6. Matrix influencing – they excel at communicating with different stakeholders and influencing them to support collaborative projects.

Cultivating collaborative leaders

How can organizations identify candidates that will succeed in matrixed leadership positions that require strong collaborative skills? Hay Group’s Role-Profile Matrix shows that the best collaborative leaders excel at interpersonal understanding, relationship building and commitment to the enterprise. This makes sense because collaborative leaders have to be able to understand the motives and fears of potential collaborative partners throughout the organization. Collaborative leaders have to be able to build relationships that will enable them to persuade their partners to join in a collaborative effort that may entail short-term risks or costs for certain partners. And collaborative leaders need to be committed to enterprise-wide goals since collaborative projects are typically bigger than any one department or business unit.

Given the need for collaborative leaders in matrixed organizations, companies should plan to start trying to develop collaborative behaviours as early as possible in a junior executive’s career. Giving young executives a variety of experiences and ensuring that they have exposure to managing diverse groups can help them to develop a collaborative skill set. Companies like P&G and GE plan 5-10 years into the future when considering the development of their leadership corps. If they see that a certain junior executive has growth potential, they consider which experiences will give the executive the opportunity to develop the broad collaborative leadership capabilities that will be essential in the future. IBM pairs promising young talent with the best possible bosses so that the next generation of leaders will be able to see what strong collaborative leadership looks like in action.

That is not to say that training can mold any leadership candidate into a capable collaborative leader. Broadly speaking, leaders are motivated by a combination of three needs: achievement, affiliation and power. Every collaborative leader has these motives, though in different proportions. Hay Group’s research has shown that the most effective collaborative matrixed leaders tend to have flat profiles that show a relatively equal distribution of the 3 motives.

This makes sense. Matrixed leadership roles are complex precisely because they demand so many different skills. Leaders who are motivated primarily by personal achievement will often become frustrated by the time it takes to align agendas or the need to rely on collaborators to get things done. Conversely, leaders who enjoy the harmony of building relationships for their own sake will be more likely to enjoy and thrive in a collaborative leadership position with a heavy relationship-building component.

Collaborating more, collaborating better

Collaboration is not a universal solution. As mentioned earlier, collaboration has costs – direct investment costs and opportunity costs associated with the time spent pursuing collaborative initiatives. Companies should assess and qualify collaboration opportunities just as they qualify sales leads to decide whether a particular collaboration effort makes sense. In most cases, organizations should only pursue those collaboration initiatives where the potential benefits clearly exceed the potential costs.

But if choosing collaboration opportunities wisely depends on calculating costs and benefits (as Hansen emphasizes in his perspective), then one way to enlarge the universe of attractive collaboration initiatives is to lower the costs of collaborating across the board. That was part of the approach taken by Cisco Systems when the company decided to prioritize internal collaboration to meet its customers’ demand for integrated solutions. Cisco drove down the direct costs of collaboration by leveraging wikis (websites built and edited by communities of users) and pioneering telepresence technologies (enhanced videoconferencing) that enabled affordable long-distance collaboration among employees around the world, thereby reducing the hard costs and opportunity costs of collaboration. By innovating on collaboration technologies and cultivating collaborative behaviour and management practices, Cisco saved $691 million and increased productivity by 4.9 percent in fiscal year 2008.[ii]

Reducing the costs of collaboration improves the chance that a collaboration initiative will have a positive ROI. However, companies can improve their odds even further by following five guidelines for successful collaboration:

1. Be clear about the destination – define the goalposts and communicate those definitions to collaboration partners. Know when to start the collaboration and when the collaboration has achieved maximum benefits and can be dissolved. Hay Group research has shown that nearly 70 percent of best-practice collaboration initiatives are based from the start on a clear purpose, whereas only 40 percent of less successful matrixed collaboration teams had that clear purpose from the beginning.
2. Develop mutual understanding – collaborative success depends on trust, and trust depends on good communication. Collaborative leaders must not only be clear about their own goals, they must also understand and respect their collaborative partners’ goals in order to find ways to bring these diverse goals into alignment. Achieving this alignment is a requisite for motivating all collaboration partners to achieve the best possible results.  According to Hay Group research, more than 60 percent of best-practice collaboration initiatives get early buy-in on shared goals from collaboration partners. The same can be said for less than 10 percent of the less successful collaboration teams.
3. Know when to lead and when to follow – it sounds paradoxical, but the best collaborative leaders are those who are comfortable occasionally letting their partners take a leadership role. At certain times, partners may be the only ones with the resources necessary to push a project forward. Partners who play leadership roles are also more likely to feel a sense of ownership in the project, which can increase their motivation and performance. Nearly 70 percent of best-practice collaborators clarify roles from the start in order to find out which collaboration partners excel in certain areas or have the best customer insights. Again, less than 10 percent of less successful collaborators take the time to clarify roles in this way early on.
4. Set schedules and stick to them – many collaborative efforts are undertaken to accelerate innovation in fast-moving markets. Sticking to a realistic timetable avoids conflicts and prevents disappointment. Collaborative tools such as the wikis and telepresence technologies discussed above, or information-sharing forums like SharePoint, can help speed up the process and keep everyone on schedule.
5. Encourage information sharing – for functional leaders used to managing and controlling their own resources, collaborative leadership roles can be challenging and even a little mystifying. Experienced mentors who have already led profitable collaboration projects can help teach new collaborative leaders what it takes to succeed. Once they know the ropes, collaborative leaders can pass along their knowledge by guiding others, codifying their knowledge in wikis or other information sharing forums, and establishing guidelines to encourage useful collaborative activity.

Done hastily or sloppily, collaboration can be a time-consuming exercise. Done right, collaboration can unleash latent creativity and help companies spur innovation and growth while fulfilling unmet customer needs.

Discussing deception in the workplace is often uncomfortable. In an episode of “Seinfeld” (#152, “The Nap”), the character George Costanza uses his infamous hideaway-sleeping desk to nap unnoticed on the job. He is able to arrange simulated work items — hot coffee and such — on his desk to give the impression of having just stepped away, while he is actually hidden inside sound asleep. George is inevitably discovered “lying down on the job,” but the outcome in this case is likely to be more humorous than it would be for an employee who was caught trying to deceive his or her manager in a real company.

While deception is common in everyday social interactions (DePaulo, Kashy, Kirkendol, Wyer, & Epstein, 1996), its prevalence in business communication is less widely discussed (Carlson & George, 2004). In fact, deception occurs in business meetings, phone conversations, electronic messages, office memoranda, and other everyday organizational media (Carlson & George, 2004). Moreover, while many of these lies may be casual “white lies,” some are used with clear intentionality, to further an employee’s goals within the organization. Nevertheless, there has been little consideration of whether or not such deception is effective.

This paper examines the utility of deception from the standpoint of a subordinate employing it in an attempt to influence their supervisor’s opinion of them. The following sections discuss a definition of deceptive impression management (“Deceptive IM”), a study examining the effectiveness of different forms of Deceptive IM, and finally, the implications for managers.

Managing impressions

Employees work actively to influence perceptions about themselves held by their supervisor(s) (Rosenfeld, Giacalone, & Riordan, 1995). Impression management (IM) is the process through which individuals manipulate information about themselves so that others view them in the way in which they would like to be viewed (Schlenker, 1980). Deception can be defined as the communication of information to a target with the intent of creating a false understanding on the part of the target (Buller & Burgoon, 1996). Lying, a form of deception, requires the expression of an actual statement known to be untrue.

There are several different forms of IM and although the “information manipulation” described in the definition does not require deception — indeed such manipulation may be done with complete honesty — it does open the door widely for it. Such deception includes the active distortion, destruction, or omission of information that the supervisor has the right to truthfully receive from the subordinate. For example, a subordinate who has failed to complete an assigned task might work to manage the impressions of their supervisor by, (a) truthfully explaining the difficulties encountered and affirming their willingness to redouble their efforts to catch up (honesty), (b) not reporting their failure in a timely manner (deception), or (c) blaming the failure on a co-worker who was not at fault (lying).

Three types of Deceptive IM

Deceptive IM can be defined as the use of deception in the conduct of impression management (Carlson, Kacmar, & Carlson, 2005). We believe that deceptive IM differs from other deceptions in that it generally occurs within an established workplace relationship, and may consist of multiple deceptive acts that must be managed and reinforced over a significant period of time. The subordinate has both a pre-existing relationship with their supervisor as well as an expected future relationship that must be taken into consideration. As well, the planning of any deceptive act must take into account the ability of the subordinate’s peers to provide countervailing evidence, intentionally or not, to the supervisor. Finally, we specifically do not define deceptive IM as a new or separate IM tactic; rather, we believe that deception may be employed in the enactment of any existing form of IM. We suggest that there are three common types of deceptive IM agents in today’s organizations:

1.  The sycophant is insincere and does not provide genuine opinions or honest feedback to their superior, for example, enthusiastically endorsing your supervisor’s idea even when you don’t like it.

2.  The cover-up artist makes up excuses to whitewash a poor performance or explain failed projects, for example, making up an excuse when the supervisor points out shoddy work.

3.  The all-purpose liar will directly provide false information about specific facts if it is to their advantage, for example, exaggerating the amount he or she contributed to a team project.

Use of Deceptive IM

Importantly, we don’t know is how these different types of deceptive IM might be used, and even more importantly, how effective they might be in influencing important organizational outcomes.  An employee might consider using deceptive IM in a variety of difficult circumstances. Perhaps he or she is struggling in a hostile work environment or has been assigned to an abusive supervisor; perhaps he or she wants to cover gaps in knowledge, training, or experience; perhaps he or she is facing family or health problems that are negatively affecting his or her productivity; or perhaps he or she is simply trying to jump-start a stagnant career. Moreover, we believe that the use of deception in IM may be particularly easy for the subordinate to rationalize, since the goal of the deceit isn’t generally to cause direct harm and the subject of the lie is often the subordinate him or herself.

Even though lying to others about yourself may be almost as easy as lying to yourself, it is still expected that subordinates will have a difficult time pulling off deceptive IM. The rationale for the expectation is straightforward: Separately, both lying and IM are difficult to carry out successfully. Combining the two and requiring that they be conducted successfully over a significant period of time and under real-world conditions in which actual performance and contributions can be measured is, we believe, a challenging task (Baumeister, Bratslavsky, Muraven, & Tice, 1998).

Current study

The purpose of this study was to gauge the effects of these three different types of deceptive IM conduct on the relationship with a supervisor, and the supervisor’s evaluation of the subordinate’s behavior.  More specifically, two key outcomes were measured: (1) leader-member exchange or “LMX” (Graen & Scandura, 1987), which is the quality of the relationship between the supervisor and the subordinate, and (2) the job performance of the subordinate as evaluated by the supervisor.

To study these deceptive IM practices in existing workplace relationships, supervisors in a division of a southern-state tax-collection agency were surveyed. Although all 65 supervisors agreed to participate and submitted surveys, only 59 could be matched to completed subordinate surveys. A total of 183 subordinates returned completed surveys usable for this study (for a response rate of 53%).

How common is it?

The first consideration was to examine the frequency of the 3 behaviours referred to above.  The most highly used form of deceptive IM was sycophancy, in that 86 percent of the respondents engaged in this behavior.  Sixty-nine percent of the respondents engaged in the practice of cover-up and 56 percent in the practice of lying.  Thus, while the respondents engaged in these behaviors at a relatively high frequency, they were more likely to engage in sycophancy than lying. 

Deceptive IM and outcomes

So, is it effective? The answer is “No.” We found that for the outcome of LMX, the relationship between supervisor and subordinate, that lying was the only type of deceptive IM that played a significant role. It had a negative impact, specifically leading to the deterioration of the supervisor-subordinate relationship (-.22, p<.00).  However, when it comes to the supervisor’s evaluation of performance, covering-up played the key role. It too played a key role: The more the subordinate covered-up behavior, the less likely the supervisor was to evaluate performance highly (-.17, p<.00).  Interestingly, sycophancy, which was the most common form of deceptive IM, did not have any significant effects on the relationship with the supervisor or the supervisor’s evaluation of the performance of the subordinate.  

Discussion

These findings support the idea that many employees are actively engaged in three different types of deceptive impression management.  However, these are akin to three roads, none of which leads to the planned destination. Employees are most likely to engage in sycophancy by providing deceptive information and feedback to their supervisor in an attempt to flatter and improve their supervisor’s impression.  These results suggest, however, that this behavior, while common, doesn’t appear to affect either the relationship or performance evaluation of the subordinate.  Perhaps it is so commonplace as to be both expected and ineffectual. 

Attempts to cover-up poor or deficient performance at work were ineffective at managing impressions.  It would appear that when people try to cover-up their mistakes using deception, it ends up negatively affecting their supervisor’s evaluation of their performance. Of course, a prerequisite of this behavior is a deficiency of such significance that the employee feels the need to cover it up. These findings may suggest that in today’s team-oriented, interconnected workplaces, covering-up all traces of one’s poor performance isn’t completely possible.

Finally, the most destructive behavior in this study was the act of lying overtly (i.e., the “bald-faced” lie). Employees who engage in such behavior damage the relationship they have with their supervisor, a relationship that affects all aspects of their work life. Of course, not every lie needs to be uncovered for this damage to occur. However, once a lie has been identified, the supervisor’s view of the subordinate’s truthfulness and trustworthiness begins to be undermined.

Implications

To the extent that our results can be generalized, once an employee begins a deceptive IM campaign, he or she will at some point begin to receive negative feedback (at least in the form of LMX and performance reviews), which may serve to feed a vicious circle by motivating even more deceptive IM. Indeed, this may be a difficult habit for an employee to break, even in the face of costly outcomes. Nevertheless, just as a gambler’s winning streak must come to an end, a liar engaged in deceptive IM will eventually be caught and face potentially harsh repercussions. Understanding a subordinate’s motivations may be a key in explaining this apparently self-destructive behavior.

From the manager’s point of view, these results may seem like a vindication of sorts. Yes, although your subordinates are trying to manipulate your impression of them by using deception, you appear not to let these activities affect you so as to the benefit of the deceiver. However, a business culture of acceptable dishonesty opens the door to a host of concerns. If your subordinates are willing to lie to you to improve your impression of them, are they also lying to each other? And to customers? Suppliers? Auditors? And what else are they willing to lie about? The potential damage unleashed by an ethically permissive workplace may far exceed the lost labor of an employee taking a short nap under his desk.

References

Baumeister, R. F., Bratslavsky, E., Muraven, M., & Tice, D. M. (1998). Ego depletion: Is the active self a limited resource? Journal of Personality and Social Psychology, 74(5), 1252-1265.

Carlson, J. R., & George, J. F. (2004). Media Appropriateness in the Conduct and Discovery of Deceptive Communication: The Relative Influence of Richness and Synchronicity. Group Decision and Negotiation, 13(2), 191-210.

Carlson, J. R., Kacmar, K. M., & Carlson, D. S. (2005). Deceptive impression management: Does it pay? Proceedings from Southern Management Association (SMA) Meetings, Charleston, S.C.

DePaulo, B. M., Kashy, D. A., Kirkendol, S. E., Wyer, M. M., & Epstein, J. A. (1996). Lying in everyday life. Journal of Personality and Social Psychology, 70, 979-995.

Graen, G. B., & Scandura, T.A. (1987). Toward a psychology of dyadic organizing. In L. L. Cummings, & Staw, B.M. (Ed.), Research in organizational behavior (pp. 175-208). Greenwich, CT: JAI Press.

Rosenfeld, P., Giacalone, R. A., & Riordan, C. A. (1995). Impression management in organizations. London: Routledge.

Schlenker, B. R. (1980). Impression management: The self-concept, social identity, and interpersonal relations. Monterey, CA: Brooks/ Cole.

“Relationships,” says a dejected Alvy Singer, Woody Allen’s character in the movie, Annie Hall. “Who needs them.” The fact is that every leader needs to have smooth, productive relationships with those around him or her. But what makes for a rewarding relationship – and its opposite – has long been unclear or unknown. This author, who has conducted and written extensively about the impact of brain activity on such relationships, describes some important, new observations that hold the promise of helping leaders to form more effective relationships.

Every leader knows how important relationships are to effective leadership. After all, you cannot have a leader without followers. Most will even admit that being inspiring, compassionate, mindful (acting with integrity) and even playful helps create and sustain more effective leadership relationships.  But amid the hectic demands of day-to-day work, a crisis here and there, and the never-unyielding pressure to perform and innovate, leaders will often act in ways that even they know are uninspiring or not compassionate. The rationale or excuse given at the time is, “They know I care,” or “I don’t have time,” or “They are executives I don’t need to coddle them.” BAM! The effective relationship of the leader and those around him or her, or the equity already invested in sustaining an effective relationship, has just been subverted, converted into a set of interactions and pattern of behavior that result in diminishing returns and eventually, dissonant relationships.

Today, research is helping us understand how and why so many smart, savvy and sensitive leaders act in ways that diminish their effectiveness. As this article will describe, discoveries in neuroscience are producing some confirming insights and surprising observations. 

Resonant leaders attract, dissonant ones repel

In a recent study soon to be published in Leadership Quarterly, colleagues at the Cleveland Clinic — Drs. Michael Phillips, Mark Lowe, Katherine Koenig, Blessy Matthews, Jamie Stoller, and Angela Passarelli – and myself assessed the impact that emotionally salient situations with both resonant and dissonant leaders in the past had on executives working under them (Boyatzis, Passarelli, Koenig, Lowe, Mathew, Stoller & Phillips, in press).  The executives were on average, 49 years old and critical incident interviews with them identified such key moments in their past. A few weeks later, the executives underwent an fMRI (functional Magnetic Resonance Imaging). While in the scanner, they pushed buttons taped to their legs (without moving their hands) in response to statements indicating how they felt about these important episodes at work.

Although it was just one study –and one that needs to be replicated to be valid or widely applicable — we found that executives’ recall of moments with resonant leaders activated neural circuits in their brain. These circuits have been shown to be involved in the mirror-neuron network that is activated when a person mimics another’s actions and senses how another person feels. This means that when an executive feels and appears uneasy about something that happened with their husband or wife, others at work will experience that unease, even if they did not witness the situation or hear about it directly. This brain-to-brain transmission occurs primarily below consciousness.

 We also witnessed the activation of parts of the Default Mode Network. It has been called the social network in recent research, because it is active when someone is engaged with others and focusing on them.  (Jack, Dawson, Ciccia, Cesaro, Barry, Snyder & Begany, 2009). Recalling previous emotionally important situations with resonant leaders activated attention in ways that allow a person to be open to new ideas and new emotions, and to be able to scan the business and social environment, something which every successful executive must be able to do.

Reactions when recalling such situations with dissonant leaders were almost completely different. In this case, the social network was significantly deactivated or suppressed. At the same time, areas of the brain noted for focused attention were activated. While this reaction allows us to solve problems and persist in a task, it also closes our minds to ideas or emotions that have not been a part of a defined situation or task, effectively preventing an executive from being open to new ideas and scanning the business and social environment.

It was as if recalling key moments with resonant leaders put a person back into a positive state, one in which they could build relationships, think creatively, remain open, and approach people. Meanwhile, moments with dissonant leaders, though they aroused a few of the same areas, had mostly the opposite effect and drove people to avoid such leaders.

This observation is important because it would be difficult for a leader to inspire and motivate those around him or her without engaging them. When leaders slip into behaviour that repeatedly threatens people or demeans others, or focuses on weaknesses and what needs to be fixed, the brains of people around them are activated in a way that makes people want to move away from the leader and the situation.

In contrast, moments with resonant leaders stimulate a degree of cognitive and emotional openness, and pull people to them.  While we need all of the networks described, repeated arousal of the dissonant, more negative networks will result in avoidance, not engagement (the anterior Cingulate Cortex is one part of the brain associated with negative emotions). That avoidance might take the form of “effort minimizing” (i.e., people doing as little as needed to get by) or “putting up” with the leader. Building on quite a lot of research from Deci and Ryan, Bass and Avolio, Yukl and Riggio, Conger and Kotter, and many others studying effective leadership, we found that the inspiration and motivation aroused by resonant leaders are more likely to help people want to use their talent, seek innovative solutions, and adapt to new technologies and the changing environment. Again, this was only one study, but it helped to explain the neurological processes that are likely to underlay much of the behavior and results observed in many other research studies over the last 30 years.

Colleagues using EEG technology to examine neural activation have found that charismatic leaders use visioning in their interactions with others (Waldman, Balthazard, Peterson, Galvin, & Thatcher, in press; colleagues are David Waldman, Pierre Balthazard and Suzanne Peterson at Arizona State University, as well as Benjamin Galvin at the University of Washington and Robert Thatcher at the Applied Neuroscience Research Institute). By “visioning” we mean creating an exciting view of the future for a business, product, service, or program. Charismatic leaders also have neural circuits that are more coherent — (i.e., different parts of their brain are connected to each other) than other types of leaders. In the research, Waldman and others show that this “coherence” occurs when the right and left parts of the brain are in greater coordination (i.e., activated at the same time) than is the case with the same regions of the brain for other executives. They contend that increased “coherence” results in a more holistic and authentic charismatic leader– someone who walks the talk.

Engaging and motivating others

Another study, of two different approaches to executive coaching, yields more insight into how leaders might affect others. A group of researchers at Case Western Reserve University sought to examine the effects of, a) a thirty-minute coaching session focusing on what is called the Positive Emotional Attractor (PEA), and b) a thirty-minute session focusing on the Negative Emotional Attractor (NEA) (Boyatzis, Jack, Cesaro, Passarelli & Khawaja, 2010). We were able to show that asking sophomores to talk about their dreamed-about future ten years hence (i.e., the PEA coaching) activated parts of the visual cortex that is involved in imagining things, and components of the DMN and social networks mentioned earlier. Meanwhile, the NEA session, which asked students about how they were doing on their homework, readings and assignments, revealed little that was noteworthy, except that such a line of questioning activated areas known to indicate self-consciousness and guilt. Again, the more positive approach to coaching stimulated those parts of the brain involved in being open to new ideas and other people.

This raises serious questions about whether many performance-management practices and performance reviews are as developmental or productive as people think. Our results suggest that engaging in a performance review, which is an important part of the managerial and leadership responsibility, is quite different than engaging someone in a developmental discussion. The more evaluating – or developmental — discussion actually leads a person to be more neurologically closed to new ideas or to work on learning or changing. 

Another implication is that when engaged in a developmental discussion, a focus on what needs to be fixed, and overcoming weaknesses and “gaps” has the exact opposite effect on the subject of the interview. The discussion only cements the subject’s defensiveness and potential to discount any benefit of the recommendations or advice. While it may invoke compliance-oriented behavior, any positive effect of such activities or desire for improvement will probably be short lived.

Although he did not conduct a neurological study, Masud Khawaja, now at the University of Manitoba, found that a patient’s experience of more PEA than NEA in their relationship with their physician had the significant impact of determining treatment adherence for Type II Diabetics. Treatment adherence is typically about 50 percent for Type II Diabetics, and only half of the diagnosed patients take their medicine and follow the dietary restrictions explained by their physicians. But those who experienced more PEA than NEA in their relationship with their physician followed the desired treatment plan better than others.

When your doctor tells you to exercise more and eat less, do you do so? Many of us do not, which is why obesity-related complications are one of the largest published health hazards in North America today — and put the most financial strain on the health care system. When our resolve to maintain a healthy life appears to be weakening, the PEA approach to coaching and strengthening the motivation to change is much stronger than the more typical NEA approach of telling people what they “should” do. On the basis of 29 longitudinal studies at Case Western Reserve University, we now know that the emotional, social and cognitive intelligence competencies of managers and executives in development improve dramatically when these programs use the PEA approach. This is important because, as other studies have shown, such competencies predict leadership, management and professional effectiveness. (Boyatzis, Stubbs & Taylor, 2002 and later studies). So, if the PEA approach to coaching works better in management and leadership development, health care, and higher education, the fMRI study mentioned earlier suggests why it works better than the alternative. It gets our attention.

Two kinds of empathy

Additional insight into the types of processes described above comes from another set of neuroscience studies conducted mostly by Professor Jean Decety and his colleagues at the University of Chicago, and Professor Don Batson at the University of Kansas. They have shown that we can empathize in two ways (Decety & Batson, 2007; Decety & Michalska, 2010). One is more self-reflective, in that we empathize with another person in terms of how we might feel in their situation or how it makes us feel. The other form of empathy is being open to how the other person feels, with substantially less self-referral in the process. The latter is a truer form of being open to another person and caring about them. It is also a purer form of empathy, one that has many similarities to circuits that are like the DMN and social network mentioned earlier.         

To build more effective leadership relationships and to help others feel motivated and inspired to change, learn and develop, leaders need to have empathy. Beyond feeling that they are understood, other people need to feel that the leader “cares” about them. A basic component of this process is likely to be a leader’s ability to suspend his or her own issues and agenda and understand the other person’s issues, thoughts and feelings. That is, engage in a truer form of empathy.

Common sense, but not common practice

Even though most executives and leaders know that more effective leadership relies on better relationships and know how to approach a person in order to motivate and inspire him or her, we do not take the time to walk the talk, at least not consistently. Other issues and challenges distract our attention, or in neurological terms, refocus our attention not on the other people around us but on the “problem.” As we slip into a more defensive or focused mode of thought, we close ourselves off to others. In doing so, we limit our ability to leverage the human capital in our organizations to innovate, create, engage and adapt to the world around us.

The discoveries discussed above are exciting, but they are only a beginning. The scientific glow of looking deep into our brains and seeing neural scans can feel like the awe and magic of a Hogwarts indoctrination ceremony. It is, after all, still science. We need to be excited but cautious, engaged but skeptical of neuroscience’s applications and be wary of claims of new elixirs. In the stream of research described in this article, I have tried to show how findings from many fields — neuroscience, medicine, management, psychology and education — are converging to support some existing theories, and to shine a light on the path ahead to developing more effective leaders and to more research and experimental applications.

References

Boyatzis, R. E., Jack, A., Cesaro, R., Passarelli, A. and Khawaja, M. (2010), Coaching with Compassion: An fMRI Study of Coaching to the Positive or Negative Emotional Attractor, Presented at the Annual Meeting of the Academy of Management, Montreal.

Boyatzis, R.E., Passarelli, A.M., Koenig, K., Lowe, M., Mathew, B., Stoller, J.K. and Phillips, M. ( in press), “Examination of the neural substrates activated in memories of experiences with resonant and dissonant leaders,” The Leadership Quarterly.

Boyatzis, R. E., Stubbs, E. C., & Taylor, S. N. (2002). Learning cognitive and emotional intelligence competencies through graduate management education. Academy of Management Journal on Learning and Education, 1(2), 150-162.

Decety, J., & Batson, C. D. (2007). Social neuroscience approaches to interpersonal sensitivity. Social Neuroscience, 2, 151-157.

Decety, J. & Michalska, K.J. (2010). Neurodevelopmental changes in the circuits underlying empathy and sympathy from childhood to adulthood. Developmental Science, 13(6), 886-899.

Jack, A., Dawson, A., Ciccia, A. Cesaro, R., Barry, K., Snyder, A., & Begany, K. (2009). Social and mechanical reasoning define two opposing domains of human higher cognition. Presented at the Society for Neuroscience Annual Conference in Chicago, 2009. The manuscript is currently under in-depth review in Science.

Khawaja, M. (2010). The mediating role of positive and negative emotional attractors between psychosocial correlates of doctor-patient relationship and treatment of Type II diabetes.

Doctoral Dissertation, Case Western Reserve University; Cleveland, Ohio.

Waldman, D. A., Balthazard, P. A., Peterson, S. J., Galvin, B.M. & Thatcher, R.W. (in press). Linking neuroscience, socialized vision, and charismatic leadership. Strategic Management Journal.

The sum of virtues, values and traits equals good character, which, in addition to competence and commitment, is one of the 3 ingredients that make a leader effective and respected. For many, however, virtues, values and traits remain indefinable, even elusive. These authors not only define them, they also de-construct them, in the process demonstrating how character fuels people in their personal journeys to become better leaders.

In assessing leaders at any level in an organization, we must always ask three questions:

• Do they have the competencies to be a leader?  Do they have the knowledge, the understanding of key concepts, facts, and relationships that they need to do the job effectively?

• Do they have the commitment to be a leader?  Yes, they aspire to be a leader, but are they prepared to do the hard work of leadership, engage with others in fulfilling the organizational mission, achieve the vision and deliver on the goals?
• Do they have the character to be a good leader and strive to be an even better one?  Do they have the values, traits and virtues that others – shareholders, employees, customers, suppliers, regulators and the broader society within which they operate – will use to determine if they are good leaders?

Figure 1:  Leadership Competencies, Character and Commitment

We have documented previously the types of knowledge, skills, understanding and judgment that leaders need, grouping them into four competencies – strategic, business, organizational and people[1].  Underpinning these competencies is general intellect (see Figure 1).  We have also talked elsewhere about the importance of leaders having the commitment to lead and the problems that are caused when people in leadership roles no longer want to do the hard work of leadership and become disengaged from what is happening in the organization, while they still enjoy the status, privileges and perks of office.  In this article, we want to focus on leadership character, not because it is necessarily more important than competencies and commitment, but because it is the most difficult to define, measure, assess and develop.  Our intent is to define those dimensions of leadership character that are most important in today’s rapidly changing and turbulent business environment, and suggest how character can be developed.

Why Character Matters

In any bookstore you will find dozens of books on leadership style, far fewer on leadership competencies, and fewer still that address leadership character.[2]  For some reason we have lost sight of character.  Perhaps this is because our educational system and organizations are so competency focused; perhaps because we just don’t know what to think about character; perhaps because character seems such an old-fashioned word; perhaps because we are reluctant to discuss examples of poor character with our colleagues in the workplace, or because we believe we cannot assess character objectively.

Yet character is such a central, important element of leadership — particularly for the kind of cross-enterprise leadership that is essential in complex, global business organizations — which it should not and cannot be ignored.  Character fundamentally shapes how we engage the world around us, what we notice, what we reinforce, who we engage in conversation, what we value, what we choose to act on, how we decide…and the list goes on.

Our own research on the failures of leadership points to issues around character as a central theme[3].  Nowhere was this more obvious than in the financial crisis of 2008 – 2009, in which boldness or instant gratification triumphed over temperance.  People who knew that bad risks were being taken did not have the courage and/or confidence to speak up, and people without integrity sold mortgages to those who could not pay them.  They then bundled these mortgages into securities that were fraudulent and sold to others.  People with large egos, lacking in humility, oblivious to the harm they may have been be doing to others or the societies in which they operated, became very rich at the expense of millions who were the victims of the financial crisis and subsequent recession.  Yet, to this day, these same people seem unable or unwilling to accept any degree of responsibility for their actions.  Leaders of large, global companies knew about these types of practices yet did nothing to stop them.  Still others were unable to create the honest, transparent corporate culture that would enable them to be in touch with what was happening deep down in the organization.  All these behaviors and activities were, essentially, failings of character.

Defining Character

There is no consensus on a definition of character.  In fact there seems to be as many definitions as there are scholars whose research and writing focus on character.[4]  In our discussion of character, we focus on personality traits, values and virtues.

Traits

Traits are defined as habitual patterns of thought, behavior and emotion that are considered to be relatively stable in individuals across situations and over time.  Traits are not fixed.  For example, introverts may be able to learn how to behave in a less introverted way, while extroverts may learn how to control and moderate their extroverted behaviors when situations require it. 

There are, literally, hundreds of personality traits from A (ambition) to Z (zealousness) that have been described in the psychology literature.  However, through statistical techniques such as factor analysis, five broad domains, or dimensions, of personality have emerged, and are now widely used in various forms in employee selection and assessment.[5]  The “Big-Five” traits are:

• Conscientiousness
• Openness to experience
• Extroversion
• Agreeableness, and
• Neuroticism

These five traits feature prominently in tests or inventories and they have come to be known as the FFM, or the five-factor model, a robust model of personality.  Although the Big Five dominate the personality literature, there are various other traits that warrant consideration and measurement, such as self-confidence, ambition, perfectionism, dominance, rigidity, persistence and impulsivity.

Some personality traits can be inherited.  For example, studies have shown that identical twins that have the same genes show more traits that are similar than non-identical twins.  Traits, of course, also evolve through life experiences and deliberate developmental exercises such as coaching.

Values

Values are beliefs that people have about what is important or worthwhile to them.  Values influence behavior because people seek more of what they value.  If they can get more net value by behaving in certain ways, they will.  Values therefore can be seen as the guideposts for behavior.  Some people value their autonomy very highly, some value social interaction, some value the opportunity to be creative, some value work-life balance, and so on.  Values may change with life stages and according to the extent to which a particular value has already been realized.  For example, a new graduate strapped by student loans may value a high starting salary.  That same person 30 years later may well pass up a high-paying job for one that paid less, but allowed him to live close to his grandchildren or somewhere with greater access to recreational activities.  

An individual’s values are in large part derived from the social environment in which he or she lives.[6]  In Western democracies, life, liberty and the pursuit of happiness are some of the things we value.  Other societies value order, harmony, non-violence and equality.  If we are brought up with strong religious traditions, some of us develop values based on the teachings of those religions.  Similarly, our value frameworks may be influenced by our home life, fraternal societies we join, experiences obtaining an education, the companies we work for, our friends, and many other social influences.

An important sub-set of values consists of those with ethical or social dimensions, such as honesty, integrity, compassion, fairness, charity and social responsibility.  Such moral values may be strongly or weakly held and influence behavior accordingly.

Values may be espoused though they may not necessarily be manifested.  For example, it’s not unusual for people to experience value conflicts in certain situations.  When loyalty conflicts with honesty, when fairness conflicts with pragmatism, or when social responsibility conflicts with obligation to shareholders, people become conflicted.  And when their actions are inconsistent with their values, they either experience guilt, anger and embarrassment.  People try to minimize such cognitive dissonance by rationalizing or even denying their behavior, discounting the consequences of it or simply blaming others.

Virtues

From the time of the ancient Greeks, philosophers have defined certain clusters of traits, values and behaviors as “good,” and referred to them as virtues.  Virtues are like behavioral habits – something that is exhibited fairly consistently.  For example, Aristotle wrote that: “We are what we repeatedly do.  Excellence, then, is not an act, but a habit.”

Aristotle identified and defined twelve virtues: Courage, Temperance, Generosity, Magnificence, Magnanimity, Right ambition, Good temper, Friendliness, Truthfulness, Wit, and Justice.  The twelfth virtue is Practical Wisdom, which is necessary to live the “good life” and thus achieve happiness or well being. 

Consider the virtue of Courage.  Traits such as openness to experience, self-confidence and persistence contribute to individuals acting in distinctive ways – for example, putting themselves on the line and acting in a courageous fashion.  Having values such as integrity, treating individuals with respect and achievement predisposes individuals to demonstrate courageous behavior.  Furthermore, a person with integrity tends to act in a different way than a person who lacks integrity, even if both individuals find themselves in the same situation.  Then there is a set of actual behaviors that individuals engage in – on a fairly consistent basis (meaning across situations and over time) – and that friends, colleagues and observers characterize or describe as courageous.  These behaviors may have become societal expectations.

The ten virtues of a cross-enterprise leader

We propose that cross-enterprise leaders who focus on the long-term performance of their organizations must demonstrate ten virtues (as shown in Figure 2)[7]. 

• Humility is essential to learning and becoming a better leader
• Integrity is essential to building trust and encouraging others to collaborate
• Collaboration enables teamwork
• Justice yields decisions that are accepted as legitimate and reasonable by others
• Courage helps leaders make difficult decisions and challenge the decisions or actions of others 
• Temperance ensures that leaders take reasonable risks
• Accountability ensures that leaders own and commit to the decisions they make and encourages the same in others  
• Humanity builds empathy and understanding of others
• Transcendence equips the leader with a sense of optimism and purpose
• Judgment allows leaders to balance and integrate these virtues in ways that serve the needs of multiple stakeholders in and outside their organizations.

Figure 2: Ten Leadership Virtues

But if you consider what may happen when leaders lack these virtues, the effects become more obvious (see Table 1 below). 

• Without Judgment leaders make flawed decisions, especially when they must act quickly in ambiguous situations, namely when faced with the many paradoxes that confront all leaders from time to time.
• Without Humanity leaders are unable to relate to others, see situations from their followers’ perspectives or take into account the impact of their decisions on others.  Without humanity leaders will not act in socially responsible ways – they will alienate people.
• Without a Sense of Justice leaders are unable to understand the issues of social inequality and the challenges associated with fairness.  Such leaders act in unfair ways and reap negative consequences in the form of poor employee relations or reactions by customers, governments and regulators.  People will rebel and find ways to undermine the leader.
• Without Courage leaders will not stand up to poor decisions made by others and will lack the perseverance and tenacity required to work through difficult issues.  They will also back down in the face of adversity and choose the easy route.  But in doing so they only postpone the inevitable.
• Without Collaboration leaders will fail to achieve those worthwhile goals that require more than individual effort and skills.  They don’t use the diversity of others’ knowledge, experience, perceptions, judgments and skills to make better decisions and to execute them better.  Friction among different stakeholders results and relations deteriorate.
• Without Accountability leaders don’t commit to, or own, the decisions they make, and cannot get others to do so.  They blame others for poor outcomes and in doing so create a culture of fear and disengagement.  People stop caring, with potentially disastrous consequences.
• Without Humility leaders cannot be open-minded, and solicit and consider the views of others.  They can’t learn from others, they can’t reflect critically on their failures and become better leaders as a result of those reflections.  They become caricatures of themselves.  Isolation results.
• Without Integrity leaders cannot build good relationships with followers, with their organizational superiors, with allies or partners.  Every promise has to be guaranteed and the resulting mistrust slows down decisions and actions.
• Without Temperance leaders take uncalculated risks, rush to judgment, fail to gather relevant facts, have no sense of proportion, and make frequent and damaging changes or even reverse important decisions.  Their credibility suffers.
• Without Transcendence leaders’ goals become narrow and they fail to elevate discussions to higher-order goals.  They don’t see the bigger picture and hence their decisions may reflect opportunism only.  They don’t think outside the box or encourage others to do so.

Aristotle was clear in stating that virtues become vices in their excess or deficiency.[8] Courage in its excess is recklessness while in its deficiency it is cowardice.  Collaboration in excess, ungoverned by judgment as to when it will result in benefits, leads to numerous unproductive meetings and organizational inefficiency.  But without it, teamwork is difficult or impossible.  Too much humility may lead followers to question the leader’s toughness, resulting in a lack of confidence.  But without it, leaders make ill-advised decisions and are unable to learn.  Transcendence in excess can result in leaders becoming vacuous visionaries, unable to focus on the here and now and the more mundane decisions that need to be made.  But without transcendence, leaders focus on narrow, short-term goals.

Table 1:  Good and Bad Outcomes of Presence or Absence of Virtues

Temperance or Justice in excess may lead to extreme risk aversion and paralysis in decision-making; without them, reckless or grossly unfair decisions are made.  Even extreme Accountability may subvert required actions when the penalties for failure are unreasonable or extreme; but without it, empowerment and delegation are not possible.  Humanity in excess may lead to the neglect of shareholders’ interests; but in its absence, employee loyalty and commitment will suffer.  Judgment under conditions of uncertainty or ambiguity is the essential requirement of organizational leadership; but excessive judgment may lead to indecisiveness or dithering.  Even an excess of integrity can lead to self-righteousness and total inflexibility; but organizations could not function without rules and regulations that set boundaries.  The challenge for leaders, therefore, is to deepen or strengthen a virtue through reflection, and hence avoid turning a virtue such as Courage into the vice of excess (Recklessness) or a lack of it (Cowardice).

Psychologists, sociologists, organizational theorists and others who study behavior in organizations have been interested in traits, values and virtues associated with good leadership.  Virtuous leaders are influenced by their traits and values but they balance and integrate them in ways that are appropriate to the situations in which they operate.  For example, while leaders may be transparent by nature, they are able to keep a confidence or secret when it is appropriate to do so.  While they may be courageous, they will understand which battles to fight and which to avoid. 

Character Development

Individuals can develop their own character strengths, leaders can help followers develop their character, and organizations can and should enable character development to take place.

How Character Develops

Some dimensions of character, specifically some traits, are inherited.  Virtues, values and many other traits are developed during early childhood, and modified as a result of education, family influences, early role models, work and social experiences, and other life events. 

The early philosophers viewed character as something that is formed, subconsciously, through repetitive behavior that is either rewarded or by finding what works through experience.  The habit of character is formed along with a myriad of other habits which both enable and constrain us, and that can be both productive and counterproductive.  The interesting thing about habits is that we are often unaware of them.  There’s a famous saying that illustrates this point rather well – “Watch your thoughts, for they become words. Watch your words, for they become actions. Watch your actions, for they become habits. Watch your habits, for they become character. Watch your character, for it becomes your destiny” (author unknown).

As Robert Kegan, a developmental psychologist, said, we need “to resist our tendencies to make right or true that which is merely familiar and wrong or false that which is only strange.”[9]  At the core of this capacity is character; hence, character shapes thoughts, words, actions, and so on.  Yet, habits may prevent the development of character.  For example, a strong ego that has been built to defend one’s identity makes it difficult to develop humility and thus be open to learning experiences.  So, when people believe that character is developed at an early age, they are in part correct, since there comes a time when habits are difficult to break.  It is not surprising then that it often takes profound life events to liberate us from the cages we have constructed for ourselves. 

These “crucible” events have a significant influence on the traits and values that are part of character.  Some of these events force people to confront the impact of their trait-and value-driven behaviors, and their self-concept of virtuosity.  Being fired, having your work praised or criticized, being passed over for a promotion or being promoted when you didn’t think you were ready for it, finding yourself disadvantaged through a boss’s unfair assessment, or being accused of harassment, plagiarism or other forms of unethical behavior are all examples of events that can shape character. 

Less dramatic but no less important are those events that reinforce good character.  The acknowledgement, praise, recognition or reward that come to people for doing the right thing or acting in the right way are critical to character development, especially when offered during an individual’s formative years.  Selection for a valued assignment or a promotion further reinforces such behaviors and hence, the development of character. 

Even normal everyday occurrences offer the opportunity for character development, since it is not something separate from one’s job or life, but rather a part of them.  Reflection about why you might be impatient, excessive, stubborn or careless provides the raw material for examining and developing character.

Senior Leadership and Organizational Commitment to Character Development

There is much that senior leaders in organizations can do to develop leadership character in others. 

Simply talking about character, making it a legitimate and valued topic of conversation, stimulates discussion and facilitates individual reflection.  When organizations develop leadership profiles and address leadership character in those profiles, they emphasize the importance of leadership and promote discussion of it, especially in the context of developmental coaching.  Conversely, when leadership profiles only address competencies and commitment, they implicitly, if unintentionally, suggest that character is not important. 

Even explicit values statements in organizations often turn out to be nothing more than posters or plaques on the wall.  Unless they are formulated in the context of the work that people are doing, and in a meaningful way, they tend to be ignored.  Anything that senior management attends to is considered important; anything ignored is marginalized.  For the most part, people do not learn values and virtues by osmosis.  Values need to be addressed explicitly in the organization’s coaching and mentoring, reinforced through training and development, and actively used in recruitment, selection and succession management. 

Personal Commitment to Character Building

Warren Bennis addressed the role of individual responsibility in becoming a better leader when he said:  “The leader never lies to himself, especially about himself, knows his flaws as well as his assets, and deals with them directly.  You are your own raw material.  When you know what you consist of and what you want to make of it, then you can invent yourself.”[10]  This is relevant to leadership character as much as it is to competencies and commitment.  It requires a degree of self-awareness, a preparedness to examine habitual behaviors and consider whether there may not be better ways of leading than the ones that have worked, more or less, for you in the past.  We limit our development as leaders by not having the discipline and courage to assess ourselves honestly.

Why Character Really Matters!

When it comes to leadership, competencies determine what a person can do. Commitment determines what they want to do, and character determines what they will do.

Character is foundational for effective decision-making.  Clearly, mistakes are made because of a leader’s shortcomings in his or her competencies.  More often, the root cause is a failing of character.  For example, not recognizing or not willing to admit that you don’t have the requisite competencies to succeed in the leadership role is rooted in character.  Not willing to listen to those who can do well because of the perception that it would undermine your leadership is a problem rooted in character.  Challenging decisions being made by others but which you feel are wrong requires character.  Dealing with discriminatory behaviors by others requires character.  Creating a culture of constructive dissent so that others may challenge your decisions without fear of consequences requires character.  

The question is not really why character matters, but why it does not get the attention and respect it warrants.  For character to find the spotlight it deserves, leaders need to illuminate it.  We can see some light shed in organizational statements of values and leadership competencies, but the practice is not widespread.  We believe organizations should move beyond statements of organizational values to anchor leadership development in profiles that define what makes a leader good, in addition to defining what good leaders do and how they can lead better.

Character is not something that you have or don’t have.  All of us have character, but the key is the depth of development of each facet of character that enables us to lead in a holistic way.  Character is not a light switch that can be turned on and off.  There are degrees, and every situation presents a different experience and opportunity to learn and deepen character.  In particular, and for better or for worse, character comes to the fore when managing a crisis.  No one is perfect when it comes to character, and given that its development is a lifelong journey, we will rise to the occasion in some situations and disappoint ourselves and those around us in others. 

Numerous examples come to mind where good people do inappropriate things!  They get derailed because they stop listening; they become overconfident in their decision-making skills; they become blind to important contextual variables; their emotions hijack their self-control, and so forth.  Even good people are fallible.  But since we tend to judge ourselves by our intentions and others by their behavior it is easy to become jaded about character.  How could someone preach one thing and do another?   The point is that in this lifelong journey, we need to appreciate what it takes to develop the habits around character, and to enable the conversations within ourselves and with others that strengthen rather than undermine character.

Competencies count, character matters and commitment to the leadership role is critical to the leader’s success.  Our experience is that a renewed focus on character sparks the best in people and fuels them in their personal journeys to become better leaders.  We see the process of learning to lead as a journey that enables people to bring the best of themselves to support and enable others, ensure that the organizations they work with perform at the highest level, and in doing so, contribute to the society in which they operate.

Occupy movements highlighting economic inequality have quickly spread around the world. But they have also excluded several countries. One interesting example of the latter is India. How have businesses in India coped with the dual pressures of enhancing shareholder wealth leading to economic growth and operating in a society with a high level of inequality? Can businesses in the developed world learn from Indian enterprises that have attempted to balance their respective corporate good with the social good? Readers will find some stellar examples in this article.

With a theme of 99 percent vs. one percent, Occupy Wall Street (OWS) targeted the richest one percent of people in the United States who were perceived as [unfair] beneficiaries of a system of capitalism that was forestalling the future of the vast majority. Among the one percent are major businesses, which are increasingly being targeted by OWS. For example, Occupy protesters have called for the shutting down of ports operated by SSA Marine, a transportation services company owned by Goldman Sachs, the U.S. bank that was at the centre of the global financial crisis in 2007-08. The Occupy movement has since spread to over 100 cities in the U.S. and it has found an echo in over 1,500 cities globally, including parts of Europe.

Since April 2011, India has been witness to the rise a popular movement called “India against Corruption.”  Led by Anna Hazare, a homegrown social activist, the national uprising is aimed principally at the top echelons of politics (known to demand payment from businesses for major licenses and other deals) and the lower echelons of bureaucracy (known to demand payment from ordinary citizens for simply providing basic government services). Together they symbolize all that is ugly in the country’s socio-economic system.

Wealth inequality in India, per se, is similar to wealth inequality in the U.S. and Canada. Gini coefficients for household wealth for the U.S., Canada, and India are 0.801, 0.688 and 0.669, respectively. {The Gini household wealth coefficient ranges from 0, which indicates complete equality (every household in society has the same wealth) to 1, which represents complete inequality (one household has all wealth, whereas rest have none)}. Higher values of the Gini, therefore, signify more inequality. It should be noted that the numerical difference in Gini values between countries might appear to be smaller. But even small differences can signify large differences in their ranking on inequality indices. For example, with a value of 0.801, the U.S. ranks at 146, while Canada ranks at 59 out of 150 countries. Despite high wealth inequality, an Occupy-type movement of the kind that pits the ultra-rich against the not so rich has not gained traction in India. Nor is it, one can safely say, likely.

The reason is that Indian businesses have a long history of operating in an environment where inequality was rampant. For decades after independence, India purportedly pursued a socialist model of economic growth, commonly known as the license raj, in which the conduct of business was regulated by both federal and provincial governments. Business enterprises had to deal with a political climate that was anti-business, made even more difficult by endemic corruption in political institutions and the bureaucracy. It was only after 1991, with the launch of economic reforms, that India witnessed a pace of economic growth that remains unmatched by even the developed world today. But old ghosts continue to haunt, and the mindset of the license raj continues to prevail. A recent example is the manner in which foreign direct investment in multi-brand retail is being stalled by the Indian parliament. The issue has become a political ball game, without a proper evaluation of the pros and cons for business and other stakeholders in society.

Given this political climate, how have businesses in India coped with the dual pressures of contributing to economic growth and operating in a society with high inequality? The short answer is quite well, and there are valuable lessons that businesses in the developed world can learn from Indian businesses that have managed this contradiction. As this article will describe, there are lessons that can lead to new business opportunities and enable the firm to contribute to society.

Managing growth, reducing inequality

Some large Indian companies have found a way to conduct their business profitably while making investments aimed at providing greater opportunities for the underprivileged. Their approach can be examined under four categories: (i) community development, (ii) education, (iii) partnerships, and (iv) developing low-cost products.

Community development

Community development has been one of the key drivers for the success of several large corporations in India. They regard it as a way of giving back to the community that has sustained them. In turn, it has improved their relations with the community and enhanced their reputation.

•   Wipro Cares is an initiative launched by Wipro Ltd., a global software company based in Bangalore, to improve the lives of marginalized communities in the neighborhoods of cities where its offices are located in India. The venture is funded by donations from company employees that are matched by Wipro, creating a culture of community development across the entire company. It is focused on three specific objectives: offering healthcare to under-privileged families living close by; providing rehabilitation to survivors of natural calamities in different parts of India; and enhancing the learning abilities of children from poor families in its neighborhoods. The initiative coordinates voluntary employee efforts in nation-wide projects in each area of focus.

Wipro Cares has set up health clinics in each of the 25 villages located around three of the company’s manufacturing plants. They cater to the medical requirements of about 25,000 outpatients annually. It has adopted Pushpavanam, a village in the tsunami-ravaged belt of the state of Tamil Nadu, part of its attempt to rebuild the village and restore the lives of its inhabitants. Wipro Cares has also been involved in community efforts like restoring a lake in the city of Hyderabad, building a drainage system in parts of the city of Bangalore and engaging in forestation activities near the city of Chennai. Wipro Cares volunteers – who include not only employees but also their families and friends – have constructed toilet blocks at schools in Bangalore. This step follows in the wake of research that has shown that lack of toilets facilities in schools is the main reason for the high levels of dropout rates among girl students.

•   The Tata Council for Community Initiatives is a centralized program that drives the engagement of various companies of the Tata Group  — a Mumbai-based conglomerate — with the communities in which they function. It is headed by a member of the Tata Group Corporate Centre (TCCI), which is indicative of the company’s top-level commitment. TCCI reinforces what is widely known in India as the “Tata Way” of doing business – honest, transparent and above board.

TCCI tracks the social impact of its group companies through a metric called Tata’s Index for Sustainable Human Development, a first of its kind in India. The index measures and monitors the involvement of Tata Group companies, numbering 96, in their respective communities every year. It is an internal score that not only records outcomes of individual companies and ranks them group-wide, but also enables them to refocus their processes in tune with changing priorities.

The outcomes are measured and monitored at three levels for each company – (deployment of) systems, (performance of) people and (implementation of) programs. Systems have a weightage of 275, people 175 and programs 550, in a cumulative score of 1,000. Each is further broken down into pathways that are trailed monthly. Tata Motors has been the best performer in the group, with a total score exceeding 650. TCCI has begun to extend the reach of its index to its immediate ecosystem of raw materials vendors and other suppliers of various group companies. Even their competitors have begun to examine the model seriously. Some have made it part of their own charter, and by so doing they are creating a ripple effect.

Education and Human Development

Several Indian enterprises have incorporated education as a key element of their corporate social responsibility. Some of them have built educational districts around their principal geographies of operations.

•   Birla Education Trust is a pioneer in the field of education. It is part of the Birla Group, one of India’s leading family enterprises with a wide portfolio of businesses. Birla Education Trust has set up several institutions at Pilani, in the province of Rajasthan, where the Birla group has its family roots. Its educational services cover the full spectrum, from primary education to higher education. Admission is not restricted to either the community of Marwaris that Birlas are part of or to the local population, but it is competitive in its own right on a pan-Indian basis. Its most recent addition is the Birla International School, which incorporates both Indian and international curricula for students from India and abroad.

Alumni of Birla educational institutions have occupied leadership positions in various professional streams like law, medicine, public service, defense, business and academics, and not only in India but worldwide. There are many instances of successive generations of alumni enrolling in the Birla School, which was set up in 1901. Birla Education Trust is fully funded by the Birla family, and offers annual scholarships to students for overseas education.

•   Infosys Technologies, a global software company based in Bangalore, has set up Campus Connect. IT companies in India are known to be grappling with a two-fold challenge: shortage of software engineers and shortage of skills among university graduates to make them industry ready.  Campus Connect goes beyond meeting the internal requirements of Infosys and takes a broader view of the resource crunch with its goal of “architecting the education experience,” as the company calls it. Architecting’s goal to increase India’s competitiveness in the knowledge economy.  The program has a dedicated team that is involved in designing the curriculum of engineering colleges in the country, thus helping to align it with the needs of the Indian IT industry. This alignment is achieved through a number of programs that supplement academic content with industry content through case studies and industry visits. Programs under Campus Connect are also aimed at developing soft skills among the students, so that they become stronger team players. Additionally, faculty members in engineering disciplines can take sabbaticals to pursue their research interests at Infosys for 2-3 months and gain real-life, customer-project experience.

Campus Connect does not have lofty goals such as adding to the number of engineering colleges or increasing the number of engineering graduates in the country. It is estimated that, by 2040, India will have the single largest pool of working professionals among all countries of the world, and Campus Connect aims to make the engineering graduates employable as soon as they leave colleges. Its objective is to ensure that recruits to Indian industry in general, and not just to the IT sector, hit the ground running rather than go through elaborate training on the job.  Campus Connect has been involved with over 300 engineering colleges in towns and cities in India and is getting involved with more every year.

Social initiatives through partnerships

Some Indian companies are using the partnerships route to improve the quality of life of people in India. They are collaborating with peers, non-governmental organizations and public agencies to deliver new services to the under-privileged segments of population.

•   Britannia Industries Ltd, a leader in the Indian biscuits industry with 50 per cent market share and based in Bangalore, has set up Britannia Nutrition Foundation to address child malnutrition, a critical issue, in partnership with the UN World Food Program. India has 100 million children under the age of five, and of these, 47 per cent are malnourished. The largest single deficiency is iron, which is known to be a crucial input in the making of hemoglobin. Studies have shown that iron has a direct linkage with IQ development, energy level, learning ability and the academic performance of school children. Sixty percent of all school-age children in India are estimated to suffer from anemia.

To address malnutrition, Britannia has partnered with the Global Alliance for Improved Nutrition (GAIN), based in Geneva, and developed biscuits that are fortified with several micronutrients, including iron. Britannia is the only biscuit manufacturer in the country to add iron, which is stripped out in the grain-milling process, through a separate method. Even though India’s existing regulations do not make it mandatory, the company goes a step further by making its biscuits free of harmful transfats. Britannia Industries distributes 10 million packs of fortified biscuits to children as part of the noontime meal plans, which are sponsored by various provincial governments. It has partnered with Naandi, an Indian NGO, to distribute them to schoolchildren in India, as part of their mid-day meal. It has also recently partnered with Clinton Global Foundation to take the fortification initiative to schoolchildren beyond India. 

•   Reliance Industries Ltd., a Mumbai-based petrochemicals enterprise, has partnered with local NGOs (Lok Samarpan and Lok Vikas Samstha) in the province of Gujarat. where it has set up a refinery plant at Hazira, an industrial town. The company has a modern medical facility at Hazira, which provides free medical facilities to its inhabitants on the lines recommended by the World Health Organization.  Its HIV and AIDS program is unique among private-sector initiatives in India in the sense that it not only promotes awareness but also provides treatment. The initiative took off when an official survey showed that12 percent of the local population had a sexually transmitted disease. Hazira has a large migrant workforce employed in several local industries, which also attract a floating population of truckers in the region. Concerned about the risk of infectious diseases in the local population, the management of Reliance Industries Ltd. partnered with the two NGOs to devise both preventive and curative strategies. 

The program has already reached nearly 300,000 people. A majority of them are contract workers and members of the local community outside of the company’s workforce. Reliance has also been training doctors, nurses and para-medical staff of other local hospitals to increase their own awareness of and responsiveness to HIV-positive patients. The company is now in the process of replicating the program at its other manufacturing sites at Naroda, Jamngar (both in the province of Gujarat) and Patalganga (in the province of Maharashtra).

Increasing access through low-cost products

Several Indian companies are designing low-cost products offering a better price-value equation. The focus is on delivering products that have basic, functional attributes, without any frills, to allow more people to buy the products.

•   Godrej & Boyce, an engineering manufacturing company based in Mumbai, has launched “Chotukool,” a low- cost refrigerator. Chotukool (a local lingo which translates into “mini-cooler”) is designed to meet the needs of rural consumers who buy groceries on a day-to-day basis unlike their urban counterparts. Their requirement is for a simple cooler that preserves milk, vegetables and leftovers for not more than a day or two. Chotukool is priced at 3,500 in a market where the refrigerator prices range from 7,000 to 70,000 (1 USD =  50 approx.).

The company saw an opportunity in rural India where the market penetration rate for refrigerators was a low two per cent. It set up teams which spread out into the interior and spent hours in huts witnessing, first hand, the lifestyle patterns of villagers and talking to them about their needs. A no-frills refrigerator costing about  2,500 seemed to be a good, affordable retail price. Customers also wanted it to be battery-run, since power surges and voltage flucuations were common in villages. Rather than reengineering its existing models, the company started with a clean slate using innovative techniques, like thermoelectric cooling, on the way to designing a working device. Chotukool has only 20 parts, as opposed to 200 in a typical refrigerator. Godrej & Boyce is extending the concept to other home appliances. Coming up is Chotu-wash, a low-cost washing machine that will eliminate more daily drudgery among rural households.

•   First Energy Private Ltd., a startup based in Pune in western India, has launched Oorja (an Indian term for energy), a low-cost cooking solution that provides economic and environmental benefits to Indian households.  Oorja is at the cutting edge of social transformation that starts where it matters most – in the kitchen. The flame it provides is of a consistent quality and carries no smoke. A clean flame is an advantage for consumers since smoke from indoor stoves is known to make millions of women and children, in villages in particular, ill with lung and eye infection. The company also uses agricultural waste as raw material to manufacture biomass pellets at its plant, which it sells through nation-wide distributors as fuel for Oorja.

At 6 per kilo, the fuel provides a price advantage over liquefied petroleum gas (LPG). LPG is used largely by urban households and, to a lesser degree, by rural households. The price advantage will become compelling when the federal government eliminates the subsidy it currently provides to households on the purchase of LPG cylinders. One kilo of LPG will retail, in an un-subsidized situation, at 46. In terms of cooking output, one kilo of LPG is equivalent to 2.5 kilos of fuel pellets supplied by First Energy. Consumers will be able to save 31 per kilo of fuel. Rural consumers,  who use wood and charcoal, will also safeguard their health and thus preempt the health and social costs associated with kitchen smoke.

Indian companies continue to function in a tough environment. They face many challenges and have a long way to go in terms of improving their managerial practices. It is worth noting that they still operate in a highly unequal society and under a government that wrestles with continuous choices between easing controls and holding on to them. There is an opportunity here for companies in the developed world, which have only recently woken up to the challenge of economic inequality, to draw some lessons from Indian businesses. As the examples above show, some companies in India create products and services for the wealthier strata of society, yet still make investments aimed at generating opportunities for the underprivileged. By doing so, they portray businesses as partners in mobilizing solutions for the problems plaguing India, rather than appearing as perpetuators of inequality in the society in which they operate.

Business leaders are trained to focus on big, attractive markets, yet some of the most compelling sources of growth come from markets that start out as tiny footholds. Penetrating such foothold markets requires an entirely different approach than the one used for big, established markets. Readers of this article will learn which strategies and tactics work best.

At first glance, some of the biggest opportunities in business can look exceedingly small.  For example, the functional non-alcoholic beverage industry – a $20+ billion behemoth in North America – got its start in 1965 with Gatorade, a product concocted for players on the University of Florida’s football team.  In the 1950s, IBM considered an offer from Xerox to partner in bringing out the first photocopier, but a careful study of the market concluded that it would be too small to merit serious attention.

Business leaders are trained to focus on big, attractive markets, yet some of the most compelling sources of growth come from markets that start out as tiny footholds.  As Table 1 shows, 8 of the 10 most valuable companies in the United States got their start as tiny slivers in the economy, only to go on to grow with their industries to become titans.

Exhibit 1 – Foothold Markets for the 10 Most Valuable U.S. Companies

Winning in a vibrant, new market is a time-tested route to commercial success, but the best strategies in that setting can differ substantially from approaches used in established markets.  Rather than targeting big accounts or large swathes of consumers, firms can do far better by focusing tightly on well-defined foothold markets.  These markets consist of a relatively small set of customers that:

• Reduce uncertainty by simplifying initial forays and enabling rapid adjustment as learning occurs
• Stimulate demand among mainstream customers, or
• Enable a business to secure a leadership position quickly

In addition to violating conventional principles of business strategy in established markets, this approach runs counter to the political processes in many corporations.  To sell a new proposition to senior management, champions of an idea often want solid estimates of a market’s size. Then, they gravitate toward existing markets that have reliable data.  Moreover, companies may be in a hurry to grow, and targeting a market different from the long-term battleground may seem too drawn-out.  Such thinking applies the logic of established markets to new markets. It’s a big mistake.  

As we will see, foothold markets are highly valuable in industries with diverse customer types, limited upfront development costs, and rapid iteration of new offerings.  Most services, consumer products, IT, and many other sectors fit this description well.  A handful of industries do not, such as satellites, semiconductors, and biotech drugs.  Yet even in these exceptional cases, it is critical to understand and identify which companies will open the door to market penetration.  Often, those customers will have the same characteristics as good foothold markets.

Why new markets call for foothold strategies

In established markets, companies know who their most important customers are, and they have a rough idea of what these customers want.  They also understand the playing field, and win by beating competitors.  This is the essence of marketing and strategy as taught at leading business schools – segment the market, provide customer segments with appropriately tailored offerings, and win against the competition.  Firms can then make multi-year plans to execute the strategy, chasing the most attractive customer segments and leveraging the most powerful sales channels. 

New markets are completely different.  They can change very fast.  The nature of demand and the identity of the most attractive customers may be in flux.  It is hazardous to extrapolate from existing data.  Companies win not through elegantly dissecting the market with robust segmentation schemes, but through adapting quickly to emerging commercial realities.  Indeed, the entrepreneur’s lore is that successful new ventures change their strategy an average of five times before hitting upon the right formula. 

Often, the key challenge in new markets is not to vanquish competitors – that can happen later – but rather to jumpstart demand.  Success comes from removing the roadblocks to broad customer adoption of a solution, not from being too focused on staking out territory in a barely-existent segment of mainstream customers.   Companies can win through focusing first on atypical foothold customers who validate new concepts and stimulate overall market growth.

New markets may also be crowded.  Entrepreneurs as well as incumbent companies in adjacent industries may be jockeying for position.  To create the basis for long-term success in this environment, a company can try to become the leader in some aspect of the market.  It stands out from the gaggle of me-too competitors by excelling in a particular segment of the market. It will then have the clout to attract wavering customers who see it as a safer choice than many of its rivals.

Consider how Research in Motion (RIM), the company that invented the Blackberry, initially won in the smart phone industry over giant firms such Nokia and Ericsson.  In the late 1990s, Nokia and Ericsson poured resources into developing their first smart phones.  Their initial forays into the market, the Nokia 9000 and the Ericsson R380, were expensive, complicated machines that targeted high-end, technophile consumers.  Nokia and Ericsson never expected these phones to be blockbusters, but they hoped to stake out early leadership in smart phones among the demanding consumers who would pay high prices for the latest technology.  They also wanted to beat each other to become the early leader in this industry.  The companies were focused on the big market that smart phones would eventually become — rather than on an early foothold market that would be satisfied with basic solutions.

RIM took an entirely different approach.  It did not attempt to make the Blackberry into a complete smart phone suitable for the most discerning consumers.  In fact, the first Blackberry was not a phone at all, but rather a two-way paging device that excelled at being integrated with corporate e-mail servers.  RIM focused on what seemed like a small foothold market – people needing to connect with their e-mail on the go – and it served that foothold exceptionally well.  The rabid fans that RIM developed through its first device helped the company gain traction for later offerings that incorporated many more features.

RIM’s strategy embraced the uniqueness of new markets by responding to the 3 imperatives of successful foothold strategies:

1. Reduce uncertainty:  In the early days of smart phones, many critical facts were unknown.  How much would customers be willing to pay?  What features would they value?  What would mobile data plans look like?  Would people want a single device that did everything, or separate devices for voice and data communications?  Would personal computer manufacturers enter the fray?  With so many variables unknown, Nokia and Ericsson took a big risk in creating their fully ornamented devices; they were competing for a market that they theorized would develop, rather than one that clearly existed.  The substantial expenses they ran on these projects locked them into using their first devices as the basis of future iterations; it would have been too costly to abandon the flagship platform and start over. 

By contrast, RIM’s simple device was less costly to create, and so the company could adjust as it learned more about the market.  The complexity of the Nokia and Ericsson projects also meant that the devices took a long time to develop.   Eighteen-month development cycles were the norm at the outset of the smart phone industry, even though the market was changing very fast.  Because RIM’s devices did less, they could be created more quickly and be more responsive to emerging realities.

2. Stimulate demand:  By failing to focus on a foothold, Nokia and Ericsson struggled to stimulate demand.  Customers could do many things on their first smart phones – check the weather, compose a document, send a fax – but none of these capabilities seemed compelling enough to lead a significant slice of the market to purchase the devices. 

RIM nailed a single need, and in doing so it created a critical mass of adopters who evangelized about the benefits of these products and battered corporate IT staff into integrating these devices into their networks.  Ultimately, general interest smart phones became a bigger market than devices focused on corporate e-mail. But because of RIM’s early efforts the e-mail market became the first viable market in the industry.

3. Enable leadership:  Nokia and Ericsson had far better established brand names than RIM, yet the latter was the unquestioned leader in its chosen foothold market.  In new markets, consumers wary of less-than-fully-baked solutions can gravitate to the market leader, so RIM became the choice of businesspeople and corporate IT managers.  Its early success became self-perpetuating all the way through 2007, which is an eon in this industry. 

Signs of a good foothold

The narrowness of foothold markets makes them powerful, but it also creates a quandary: With so many potential footholds, which one should a company choose?  Fortunately, high-potential foothold markets have several distinct qualities:

Clear Target Customer

A major virtue of foothold markets is that they provide a well-defined target for a company’s development efforts, thereby enabling simple solutions that satisfy the market, which in turn enables rapid commercialization. 

To realize these advantages, the foothold must be very clear.  RIM was laser-focused on white-collar employees of large companies, whereas Nokia and Ericsson were backing a general push to popularize smart phones through mobile networks’ company stores.  Gatorade’s initial concentration on college athletes enabled the company to bring solutions to market quickly and invest efficiently in a focused brand identity.  In a different corner of the beverage industry, Red Bull launched as a mixer targeted at club-hopping youths, an approach that is completely distinct from the typical new beverage launch that is pushed through prominent displays in grocery stores.

Reference for Broader Customer Sets

Given that a foothold market is a path to accessing a broader market and sometimes not a highly attractive market in itself, the initial customers should serve as a proving ground and valid reference for large numbers of prospects.  Ideally, their trial of the new solution should be able to be easily observed by others, so that the effect has instant impact.  Atari was not the first home videogame system – that distinction belongs to Magnavox’s ill-fated Odyssey – but it beat out Magnavox by showcasing its Pong game in video arcades.  Whereas potential customers had to witness Odyssey in a Magnavox company store or in one of the few households owning the system, pinball players could observe Pong in action and decide to bring the experience home.

Easily satisfied

A key reason to pursue a foothold market is that it is fast and inexpensive to enter, which is why companies should choose undiscerning customers who are not the objects of fierce competition.  This is how Zipcar became the leading rent-by-the-hour car rental firm in North America.  The company focused on urban college students as well as professionals living in densely populated areas.  These groups – who are tech-savvy and open to a new, Internet-based way of reserving cars — were not being served by industry giants such as Hertz and Enterprise. College students may not be the most lucrative long-term market – they are famously cheap and perhaps not the best drivers – but they were an easy place to start.  Sometimes companies pioneering a new solution want to launch with a prestigious marquee account. But in doing so, they neglect the fact that these accounts can be demanding and slow to move.  Customers similar to college students may lack prestige, but they still can provide fast feedback and prove the value of a novel offering.

Few dependencies

Being dependent on multiple decision-makers and business partners can substantially retard a category’s growth.  The natural gas industry is grappling with this issue today as it advocates for the replacement of gasoline with compressed natural gas (CNG).  CNG is less costly than gasoline obtained from predominantly domestic sources.  Yet to achieve broad market penetration, the industry would need automakers, car buyers, and service station owners to align themselves with these new systems. However, it is impossible to coordinate all these forces.  So the industry is reaching for a foothold market – long-haul trucks.  There are only a handful of these big rig manufacturers, and the buyers of these fleets are relatively concentrated.  More critically, these rigs travel mostly along major highways, meaning that converting only some service stations along these routes would go a long way toward making CNG viable. Groupe Robert, a large Canadian freight carrier, is going so far as to partner with a CNG distributor to build fueling stations at its terminals near Montreal and Toronto, enabling trucks to make the 700-mile run without depending on other firms.

Exhibit 2 – Signs of a Good Foothold

Finding the foothold

1. A company hoping to pinpoint the right foothold should begin by thinking hard about what it wants to accomplish from its first foray in the market.  Consider the 3 imperatives that a foothold strategy meets:  reduces uncertainty, stimulates demand, and enables early leadership.  What are the big assumptions that need testing?  What are the major things that mainstream customers will want to see proven by the first users?  Where will early leadership count most?  These factors become criteria for assessing potential foothold markets.

2. A company should create an exhaustive list of potential footholds.  These markets may be quite small, and so there can be a lot of them.  Customers can be considered not only in terms of their demographics but also according to what job customers want the product to do. Red Bull’s young clubbers were trying to keep partying late into the night, which is a totally different job than when these same people were trying to stay focused during an all-night cram session.  A surgeon using a new stent to alleviate pain is a very different target than a peer using the device to treat a patient with a heart attack.  The job people are trying to get done relates directly to what the foothold market is supposed to prove and how it will demonstrate the value of the solution for other customers.

In some industries, such as medical devices, thinking as well about the supply side of the equation can be valuable. What simple, early offerings could be created relatively quickly and appeal to certain customers?  Given that the foothold market is supposed to be fast and inexpensive to penetrate, companies should concentrate on customers who will be happy with those kinds of solutions.

Sales channels are another option to consider in listing potential footholds.  Instead of pushing for a national launch via Wal-Mart, perhaps a consumer products company would do better to test its concept in a small drugstore chain that has more flexible policies and would be eager for the attention.  An IT company might concentrate on foothold customers that it can sell to directly instead of educating third-party sales forces about how to tout a complex offering.

3. A company should evaluate footholds according to its objectives.  If the key need is to reduce uncertainty, which foothold can help take major risks off the table?  In this case, the firm might show a bias toward a foothold where it can address risks in a fast, sequential manner, enabling it to double down or cut its losses with minimal upfront investment.  Conversely, if the big need is to seed demand, the company might pursue an industry’s opinion leaders with offerings highly tailored to their particular needs.

Once it has settled on a target foothold, the company must keep in mind why it is using this approach.  Managers frequently try to convert a foothold into being a business in its own right, because running a business is what they do well.  But a foothold is not about building a business for the ages.  The whole idea is to proceed quickly and inexpensively.  By pursuing a foothold, the company is buying information about the viability of a customer group and a proposition, while it is attempting to jumpstart demand and gain good references for mainstream markets.  To maximize the value of footholds, it is imperative to get to them fast, avoid over-spending, and learn diligently.  If a non-critical function, such as IT systems or product fulfillment, can be outsourced early on to help meet these goals, the company should do so.  There will be time later to hone the proposition and make the business model as cost efficient as possible.  It does little good to build a finely tuned business that makes the wrong stuff.

Humility matters.  It is the key reason why footholds make sense, and it should guide the execution of foothold strategies as the teachings and benefits start to pour in.

All of us – from those in the C-Suite to others at workstations – have heard a lot about how to have more effective meetings. Yet we still find ourselves in meetings that are poorly organized, run too long and resolve little except when to have the next meeting. Breaking down a meeting into its component parts and applying one of management’s most recognized models, this author turns the art of a meeting into a science and offers constructive steps for that will turn any meeting into a true, value-creating exercise.

In the “brute-force” economy” of yesteryear, the boss would enter the room and a hush would immediately descend on the assembled masses. With his usual scowl, the boss would growl, “Stop talking and get to work!” The employees would all shuffle, guiltily, back to their places. The boss had a point, since in those days workers created value by doing things, not by talking. Nothing captured this approach to creating value better than Michael Porter’s classic organizational value chain model.

In today’s “brain-force” economy, the boss’s entering a room will still silence the chatter. But today, the boss must seek to energize the room with an “O.K., let’s start talking and get to work!” There is some sort of issue to discuss and there is a need to arrive at the best decision possible about what to do and who should do it. Today, value creation occurs by workers talking to each other, not by doing things.  In fact, if you stop and think about it, it has been years since many of us have “done” anything at work other than tap a keyboard, a screen or pick up a phone.

Today, most of us spend 50-80 percent of our time at work in some type of conversation. These conversations may be face-to-face, one-on-one, in teams, over the phone or through a rapid exchange of emails or texts. Yet, given this reality, how many of us can say that we have achieved the same level of expertise in the subject of conversation as we have in disciplines such as accounting, marketing, engineering, product development and branding? We regularly upgrade our skills in these areas, yet we don’t get even the most basic training in an activity that consumes 50-80 percent of our time.  As many would say, if we are paid 50-80 percent of our salary to be engaged in a specific activity, then we ought to be pretty good at it.

It’s reasonable to ask why we do spend so much time in conversation.  The answer is a simple: “That’s how value is created today.” Our “value-added” participation in meetings is what we’re paid to “do” at work– yet most of us know little about managing different conversation processes. We also view many meetings as inconveniences. Moreover, others make our attendance compulsory, which keeps us away from our real work, back at our desks.

Imagine if each person saw their job as getting the most out of every conversation at the lowest possible cost. How would they approach their work differently? This is the way to achieve true value creation. By talking together, you and I come up with a solution in the shortest time possible, one that neither of us could have developed alone one and that we are committed to implementing.

This article takes the principles behind Porter’s original value chain model and applies them to the new reality of a world of “knowledge-work” – one in which our challenge remains the same: to create the maximum value (V ^max) at the minimum cost (C ^min). It’s the same challenge for all organizations around the globe. We just have to learn to do it better than our competitors.

How is value destroyed?

Before examining how we can achieve V^max - C^min in conversation, it is useful to understand how and where value is often destroyed or when and where excess costs are incurred in conversations. In meetings, this occurs when:

• The meeting is held in the wrong physical or emotional context, e.g., we hold a “brainstorming” meeting in the boardroom or just after the company has announced that there will be no Xmas party
• The wrong people are in the room, e.g., important stakeholders are not there, which means a decision cannot be taken (value cannot be created) or people have been invited who need not be there (which implies higher costs)
• Insufficient time has been spent determining what question needs to addressed, e.g., poorly prepared strategic-planning sessions where operational issues clog the agenda
• The wrong person chairs the meeting and its organization, e.g., when protocol determines which person will chair the meeting, as opposed to breadth and depth of expertise on a specific topic
• The meeting does not start or finish on time
• People arrive poorly prepared, without having done the required pre-reading
• Important issues, politically sensitive issues or culturally “taboo” topics are not allowed to be discussed, e.g., the proverbial “Elephant in the room” remains invisible
• The wrong conversation process is used for a given question, e.g., the chair of a lunchtime meeting decides to hold a “World-Café” as opposed to using “Open Space Technology.”

Now, if that last sentence is meaningless to you, do not be too hard on yourself. Most readers probably experienced the same feeling. What is a “World-Café” or “Open Space Technology”? Why or when should I use one or the other? These are but two of the different conversation processes we might choose to use – depending upon the question to be addressed, the conversation we need to have and the outcome we are seeking to obtain.

The (new) organizational value chain

The (New) Organizational Value chain works in exactly the same way as the “old” value chain. There still are primary and secondary value creation activities and costs associated with each stage. With Porter’s model, if I am seeking to achieve V^max - C^min  in a mining operation, I might choose to use magnetic or gravity separation to separate the iron. In a branding decision, I might use corporate or product branding. In sales activities, I might choose to go direct, either through the Internet, a sales team, a distributor or sales agent. How do I decide which is right? I choose the one that I believe maximizes value creation at the minimum of cost.

It is exactly the same reasoning when we decide which conversation process to use.  I make the decision as to whether I use the Mankins’ 3X3 (Michael C., Bain and Co.) or “Six Hats” (Edward de Bono) conversation processes, depending on my judgment as to which will be most effective given the question and outcome sought, i.e., which will achieve V^max - C^min.

Having chosen which conversation process to use, the host – and each participant – then needs to choose when and how to use the different possible elements of all conversation processes. Should I make a declaration, a request, or an offer? Should I ask a question, actively listen or remain silent? Is my body language appropriate? After all, a person can create more value by asking only one really good question in a two-hour meeting than by dominating it.

The reality is that at any given moment in any meeting, I can create or destroy value depending on the conversation choices I make. Just think of the “fool” who makes an inappropriate joke at an inappropriate time. This can spoil the atmosphere for the rest of a meeting, thus destroying a massive amount of value. The “comic genius,” on the other hand, tells the same joke when it is exactly what is required, which relieves a difficult moment in a meeting.  This is value creation at its maximum. Yet, at any given moment in a meeting, how aware are most of us about the effect that our words, silence and body language are having on the progress being made?

Diagrammatically, the (New) Organizational Value Chain appears identical to Porter’s original, except that all activities have been adapted to the new reality of conversation as the core process of value creation. The secondary activities have moved positions to demonstrate the importance of building the primary activity of conversation on a strong foundation of secondary ones.

Support activities

Physical spaces

When organizing strategic-planning retreats, it is not unusual to do an “off-site” in a relaxing, relatively remote location, with cell phones at “off.” This is so because the site and particular location are judged to be the correct physical space and context for such a meeting. The boardroom is designed for board meetings. They tend to be very formal, with the CEO or board chair up-front and centre, where tough issues are debated and decisions are taken and approved. Meeting minutes are often required.  If we contrast a board meeting with a creative “brainstorming” meeting, it is obvious that the best conversation process to maximize value creation in one will not be the same as in the other. Yet, how often do we try and hold “creative” meetings in physical spaces that are “formal,” e.g., “The boardroom is free. Why don’t we go in there?” Considering that a board meeting is likely held once every quarter – even though we want our people to be creative every day — why have so much space and expense been spent on having the right physical space for board meetings while just a few square feet have been allocated to “creative spaces”?

IT support

There is now an incredibly wide range of technology available to facilitate more effective conversation. An organization’s IT needs can range from the simple requirement that participants have the relevant information at hand for a face-to-face meeting or to “almost” life-like virtual meeting spaces with participants sitting at the same “meeting table,” even though they are in different parts of the world. Cost is still a barrier for some organizations, but the quality of such IT is rapidly increasing while its cost is decreasing.

Organizational culture

Many organizational cultures (and their structures) destroy value by creating barriers to holding conversations on difficult, sensitive topics, precisely where the most value would be created if such topics could be discussed. Are there “Elephants in the Room” that simply cannot be discussed? What happens when someone says something out of-turn? Is the boss always right? Can you say, “No, I disagree?” Are there really no repercussions when in brainstorming or feedback mode?

Primary Activities

The question

In preparation for a company retreat, a facilitator may spend several days doing research, interviews and a diagnostic before deciding which issues should be on the agenda.  It is recognized that good preparation will lead to a good, productive session. It should be the same for every meeting we attend. How can we create the most value in the given time with the people that we want to attend? Some advocates even suggest that the agenda for senior-management meetings should be determined by the potential impact of each issue on the company’s share price.

Yet, many of us rush from one meeting to another with almost “zero” preparation time. The preparation of an agenda is often delegated to someone incapable of evaluating the “value-added” of each item. Rather, they decide based on equality (six departments head each get 1/6^th of the time), FIFO (whoever calls in first gets on the agenda), Crisis (the latest issue that just rears its head prior to the meeting) or on simple favouritism. As Peter Drucker said, “The most dangerous thing is not having the wrong answer, it is asking the wrong question.”

Context, participants and process

There are numerous, different conversation processes of which the “World café” and “Open Space technology” are but two. When might a team also use such conversation processes as the “Six Hats,” Mankins’ 3X3 or even the “Organization’s voice” technique? The skills, knowledge and attitudes required to manage a conversation process from beginning to end might require the use of several different conversation processes. Mastering these processes is like any other skill: It first takes the knowledge and then takes a lot of practice.

Only when we have determined the question that needs resolving and the process to be used to resolve it can we determine which type of atmosphere — play, creativity, analysis, formal debate or decision-making — should be created. The emotional space is equally important as the physical space. Days can be spent preparing the right context for a given meeting – but if, on its eve, the company’s head office announces major lay-offs, or even the cancellation of the Xmas party, it might be better to re-arrange the “brainstorming” meeting you were planning to hold – or you will need to spend a significant period of time trying to recreate the climate you need to get the results you had targeted. If you proceed without taking the new emotional state of everyone present into account, the rigourous meeting process you have spent days creating is doomed to failure. The right conversation process in the wrong context is the wrong process.

In terms of participants, the right people should be invited, depending on the question to be addressed and process to be used. If the questions being discussed are always changing, does that not mean that regular meetings with the same participants should be a thing of the past? How many two-hour meetings have you attended where the item of interest to you (or where you added value for others) was only a twenty-minute item on the agenda? Some organizations allow this for meetings scheduled to be longer than a certain time (e.g. 30 minutes or an hour), where the individual can slip in and out as his or her agenda item comes up.

The host and speech acts

This leads to choosing the right chairperson. In many organizations, the question still floated at the outset of a meeting is, “O.K., whose turn is it to host the meeting today?” Sometimes, this is decided on a purely rotating basis: “It’s your turn” – or it may be arbitrary, or it might always be “the boss” – the person with the most seniority. However, hosting and making for a productive meeting is a highly skilled job. Some organizations have even set up “host specialist” intrapreneurs, who can be hired by any manager and asked to bring their skills to the hosting process. Just who should be the moderator of any particular conversation process should be determined by who can do the best job for any particular meeting.

In addition, the different speech acts of each of these processes  — asking questions, active listening, reflecting, empathizing, staying silent and making declarations — can all either add enormous value when timed correctly, or can destroy value – just like that poorly-timed joke. Being aware of how we contribute to value creation/destruction at all times is the first and perhaps most challenging step. Even if we say nothing in a meeting, we may have had a crucial positive or negative influence on the outcome.

The commitment for action

There is no value in even the most brilliantly designed and managed conversation process if nothing gets done after the conversation has been concluded. Establishing buy-in, follow-up, accountability and consequences are the keys to a commitment to action. If the conversation process has been well managed, the first – buy in — should have been achieved. To ensure that the outcomes will be implemented, follow-up mechanisms, accountability measures and consequences (reward/recognition – or not) have to be put in place.  

How many meetings have you been in when you thought you’d actually taken a decision to do something – only to see the issue pop back up on the table a few meetings or months later, seemingly a result of the organization having wiped its memory banks clean? If a commitment to act is established, organizations will capture the value-added of the conversation process rather than see it evaporate in a lot of “talk with no walk.”

Management of intellectual capital

How often does a topic that was discussed and resolved in one part of an organization spring to life in a different area of the same organization, but without any connection between the two areas? The capture and distribution of meeting outcomes (value creation) is probably the biggest challenge facing “knowledge-based” companies. How do we get the latest information, knowledge and decisions to the right people who need to use it in a timely manner? Some rely on the IT infrastructure, others on matrix organizational structures or the company newsletter, while others appoint “Ambassadors” who roam departments, business units and meetings trying to connect the dots. Whichever you deem correct for your team or organization, you need to check regularly that the method you’ve chosen is working.  In a knowledge economy, the effective and efficient management of knowledge is the source of competitive advantage.

A new way of looking at your work

Tomorrow, at the end of the day, after that usual long series of meetings, take a few minutes and ask yourself how effective they really were. If the agenda and format of each closely resembled one another, ask yourself how those meetings might have been organized differently? Was the context right? Which process might have better served you? How did the host perform? Did the meeting stay on topic? Did things move forward? Was any outcome captured at the end? Is someone accountable for carrying the ball? How will the progress maze in the meeting be communicated? To whom? How well were your time/knowledge/skills really used? What percent of yourself did you use in that meeting?

Then, ask yourself what you might do differently the next time you are charged with hosting a meeting. It might just change the way you view your job – and radically increase the value you are creating for your team or organization. “Now, start talking and get to work!”

A leader’s job is to create contexts that will allow followers to adopt new perspectives on the challenges they face, and therefore, new actions that lead to higher levels of performance. The observations offered by these authors will be extremely valuable to any leader hoping to achieve this important goal.

With the exponential increase in the complexity of global business, managers and leaders must remain adept at addressing both routine and non-routine challenges. 

Modern management theory and practice have all but conquered what it takes to address routine challenges successfully.  Unfortunately, the strategies and thinking that are so successful for meeting routine, well-defined challenges do not seem to have the same predictable success rate when applied to non-routine, adaptive challenges.  Some interventions work some of the time, but not all of the time and certainly not across industries or in all situations.  At best, we are left to the cumulative efforts of several interventions that, when applied together, produce some incremental improvement (for example, incentive systems, inspirational talks, new policies, reorganizations).

Most management interventions are transactional in nature – they assume a standard cause-effect relationship.  “If I put in the right incentive system, give the right inspirational talk, publish the right policy, add the new IT system, etc., the effect will be an increase in performance.”  These transactional interventions generally do the job if we have steady performance and we experience some hiccup, or are looking at making an incremental improvement.  In such cases, employing a transactional intervention is the appropriate method to address routine challenges.

Most managers have not yet developed the same repertoire of strategies to deal with non-routine challenges – those that are adaptive in nature, for which there is no known solution and that require a new way of thinking (drawing on Heifetz & Sinder solution typology, 1988).  Without an effective strategy to address these non-routine challenges, many managers are left to work harder, faster or on a greater scale to implement a transactional strategy.

When our transactional interventions fall short, we can generally explain why they fell short with some combination of circumstantial factors or factors that refer to the people carrying out the initiative (i.e., “buy-in”, conflicting personalities, resources, some version of “they” don’t get it; if all else fails, “politics” etc.).  Such explanations, while they may temporarily help us feel less responsible for falling short, do little to really improve the effectiveness of the organizations we lead (Erhard et al, 2010). This article will recommend several principles and strategies that will allow us to address non-routine challenges.

Managing away the extraordinary opportunity provided by non-routine challenges

Non-routine challenges present an opportunity to go beyond what we have known to be possible.  In the midst of non-routine challenges, new solutions materialize, new territory is taken and breakthroughs of significant magnitude are waiting to be discovered.  This kind of opportunity does not present itself inside of known challenges demanding nothing more than an application of already discovered, known solutions.  A non-routine challenge is an opportunity to intervene in the current performance drift.

In a recent example, a large multi-national oil and gas company launched a development project in an extremely remote, unfamiliar location populated by combative tribes. The company began addressing challenges from a routine model, applying transactional solutions such as offering to construct “better made homes” that would last much longer than the village huts, in exchange for moving entire villages.  Such transactional solutions were often not very effective; this particular tribe moved locations every two years or so.  By addressing the challenge from a routine transactional model, this company missed a chance to build strong the relationships that would impact the larger social and economic challenges.

After failing to move forward with the velocity required, the company approached the challenge from a non-routine model, one that acknowledged the set of social science issues faced by the indigenous in-country population (e.g., moving villages, gaining permission from tribal leadership to move roads and more).  In doing so, the company took time to open a dialogue and create relationships with the local indigenous population and their tribal leaders.  They created a new future for the tribes, one that allowed for an unprecedented level of cooperation between the tribes and the company for the duration of the project.  This success established a precedent for dealing deal with this type of issue and demonstrated to the entire industry that such a relationship with indigenous people was possible.  

For most of us, non-routine challenges are typically seen as unmanageable, undoable, too abstract, too complex and a bit chaotic.  Instead of being seen as an opportunity, they are often seen as a majoir problem for which we have no ready-made answer.  As a result, we instinctively grab for anything we can latch onto. We create some semblance of linearity by cutting out some of the multi-dimensionality and we compartmentalize and reduce the size of the challenge until we can manage it.  To use Abraham Maslow’s analogy, we turn whatever we can into a nail so we can use the tool we have – a hammer. 

When we address a non-routine challenge using our available transactional tools, we fail to capture what is possible in terms of our overall performance had we stood in front of the overarching non-routine challenge.  Non-routine challenges are not meant to be managed.  Rather, they require a leader’s intervention, to be thought through in order to create new collaborations and alignments, to discover new adaptations, and to invent new commitments. 

If we muddle through the complexity, new pathways for action will emerge and the non-routine challenge will eventually seem manageable. However, the key is to get to these pathways for action strategically, rather than by carving out a piece with which we feel comfortable and applying an already existing solution.  As in the example above, when the oil and gas company was willing to stand before the entire non-routine challenge, the pathways for action were very different than those they would have normally taken.  They did eventually take specific actions such as opening a dialogue with the tribal leaders. However, they arrived at these actions by starting with a much broader strategic direction of setting world-class standards on social management.

The question is not whether or not we should get to manageable pathways. It’s rather one of when we ought to do so.  If we do so immediately, without first allowing ourselves to stand in front of the full challenge – in all its complexity — then we are not treating a non-routine challenge the way it demands to be treated.  We are not reaping what is really possible from successfully addressing the challenge. 

Transformational leadership principles for non-routine challenges

The principles associated with successfully addressing non-routine challenges are transformational in nature rather than transactional, and are designed to break through our conventional thinking and everyday common sense we bring to what we must manage.

1.  How the challenge occurs for us

Despite our tendency to rely on a person’s mental/physical traits and states and the external circumstances to explain performance, a person’s way of being and actions are a correlate of the way in which what they are dealing with occurs or shows up for them (Erhard et al, 2010, Zaffron & Logan, 2009). This applies to any kind of performance.

In other words, the transformational model asserts that it is not the performance challenge, the specific circumstances or the intervention strategy itself that makes the difference when confronted by a non-routine challenge.  What does make the difference, however, is the way in which the person perceives the performance challenge, specific circumstances, or the intervention strategy with which a person is dealing.

Regardless of your traits, states, skills, knowledge, physical ability or circumstances, your perception of a situation as threatening will align your actions with that perceived threat (i.e., to protect yourself, proceed cautiously, or avoid the situation all together, etc.).  If, on the other hand, you see the situation as an opportunity for yourself, your actions will be perfectly correlated with the perceived opportunity (i.e., introducing yourself to relevant people, making connections, making offers, ensuring you get all the relevant information, etc.).  However, we tend to not live our lives this way.  We actually think that we are responding to the situation at hand and that how we perceive things is interesting, though not always that relevant.  In fact, it is the only thing that matters!  The only thing we are responding to is how that situation idiosyncratically occurs for us.  If the objective facts of the situation are not the primary determinant of our behavior, but rather how those objective facts occur for us (how we perceive those facts), we may have much more power in meeting challenging situations than we give ourselves credit for.

2.  The context is decisive

If it were true that we all saw the world in the same way, exactly as it is, this concept of “how the situation occurs to me” would not matter much.  Unfortunately, while we live our lives as if we perceive the world exactly as it is – that what we see and what we hear are exactly as they are in reality – in fact, everything we perceive is colored and shaped by the context for whatever we are dealing with. 

By context we do not mean the circumstances of the environment, situational variables or conditions.  Rather, we mean the perceptual lens a person brings to a particular situation, a lens that colors and shapes how the facts at hand or the situation shows up or occurs for a person.  Everything in our world, everything that enters our perception does so in some context or other, and therefore, what we see takes on the shape and coloring of that context, “highlighting some aspects, dimming other aspects, and blanking out yet other aspects” (Jensen et al., 2011; Ford et al, 2008; Winograd & Flores, 1987). 

For example, let’s consider the Russian Matroyshka nesting dolls, where an outer figure opens up to reveal a smaller figure in the same shape as the outer, which opens up to reveal the next smaller figure inside and so on.  Just as the opportunity set of possible shapes and sizes of each Russian nesting doll is limited by its larger figure, so do our opportunity sets of possible actions always fit within — and in fact take the shape of — the context we have for whatever we are dealing with.

We have a context for everything.  Most of our contexts serve as more of a default context than anything that was intentionally created.  For example, what immediately comes to mind when thinking about a family member?  Or think of a coworker? What immediately comes to mind about that person?  What immediately comes to mind serves as a context (a default context) for how that person shows up (or occurs) for you.  You don’t perceive that person as he or she actually is, rather you perceive that person through your context for that person. 

And, just like the Russian nesting dolls, everything you hear about that person will be colored and shaped to fit neatly within the context you bring to that interaction.  As a consequence, the possible ways of being and possible actions are constricted to fit within your context.  Some actions will not even be considered as possible.  Sadly, it might be actions that are not even considered that would create a breakthrough in your relationship. 

We also have contexts for our industries, our profession, what it is to run a business, for the future of our enterprises and the like.  For example, we encountered an organization that was acknowledged as world expert in a particular field that included processes, technology and the requisite management and leadership.  This same organization was then thrown into a co-venture partnership with other lesser-recognized experts, where alignment was required.  When this particular organization found itself failing, it was perplexed.  When it attempted to implement a known solution to increase performance, it did not produce the desired effects. It didn’t know it at the time, but the organization was confronted by a non-routine challenge. 

By standing in front of the complexity of the challenge, it began to realize that its default context for the co-venture was one of “we know better.” This “we know better” context constrained and shaped its actions, naturally, to result in dictating to the other parties, assuming a non-questioning compliance, not allowing for any real discussion, not wanting any real involvement or partnership by others and definitely no questioning of their methods and action. 

The realization that the default context limited possibilities allowed for a new context to emerge: “We’re partners, like it or not”, and the “liking it or not” was really not of much interest to them as they realized it wasn’t important – they were partners, period.  With a new context for “partners,” the organization’s actions began to take shape, naturally, in a way that allowed for authentic dialogue, inclusiveness, providing information early on in the process to allow for others to give valuable feedback, and similar actions.  Ultimately, what emerged within this new context was the realization that as leaders, it was their job to elicit buy-in from their partners, not to assume it. 

This new way of seeing things produced new pathways for action.  The organization achieved the buy-in it needed, and it is now meeting the venture’s critical deliverables and commitments on time. 

We can create contexts that leave us empowered and enabled

A default context limits and distorts how whatever we are dealing with shows up for us.  As described in the example above, when the default context does not leave us with power and ability, we can create contexts that give us greater access to what we are dealing with, and that consequently leave us empowered and enabled.  As a consequence, certain facts of the situation and certain possibilities for effective action become more apparent (Jensen et. al, 2011).  

For the most part, routine challenges do not require a new context. In fact, what makes them routine is that we have seen them before and consequently know how to handle them, even if it does take intelligence and the careful use of resources. Making an established process more efficient by eliminating or improving steps in the process is an example of a routine challenge that does not really require a new context. 

If, on the other hand, you must make what seems to be an impossible deadline and do so with enhanced quality and less resources, you will face a non-routine challenge and require a new context to accomplish this task. Doing what you are already doing a little better will not successfully address the challenge. 

What makes a challenge non-routine and adaptive is that it cannot be successfully met within the default context.  As described in the example above, the successful result of having a strong co-venture partnership could not have been achieved within the default context of “we know better.” Realizing a future that is unpredictable requires new thinking and new actions that we would not otherwise have taken.  It requires a re-contextualization of the situation one is dealing with, in which previously unseen opportunities are seen as possible and previously unrecognized resources become available. The new context of “we are partners” allowed for unseen opportunities for engaging with the other venture partners.

We are the authors of our own context. This is the case whether the context is a default context that is some combination of conclusions, interpretations and decisions we have made about past experiences and projected into future encounters, or a context we create to empower ourselves in fulfilling a commitment.  The job of a leader is to create contexts that will allow for new perspectives on the challenges we are faced with, and therefore, new actions that lead to new levels of performance.

What makes human beings different than the rest of the animal kingdom is our capacity for language.  Our language capacity allows us to literally invent the world we live in, to invent nuances in human intention, to create stories and imagine futures.  This means we have actionable access (with language) to alter the world we live in.  It is this capacity – to invent our world and then function in it – that both allows for and subverts our leadership effectiveness.

In another example, a group of mega account managers of a division in a global technology company invented themselves as “trusted advisors” instead of “salesmen of off the shelf products.” This re-invention allowed them to interact with their customers in a new way.  For instance, they now shared expertise just to contribute to their customer’s thinking rather than attempting to sell them products at every turn. They found out more about the nature of their customer’s business, and consequently, increased their sales profits.

Reintegration: A relevant adaptive challenge of our time

A current non-routine, adaptive challenge that has major social implications is the challenge of reintegrating a service member returning from a hardship deployment.  Currently, there are two models to address the challenge of a service member with a certain complexity of mental and physical ailments, and who is not successfully reintegrating. One is a medical model that is designed for mental and physical diagnosis, and the other is a coping model that is designed to manage one’s emotions.  Coping models are transactional in their design, responding to reintegration issues with suggested skill sets such as communication skills, stress mitigation techniques, anger management and others. 

Skills-based programs are unable to achieve their full impact due to the two underlying assumptions of ‘coping’: 1) reintegration issues are inevitable and can only be responded to, and 2) the strategy is one of survival in a world where returning service members feel alone and experience a general lack of purpose.

As is normal with transactional models, some of the interventions work some of the time.  Again, what makes the difference is context.  As we have written above, context shapes the way in which one experiences the world, others, and one’s self.  For example, if my context is “I’m all alone,” I will not see the opportunities for love and connection extended to me by my friends and family.  At the same time, I will see the evidence for being alone much more readily (I may explain their reaching out to me as “taking pity on me,” or “not genuine”).  Even if I learn how to manage my anger better or use better active listening techniques, I am still left with the underlying experience of being alone.  In the end, I suppress, avoid, pretend and survive my post-deployment life – that is, I cope.  Similar contexts, such as “I’m different now” and “you would never understand,” further undermine skill-based training efforts. 

As a firm, we have conducted a pilot study using the Transformational Performance Based Leadership model focused on shaping the service member’s context for life and living.  The model recognizes that it is not circumstances that are decisive, but rather how one is related to those circumstances (what we have termed context).  The transformative model provides a unique access to creating a context for the future that empowers the service member rather than solidifies his/her aloneness, for example.  This leaves the service member with the power to be the decisive agent of change and no longer a victim of his or her circumstances.

A common context we encounter with this model is some variation on the theme of, “I’ll never fit back into society – I’ll never be normal and I’ll never again have a normal life.”  When the service members see how their context was, 1) created by them by default, 2) the way in which their default context is limiting their life (in a self-fulfilling way) and 3) that they can alter their context, they immediately gain ownership of their life and of their reintegration.  When a service member creates for him or herself, “Everyone, including me – is entitled to an extraordinary life,” a new world opens up.

The focus on context accesses and transforms the way one observes the world, and thereby has the power to provide the service member with an opportunity to create a meaningful and fulfilling experience of life in-garrison.  Rather than skills that they must remember and apply, new actions by service members will be natural expressions, allowing for a long-term, sustainable effect.  The effects of our pilot study have been substantial, with a statistical significance in areas such as general self-efficacy, post-traumatic growth, goal achievement and others.  By teaching them the difference between the facts at hand and their context, one soldier said, “I used to go into uncontrollable rage. Now, before I get angry with people, I can step back and see what is really happening versus my interpretation.”  Another said, “I see that my language creates my experience of life.  I can have any life I want.” 

Einstein said it best: “The problems that exist in the world today cannot be solved by the level of thinking that created them.”  We believe that Einstein spoke of problems in the same way that we articulated a non-routine, adaptive challenge in this article. 

Attempting to solve such non-routine challenges from a transactional mindset has us narrow in on a piece of the challenge that likely has an existing solution.  While valuable in terms of at least having fixed something, we fool ourselves into thinking we have progressed in important ways and have lost the opportunity of realizing something of the magnitude available on the other side of the adaptive, non-routine challenge that was at hand.

Everything is not meant to be managed.  Management has its place and so does leadership.  A leader’s job is to distinguish the opportunity of a non-routine challenge and to address that challenge through a model that allows for a transformation in the very way the challenge shows up for us and the people we have the privilege of leading.  This re-contextualization allows for new opportunities that were previously unseen to show themselves and for the new actions that naturally follow.

We believe the greater the challenge, the greater the opportunity.  Here’s wishing you a really big, complex, non-routine challenge, and the wherewithal to stand in front of the whole of it and allow for the breakthroughs to emerge. 

References

Erhard, Werner, Jensen, Michael C. and the Barbados Group.  2010.  A New Paradigm of Individual, Group and Organizational Performance. Harvard Business School NOM Unit Working Paper No. 11-006; Barbados Group Working Paper No. 09-02. Available at SSRN: http://ssrn.com/abstract=1437027

Erhard, Werner, Jensen, Michael C., Zaffron, Steve and Granger, Kari L., Course Materials for: Being a Leader and the Effective Exercise of Leadership – An Ontological Model (October 14, 2010). Harvard Business School NOM Working Paper No. 09-038; Simon School Working Paper No. 08-03; Barbados Group Working Paper No. 08-02. Available at SSRN: http://ssrn.com/abstract=1263835

Heifetz, Ronald A. and Sinder, Riley M.  1998 Political Leadership:  Managing the Public’s Problem Solving In The Power of Public Ideas, ed.  Robert B. Reich.  Harvard University Press.

Jensen, Michael C., Erhard, Werner and Granger, Kari L., Being a Leader and the Effective Exercise of Leadership: An Ontological Model (PDF File of PowerPoint Slides) Shorter Version (December 7, 2010). Barbados Group Working Paper No. 09-01; Harvard Business School NOM Unit Working Paper . Available at SSRN: http://ssrn.com/abstract=1718580

Winograd, Terry and Flores, Fernando (1987).  Understanding Computers and Cognition:  A New Foundation For Design.  United States:  Ablex Publishing Corporation.

Zaffron, Steve, and Dave Logan. 2009. The Three Laws of Performance: Rewritting the Future of Your Organization and Your Life. San Francisco: Jossey-Bass.