Are you a new or aspiring CEO? Unfortunately, there’s no school for chief executives—only the school of experience. And you won’t be allowed many mistakes: Close to 50% of all CEOs are replaced within five years.
How to beat those odds? Develop an explicit philosophy about how you can best add value to your company. Your philosophy determines which corporate areas receive most of your attention (strategic planning? R&D? recruiting?) and how you spend each day. It also influences the kinds of people and behaviors you value, including which decisions you make personally and which you delegate. Your most effective leadership approach may not be the one that best suits your personality—but it is the one that best meets your company’s needs.
For instance, Richard Rosenberg, chairman of BankAmerica, spends the bulk of his time designing strict controls that help his company navigate in a highly regulated environment. By contrast, Gillette CEO Al Zeien ensures consistent execution of corporate goals in his geographically dispersed enterprise by personally conducting 800 performance reviews annually.
No leadership approach can guarantee your success. But when you consciously select the most appropriate approach for your company, you provide the clarity, consistency, and commitment essential for leadership.
The Idea in Practice
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There is no shortage of schools for businesspeople of every specialty: accountants, engineers, financiers, technologists, information specialists, marketers, and, of course, general managers, who have their choice of hundreds, if not thousands, of M.B.A. programs. But where is the school for the person in charge of getting the best results from all these members of the organization? There is no school for CEOs—except the school of experience. Chief executives must learn on the job how to lead a company, and they must learn while every stakeholder is watching.
CEOs must learn on the job, and they must learn while every stakeholder is watching.
The CEO’s job is like no other in the organization. It is infinite. Senior executives are, by definition, ultimately responsible for every decision and action of every member of the company, including those decisions and actions of which they are not aware. CEOs—even new ones—are allowed few mistakes. Not surprisingly, research shows that between 35% and 50% of all CEOs are replaced within five years. That is a costly proposition for any organization, for no company can lose its leader without losing some sense, even temporarily, of its identity and direction.
Two years ago, our interest in the role of the CEO prompted us to begin an extensive study of how senior executives lead. Over 12 months, we interviewed 160 chief executives around the world, most of whom were running major corporations in industries as diverse as gold mining, computers, and soft drinks. Our goal was to examine the set of attitudes, activities, and behaviors that determined how those executives managed their organizations. To be honest, going into the project we hypothesized that there might turn out to be 160 different approaches to leadership. There were not. Only 5 distinct approaches emerged from our data.
No matter where a company is located or what it makes, its CEO must develop a guiding, over-arching philosophy about how he or she can best add value. This philosophy determines the CEO’s approach to leadership. By approach, we mean which areas of corporate policy—for example, strategic planning, R&D, or recruiting—receive the most attention, what kind of people and behaviors the CEO values in the organization, which decisions the CEO makes personally or delegates, and how he or she spends each day. A leadership approach is a coherent, explicit style of management, not a reflection of personal style. This is a critical distinction. (See the sidebar “What’s Personality Got to Do with It?”) We found that in effective companies, CEOs do not simply adopt the leadership approach that suits their personalities but instead adopt the approach that will best meet the needs of the organization and the business situation at hand. Is the industry growing explosively or is it mature? How many competitors exist and how strong are they? Does technology matter and, if so, where is it going? What are the organization’s capital and human assets? What constitutes sustainable competitive advantage, and how close is the organization to achieving it? The answers to questions such as these determine which of the following five leadership approaches an effective CEO will adopt.
“But isn’t leadership really all about personality?”
We hear this question frequently during discussions about our research and the five leadership approaches. We also often hear this remark: “Leadership—either you’re born with it or you’re not.”
We disagree, both that leadership is a genetic trait and that a person’s approach to leadership is solely a function of personality. In fact, we found that personality is just one element of effective leadership and often not the decisive one. In the most successful companies, the CEO has scrutinized the business situation, determined what the organization requires from its leader, and chosen the leadership approach that best meets those requirements. Sometimes the approach fits the CEO’s personality; sometimes it does not. Indeed, our research suggests that some very good leaders repress certain personality traits, or develop ones they weren’t born with, in order to run their organizations effectively.
Consider Richard Rosenberg of BankAmerica. He employs, by his own admission and our observation, the box approach to leadership. He says that he must: BankAmerica operates in a highly regulated industry. A small error or, worse, a case of graft can have grave consequences. BankAmerica thus owes it to its customers to have a strict set of controls, and the CEO must make them his chief responsibility.
But is Richard Rosenberg the kind of person you would expect to be using the box approach? Hardly. He is relaxed, affable, gregarious. “This isn’t me,” he admits. “I’m not a box guy. I’d actually fit in a lot better with the people in marketing. But our situation demanded a box. So here I am.”
And take a look at Dana Mead, CEO of Tenneco. When Mead was appointed to lead the $3 billion diversified industrial concern in early 1992, he thought that the company was headed in the right direction. Instead, he quickly discovered that Tenneco was entirely off course. The company had some attractive businesses, but many of its practices prevented those businesses from thriving. There was a highly politicized capital-allocation system, a compensation program that measured and rewarded meaningless goals, and no strategy formulation process. Without a complete overhaul, Mead determined, the company would not survive into the next century. The battle plan: change. Accordingly, Mead adopted practically every technique of the change approach to leadership. He launched new policies and procedures, established a new culture, divested operations, fired employees unwilling or unable to embrace new ways of doing business, and went on the road to preach the gospel of change to Tenneco employees all over the world.
But does Mead have the kind of personality you’d expect to find leading this charge? Again, not at all. He is soft-spoken, even a bit subdued. Indeed, in his previous position as CEO of International Paper, he was a human-assets leader—a role that may have come more naturally to him. But at Tenneco, the business situation demanded a different approach, and Mead rose to the challenge. That, we argue, is the essence of effective leadership.
Not surprisingly, we also encountered CEOs whose personalities seemed to be a natural fit with their leadership approaches. Herb Kelleher, Southwest Airlines’ humorous, down-home CEO, probably could not work in a company that didn’t require a human-assets leader. Assertive and demanding, Stephen Friedman, former managing partner of Goldman Sachs, would likely champion change at any organization. How to explain this confluence of personality and leadership approach? We see two possible scenarios. The first is fortunate coincidence: A CEO assesses the business situation, determines which leadership approach is required, and finds that it just happens to reflect his or her personal style. A second and more likely scenario: The CEO is appointed by a person or group of people who make the right match. For instance, a board of directors decides that their organization needs strong strategic direction. What sort of CEO will they look for? Not someone who wants to spend a lot of time guiding and empowering individual employees, but someone who loves to get inside the data, someone with a proven talent for analyzing current market conditions, forecasting future ones, and mapping the route between them.
The board will select a candidate who already acts like a chief strategist. Not surprisingly, given his or her performance in previous positions, the new CEO will continue to use the strategy approach and will be considered a “natural” for the job.
Until scientists discover a gene for leadership—and think of the repercussions of that in business, not to mention politics—the debate about personality will persist. Even if scientists find that leadership is more a case of nurture than of nature, there will still be those who think that only classic General Patton types can lead an organization to success. Our research indicates that leadership is more complicated than that, driven not so much by what someone is like inside but by what the outside demands.
1. The Strategy Approach.
CEOs who use this approach believe that their most important job is to create, test, and design the implementation of long-term strategy, extending in some cases into the distant future. Their position overseeing all areas of the corporation, they explain, gives them the unique ability to determine their organizations’ allocation of resources and optimal direction. On a day-to-day basis, they spend their time in activities intended to ascertain their organizations’ point of departure (the current business situation) and point of arrival (the most advantageous market position in the future). These CEOs devote approximately 80% of their time to matters external to the organization’s operations—customers, competitors, technological advances, and market trends—as opposed to internal matters such as hiring or control systems. It follows, then, that they tend to value employees to whom they can delegate the day-to-day operation of their organizations as well as those who possess finely tuned analytical and planning skills.
2. The Human-Assets Approach.
In marked contrast to CEOs in the above group, human-assets CEOs strongly believe that strategy formulation belongs close to the markets, in the business units. According to these CEOs, their primary job is to impart to their organizations certain values, behaviors, and attitudes by closely managing the growth and development of individuals. These executives travel constantly, spending the majority of their time in personnel-related activities such as recruiting, performance reviews, and career mapping. Their goal is to create a universe of satellite CEOs: people at every level of the organization who act and make decisions as the CEO would. Not surprisingly, these executives value long-term employees who consistently exhibit “company way” behaviors, as opposed to so-called mavericks, who do not always adhere to organizational norms.
3. The Expertise Approach.
Executives who lead by using this approach believe that the CEO’s most important responsibility is selecting and disseminating within the corporation an area of expertise that will be a source of competitive advantage. Their schedules show that they devote the majority of their time to activities related to the cultivation and continual improvement of the expertise, such as studying new technological research, analyzing competitors’ products, and meeting with engineers and customers. They often focus on designing programs, systems, and procedures, such as promotion policies and training plans, that reward people who acquire the expertise and share it across the borders of business units and functions. These CEOs tend to hire people who are trained in the expertise, but they also seek candidates who possess flexible minds, lack biases, and demonstrate a willingness to be immersed—indoctrinated is not too strong a word—in the expertise.
4. The Box Approach.
CEOs in this category believe that they can add the most value in their organizations by creating, communicating, and monitoring an explicit set of controls—financial, cultural, or both—that ensure uniform, predictable behaviors and experiences for customers and employees. CEOs who use this approach believe that their companies’ success depends on the ability to provide customers with a consistent and risk-free experience. As a result, these executives spend their days attending to exceptions to their organizations’ controls, such as quarterly results that are below expectations or a project that misses its deadline. In addition, they devote more time than the other types of CEOs to developing detailed, prescriptive policies, procedures, and rewards to reinforce desired behaviors. Finally, these executives tend to value seniority within the organization, often promoting people with many years of service to the corporate team and rarely hiring top-level executives from outside the company.
5. The Change Approach.
Executives in this category are guided by the belief that the CEO’s most critical role is to create an environment of continual reinvention, even if such an environment produces anxiety and confusion, leads to some strategic mistakes, and temporarily hurts financial performance. In contrast to CEOs who employ the strategy approach, these CEOs focus not on a specific point of arrival for their organizations but on the process of getting there. Similarly, their focus contrasts starkly with that of a box leader: Control systems, written reports, planning cycles, policies, and rules do not seem to interest these so-called change agents. Instead, they spend as much as 75% of their time using speeches, meetings, and other forms of communication to motivate members of their organizations to embrace the gestalt of change. They spend their days in the field, meeting with a wide range of stakeholders, from customers to investors to suppliers to employees at virtually all levels of the organization. Not surprisingly, the people they value are usually those who could be called aggressive and independent—people who view their jobs not as entitlements but as opportunities for advancement that must be seized every day. Seniority matters little to the change agent; passion, energy, and an openness to a new, reinvented tomorrow matter much more.
Executives who lead by using the change approach spend much of their time motivating employees through speeches and meetings.
In this article, we will describe the five leadership approaches in more detail and explore which business situations call for which approaches. There is, naturally, some overlap. CEOs who adopt the strategy approach might use elements of human-assets leadership, for example. Some box CEOs employ the techniques of a strategy leader to address the out-of-the-box issues that can be overlooked in control-oriented organizations. That said, however, our research suggests that in most effectively run organizations, CEOs select a dominant approach, using it as the compass and rudder that direct all corporate decisions and actions. Our research also suggests that a CEO’s approach can and should change over the course of his or her tenure. As one of our subjects, Edzard Reuter, CEO of automaker Daimler-Benz, says, “A business is a living organism. There will always be a point where the environment changes, the competition changes, something critical changes, and you must realize this and take the leading role in meeting change.”
Whatever the approach, then, the CEO’s role is to act decisively and boldly—a demand of high-level leadership taught only by on-the-job training.
The Strategy Approach: Focusing on the Future, Near and Far
Of all the hypotheses we held at the start of our research, none felt as unassailable as our supposition that the vast majority of CEOs consider themselves the corporation’s chief visionary, responsible for setting short- and long-term strategy. Our data told another story: Of the 160 executives we interviewed, less than 20% subscribed to that leadership approach. In fact, the prevailing opinion of our subjects was that those with the most frequent and meaningful contact with customers and competitors should be responsible for strategic assessment and planning. Peter George, chief executive of Ladbroke Group, a British gaming and hotel concern, puts it simply: “Strategy is the domain of the business units because the people running them are closest to the markets.”
Nevertheless, we did encounter a distinct group of CEOs guided by the belief that their position gives them the best vantage point for making decisions about capital allocations, resource management, investments in technology, new products, and locations for doing business. For this reason, they assert, the CEO alone (although often supported by a small corporate team) is equipped to determine exactly where the company in all its parts and units should go, and how fast.
Open a strategy CEO’s schedule book. What you will see is time allotted with a common theme: the collection, cultivation, and analysis of data. These CEOs devote much of their days to the activities that ultimately yield strategic decisions. They rigorously gather and test information about markets, economic trends, customers’ purchasing patterns, competitors’ capabilities, and other matters external to their organizations’ operations. To increase their sources of data, these executives frequently use company task forces or outside consultants and eagerly draw on other sources of information and opinion, such as fundamental research, trade publications, and independent surveys. Strategy CEOs strive to understand how their customers behave and what really matters to them. They also seek to know as much as possible about every competitor’s strengths, technologies, and key customer segments. Moreover, a strategy CEO focuses on knowing the organization’s capabilities, or how well the organization can deliver on its strategy. What can the company do? What can’t it do? What are its lowest costs, highest quality, and fastest speed of delivery? In sum, strategy leaders devote themselves to understanding the company’s point of departure, selecting its point of arrival, and, perhaps most important, mapping the route between them.
Open a strategy CEO’s schedule book and you’ll see time devoted to collecting, cultivating, and analyzing vast amounts of data.
How do they achieve all that? More than executives in any other category, strategy CEOs employ extensive analysis as well as reporting and planning systems that test strategic scenarios, and they often focus the work of their corporate teams around these systems. For example, Coca-Cola’s CEO, Roberto Goizueta, oversees a program in which country managers spend three days every six months in planning sessions with the top corporate team, examining every aspect of their businesses. “We debate what we are doing right, what is working, and what we are doing wrong,” says John Hunter, principal operating officer and executive vice president for the company’s international operations. “We talk about strategies for the next year and the next three years. We ask, ‘What’s going to change in terms of our consumer, our market, the marketplace environment, the competitors, and our bottler system?’ We run down and review all these things, and then we say, ‘Where do we need to be three years from now and what do we need to do to get there?’” Several weeks after these meetings, the country managers fly to Coke’s headquarters in Atlanta, Georgia, to present their one- and three-year strategic plans and operating budgets in another demanding process of debate, testing, and planning. As is the case at many companies led by strategy CEOs, these kinds of sessions are supplemented by several other forums throughout the year devoted to strategy analysis and formulation.
Michael Dell of Dell Computer is another CEO who plots his company’s short- and long-term strategic path by gathering vast amounts of data. The company, which assembles personal computers, has specially trained employees who take 50,000 phone calls from customers every day and document and organize their comments, which are then distributed to managers. In addition, every Friday, Dell managers from every functional area in every plant and office around the world gather in customer-advocate meetings, in which a dissatisfied customer addresses the managers over a speakerphone. “The point is to sensitize the entire organization to the customer,” Dell explains. “We want to make everyone literally hear the voice of the customer, to hear the frustration when we do something that makes it difficult to use our products.” Phone calls from customers are also used to spark ideas for new products and services. As a result of many calls from people wondering if Dell made a small, powerful notebook computer, for example, the company began assembling and distributing a 100-megahertz Pentium-chip model. Dell was among the first to market with the product. Michael Dell himself also logs on to the Internet on a daily basis, scanning the bulletin boards and chat rooms used most frequently by industry insiders and computer devotees for information and opinions about market trends and for reactions to his company’s—and his competitors’—products.
What makes a CEO decide to take on the role of chief strategist? Our research indicates that neither industry type nor a company’s national origin seems to be a determining factor. Instead, one relevant issue appears to be the level of complexity in the company or industry, in terms of technology, geography, or organizational structure. Coca-Cola, for example, has 32,000 employees in nearly 200 countries around the world. The volume and pace of change seem particularly relevant as well. The less stable the situation, the more likely the CEO is to believe that he or she must be both lookout and navigator. To play those roles well, we heard, the CEO needs all the data-driven insight that this approach to leadership generates. Finally, we found that the strategy approach is often selected by CEOs who must frequently make decisions that have enormous consequences. Again, this approach provides the kind of information and involves the sort of testing and planning that well-calculated risk taking requires.
The Human-Assets Approach: Managing One Person at a Time
Not every CEO who adopts the human-assets approach thinks that strategy belongs in the business units, but most do. Their companies, many of the CEOs in this category explain, are either too complex or, interestingly, too straightforward to make long-term strategic planning a wise use of the CEO’s time. Instead, these executives believe that in their particular organizations, success depends on superior execution—the way members of their companies make decisions, interact with customers, roll out new products, or design programs to deflect or defeat the competition. Accordingly, they believe that their imperative is to hire and cultivate the kind of individuals who will act intelligently, swiftly, and appropriately without direct or constant supervision. And they believe the way to develop such individuals is by shaping the values and behaviors of virtually every member of the organization into “company way” values and behaviors through a coherent set of systems, programs, and policies. Our research indicates that this approach to leadership is the second most prevalent after the box approach and is employed by about 22% of the CEOs we surveyed.
Some companies are too complex or too straightforward to make long-term planning a wise use of the CEO’s time.
As a group, human-assets CEOs communicate and demonstrate what they want face-to-face. Their travel schedules rival that of a secretary of state or foreign minister, with as much as 90% of their time spent out of the office. “People have asked me time and again, ‘Why do you spend all that time traveling?’ And the answer to that is really kind of simple,” says Al Zeien, CEO of Gillette, the personal-care-products company with 34,000 employees worldwide. “I travel because that’s where the people are. I travel because I want to be sure that people who are making the decisions in, say, Argentina have the same reference base as I do for the company. I want to make sure they are all using the same ground rules I would use. I want to see if they have the same objectives. I travel because you can only find these kinds of things on the home ground.”
Human-assets CEOs have travel schedules that rival that of a secretary of state, with as much as 90% of their time spent out of the office.
While they are traveling, human-assets CEOs tend to focus on several specific aspects of corporate policy. The first of these is hiring, an area that occupies human-assets CEOs more than it does chief executives in any other category. At PepsiCo, for example, CEO Wayne Calloway interviews every candidate for the top 600 jobs in the company. “It doesn’t matter if they’re going to work in Pakistan or Philadelphia—I get to talk to them,” he says. “We have the chance to get to know each other and make sure we have the same values and objectives and standards in mind. That way, when they’re back in Pakistan and somebody wants to do something, they will say, ‘Well, I don’t know. That’s not what I heard, and I heard it straight from Calloway himself, so I think that’s not what we ought to be doing.’” Calloway, like many other human-assets CEOs, also occasionally monitors hiring at lower levels of the organization. For example, he was once involved in hiring two new M.B.A.’s into PepsiCo’s office in Wichita, Kansas. Similarly, Herb Kelleher of Southwest Airlines says that he has participated in the selection of ramp agents at small regional airports. Hiring, he explains, is “where it starts. It’s the head of the river, and if you pollute that, then you gradually pollute everything downstream.” Speaking more generally of his approach to leadership, Kelleher sounds another theme of human-assets CEOs: “We hire great attitudes, and we’ll teach them any functionality that they need.”
Human-assets CEOs also focus on other areas of personnel management, such as training, incentives, career planning, and programs to increase retention. Al Zeien, for instance, personally conducts 800 performance reviews per year at Gillette, monitoring employees for their commitment to acting in ways that benefit the entire company, not just their units or countries. He attends product development meetings in virtually every division of the company to monitor R&D efforts, of course, but also to identify star employees whom he can point in directions they might not otherwise go. He once, for example, engineered the move of a manager from New Zealand to Gillette’s operations in Redwood City, California, because he thought that the manager showed great promise and that the transfer would benefit the man’s career and the company. The New Zealander’s boss had told Zeien that the man would never leave his native country, so Zeien did what any human-assets CEO would do: He flew to New Zealand to convince the employee in person. The man accepted the appointment.
Other human-assets CEOs show the same kind of attention to personnel matters. At the British food manufacturer United Biscuits, for example, chief executive Eric Nicoli oversees a system that evaluates the performance of hundreds of employees semiannually. The goal is to ensure that “motivated, caring, and optimistic” members of the organization are identified and rewarded, and that others are retrained or let go. Echoing many other CEOs in this category, Nicoli notes that close attention to so many individuals and careers requires an enormous commitment of time but that it is the only way to manage an operation in which the CEO simply cannot be everywhere or know everything.
Although most human-assets CEOs tend to value employees who display predictable “company way” values such as honesty and loyalty to the corporation, they also believe in individual empowerment. These CEOs can and do give authority to members of the organization to act quickly and freely, without corporate approval. This authority to act is awarded only to employees who already conform to the company’s way of doing things. But in organizations led by effective human-assets CEOs, this group of proven team players is often large. Consider what happened at Southwest Airlines when Midway Airlines went out of business in 1991. Within hours of Midway’s announcement, Southwest employees from Dallas had physically taken over every Midway gate at the Chicago airport. “I didn’t even know they were going to Chicago when they left. They didn’t call me first,” Kelleher recalls. “They came in later and said, ‘Hey, Chief, we just did something; we thought you might like to know about it.’” They never doubted his approval, Kelleher notes, because “we have such a great congruency among our people.” Congruency of values, and of the actions born from them in the daily execution of corporate strategy, is the essence of the human-assets approach.
The Expertise Approach: Championing Knowledge
A small but distinct portion of the CEOs we interviewed, less than 15%, say that their main role is to select, cultivate, and spread a competitive expertise up, down, and across the business units of the organization. Put another way, these chief executives believe that they must create a specific capability that will allow the organization to differentiate itself from its competitors and will thereby lead the company to a position of sustainable advantage. Expertise, we found, can be a process. Julian Ogilvie Thompson, chairman of the South African mining company Anglo American, devotes the bulk of his time to honing and disseminating within the organization the company’s unique competence in deep-mining technologies. Expertise can be a package of ideas and techniques, such as the focus on the brand-consumer relationship that drives the leadership of Charlotte Beers, CEO of the international advertising agency Ogilvy & Mather. Expertise can also be a concept. At Motorola, the CEO’s commitment to unassailable quality defines the work of the corporate office. When does a CEO decide to use the expertise approach? When he or she believes that a well-conceived, carefully developed area of competence is the surest way to gain and sustain a competitive advantage.
In their daily activities, expertise CEOs cover more organizational territory than CEOs from any other category because they do not become as involved in operational details. Instead, they focus on shaping corporate policies that will strengthen their organizations’ competencies. In hiring, for example, expertise CEOs do not generally conduct interviews. They do, however, design and monitor the policies behind the hiring process to ensure that their companies will attract candidates who are experienced in the area of expertise or who seem inclined to become fully immersed in it. Similarly, expertise CEOs make sure that their companies’ incentive programs reward employees who cultivate the expertise and share it with colleagues. And they design control and reporting systems that track their companies’ missions and establish a focal point for all activity in the corporation. Expertise CEOs usually do not devote much time to gathering or analyzing data. But they direct those who perform that work to collect data that will help them determine which types of knowledge or competencies are relevant to consumers, which competitors have the edge, and how much it will cost to be the best.
An expertise CEO spends much of his or her time focusing the organization on its area of expertise and sending strong messages about the company’s priorities. At Motorola, for example, former CEO Robert Galvin would walk out of meetings about a business unit’s performance after quality figures were discussed, vividly demonstrating what he deemed the company’s unique competence and his number one concern. CEOs who lead in this way, however, don’t just preach the gospel of their selected expertise; they are proficient at creating programs or systems that reinforce it. At Houston-based Cooper Industries, which specializes in basic low-tech manufacturing, CEO Robert Cizik deploys “SWAT teams” of manufacturing experts from within the company that travel from division to division to investigate and upgrade factory-floor practices and equipment. The teams have clout: Their reports go directly to the CEO’s office, and a yearlong stint on one of these teams is mandatory for managers who want to move up in the organization. At Anglo American, Ogilvie Thompson has developed a cadre of highly skilled men and women, called “consulting engineers,” who travel to the company’s operations around the world and serve as line managers wherever they go. The consulting engineers, he says, “pick up an idea from the chaps at Premier diamond mine, who are running the operations with skill, and are able to transfer this idea to the DeBeers group mines in Namibia or Botswana, really for free, adding value to others.” Ogilvie Thompson’s commitment to this group—he often personally decides who becomes a consulting engineer and determines where each will be assigned—reflects his commitment to the company’s expertise.
CEOs who use the expertise approach don’t just preach the gospel of their expertise; they create programs to reinforce it.
Expertise CEOs formed the smallest group that emerged in our research. The reason, we believe, lies in the difficulty of sustaining the approach. With the free flow of information and people between companies and countries, expertise is hard to keep proprietary. In addition, an expertise won’t remain relevant for long in an ever changing marketplace. Virtually every CEO in this category acknowledges these challenges. Cooper’s Robert Cizik believes that his company will soon need to embrace a new competence to stay ahead. And Charlotte Beers notes that competitors can and do “borrow” the marketing techniques Ogilvy & Mather pioneered, the brand print and brand probe. But like many proponents of this approach, Beers advocates expertise leadership for focusing an organization on what it must do to compete and win.
The Box Approach: Applying the Pressure of Orthodoxy
From the most entrepreneurial software company to the most conservative bank, every company has a box—a set of procedural, financial, and cultural controls to which members of the organization must conform. All CEOs spend some of their time designing and maintaining controls, and evaluating the performance of business units and employees relative to those controls. But CEOs who are truly box leaders view these tasks as their primary responsibility. Our research shows that CEOs using this approach are often running companies in highly regulated industries, such as banking, or in industries in which safety is a paramount concern, such as airlines. These executives explain that their business situations allow virtually no margin for error, a reality that turns the design and application of strict controls into the CEO’s highest priority.
All CEOs spend some of their time designing and maintaining controls, but true box leaders see this as their main responsibility.
Box CEOs often sound remarkably similar to human-assets executives. Leaders from both categories say that they are trying to build organizations in which each individual, in any circumstance, will act just as the CEO would. But instead of using personnel development and the inculcation of values as their means, box CEOs use control systems. Many of these executives say that “building frameworks” and “drawing boundaries” are their primary responsibilities. In other words, they create explicit rules and rewards for acceptable behaviors, outcomes, and results. With such controls in place, box CEOs spend much of their time attending to the exceptions—tracking down the reasons for missed deadlines, unexpected losses, or below-average performances of divisions or employees. These CEOs frequently use internal reviews and external audits, employee rating scales, strict policies, and financial reports. They usually spend their days at corporate headquarters meeting with the managers responsible for business units or with other members of the corporate team, and scrutinizing proposals for new programs or requests for resource allocations. They study reports from the field concerning performance, often request additional data, and rigorously question what they see and hear. Finally, box CEOs tend to be intensely involved in company communications, both external and internal. Maurice Lippens, chairman of Fortis, an international financial-services company based in Belgium, puts an umbrella over all these activities when he describes his most important role as “applying the pressure of orthodoxy to the corporation.” This phrase captures the essence of the box CEO.
Thirty percent of the CEOs we interviewed devote enough of their time and attention to the techniques mentioned above to be considered box leaders. Lippens, for example, employs hundreds of auditors to monitor the performance of each business unit on an ongoing basis and benchmark it against other units as well as competitors. At HSBC Holdings, formerly known as HongKong Shanghai Banking Company, chief executive John Bond oversees guidelines that control every aspect of the company’s information technology system. The small staff of experts who run the bank’s computer network are located at headquarters in London and are charged with maintaining a system that cannot “be tinkered with,” in Bond’s words. Moreover, Bond carefully monitors other aspects of the bank’s information systems. “Every unit writes a technology plan each year on what they plan to spend on development, what they plan to spend on operations, and what equipment they plan to buy,” he says. “That is reviewed here down to the last PC, and we will say, ‘You don’t need to buy a new computer in Malaysia; we can supply it from Indonesia.’ We can control the movement of equipment around the world from London, and I can assure you it is a very detailed plan, but it isn’t very popular.”
Bond is not the only box CEO who acknowledges the negative side effects of the approach. Control systems can be stifling for those at the receiving end. But he also notes, like many other executives in this category, that the box approach brings enormous clarity and predictability, both of which can be powerful competitive weapons. “We believe ours is a business based on trust,” Bond says of HSBC Holdings, which operates 3,000 banking offices in 68 countries. The company’s control system leads to consistent performance by tellers and credit officers branch to branch, country to country, year to year. Such consistency begets trust. “The customers love it,” Bond says.
Control systems can be stifling, but they bring clarity and predictability—two powerful competitive weapons.
The box approach is most prevalent in industries that demand strict procedural and financial controls, but we also found some CEOs using controls that were more cultural in nature. One example is Claude Bébéar, president of AXA Group, an international insurance company based in France. Bébéar has invented a language of words and symbols in an effort to create uniform priorities, behaviors, and goals among the organization’s 50,000 employees in 12 countries. The language includes phrases such as “TNT action” and “the trap of immobility.” Employees across units and national borders are encouraged to use the first phrase to express the rapid implementation of decisions and the second to describe where people find themselves when they are unwilling to change. The point of the shared language, Bébéar says, is to create a corps of like-minded employees who freely and clearly exchange intelligence and technical advice, both of which are competitive weapons in the decentralized insurance and financial services markets. Called AXAnetics, the company’s language is taught annually to thousands of employees in a French castle recently converted into the company’s university.
The president of AXA has invented a special language to try to unify 50,000 employees.
Despite their attention to control systems, almost all box CEOs devote some time to cultivating, in small doses, the kind of creative, nonconformist behavior that their approach usually does not reward. At BankAmerica, for instance, chairman Richard Rosenberg reads dozens of internal newsletters in search of fresh and innovative marketing ideas—and thinkers—to introduce to the rest of the organization. At NatWest Group, one of the United Kingdom’s largest banks, chief executive Derek Wanless leads several teams of employees in an effort to draw individuals out of their highly structured roles and to encourage them to bring their creativity to issues such as diversity and new products and services. And at British Airways, chairman Colin Marshall regularly travels to airports and BA offices to meet with small groups of employees for sessions of what he calls “listening to the moaning.” Marshall admits that he sometimes hears complaints about the company’s degree of centralized authority. But he is quick to point out that, for the most part, people at BA do in fact understand the purpose of the organization’s tight controls. Speaking for many CEOs in this category, he asserts that of all the leadership approaches, the box approach is the best way to deliver what the customer wants most: no surprises.
The Change Approach: Upending the Status Quo
It’s hard to be a CEO today without talking about the importance of change. With all the positive press change gets, virtually every constituent group, from shareholders to employees, expects to hear that change is under way or at least planned for the near future. Indeed, the majority of CEOs in our study, even those who use the box approach, talk about initiating, championing, or simply overseeing change. But a much smaller group, about 15% of the total, actually fall into the category of change agents. These CEOs identify their chief role as directing the complete overhaul of practically everything about their companies, down to the fundamental underpinnings.
Unlike strategy CEOs, change agents focus not on where their organizations will end up but on how they will get there. These CEOs cultivate an environment of constant questioning and risk taking, and frequent reinvention of business practices and products. Change, these CEOs explain, is the best way to deliver consistently extraordinary results. It should be noted that the CEOs we identified as change agents are all leading profitable organizations. But they still believe that deeply entrenched ways of doing business will ultimately be their companies’ undoing. Their job, as they see it, is to create an environment of constant renewal. Indeed, a leitmotiv of our conversations with these chief executives was their goal of building not just better organizations but organizations that enthusiastically embrace ambiguity, uncertainty, and upheaval.
Unlike strategy CEOs, change agents focus not on where their organizations will end up but on how they will get there.
Compared with CEOs in other categories, change agents are rather unconcerned with financial or procedural controls, written reports, planning cycles, and guidelines. They spend their days meeting with employees, customers, suppliers, and shareholders to champion change and encourage others to do the same—or at least to be patient while change is under way. Virtually no one is neglected. Change agents visit factories to talk with line workers, attend company picnics, and answer their E-mail and voice mail messages daily.
All areas of corporate policy do, in relatively even doses, receive the change agent’s attention. But if any area receives special attention, it is compensation, perhaps because pay and promotion are two of the most powerful tools for overcoming the aversion many people have to what is new and unpredictable. The first official act of many change agents, in fact, is to revamp their companies’ performance-review and reward systems. Managers responsible for recruiting, for example, are instructed to hire nonconformists and risk takers, and then receive bonuses for doing so. Engineers or scientists in R&D are compensated for breakthrough products rather than product extensions. Stephen Friedman, the former managing partner of the investment bank Goldman Sachs, relates an example of how his organization realigned rewards to promote change. When the bank’s leadership team initially decided that the organization had to expand internationally to stay competitive, there were few volunteers for its foreign offices. “It was just not valued as an attractive career opportunity by most of our U.S. people, and their spouses didn’t necessarily want to go, and their dogs couldn’t possibly endure living in Tokyo,” Friedman recalls. “So we took an exceptionally talented young banker and promoted him to partner two years ahead of his class because he went to Asia at great personal sacrifice.”
Initially, a change agent often revamps a company’s performance-review and reward systems.
Friedman recounts another experience that illustrates one of the change agent’s most important techniques: consensus building. Because change can be extremely disconcerting to members of an organization, change agents must often shepherd new ideas over rough terrain. For example, one of Friedman’s first steps as a change agent in the early 1980s was to form a strategic planning committee in the investment banking division. “We composed the committee of bright, iconoclastic, younger people below the senior managerial levels, so they had no compulsion to defend the status quo,” he says. Several members of this committee suggested that Goldman get into the junk bond business. Friedman came to support the idea, but he knew that his personal enthusiasm wouldn’t carry the day within the bank, long a bastion of conservatism. For help, Friedman asked an experienced partner, widely considered to be among the bank’s most intelligent and cautious, to conduct a study to determine whether and how Goldman should enter the junk bond business. “He came to the same conclusion we did, but with a lot more documentation and some useful refinements,” Friedman says. “And now he had bought in and was behind the plan. It had establishment blessing.”
Change agents often combine consensus building with another, somewhat contradictory technique: occasional public and dramatic displays of top management’s strong support for new ways of doing business. At Tenneco, CEO Dana Mead sets virtually unattainable financial targets for the business units and then actually incorporates them into the budget. He requires Tenneco’s five divisional CEOs to give monthly presentations about their performance relative to those targets in an open forum. “The pressure this builds is terrific, and it works,” he notes. Mead, like many other executives in this category, relies heavily on company newsletters to communicate, and many change agents create monthly or quarterly videos that extol areas of their companies that have come up with innovative products or programs. CEOs in this category also communicate through their actions, firing high-profile managers who are not effecting change quickly enough, or divesting entire divisions for the same reason. J.P. Bolduc, the former CEO of W.R. Grace, recalls that he sold a Belgian mattress-ticking manufacturer that was one of the company’s best-performing subsidiaries because it didn’t fit into his new, “reinvented” vision of the company. The move, he says, put W.R. Grace in “cultural shock.” But, he adds, “nobody believed what we were trying to do, so it became clear we had to break through the sound barrier.” This kind of move appears to be the flip side of the change agent’s use of consensus building, but the two form sum and substance of the approach.
Finally, change agents are distinct in their enthusiasm for the kinds of individuals who are often unwelcome in other types of organizations. These CEOs tend to value, as Dana Mead puts it, “recalcitrants, troublemakers, or gadflies.” Mead admits that such people don’t always make for smooth meetings, but they do raise the kinds of questions and launch the kinds of plans that lead to substantial change. As an example, Mead points to an employee he hired soon after his appointment as CEO. The man had come to the United States as a refugee, worked his way through Stanford University, and then went on to become a White House Fellow. “He is the most aggressive, smartest guy you have ever seen, but he can stir things up and step on toes,” Mead says, noting that he has had to placate the man’s direct bosses more than once. But, he adds, “he is exactly the mold we would like to see around here. He brings in some very exciting projects for us, and he delivers results.”
Not surprisingly, our research suggests that a CEO who takes on the role of change agent takes on perhaps the most demanding and daunting of the five leadership approaches. Change is almost always accompanied by controversy, discomfort, and resistance. All the change agents in our survey comment on this frustrating reality. They also describe how this approach often forces them to rise above their natural inclinations to move more slowly or give people more leeway. That is, the change approach sometimes requires people to lead in ways inconsistent with their personalities. But Stephen Friedman speaks for many change agents when he describes the approach as more of a calling than a management style. “Change for the sake of change makes no sense, of course,” he says. “But if you’re not working for constructive strategic change, then you are the steward of something that must, by definition, erode. Competitors will surpass you, and clients will find you less relevant. If that was your approach, why would you even want the job?”
A Framework for Understanding Leadership
During a recent forum on business in the year 2001, we were asked if we had concluded from our research that, in fact, CEOs were becoming obsolete. With business units in so many companies independently making decisions that used to be the sole right of the corporate office, the questioning went, what was really left for the CEO to do all day? How could he or she continue to add value?
Our immediate answer was that CEOs do play a relevant role in business. That role is leadership, but not leadership defined as an outgrowth of a strong and charismatic personality—a talent born and not made. Some people are naturally given to inspiring the troops and leading charges, but business leaders must also create a clear purpose and direction for an organization. And they must align all corporate systems with that direction for a sustained period and build organizational commitment to common goals. The five approaches that emerged from our research are the five ways that many CEOs choose to deliver clarity, consistency, and commitment.
In the course of our research, we encountered thriving organizations and those in severe crisis. What role does the CEO’s approach to leadership play? Does a well-planned approach correctly matched to the business situation yield success? We are still analyzing that fundamental issue. A strong link appears to exist, but we cannot yet demonstrate a direct correlation.
What we can state definitively from our research thus far is not exactly what we set out to find. We have found that some CEOs simply do not lead, try as they might. Some employ a little of each of the five leadership approaches simultaneously, destroying organizational focus and thus organizational effectiveness. For some, their days are driven by whatever event appears on their calendars or whatever crises erupt. Others act according to their natural inclinations, doing what feels enjoyable and easy. At best, those ways of leading create confusion; at worst, they create misguided or unguided organizations. Either way, they are a mistake. The stakes are too high for a chief executive to lead without conscious intent.
The stakes are too high for a CEO to lead without clarity, consistency, and commitment.
The five approaches that emerged from our research are certainly not boilerplate solutions for success, nor are they rigid roles in which all CEOs can be cast. Business is too complex for such simple analysis. But the five approaches do offer a framework for understanding how CEOs manage to give structure and meaning to their infinite jobs, learning to lead as they go.
A version of this article appeared in the May–June 1996 issue of Harvard Business Review.