PhD in Leadership: What They Don't Teach You in Business Schools


PhD in Leadership: What They Don’t Teach in Business Schools

By Scott Anthony Ward

© 2011 4ward Associates. All rights reserved.

4ward Associates

9318 Nantwick Lane

Brooklyn Park, MN 55443 USA

Published electronically as an eBook.

Cover credit: © 2011, 4ward Associates; artwork by Nikki Ward of NikkiWDesigns www.nikkiwdesigns.com

http://www.nikkiwdesigns.com/


Early in my career as a new Assistant QC Manager (back in the day when we still euphemistically referred to that

support function as Quality Control), the president of the Fortune 500 company for which I worked came from the

East Coast to our plant. He toured for the afternoon and had a meeting with the staff. That night he had a dinner

meeting with all of the staff and the next supervisory tier of the organization, of which I was a part. I had been with

the company for 6 months at that time. After dinner, the president stood up and gave a little speech. I don’t

remember all that he said except that quality was very important to the future of the company. After his speech, he

asked for questions. I raised my hand and asked, “I appreciate your comments about the importance of quality. One

of the things I’ve noticed is that we have high turnover in our department. We have a hard time fully supporting

production and engineering because we’re constantly training new technicians. The main reason most people leave

the department is because QC is paid the lowest wages in the production area. Can we look at increasing the wages

in order to reduce the turnover?”

By this time, the plant manager had turned around in his seat, glaring at me. My immediate boss, the QC Manager,

was a woman, also glaring at me. The president looked directly at me and asked, “What is your name?” I began

thinking that this was a very short career at this company. A few months later, when I was promoted to head the

department, I didn’t order business cards for the first year because my predecessors had an average tenure of 9

months. (I thrived in the position for 3.5 years before leaving for another company in another part of the country.)

After telling him my name, he replied, “Scott, you raise an interesting point. I would be glad to look at your

recommendation if you’re willing to do some research into the issue.”

I had grown up on Air Force bases, watching from a child’s and adolescent’s viewpoint some of the best of military

leadership. This incident with the Fortune 500 president taught me several lessons about business leadership.

Can you guess what they were, from the brief encounter?


I learned that good business leadership creates a culture that provides the environment for honest sharing of data and

open to new ideas.

I learned that good business leadership invites collaboration. In the situation above, I had to work with others to get

the right information and put together a good analysis.

Good business leadership understands that nothing operates in a vacuum and that a policy of pay in one department

can affect the overall company results.


One of the best metaphors for leadership regards a pack of wild horses. The adage with that image is this:

The pack can only run as fast as the leader.

The leader has to be active and moving and guiding. If you don’t want to be run over, you better be going fast. If

you want to be followed, you want to be sure you know where the new, good pastures and the watering holes are. Or

pretty soon, a new leader will emerge.


The author of The Seven Habits of Highly Effective People, Stephen Covey, says,

“Leadership is not formal authority; it is moral authority…it is deep integrity

combined with competence.”

Since the era of Viet Nam and Watergate, in this country, leadership has to be earned. No longer can someone claim

leadership purely based on title. It has to be earned through competence and integrity. You know this because you

know that in any organization there are informal leaders. They might be the maintenance supervisor, rather than the

general manager. They might be the church recording secretary and financial secretary rather than the council

chairman or pastor. I heard one person refer to them as the “Fonzis” of the organization. Fonzi is a character from

the old TV show “Happy Days”. He was the motorcycle-riding guy who exemplified coolness; he was the guy all

the men wanted to be, and all the women wanted to be around. If Fonzi said it was “cool,” it was cool. In the show,

he’d hold his two thumbs up, at about hip level, to indicate his approval. Somewhere in your organization is such a

person. He or she might not give the thumbs up exactly like Fonzi, but the others seek their opinion on whether the

new effort is worthwhile or makes sense. It doesn’t matter how much you preach about it. You need Fonzi’s

approval to get the troops going. That’s why leadership is moral authority. I will be talking further about values and

integrity as part of the company culture.

The competence part of leadership is focusing on the important issues: “major on the majors, minor on the minors.”

For want of a nail, a shoe was lost.

For want of a shoe, a horse was lost.

For want of a horse, a rider was lost.

For want of a rider, a battle was lost.

For want of a battle, the kingdom was lost.

A kingdom was lost all for the want of a horseshoe nail.

Many managers use this proverb as rationalization for micro-managing. You can almost see Lord Raglan in the

Crimea, scouring the ground, picking up horseshoe nails, depositing them in his apron pocket for later use by the

farriers. Meanwhile, his cavalry brigades, most famously the Light Brigade, are pushing forward into an unwinnable

strategic mishap. Alfred Lord Tennyson made their tragedy famous in his poem, The Charge of the Light

Brigade: "Half a league, half a league, half a league onward rode the six hundred."

Leaders need to realize that their job is to focus on the strategies. Lord Raglan needed to focus on the position of his

brigades, and the competitive (enemy) landscape. Let the farriers keep track of the nails. The farriers should

understand how important it is to keep track of the nails so that there are plenty available, and no shoe is lost.

However, the executives and managers of any organization should devote little of their time, if any, to this low level

concern. It may have big consequences--some companies can frivolously waste a lot of money--but not as big a

consequence as not focusing on the battle.

I've known some managers who insist on opening all of the mail for their company or their department so they know

what's going on. In the meantime, lots of money is being lost with low productivity, low throughput through a

critically constrained resource, high material costs, logistical inefficiencies, and so on. These managers were

spending time on the wrong issues.

Stop picking up the nails. Look up and make sure the battle is being fought the right way. That's your job—to make

sure they can do their jobs. Let the others do their jobs. If you’ve engaged them through communication and

empowerment, you will see them pay attention to the right issues that they can affect.


However, I would like to point out one omission in Covey’s description. He makes it sound too passive. Leadership

is active. I repeat: leadership is active. A leader is out there creating something new and working with the followers.

You’re not a leader without followers, so let’s talk about them for a bit.


What percentage of people in your organization are committed to the success of

your organization?

Is it 100%? How about 75% or maybe 50%? Could it be as low as 25%?

When I asked this question in one workshop, one guy raised his hand to the 100% query. I asked, “Are you a

company of one?” He answered that he was a company of two and pointed to his brother sitting next to him. “Hmm,

your brother didn’t raise his hand. Maybe he’s not as committed to the deal as you think he is.” We all laughed.

“Well, mom loved me best,” he said.

The most common response to the question is 50%. As managers, we think at least half are “with us” and we can

convince a few more to charge the hill in whatever new effort we are trying to persuade them needs to be made:

whether it’s Lean, Six Sigma, Exceptional Customer Service, and all the programs that have cascaded through

business in the past many decades. We think that over a bit of time, we’ll get up to 75% of the employees to really

be pulling for the organization and not just focused on their paycheck.

We think nearly half of our employees are engaged—involved and committed—to our vision for where we want to

take the company, its growth and profits.

0

20

40

60

80

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Mgmt Effort Desired Change


According to a Harris Poll of 23,000 employees, as cited by Dean Tucker in his Using the Power of Purpose book,

here’s how it really looks:

Only 37% of employees clearly knew their company’s goals.

Only 20% were enthusiastic about those goals.

Only 20% saw how they could support those goals.

Only 15% felt they were enabled to work towards those goals.

Only 20% fully trusted the company.

Knowing that our eyes glaze over and our brain goes numb with statistics, Dean Tucker relates the survey results

using a football team as a metaphor.

Only 4 people on your team know which goal line they’re heading towards.


Only 2 people care about what they’re doing.

Only 2 people know what position they’re playing when they’re in the game.

Only 2 guys feel like they have a chance at winning.

Everyone else would just as likely root for the other team as their own.

The only positive side to this data is…


The other team has the same issues!

The rest of this book describes how you can increase your team’s engagement creating true competitive advantages.


Reality looks like this with regard to trying to make improvements in most organizations:

We start out with 15-20% of the employees committed to making the “new thing” a success. The majority are

indifferent, but over time a few will be convinced. As you can see, not many will join the ranks of the committed.

You still have quite a few apathetic employees. With meager results, your energy effort wanes until you’re ready to

kill the new program and look for something else.

If you survey the experts in organizational change, they will admit that 67-85% of change efforts fail. This is a

horrible record even for a group that claims to be expert on how to change groups of people to move in a new

direction.

And it’s not any better if there’s a business crisis, like the loss of a key customer. Change efforts still fail. We are

individuals and we have our traditions and habits. It’s hard for us to change to something new.

Depending on who is giving you the information, 60-90% of heart patients do not change their lifestyles. They’ve

had a crisis, and they still continue the habits that got them into trouble. It’s not any different for those heads of

businesses. They don’t change either.

0

20

40

60

80

100

1 3 5 7 9 11 13 15 17 19 21 23 25

Mgmt Effort Organizational Action


What I’m going to show you will create better results. We start at the same level of commitment but it accelerates

quickly. I won’t tell you everything but you will get the gist of it.

You’ll be able to accomplish change in your organization with more fun, less

expense. It will require more of you though. Remember, leadership is active.

0

20

40

60

80

100

1 3 5 7 9 11 13 15 17 19 21 23 25

Mgmt Effort Organizational Action

Desired Change 4ward Change


It’s the soft stuff that’s the hard stuff and this is the stuff required of you as a leader.

No matter whether your business pushes parts or electrons, it’s in the people business. You can’t have your business

without people. Those people are either your employees or your customers or your suppliers. In any case, they need

leadership.

Now, we’re going to talk about communication because we’re in the people business, and we’re going to talk about

culture and values and then a whole bunch of miscellaneous topics. Let me give you a framework for understanding

this…


From what you’ve heard or read, what gives you a competitive advantage?

You’ve probably heard that it’s costs or pricing. Perhaps you read that it’s technology or service. Maybe you think

it’s your service or delivery performance. Maybe competitive advantage comes from your exceptional product or

service quality. Since I just mentioned the soft stuff, you might be willing to risk the politically correct answer,

“People give us our competitive advantage.”

But you’d be wrong. And so are all the other pundits.

Your competitors can figure out and copy your costs and pricing. They can match your technology—think Dyson

vacuum cleaners and Sony Playstations. They can mimic your delivery, service and quality. It’s not even innovation

that keeps companies on top. In fact, many of the successful companies that have outlasted their competition were

not the first into the market with their product or service—think Apple and Best Buy. Perhaps bursting your bubble,

you can’t hire anyone better than the same type of people your competitor can hire. So it’s none of these things that

you’ve heard or read about.

The only things that give you a competitive advantage is how you mix these elements. Specifically and

emphatically, it’s what you do with your people and what you allow them to do. Here’s the elements that give you a

competitive advantage:

Culture of your company: the values and behaviors that you and your people live by, practice and

implement. You can tell a culture by who gets promoted and why, who gets plum assignments and who

gets isolated.

Collaboration or teamwork: this is the ability to make things flow more smoothly which lets your

organization respond more quickly to changing business conditions, emergencies and new competitive

challenges.

Systems Thinking: when more people understand how their work influences the input or process of

another’s work results, they are breaking down barriers and “silo thinking”. They get away from sub-

optimization (i.e. what’s good only for my department) and move into macro-optimization improving the

overall throughput of the organization. They begin to “crown the organization” in the words of Keith

McFarland in The Breakthrough Company.

Most people go to work hoping they will contribute to their organization’s success and their own success. Yet, when

confronted with something new, we might resist. At a previous stage in my career, I was an operations consultant in

one of the large accounting firms. We often heard, “That’ll never work here. We’re different.” Our response was,

“Really? It won’t work because you have different trees or the building color is different than all the other places

where this worked.” We have to stop thinking that we’re different. We have the same kinds of people, with very

similar talents, skills, aspirations and motivations. How well we involve them and unleash their potential to increase

their commitment is what makes the difference whether our organization is going to succeed or not.

So, let’s start with trying to understand people a little better…

• Technology

• Delivery

• Service

• Price

• Quality

• People


When a stranger asks you the time, how much would you like to respond in one of these ways?

My watch says it’s 2:23 but the battery is about 6 months old, and I haven’t synchronized it with a cell

phone or an atomic clock in about a week. So you might want to add 1.5 minutes to what I told you.

About a quarter after 2, give or take 10 minutes.

Why? Are you late for an appointment? Do you have to be someplace? How can I help you?

You know, I got this watch when I was on vacation with my wife in Florida. It’s really special to me. Have

you been on a vacation lately?


DISC is a way to understand different personalities.

D’s are drivers. They like challenges. They want action and desire to be first. They will decide when they

have 70% of the information. It’s important to do something. They don’t care what they’re feeling (or you

either). They are willing to take risks.

C’s are conscientious and analytical. They want to be right. They won’t decide until they have all of the

information from which to pick the correct option. They’re not concerned with feelings either but they’re

less likely to take risks.

S’s are steady and amiable. They want safety, stability and security. They won’t rock the boat even if they

express their feelings. That’s more in soliciting whether you think they’re “okay”. They will also be

concerned with you being okay too. They don’t like risk. If there’s a chance of being different, unsafe, or

insecure, they won’t take it.

I’s are influencers. They desire recognition. They want everyone in the room to know who they are and

what they’ve done. They’ll suggest a plan of action and expect everyone to join them. If no one else does,

they’ll go it alone…and then tell you how wonderful it was and what you missed. They’re not afraid of

risk.

As you can see, different personalities have different needs: to take action and be first; to be right; to be safe; to have

recognition. There tend to be more S-type people in the world than any others. In many paired-comparison surveys,

where people have to choose between two options (job security and higher wages, job security and better benefits,

higher wages and better benefits, better benefits and more supervision, less supervision and safer environment, etc.),

Controlled

Expressive

Risk

Tolerant

Risk

Averse


job security is at the top of the list of items to be kept. Most people want to know that they will be working next

week, next month, and next year. They might sacrifice other aspects of the work, but they want to work. Therefore,

anything we can do in our communication of a change to drive home their influence over job security by making the

company stronger and more competitive, they will pay attention and be engaged.

However, too often, as leaders, we communicate a message we want to hear. If so, we’ll miss the other 3 types of

people we have in our organizations.


Suppose I started a speech this way…

Standing in front of a crowd, in a suit, a little gray hair on my temples, I say, “Good afternoon. I’m Scott Ward. I’ve

got lots of experience so I know you’ll find this helpful. I’ve got a lot to share with you so let’s get to the meat of the

presentation…”

The D’s and I’s in the audience are happy because they’re immediately getting what they came for. The S’s and C’s

are not happy. They need a little affirmation right away that they’re not wasting their time. I need to provide some

data about my experience and qualifications.

In communication, even the introduction can be a mine field trying to negotiate the needs of the various personality

types.

Imagine this scenario. Pretend to be the stereotypical accountant…

You might be a high C or a high S. You like accuracy and you like routine so you can trust the source of numbers.

You’ll use spreadsheets to double-check the financial module on the company’s system. You’ll even have a

calculator that can print on a paper roll to occasionally verify the spreadsheet. In the one in a quadrillion chance that

static electricity corrupts both the computer and the calculator, you’ll have a large cylindrical container—either

ceramic or some other sturdy material—to hold a variety of pencils and pens. For those pens and pencils in the case

of system-wide Armageddon, you’ll have one drawer in your desk filled with legal pads. You might even have

started collecting paper in a second drawer as backup to the first.

On the morning of the first day of an autumn month, as you’re preparing to start working on the month-end analysis,

your colleague, the production manager, runs into your office. Hurriedly, he hands you a sheet of paper with

handwritten numbers on it and tells you, “Here’s the numbers you need. My computer crashed last night, but I’ve

got everything you want. I couldn’t find the old backup form we used to use so I think I have them labeled with the

right names. I also couldn’t remember what order they were in, but they’re all there. The last two numbers are

inventory numbers. We did the counts but, since the system was down, we didn’t know the costs. So we went by

memory or we estimated them: like if it was a bolt or screw, we used 30-50 cents; if it was a larger part, we used $3

to $5; if it was an assembly, we estimated somewhere between $300 and $500. If you have any questions, just call

me. My line is down so I’ve got to get back. Bye.” With the last word, the production manager spins away from

your desk and disappears down the hall.

As a stereotypical accountant, what’s your reaction? What chance do you have to fulfill your job requirement of an

accurate month-end analysis?

That same day, you go to a plant-wide meeting. The CEO addresses the group, “The board and I are really excited

about the challenges we face in the new year. We’re targeting big growth. We’ve got a plan but it will only get us

into the territory. As we set foot, we’ll need to adapt to changing conditions from our competitors and new

technologies and adjustments in the global economy. We need to be agile as we shoot the rapids, to avoid being

capsized by the market obstacles. We need to be creative, and find new ways to do our work. We need to think

outside the box. We’ll be changing to capture the opportunities that await us in the promised land that we’ll

discover. We will boldly go where no man has gone before…” The CEO continues on with this speech in like

manner for another five or more minutes.

You make it back to your desk, and pick up the production manager’s paper with the quickly scribbled figures on it.


On a scale of

“this organization is sane, trustworthy and heading in the right direction”

To “this place is an asylum run by the lunatics”,

which end of the spectrum would you, the stereotypical accountant, be leaning?

How likely are you, a rational, sane person, going to commit and be engaged with an organization run by lunatics?

How likely are you going to suborn and align your goals to an organization that’s seems to be wandering in the dark

with an unreliable flashlight? How likely are you to just hunker down, stay figuratively home, making sure your

tried-and-true, routine needs are being met no matter how loud people scream that you’re not being a team player, so

that at the end of the day, you know that you did good work?

In this scenario, the CEO is a high D, driven by challenge, and inspired by his/her own words. However, the CEO is

losing a good portion of his organization. The S’s and the C’s aren’t likely to go along with the “crazy” scheme if

the only message presented is one that appeals to D’s.

The opposite can happen too. D’s and I’s can be frustrated with the lack of risk-taking of an S- or C-led

organization. They will be angry that they have to calculate an Internal Rate of Return to the hundredth of a percent.

They’ll ignore requests for exceeding Net Present Value thresholds because the whole analysis is based on estimates

of future uncertain events anyway. They might ignore the inspiring message for the new year based on “the ship is

on the right course and we’ll continue our success that’s worked for the last twenty-five years and here’s all the

figures to show that this plan will work…” They’ll think the anal-retentive bean-counters are driving the company

into the ground and won’t be excited about strategic plans that tweak the current, traditional, tried-and-true practices

of the corporation. They won’t be committed because their needs aren’t being met.

In order to meet the needs of everyone in your organization, you need to have different messages and figure out

ways to accommodate their differing needs.


As leaders, we want the organization to move forward…

If this is the message we give, the C’s and the S’s will fight you. Change is Risk for them.

Change means that what we did before was wrong (not right). Change means a C doesn’t know how to be prepared

because there’s the unknown. A C will not be sure that the change is good especially if there’s been inadequate data

behind the decision to change.

Change means that an S could make a mistake because it’s a new routine, a new habit, a new procedure, new

behavior, new thinking. In those situations, a mistake could make an S feel “not okay”. Change makes an S feel

vulnerable. Change means a loss of stability.

However, we do a bad job of perceiving risk. We stay out of a storm with lightning but don’t think twice about

driving in a car even though the risk of death is 500 times higher while driving.

The D’s and I’s will be impatient. Change is Reward for them. They can resist also if they don’t perceive the reward

or what challenge they’re trying to overcome. D’s will want to know what opportunity is being captured or problem

is being conquered. I’s might want to know how they’ll be recognized for the positive results they attain. If you’re

unclear about this, they may remain indifferent. Just as many people play the lottery as invest in their 401(k) plans.

The rewards are quite different as are the risks.


Scenario: You have to make a change in health insurance options. You’re adding

option 2. How would you coach your whole organization in how to make a choice?

1. $1,000 deductible (the first thousand dollars other than preventive care

is paid by the employee) and the employee portion of the premiums is

$1,600 per year.

2. $5,000 deductible and the employee portion of the premiums is only

$800 per year.

Most people don’t like risk and so they’ll lean toward taking option 1, even though it costs them more per year. You

can even tell them that 97% of people spend less than $500 in claims and 99% spend less than $1,000 in claims. The

chance of spending more than $500 in claims is like rolling snake-eyes (1 and 1) with a pair of dice—very low.

However, when we perceive risk, reasons and logic don’t make any sense to us. Sky-diving instructors still have to

push students out of the airplane even after training, practice jumps and knowledge-transfer. They have to overcome

that bit of fear.

On the other hand, others may not perceive the reward of saving premium dollars because of the $5,000 deductible.

In a health insurance scenario, we can’t be like the sky-diving instructors and make the choice for any employees.

You’ll have to provide messages that deal with risk and reward and appeal to the greatest needs of the different

types of personalities you have in your organization.


Besides the mistake of communicating the message we personally want to hear, we

also communicate in a manner that works for us.

People are spread along a spectrum that has the purpose of being practical and immediate on one end, and the goal

of learning something new and being informative on the other end. You’ll see the former people when they say,

“Just tell me how to do this job. I don’t want to know why.” You meet the other kind when they want to understand

why Step 3 has to occur before Step 4. They will also sign up for workshops in case they need the information later.

People enjoy different learning structures also. Some want a specific framework when they learn: an agenda, outline,

how things fit together, a procedure, what the finished results should look like, etc. Others are comfortable with a

general framework: they’ll take the pieces and figure out their relevance and connectedness to other bits of

information. They may have creative categories when they decide what’s important and what isn’t.

Then there’s all the environmental choices around learning preferences:

Participative in an active group or reflective by being alone to study or receiving the information through

lectures

Kinesthetic learning by doing the activity, or just having some movement helps with the retention of

knowledge

Visual or Auditory

Tactile

Oral or written, or oral and written (read to me while I read it also, or let me say the words aloud while I’m

doing the activity)

Formal or informal settings

Bright or dim

Cool or warm

Background sound (like music or television) or quiet like a library

We know our preferences and so we educate others in the same manner.

So here’s the question…


What’s the probability of success in describing the additional health insurance

option, or any change, in a single company-wide meeting?

Success will not be very likely.

When we talk about change, you want to use a variety of methods to help people understand the facts, risks, rewards

and the emotions and perceptions around those risks and rewards. You’ll want a variety of methods and venues to

explain any messages about the change, like one-on-one, small groups, hands-on demonstrations, charts, newsletters,

formal presentations, informal discussions, etc.


I know a CEO who had a plant-wide meeting to announce a two-week furlough. The CEO announced it one-and-a-

half weeks before the furlough was to happen. This person also went on to say that the company had plenty of orders

in the next season, but they were in a slow period right now. Later, the CEO was surprised that there were rumors,

started by the employees, floating around town that the company was going out of business.

I asked the CEO how many meetings were held about the furlough. “Just the one” was the response. In any

communication between two people, we have 3 messages: 1) the one we meant to send; 2) the one we sent with any

body language, tone of voice, linguistic tones (like sarcasm) or the omission of any of those; and 3) the one they

received. Typically, people stop listening when bad news is given…for a while. They heard the news about the

furlough and then started thinking about the effect on their families, and their colleagues. By the time, they tuned

back to the CEO’s message, they most likely missed the part about having strong orders later in the year. I suggested

that the CEO needed to have more than one meeting and be walking around the plant to answer any questions and

hear any comments. The CEO could have picked up on any false rumors and started to squelch them before they got

into the community.

When it comes to communication, leadership is active.

In any employee survey, communication is usually cited as the number one problem. If you pay attention to your

audience and their needs, you can dispel this issue. It helps if you have something to communicate too. More on that

topic later.

Many leaders practice an Open Door policy. It doesn’t work as well as they hope. No one comes by unless it’s an

emergency. You’re busy and they’re busy. But you’re the leader so you need to be visible and accessible. Therefore,

Practice an Open Tour policy.

Get out of your office and see what work is happening. Find out how you can help, or remove the hindrances to their

success. Whether the work happens in one facility or multiple facilities, you need to be where they are, not make

them come to you. This allows for more opportunities for more frequent communication. You get a variety of issues

that come up. You find out what’s burning uppermost in their minds. It gives you teaching moments.

I once abolished a Perfect Attendance program, in which employees could earn a half-day vacation every quarter. It

was taking too much time from the supervisors to administer the program and argue with employees who really,

really thought they deserved the award of a half-day off of work. I replaced it with two personal holidays to be taken

at the employee’s own choosing. In my open tours, I had several discussions with employees who thought I had

robbed them of a benefit. They had a win-lose attitude. In every change or transaction, they thought, someone wins

and someone loses. After asking them questions, they realized that they actually won by getting two days off and not

having to earn it, and the company won by having supervisors spend more time on process improvements.

You might be sick of giving the message—“if I’ve told you once, I’ve told you a thousand times…”—but it’s when

you’ve hit the thousandth time that they start to understand it as a group.

Leadership is active and you can’t rest till they understand the message.


Communication is a start to getting more people up the engagement curve—

involved and trusting—but now you need buy-in and ownership. You want more

commitment.

There are four styles of reaching and communicating decisions:

Tell: You’ve made the decision and you’re telling them what to do or what’s going to happen. This works

well in emergencies when there isn’t time for discussion.

Sell: You’ve made the decision and you’re asking for feedback. You let them share their concerns and ask

questions while you overcome any objections they might have.

Consult: You ask for the information they have, and their opinions on what to do, but you are making the

decision. It hasn’t been made yet and you’re getting their input.

Join: The group will make the decision by consensus or majority vote. You, as the leader, are just one

member of the group with no more power over the decision than anyone else.

With Tell and Sell, the decision has been made. You’re communicating it in two different ways: no interaction on

their part (Tell) and some interaction on their part (Sell).

With Consult and Join, the decision has yet to be made. In one (Consult), you’re making the decision. With Join,

they’re making the decision.

It might be helpful when talking about decisions to be upfront which mode is happening. I was in a meeting with my

colleague and our boss. He was asking for input about a decision. When we raised objections that he couldn’t

dismiss, he became angry. He had already made the decision. What we thought was a Consult session was actually a

Sell session. If he had told us he’d already made the decision, my colleague and I would have participated

differently in the meeting.

The

ir In

volv

em

en

t

Your Decision Their Decision

TELL

SELL

CONSULT

JOIN


If you slide more and more decisions towards Consult and Join, what do you think

will happen to trust, empowerment and engagement?

I’ve found that if you treat employees like capable adults, and more importantly like owners who have invested their

sweat and skills to gain job security, they will be engaged. If we engage them, they will reciprocate. They will start

to ask questions and make practical, meaningful suggestions. They will be interested in how the business processes

work or don’t (like with material shortages). They will seek to understand how they can influence the results. They

will be accountable for the issues they uncover or discover. (I define accountability as seeing a problem and taking

responsibility for it until the issue is resolved.)

You’ll know when you have high levels of engagement when you ask for voluntary overtime and you get a good

response. You will also get regrets when they can’t work extra. I have found trusting them to put in extra work when

they can, and go home when they can’t, leads to higher levels of contribution now and later.

Trust, engagement and accountability are all two-way streets.

Too many times I’ve seen managers who don’t trust their people to spend more than $50 but trust their anonymous

brake mechanic wholeheartedly. Which person has your livelihood more in their hands—the press operator or bank

teller in your organization, or Joe/Ralph/Sally/whoever that worked on your brakes? Why would you trust the person

you don’t know more than you trust the person you do know?

If you commit to doing something, your integrity is on the line. Your own trustworthiness is on the line. Your

leadership is on the line. Your leadership exists only if you have the moral, credible, competent behavior of a good

leader.

Leadership is active and evident in what you do and how you trust, involve and

engage with your followers.


What do you see if people are playing around for fun?

It could be any sport you’ll see these types of behaviors. In basketball, you’ll see half-court shots, hook shots from

the 3-point circle, and passes through two defender’s pairs of legs who are only loosely guarding their counterparts.

In hockey or lacrosse, you’ll see odd angle shots and long shots. In tennis, it’ll be wild attempts at passing shots,

exceptionally fast serves and jumps at overhead lobs rather than running back to get it. In baseball or softball, batters

will swing at every pitch. Fielders will dive at balls rather than making sure they just knock them down, keeping the

balls from getting behind them. In golf, every drive will be powerful. The golfer won’t care if he’s in the deep rough

or in a hazard. Mulligans will abound. Putts will race past the cups because the slopes weren’t analyzed or the speed

of the green determined.

What happens when people start keeping score?

The passes become more certain. The shots towards the hoop are closer. Defense tightens up. Skill levels increase.

People try harder to be good and to win.

In business, we keep score. When we do, we’re less likely to take risks. In one company, we had a cross-training

program that involved pay-for-skill. The competency evaluations were like the ones given to people assigned in that

particular department. We had trouble getting people to learn new skills even though it meant more pay. When I

thought about it, we didn’t need experts as back-ups in any department. We needed people to back-fill the experts.

When we devised the new cross-training program to get people to move where they were needed to move product

through the plant, we reduced the risk of making a mistake. We asked them to do the simple tasks and let the experts

in the department do the hard tasks. With this change of reducing risk of failure, we got a lot more people interested

in cross-training. Our plant productivity rose 60% as measured by sales/employee.

When we keep score, the risk-taking is reduced but the “exemplary application of relevant skills” (to use military

language) will increase.


Are we winning or losing as a team?

Imagine playing poker at a specially rigged table. All you can see are the cards you are dealt, the chips in front of

you and your manager. You can’t see the other players, their cards or chips. You bet on the best hand you can make.

Your chips slide into a slot at the middle of the table. You don’t know how many of the others have folded. You’re

not sure if the others have a great hand and are out-bidding you. In fact, you’re not even sure how many people

you’re competing against.

After the hand is called, the manager may smile or frown. He’ll slide you a few chips one time and a whole stack

another time. These are your only clues to whether you’re doing okay. When you ask, she answers, “I’ll tell you at

your performance review in 9 months.” Now you’re done for the day and you leave.

The next day you come back to bet on whatever pairs, 3-of-a-kind, high card, full house kind of hand you’re dealt.

Same thing happens as the day before. Your only clues to whether you’re winning are the infrequent non-neutral

facial expressions from your manager, and perhaps how generous she seems with the chips.

Let’s move this example to a team sport with a little more feedback. You’re on a bowling team. However, you can’t

see the pins. The ball rolls into a deep, dark closet. You hear pins drop. Your manager says, “Roll the next one a

little to the left.” You aim the ball a little to the left. You wonder how much left you should adjust from the first ball.

You roll the second ball. You hear one pin drop. Was that all you needed or did you leave a few others standing?

“Hey, boss, how was that?” you shout. “I’ll let you know at the company-wide quarterly meeting” is the response.

Your team mates have the same experience. Other teams are bowling but you have no idea how your team’s score

compares with theirs. “Just wait till the quarterly meeting,” the manager advises.

In either scenario, it would be the rare individuals who could keep themselves motivated to do good work. Pretty

soon, the poker player just bets willy-nilly—maybe based on the strength of the hand, maybe on how he or she feels

that day, maybe with a little game of trying to increase the number of smiles. Likewise, the bowlers will listen to the

instructions—“a little left” or “same place” or “more right”—but there won’t be any incentive to fine-tune the aim

for more precision and achieve the goal (whatever the goal might be).

How motivated and engaged are your players if they don’t know the score?


Open Book Management can keep them interested.

Open book management is a method that keeps everyone informed about the score of the business. Each week or

month, the whole team should be able to answer the question: Are we winning or losing?

As leaders, it’s important that: 1) you understand the numbers and what winning looks like; 2) you teach them. As a

leader, you need to educate them on how businesses win. You also need to teach them how they can individually

and as a team contribute to that success. You need to show them how success means security for the near future

while the whole organization is on the lookout for long-term security and success.

The players in the scenarios above are not motivated and engaged. If you engage with your employees about the

success of the company and their role in it, they will be engaged. Everyone wants to go home at the end of the work

day able to tell someone (their significant other, their friend or neighbor) how they contributed that day. “Today was

a good day because I helped create sales, reduce costs, find ways to use, made a loyal customer by solving his

problem…etc.”

Open Book Management is not exposing every general ledger amount. It is, however, showing the main categories

of revenues, costs, expenses, inventory, etc. from the income statement and balance sheet. It involves teaching them

how those numbers are derived and how they influence them.

The income statement and balance sheet are the scorecards for businesses. Your team should be able to see them and

understand them to know if they’re winning or not.

One employee responded on a survey, “Our communication wasn’t broken before. We just didn’t have anything

substantial to talk about. Now we do.”

It won’t be easy. Even after a few years of educating the workforce about the income statement, I still heard errors

like “If we made $2 million last month, how come we’re not getting paid more.” This employee had forgotten that

there’s a difference between sales (the $2 million he was talking about) and the profits (what we made). We hadn’t

made $2 million when he was complaining. We had sold two million dollars of products and services, but our profits

were low.

It’ll be work on your part. You’ll be saying the same things over and over (“If I’ve

told you once, I’ve told you a thousand times…”) till they understand. Leadership

is active, remember.


Alright, so we’ve improved employee engagement through better communication and talking about real issues (i.e.

the scorecard of the company) and how each person contributes towards their own and their organization’s success.

But we still haven’t created any competitive advantage around Culture, Collaboration and Systems Thinking.

We want people to say, “I can’t wait for Monday morning and the

opportunity to go to work!”

In most organizations, people dread going to work. Recent surveys have shown that 65-85% of your employees will

go to another company if they have the chance. Unfortunately for them, 65-85% of the employees in the new

company want to leave too. People will just swap misery. Life is too short and we spend most of our waking hours

at work, so it should be an activity that we feel good about.

In Collins’ and Porras’ book Built to Last, a comment is made that Nordstrom’s is a great place to work…if you

agree with the values they have. If you don’t, then it’s a horrible place to work.

Likewise, your company’s values will make it a good place to work, or not, depending on who you attract.

What values do you hold?

What kind of people do you want to see working in your organization?

When you can answer those questions, you have a good start on reinforcing the corporate culture you want to see.

The corporate culture will be evident by what is valued and what behaviors are rewarded and punished in a variety

of ways.


All work is honorable.

Gary Smalley gives an example of the honor due people as he holds a broken-down violin. The neck has snapped,

and strings are dangling loosely. What would you give for such an instrument? Not much probably. You can’t make

music with it in its present condition. It’s not worth displaying or showing to other people…until, he points out, you

peak inside the S cut in the body. Inside you’ll see the name “Stradivarius”. At this point, most people gasp in awe.

This useless object is worth a lot of money. He suggests that all people are worthy of honor because they are

wonderfully made, talented, skilled, intelligent and capable of being trustworthy.

One day, I was walking through the lunchroom. My daughters had the blessing (or curse) of working for my

company a few summers. This particular day, she was having lunch with some of the women. They stopped me by

saying, “Hey, Scott, we’re encouraging your daughter to stay in college so she doesn’t end up like us working here.”

My shoulders sagged as I realized the meaning behind their words. I was saddened that they thought this work was

not worthy of respect. I said, “What you guys do is very worthwhile. Your work is honorable. If she chooses to work

here, and it makes her happy to be here, I would be proud of her.”

Integrity is living out your values.

Leadership requires a high level of integrity. Integrity is shown when you act on your beliefs.

Too many companies have espoused that “People are our number one asset.” (An asset is on the balance sheet like

cash, inventory, accounts receivable, property and equipment.) Yet when business turns south, they treat people like

an expense and start cutting the workforce. How many companies would start reducing their cash levels or selling

property before they have a “reduction in force”? These same companies might say that “people are our competitive

advantage” and yet suffer layoffs on their employees. This is not an example of integrity. It’s hypocrisy. Hypocrisy

has no place in leadership.

Real values of an organization are known because they’re visible. The leadership reinforces them by who gets

rewarded, promoted, and how decisions are made. If you want to know what values the organization has, ask about

who’s given the choice assignments and who’s been isolated from any meaningful contribution. Ask about why

that’s true. Does the company value collaboration and so those who refuse to work on teams are left on the bench?

Does the company value commitment and rewards those who put in extra time and sacrifice personal time? Does the

company value a balanced life and doesn’t subtly punish those who choose to spend time with family and friends

when there’s no particular crisis at work?

As a leader, are you rewarding honesty even when it’s bad news or puts you in a bad light? Do you admit mistakes

and allow others to do the same? Or do you cover up your errors, and mistakes in judgment, and shame others who

are caught making mistakes?

Leadership is active and regards accountability as a two-way street.


One of the clearest ways to check a company’s culture is to investigate its balance between fair and equal.

What’s the difference between fair and equal?

When people don’t want to make the hard decisions, they want things to be decided equally. In most situations,

equal is not fair.

A quick illustration of the difference involves a pizza. If you were to divide a pizza between a ballerina and a

football player, you might be tempted to split it down the middle giving both the same number of slices. However,

neither person would be satisfied. The ballerina would say it’s too much. The football player would say it’s too little.

Fairness could also depend on what activity created the reward of a pizza, and how much each of them contributed

to the results.

Tougher policies and decisions, particularly about bonuses and rewards, are made if you want to be fair.

What are the consequences for absences in your company? Are the policies striving for equality or fairness? Should

the person who is chronically absent from work because of a partying lifestyle (like the olden days of automobile

manufacturing when absences were high on Mondays and Fridays) be treated the same as the person who is absent

to care for a parent suffering with dementia? Should you have equal treatment for the person who wants to be at

work and the person who doesn’t care whether the company succeeds?

When bonuses or commissions are given out, does the person who made one unprofitable sales deal get rewarded

the same as the person who made a thousand small decisions to daily improve efficiency and reduce costs? If the

bonuses are equal, is that fair? If the bonuses reward the wrong behavior, is that fair?

Do consequences for failing to meet the goals depend on whether you’re in management or not? Or what department

or division your in?

Which is more motivating: fair or equal?

Leadership is active and constantly reviewing policies and decisions for

consistency with values and fairness. Leadership is concerned with the culture

and rewards the right behaviors that manifest the right values.


The best time to create a rule that affects everyone is when everyone is likely to be influenced by it. If a minority

will be influenced then don’t create a rule that applies to everyone. If you have a small problem with internet access

by a few individuals, don’t lock down the system such that no one can access information that’s available out there.

If a few individuals insist on using their vacation by taking every Friday off, don’t make a rule prohibiting this

practice. Someone might need to take those days off for a while for medical or counseling reasons.

If you were to write a rule that could account for every possible scenario, it would cover up all four walls of a

moderate size room.

Creating rules that affect ones not even thinking about being part of the problem does three things:

1. It gets them thinking about how to be a problem.

2. It shows a lack of trust in them and therefore, it’s demoralizing.

3. It creates an effort to enforce the rule that is a waste of resources better spent on growing and improving the

company.

I have a business axiom: “Poor systems generate more systems.” If your culture, or your business process, is broken,

the temptation is strong to create new policies, rules, and procedures to compensate for the poor results generated by

the poor systems. This is evident when you see rule on top of rule on top of rule until you discover that the new rule

contradicts an earlier rule. You can’t keep track of them, and the administrators have to constantly pull out the

handbook or policy book to figure out how to advise employees about a given situation. Keeping it simple is a

must. Believing, trusting and engaging with the employees will keep the number of rules to a minimum. Most

people meet the level of expectations, so if you keep expectations high, you will have few problems.

Another manifestation of the axiom is the practice of inspecting someone else’s work. In some manufacturing

companies, it’s not hard to find that some parts are inspected three to six times (300-600% inspection) as they go

through the processes. Similarly, in one large corporation we found that two-thirds of the accounting department’s

activities were to find and fix problems. That means for every one person doing work, two other people were there

to check the work and fix the problems.

I once had an argument with an auditor who didn’t think welders could adequately check their own work. At the

end, I asked him, “Who checks your work? Are you capable of checking your own work? Or are you somehow a

whole lot better than them?” The problem is never if someone is capable. The problem is whether management has

provided the right education, tools, materials, methods and environment to do the work right the first time.

One time, a VP of Materials wanted to instill a new practice for storeroom transfers. The plant was having

discrepancies between the quantities the storeroom sent and the quantities the production area said they received. He

wanted to create a virtual warehouse into which the storeroom would transfer the materials, and out of which the

production area would receive the materials. It was putting in place two transactions where one would have worked.

He failed to realize that the problem was not with the electronic transactions, but with the physical transaction.

Solving the problem electronically was futile. I said, “Bob, if we can’t process one transaction correctly, why do you

think we can process two?”

Part of integrity and creating a culture is focusing on the right things too. “Major on the majors, minor on the

minors” is a practice I’ve tried to adopt. I had a meeting at a corporate headquarters in Omaha one time. They were

talking about spending a million dollars to install a bar code system in the plants to track labor. I suggested that the

bar code system be used for tracking materials, since they comprised 60% of the total cost, and labor was less than

the portion of freight on the total costs (less than 5%). I said, “If I’ve got a guy working for $13 an hour on a

production line budgeted at $10/hr, it’s hardly going to change the costs by a penny. Why spend all this money to


keep track of so minor a cost?” Unfortunately, the decision to install the labor system had already been made.

Doubly unfortunate was the fact that it didn’t work.

Likewise, when things get tight, companies cut back on travel and entertainment, employee celebrations and other

insignificant costs. Many people fail to realize that they could save more by reducing their material, supply or

outside service costs by 1-2% than by reducing these minor expense categories by 50%. However, in the interest of

being equal (note the emphasis), management is being unfair and will appear incompetent and lacking integrity with

regards to saying their job is to pay attention to strategy. Strategy is big picture; strategy is understanding the major

issues.

Leadership, at minimum, needs to be good at systems thinking by understanding the interrelationships between all

of the business elements. Leadership is understanding that a change in one area can have an effect somewhere else,

and being deliberate about what that effect is in a positive manner for the whole organization. Adding a rule,

changing a rule could affect aspects of the business in unintentional ways. Good leadership evaluates the potential

for this, and evaluates whether this is a major issue that needs to be addressed.

Leadership is active, pursuing, understanding and affecting the major issues,

trying to keep the workplace from being bogged down with rules and setting

high expectations for everyone, including the leadership.


How do you really motivate people?

Some experts will say you can’t. Motivation is intrinsic—coming from within a person—and not extrinsic through

punishment or rewards. Perhaps that’s why most heart patients never change their lifestyles that got them into

trouble. At best, leadership can unleash the potential intrinsic motivation.

In a video series, Against All Odds: Inside Statistics, they highlight an experiment in creativity. One class of school

children are told that they will work on an art project which will be judged. The top 3 artists will be awarded a prize.

In another classroom, they’re told the same thing except that everyone who turns in an artwork will be eligible for

the drawing of three prizes. The first class has competition to spur them on; the other does not.

Which class do you think scored higher overall?

Which method do you most often see in business?

Most people answer that the scenario with only the top 3 students being awarded would have the highest creativity.

In fact, a lot of businesses practice this internal competition and rewarding the winners with allocation of resources,

easily approved budgets, favor and face-time with those in power. We’ll pit division against division, production

team against production team.

We’ll have competition through subtle means like doing well enough not to be on the bottom 10% of the appraisal

lists, or getting blamed for organizational failure. Those with the least scars are winning, right? In these companies,

the point is not to win; the point is to outrun your opponent as in the proverbial story of two hikers facing a bear.

One takes out of pair of running shoes and starts to put them on. The other admonishes him that it’s a waste of time.

They won’t outrun the bear. The first replies that he doesn’t have to outrun the bear; he only has to outrun “you.”

In the school experiment, the class that awarded 3 artists drawn at random from those who submitted pieces had the

highest creativity. Here’re a few reasons why (you might be able to come up with more):

In the class with only the top 3 being awarded, many wouldn’t try very hard. They already know who

would be the winners. Those class mates have won before. It’s the same with performance appraisals and

other rating schemes in organizations: most people can tell you which favorites will get rated highest.

Therefore, they don’t need to try hard; they just need to stay off the “to be fired” list.

In the class with only the top 3 being awarded, secrecy and going-it-alone would be the main mode of

operation. In the other class, cooperation and collaboration would exist. Johnny could ask Sally to draw a

horse on his sheet of paper, and she wouldn’t lose any chance at winning at all. If Sally was in danger of

not finishing, Johnny could ask Bobby. They could share ideas to improve each other’s work. There would

be no need to cover up your art or have your back to everyone else. In business, you could help another

department optimize their process even if cost you a little extra effort, in the interest of making an overall

improvement to the organization’s success. With internal competition, that doesn’t happen. Understanding

the interconnectedness of business elements, you need cooperation and collaboration.


Better methods of extrinsic motivation are related to Choice, Content and

Collaboration.

In his extraordinary book, Punished by Rewards: The Trouble with Gold Stars, Incentive Plans, A’s, Praise and

Other Bribes, Alfred Kohn suggests that motivation be provided along three lines:

Choice: rewarding a person with some autonomy, responsibility with authority and an escape from micro-

managing (which is demoralizing and dehumanizing) creates the expectation that success rests on their

efforts. They will get the credit for the success. They have reduced stress; only positions with no control

but a lot of perceived responsibility for the outcome have a lot of stress (e.g. waiting on tables). Providing

teams with the authority to be self-directing with regards to their schedule gives them a lot of freedom.

Making them responsible for coverage and meeting customer needs gives them the corresponding

responsibility.

Content: Along with choice, working with people to adapt the job to meet their strengths (a’ la Strengths

Finder 2.0), talents and passions can be deeply motivating. They will want to be at work because they’ll be

“in the zone” most of the day rather than dreading the tasks. When interviewing employee candidates, I

asked a lot of questions to try to understand this. I would explain, “We have a missing piece in our puzzle

of a certain shape. However, no person is going to fill that space perfectly. Thus, I’d like to understand you

as much as I can and try to figure out what lobes of the space you won’t fill but what extra bits you bring

that we can tap into.”

Collaboration: Teamwork can be very efficient and effective. When done well, it invigorates people to

bring their complementary talents and knowledge to the situation. Successful teams are idolized. People

want to be on winning teams. Nobody wants to sit on the bench. If a reward is being on a team, then people

will do what they can to avoid having to go alone. Also, teams can more quickly see bigger contributions.

(The dangers of poorly managed teams are obvious.) Individuals on these teams get more well-rounded

organizationally as they work with people outside their home departments. They are positioned for lateral

transfers. They understand the business elements more thoroughly and will be stronger individual

contributors in their assigned, routine tasks. They will be recognized as go-to people because they are in a

network of other achievers. Working on a team reduces the potential for failure because there are several

people who might spot the pitfalls before they become catastrophic to the project or the organization.

How well do these three motivators work for different personality types: the D’s, the I’s, the S’s and the C’s?

How well do these three motivators improve employee involvement and commitment (engagement)?


Collaboration is also important to avoid suboptimization.

Without collaboration, you will have different groups and departments being very good at what they do.

Unfortunately, it will cause problems.

Accounting will do a great job of reducing Accounts Receivable but they will alienate customers. Accounts Payable

will stretch out their payments to suppliers, who might get frustrated and raise prices, slow delivery or implement

any of a dozen other options to have their value match your timing of payments.

Sales will get a lot of orders but they may not be profitable. Or they’ll overpromise and that will frustrate the

operations groups and customers.

Operations will be very efficient and you can have “any color Model T you want as long as it’s black”—to apply a

quote from Henry Ford.

Collaboration is a first step towards creating optimal processes and solutions that benefit the whole organization. It’s

a great lead-in to systems thinking.


Before discussing systems thinking, let’s stop and look at some case studies.

In twenty years, the S&P 500 stock index has increased 400%. Warren Buffet’s company, Berkshire Hathaway, has

increased in value by 1,600%--or four times the rate of the business in general. That sounds amazing! BH doesn’t do

anything but invest in other businesses.

Springfield Remanufacturing Company’s value has increased 27,800% in the same time period. What they do

differently from most other companies is outlined in the book The Great Game of Business by Jack Stack.

They have high levels of engagement in their workforce. They practice open book management and have been a

driver of many of the best practices around this management technique. They also have had some acquisitions. Their

stock, initially valued at 10 cents a share, was recently valued at $1,990 per share. They are employee-owned and

I’m sure there are many happy employees at SRC.

As you look at the next chart, which shows the stock value experience of many smaller companies related to S&P

500 and Berkshire Hathaway, compare their management practices.


Company A, whose value growth nearly matches the S&P 500, has grown through acquisitions, but has low levels

of employee engagement and no open book management.

Company M is in an industry that overall has low or no growth because of the tight regulations and dependence on

state and federal government payments. Yet their value growth has come because of high levels of employee

engagement, and some open book management.

Company W has high levels of engagement, and practices open book management. They are conservative in terms

of risks and haven’t done anything dramatically different in their 40 years of existence. They haven’t had any

acquisitions.

Company B mimics Berkshire Hathaway’s growth through high levels of engagement and open book management.

Company D hasn’t had any acquisitions, but like the other higher growth companies has high levels of employee

engagement, practices open book management and has a very aggressive marketing campaign.

Like other business bestsellers that purport the practices of their stellar examples, I can fall into the same trap. I can

find role models that prove my point. I can find counter-examples that also prove my point. However, I haven’t

found any role models in employee engagement and open book management that haven’t succeeded. I don’t know if

they exist and I hope they don’t.

I know of companies that have suffered through recessions even though they have high levels of engagement and

practice open book management. Those companies tended to weather the economic storms with less detrimental

effect and rebounded very quickly when the economy started to grow again. Over the long-term, their growth was

still exceptional.


Systems Thinking is understanding that all elements of the business are related and connected to each other.

Early in my career as a QA Manager, I gave a talk at a quality control association conference about the

interconnectedness of business processes. I exhorted my peers to pay attention to other events, activities and

decisions in the company as they would impact the quality of the product or service. When I mapped out the

relationships, it looked like a circuit board or the Los Angeles highway map.

I had also encouraged supplier collaboration on this basis: company XYZ will be affected by company ABC’s poor

performance. Company ABC’s late delivery could mean a temporary shutdown of our company, which would mean

that we won’t need XYZ’s services for a while. If XYZ has an idea to improve the delivery performance of

ABC, they will be helping themselves maintain steady business with our company.

Here’s another example: suppose you make customer areas the priority for the custodial department. Should they not

be able to keep up and the employee areas suffer, the area might appear a little shabby. You are touring a candidate

for employment and get into the employee area. After looking at the area, the candidate thinks, “Hmmm, they don’t

seem to care about the employees.” Will the priority of taking care of the customer areas affect other company

results? It will if the “best and brightest” are turned off by the lack of care in the employee areas. Your company

results could suffer because you can’t hire the people you want.

A small, logical decision—like setting priorities for the custodial staff—can affect other areas. It’s more obvious

when you think about connections between cost and design, material and reliability (warranty expenses), quality and

process investments. Systems Thinking identifies other less obvious connections. More people who understand that

pushing the balloon on one side will cause a bulge on the other side will routinely verify that a change in their own

department won’t adversely affect other departments, and will indeed start to ask how some changes in their work

might make it better for other departments.


HERE’S HOW WE IGNORE SYSTEMS THINKING IN A VERY TRADITIONAL CORPORATE

PRACTICE…

In most companies, there are a number of corporate goals: maybe 3, 5 or more if they’re adherents to the Balanced

Scorecard methodology. However, there’s an inherent problem with setting multiple goals.

Let’s map it out using blocks for goals and projects. Suppose a company has 3 goals, which isn’t that many. They’re

the yellow blocks in the diagram below. The goals are then passed along to the next level—business unit, division,

department, etc. They create 3 goals or projects that support each of the three company goals. They’re the blue

blocks. At the department level (for example), they now have 9 goals or projects. Chances are they cannot

accomplish those goals on their own. They’ll need some help from their peers. Now, we have a department manager

who has 9 goals of his own and needs to help on 4, 5 or 9 other projects or goals in other departments.

He passes those 9 goals onto the next level who will create 3 goals or projects for each of those 9 departmental

goals. Now we have the next organizational layer balancing 27 goals or projects (shown by the peach blocks)…Oh,

and they need to help their peers also. So maybe they have 40 goals or projects they have to work on.

How many weeks does that person work? If they’re new, they work 50 weeks out of the year (because they have 2

weeks of vacation). They have their regular work and they need to work on finding ways to make improvements.

They have one week to do this on any of the goals or projects. It would be very normal for them to ignore most of

those goals or give them a few hours of effort right before the goal or performance review. I can see someone

responding to a request for help, “Sure, I can help you with that goal. How about between 9 and noon on October

23rd

?”

Resources will be scattered and not very focused. Very little will really change.

What is the likelihood of success?

How does this practice seem to mirror the Harris Poll results where few people think they can make a

difference and they’re not even sure what they’re supposed to do?


A better practice would be to create a single, customer-centric goal that everyone influences.

It can be the “one thing” that Jack Palance’s character in the movie City Slickers encourages each of us to find. It

could be the one thing that’s critical for our success. It could be the one thing that keeps us awake at night.

As a board member, I encouraged management to reduce their Balanced Scorecard report. Here’s part of what I said,

“All of these things are good, but not all are critical for the success of this company. If we don’t maintain a high

level of community visibility, it may not affect us. However, if we don’t pay attention to staff development, the

company will suffer. I don’t need to see quarterly reports on community involvement. I need to see quarterly reports

on the critical aspects of our company.” Balanced Scorecard is good for maintaining awareness of different areas of

the organization. It maintains some foundation in different areas based on the adage “what gets measured gets

done.” However, it’s detrimental to affecting success because it scatters our efforts and diverts our attention from the

“one thing” or the critical things.

Decades ago, there was a push to adopt one Japanese business practice called hoshin kanri—or quality function

deployment. It was the practice of picking one goal and cascading it downward throughout the organization. As you

know, not many companies adopted this.

When you create the right goal, you must educate everyone how they influence the results. This will take a lot of

work, a lot of conversation, and a lot of reinforcement through policies, processes and promotions (rewards and

punishments).

Leadership is active!

If you do set one goal, perhaps even the Big Hairy Audacious Goal (BHAG) proposed through Built to Last by Jim

Collins and Jerry Porras, you can create alignment and you force collaboration.


One of the key financial metrics that I like is Economic Value Added (EVA).

It’s a metric to which everyone can contribute. It creates important alignment and collaboration among all levels of

the organization.

Developed by Stern Stewart, it has a strong correlation to market value (or enterprise value, share price, etc.). EVA

is a measure of the economic value created above a capital threshold. EVA is the difference between the net

operating profit after taxes (NOPAT) and the expected return on capital. The latter is calculated by taking the

weighted average cost of capital (usually around 20%), which is the expected return on an investment in the

company, times the equity or the difference between selected asset and liability categories.

Because EVA is a combination of the income statement (P&L) and the balance sheet, everyone can easily figure out

how they contribute to improvement on this metric. If they’re involved with sales, they’re part of the top line. If they

can keep discounts from happening, they’ve improved EVA. If they improve quality so warranty expenses are

reduced, EVA is improved. If they improve material usage (i.e. yield improvements) or costs (i.e. purchase prices),

they’re reducing the Cost of Goods Sold and improving EVA. If they cut down on supplies, value is created.

Likewise, if the equipment doesn’t need to be replaced and is well maintained, assets depreciate but capital

expenditures don’t need to be made; EVA is improved. If collections from customers occur more quickly, Accounts

Receivable are reduced and the capital base decreases; EVA is improved. If payments to suppliers can be delayed

slightly, liabilities increase and capital is reduced and EVA is improved. Better procurement patterns leading to

inventory reduction also increase EVA.

Everyone from the top executives to the custodian and the A/R clerk are contributing.

The only danger is ignoring long-term investments that may not pay off in the next quarter. A company could do

some hiring or staff development and an increase in sales or a reduction in costs may not occur immediately. Some

might be tempted to preclude these kinds of investments. Same thinking could affect investing in the right amounts

of inventory, or new equipment.

There is more information about EVA on the internet. For a brief description and how it could be applied, see the

eBrochure at www.4wardassociates.com .

http://www.4wardassociates.com/


Systems Thinking recognizes that the organization is a dynamic thing rather than static.

Recognizing that business elements are connected and related to each other, it’s hard to imagine treating the

organization like a static, stable structure.

Business conditions change every six months, externally and internally. Procedures and policies have been updated.

Customer mix changes slightly and at minimum customer expectations are different than before; they often want

more than they’ve been getting. Competitors join and leave the market segments. New regulations may be enacted.

Cash levels are better or worse than they were previously. You have new employees and some old ones have left.;

new skills, talents and passions have been added while others have been lost. Your organization is not the same.

However, we rarely consider what relationships need to be reviewed and addressed. The organizational chart is

virtually the same. Policies haven’t changed since they were drafted in the 1980’s.

Often if you look underneath the motivations of our decisions, you’ll find that it’s the organization that needs to be

served. Those creating the work, and serving on the front lines, are being crushed by the rules: budgets, performance

review methods, physical inventory counts, paperwork to get approval to buy a stapler, staff meetings and project

status meetings, etc. Gordon MacKenzie in Orbiting the Giant Hairball describes Hallmark Greeting Cards as

becoming “stratified, calcified, petrified” in opposition to a growing dynamic organism, like a plum tree.

The organization that worships itself is top-down directed, despite all the talk about an inverted pyramid on the

organizational chart. The kind of language used is:

We need more production.

Management needs to improve motivation to improve production.

Workers are feeling crushed under the onerous organizational burdens.

We’re organized by departments, divisions, and think of internal work as administrative.

Meanwhile, a dynamic organization that is changing and growing adapts to new opportunities and issues. Instead of

serving the organization, the organization serves the people doing the work:

Corporate resources flow up to the creative, working ends of the organization.

Management figures out how to help others, or hinder them less.

Workers are getting the “sunshine and air” that they need to do the work the marketplace is expecting.

Work is organized by groups, market or business processes and is more holistic (i.e. cross-functional) and

collaborative.

Innovation is waiting for management approval; it just requires a supportive environment.


If you’re practicing good communication techniques, and the Open Tour, you’ll learn a lot about what the rest of the

organization needs and how it needs to adapt to changing conditions. You can help it stay dynamic, rather than static

(“stratified, calcified, petrified”).

You also need to question whether your company practices are still working and moving your organization towards

winning.

For example, what are the typical behaviors around budgets? They’re treated as a recipe and firm plan for the

coming year. What happens when the budget is completely spent in the first nine months? 1) Efforts stop, which

will affect results into the new year until more money is released and you get through the lag between effort and

results; 2) budget is overspent and robbed from other programs, which might require a lot of reports for justification

and managerial corrective action. Why not treat budgets like a road map rather than a recipe? When business

conditions change, managers can adjust the route by which they arrive at the destination. The journey (goal) still

gets completed. It will take some collaboration.

What if the budget isn’t spent by the end of the year? Typically, there’s a buying binge at the end, not for necessary

things but for maybe-useful things. It doesn’t matter if the budget is for education, travel, equipment, supplies or

floor/closet space. If there’s a threat of a budget getting reduced in the following year, the money will be wasted. If

not, the budget most likely will be reduced and that could jeopardize success for the following year if business

conditions then require more money (or the original level of funding).

That’s one example of traditional practice that may cause petrification.

Another is insistence on individual performance appraisals. Their processes are usually fraught with traps to

demoralize the recipient or be inaccurate or be a total waste of time. Likewise, they may not fit with a highly

collaborative organization. Why would you encourage collaboration with its synergistic flow of ideas and efforts

and then insist on encouraging individualistic, heroic efforts so they can get a good performance appraisal?

Leadership is active and requires your investigation into whether the

productive and creative parts of the organization are being supported or

stymied.


If you want the organization to improve, you have to do several things:

You have to model the change and you have to change your own behaviors and decisions. If you don’t,

others will still react and respond to you in the same manner. Their behaviors and decisions won’t change.

One CEO bemoaned the fact that his staff was not empowered. He hadn’t been declining any meeting

requests or delegating the decision-making to them. They still acted as if they had the same authority and

responsibility because the CEO hadn’t relinquished any responsibility or authority. As one person put it,

people resist you changing because the old, surefire ways to manipulate you are displaced. You have to be

deliberate about what you want to see and enforce it every chance you get.

Change some policies and organizational structures that better fit the new dynamics. As Jesus of

Nazareth once said, “You can’t put new wine in old wineskins.” Change will either kill the organization or

it will be killed. The same-old structures will push back on any new efforts. People will resist change

because change communicates a new risk or that something was wrong with the old way. Therefore, you

have to change the ability to go back to the old ways. Cortez scuttled a few ships and sent others back to

Spain to prevent his troops from thinking retreat was an option. We changed the pay structure in one

company to encourage new cross-training behaviors.

As Einstein said, “Insanity is doing the same things over and over and expecting different results.” Business people

often fall into the same trap. The only change we make is to install a new Lean or Six Sigma program, yet the same

organizational structures regarding appraisals and promotions remain the same. We don’t change them to reinforce

the new behaviors and way of thinking. We are doing the same things over and over, yet expecting different results.

Hmmm, are we insane or what?

Leadership is active, modeling the change we want to see and changing the company’s systems to encourage

the new efforts we want to see.


Now one of the most active aspects of leadership: Clone yourself.

You need to teach others what you know about corporate culture, collaboration and systems thinking. If you’re the

only one promulgating the values and behaviors, you will be lonely and unsuccessful. If effective communication

styles rely on you, then most of the messages given by your staff will misfire. If you have to force collaboration and

systems thinking, then all of the decision-making will rest on you. Empowerment and engagement will not happen.

You will be the funnel into which all of the company activities try to fit. You’ll be the constraint and a lot of waste

will happen.

Instead you’ll be creating a critical mass of good leaders. You’re level of engagement will grow from the lackluster

20% (two people on the football team) who know what they’re doing and are excited about it to an overwhelming

75-80%. People will be taking the right steps toward improving the company’s results. You may not even know

everything that is happening. (This is only bad if you’re heavily invested in maintaining control at your position or

you’re focused on horseshoe nails instead of the battle. However, things won’t change and you’ll perpetuate the poor

results.)

The best way to learn the new leadership efforts is to teach it. Leadership is active.

Most people get PhD’s so that they can teach. You want to get a PhD in leadership so you can teach others and get

everyone aligned and working creatively towards growth.

You will only have a competitive advantage through the unique culture you design, the collaboration you encourage

and the systems thinking that influences the decisions everyone makes. Your competitors can copy your pricing,

your technology, your delivery and service and your quality. They hire the same kinds of talented, intelligent people

you do. But they can’t duplicate your leadership and how well you get everyone working together.

True competitive advantage comes through culture, collaboration and systems

thinking. This is the focus of strong, strategic leadership.

There’s a lot of clutter in our work life, and a lot of clutter can come from outside our work too

Our job as leaders is to help our staffs, or hinder them less.

• Help them find more focus, one or two goals—so they know where the end zone is

• Help them meet their differing needs: security, correctness, challenge, recognition—so they know why

they’re doing this

• Give them the tools to do better work: education, equipment, information, materials, methods, management

structures, etc.—so they know what to do when they get in the game

• Give them choice, content and collaboration—so they’ll be enthusiastic about the game

• Work on the real competitive advantage: culture, collaboration, systems thinking—so they believe they can

win, and keep them from rooting for the other team

• Clone yourself—you need as many leaders as you can; otherwise you’re a funnel that overflows and creates

waste

PhD in Leadership: What They Don't Teach You in Business Schools

Documents

Transcript of PhD in Leadership: What They Don't Teach You in Business Schools