The Transformational Abilities Of Virgin's Richard Branso And ...

Interviews with two of the world’s most respected executives show how they have combined charismatic leadership with architectural skill to build high-energy corporations.

Charisma in Action:

The Transformational Abilities Of Virgin’s Richard Branso And ABB’s Percy Barnevik

MANFRED F. R. KETS DE VRIES

C hange has become a mantra for corporate success. The word leaps out of the pages

of the business press: We have to do it and do it fast to get the rewards we want.

Balanced against this urgency is a weighty body of literature affirming that as individuals people are profoundly resistant to change. Psychologically and socially, we are more comfortable with the status quo. Change is anxiety-provoking. We avoid it, and avoidance behavior can become deeply ingrained. What’s more, “repetition compul- sion”-repeating past behavior despite the suffering attached to it-is a well-observed human tendency. We are often more comfortable with the dysfunctional devils we know than with the more sanguine spirits we don’t, and we deploy complicated patterns of resistance to avoid rocking the emotional and psychological boat.

Given all this, how does the process of change ever get under way? How is our resistance to change weakened? After all, people can and do change, in both major and rela- tively insignificant ways.

As a collection of individuals, people in

an organization have to be mentally prepared for the fact that change is inevitable. This is self-evident, but easier said than done. Man- aging employee resistance-and there will be a lot of resistance-is the first challenge for those leading the change process. If they fail at this, the whole exercise will fail.

Awareness of the need for change is at its sharpest when the organization is under stress from both internal and external pressures. Outside pressures may come from competitors, declining profits, decreasing market share, scarcity of resources, deregula- tion, technological development, and problems with suppliers and customers. If these are coupled with internal pressures-ineffective leadership, poor morale, high turnover, labor problems, highly politicized behavior- the growing malaise will reach an unen- durable point. Daily frustrations increase; dissatisfaction spreads from person to person, gradually awakening a universal recognition that something needs to be done.

It is at this point, however, that the dan- ger of stalling in the change process is most acute; employees’ defensive routines and

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resistance strengthen in proportion to the threats they face. What the organization needs now is the intervention of an effective change agent-and this should ideally be the CEO, somebody with established power and authority who is in a position to drive the process through the organization.

THE ORGANIZATIONAL ARCHITECT

What sort of person does the leader need to be to act as an effective agent of change? The answer appears to be someone who can com- bine the characteristics of a charismatic with an architectural role-a visionary who can build a solid construction on his or her vision.

Charismatic leaders are by definition agents of change. A wealth of literature exists to describe the special characteristics that earn them the label of charismatic and equip them with this ability. To summarize: They display dissatisfaction with the status quo; they are restless and energetic; they are action ori- ented; their discontent pushes them into searching for new opportunities; they are entrepreneurial, impatient, and gifted at artic- ulating a strategic vision, making the big pic- ture seem within reach of their followers. They are also very gifted at building alliances and making people feel special.

Leaders like this stand out like beacons in the business world (as they do in the worlds of politics, art, and sport) as much for their rarity as for their brilliance. Because of this, they attract a great deal of attention. Of course, we cannot all become charismatic leaders. If it is not in our disposition, no amount of emulation will transform us. But we can draw on our observation of their skills and actions and learn something about how to identify challenges, formulate a strategic vision, align others behind it, and otherwise improve our leadership abilities. It is in the interests of organizational change-which requires exceptional performance and commitment from everybody involved in the process-to do so.

In order to move the change process for- ward, such leaders know that every individual

8 ORGANIZATIONAL DYNAA4ICS

should be empowered to consider him- or her- self as a crucial player. If employees are inspired, empowered, and free to act, they will stretch themselves to make exceptional efforts, demonstrate a high degree of commitment, and be willing to take risks. Performing in this way will simultaneously drive the change process and reinforce the new basis of the organization. The blueprint for the change process is drawn from the leader’s ideals and a shared vision. The bricks and mortar are communications, trust, and reward.

Let’s look more closely at two people who are rarely out of the public eye and whose reputations have been built on their ability to sustain change and innovation in their organizations-Richard Branson of Virgin and Percy Barnevik, until recently, CEO of ABB, now head of Investor, a holding company that has ABB in its portfolio. (Barnevik has remained in the Chairman’s position at ABB.) Nearly every press report and personal com- mentary attaches the adjective “charismatic” to their names and both are widely acknowl- edged as brilliant organizational architects.

Following are background notes on both individuals along with exerpts from interviews with them.

RICHARD BRANSON AND VIRGIN

In the summer of 1967, the headmaster of Stowe, an exclusive private boys’ school, confronted a student who had decided to drop out of the institution to pursue nonacademic interests. “Richard,” the headmaster said, “you will end up either in prison or a millionaire!”

Both prophecies proved correct. Early in his career, Richard Branson spent one night in jail after being caught in a tax evasion scheme, an incident that embarrassed him greatly-and yet now,

according to Forbes, he is one of the richest people in the world. His company, Virgin, has become a household name.

Not only are the Virgin Group’s products and services trendy and highly visible, Bran- son is also a genius at promoting his company through his daring personal exploits. He is a master of the media. Rarely a week goes by without finding mention in the press of Vir- gin or its flamboyant chairman. Branson is regularly cited as a role model by young people who wish to seek successful business careers without compromising their personal ethics. He is a unique combination of energy, originality, shrewdness, and last but not least, luck. Against many odds, through sheer per- severance, he has been extremely successful in his business ventures. And at the same time, he seems to be a truly happy man.

Branson’s personal philosophy is, “Life is short, one has to make the most of it. Do things that you like. If your work and your hobby are the same, you will work long hours because you are motivated.” Much of this philosophy is reflected in the way he sees his role as an organizational architect. Although he never had a traditional management educa- tion, his philosophy of management has proved highly effective: His sprawling business empire is an impressive achievement.

He is still motivated by a good challenge. Having built his empire, Branson con- tinues to lead the Virgin Group in a daring drive for expansion, taking on one established industry after the other. He loves to

shake up what he calls “fat and complacent business sectors.”

The Virgin Group’s core businesses include retail operations (a chain of mega- stores in Australia, Britain and Ireland, conti- nental Europe, Hong Kong, Japan, North America, and South Korea), hotels, communications (video games, book publishing, radio and television production), and an airline. His flagship company, Virgin Atlantic Airways, has regular flights to New York, Los Angeles, San Francisco, Orlando, Tokyo, Hong Kong, Dublin, and Athens. Branson reluctantly sold Virgin Music, the crown jewel of his empire, to Thorn EM1 in 1992. Recent successful ventures include Virgin Cola and Virgin Direct Personal Financial Services.

In many ways, Branson has designed a model company for the 21st century. His statement that “People are our greatest asset” was not made just to impress the public. His business maxim-staff first, customers second, and shareholders third-is something in which he really believes. He is of the opinion that his employees should be given top pri- ority. Therefore, he has created a friendly, egalitarian, non-hierarchical, family-like atmosphere in all of his companies, an ambi- ence in which people have fun and enjoy themselves. A central point of his corporate philosophy is “small is beautiful.” Branson likes to preserve a creative, entrepreneurial atmosphere within Virgin.

Following are excerpts from a recent interview with Branson.

THE BRANSON PHILOSOPHY OF MANAGEMENT

KETS DE VRIES: What do you see as Vivgin’s key success factors? What makes your company different from others?

BRANSON: I’m absolutely certain that it’s a question of the kind of people you have, and the way you motivate them. I’m sure that’s what makes any company successful. If you can motivate your people, use their creative potential, you can get through bad times and you can enjoy the good times together. If you fail to motivate your people, your company is doomed....If your employees are happy and smiling and enjoying their work, they will perform well. Consequently, the customers wiIl enjoy their experience with your company. If your employees are sad and miserable and not having a good time, the customers will be equally miserable.

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Could you say something about the way you design your organization, its architecture?

Well, our record company [now divested], I suppose, would have been the best example. My philosophy was always that if there were 50 people in a building, I would go there and ask to see the deputy managing director, the deputy sales manager, and the deputy marketing manager. I would say: “You are now the managing director, the sales manager, the marketing manager, or the press officer of a new company.” And I would put them into a new building. Then again, when that company got to a certain size, say 50 people, I would do the same thing again. So we actually set up about 25 or 30 small record companies. Cumula- tively, they became the biggest independent record company in the world.

What can you say about your reward systems? You once said that you were in the business of making millionaires. Yes, I suppose that we have made maybe 15 or 20 multimillionaires through this structure. We like to reward our key performers for their creative contribution.

When you look at creative, high performing organizations, they seem to have a number of characteristics in common. What do you think they are? Obviously, speed is something that we are better at than most other companies. We don’t have formal board meetings, committees, etc. If someone has an idea, they can pick up the phone and talk to me. I can vote “done, let’s do it.” Or better still, they can just go ahead and do it. They know that they are not going to get a mouthful from me if they make a mistake. Rules and regulations are not our forte. Analyzing things to death is not our kind of thing. We very rarely sit back and analyze what we do.

Some people argue that the way you run your company is almost like a venture capital firm. Basically, anybody with a crazy idea gets a hearing. I hope that “crazy idea” part is not too true. But to an extent, the statement is valid.... It’s a fair comment.

What do you see as your weaknesses? Do you have any characteristics that get in the way of your work? I suspect not being able to say no. Hopefully, I am getting better at it now. But there are so many wonderful ideas. I do love new projects; I love new ideas. We are in a position where almost anybody and everybody who has got an idea likes to bring it to us. There aren’t many companies like us, who have got, in a sense, a certain amount of entrepreneurial flair, companies that seem accessible to the public. Therefore, in any one day we receive hundreds of requests of all sorts. And some of them are very good ones.

My weaknesses really go back to the fact that I have spread myself too thin. In a purely business sense, I suspect that if I just wanted to maximize profits, I should have stayed more focused on one area and really concentrated on that one area. That’s the conventional way, and I’m sure that’s what most business schools teach. Perhaps it’s right. But it wouldn’t have been half as much fun.

I must admit that I feel very much alive when I set out to achieve something. On reflec- tion, it’s really more the fight than the actual achieving. I love people and I just love new creative challenges. Some people ask, why keep battling on when you can take it easy? My reason, basically, is that I’m very fortunate to be in the position I am. I’ve learned a great deal and I’ve had great fun doing so. I’m in a unique position of being able to do almost anything

10 ORGANIZATIONAL DYNAMICS

I like and achieve almost anything I wish. I don’t want to waste the position that I find myself in. I know that at age 80 or 90 I would kick myself if I just frittered away this second half of my life. I really do believe that fighting competition is exciting. And it’s good for business. I think that Virgin can get in there and it can compete with the biggest and improve them-and hopefully survive along side them, have fun, and pay the bills at the same time. Basically, I admire anyone who takes on either the establishment or something like a moun- tain and succeeds or fails.

I sometimes wake up at night and lie there and think, “Is it all a dream?” Because it has been pretty good to date. It just seems almost too much for one man in one lifetime. So, if I am to reflect, I have been very fortunate to have so many wonderful experiences. Every day is fascinating. Every day, I am learning something new.

When you leave Virgin, what kind of enduring mark do you want to leave behind? How do you want to be remembered?

I think that it would be nice if Virgin can be remembered as a company that challenged the established way of doing things, and that built up a number of companies that were world leaders in their own fields. That doesn’t necessarily mean being the biggest companies, but the best in that particular field. I also would like that the staff of Virgin would have very happy memories of the time that they spent working here.

PERCY BARNEVIK AND ABB

Percy Barnevik sur- prised the business community in 1987 by announcing the creation of the world’s largest cross- border merger since Royal Dutch joined Shell in 1907. In record time, Barnevik combined ASEA, a Swedish engineering group, with Brown Boveri, a Swiss com-

petitor, and by adding 70 more companies in Europe and the U.S. created a $30 billion giant with a portfolio covering global markets for electric power generation and transmission equipment, high speed trains, automation and

\ robotics, and environmental control systems. This merger triggered a much needed

restructuring of the whole power industry, which had been characterized by fragmenta- tion and over-capacity. To many business analysts, the new company became the model merger for the new Europe. Since

then, ABB has been a whirlwind of acquisitions, restructuring, and growth. In the past five years, the com.pany has been involved in more than 100 acquisitions and joint ventures, which have added 100,000 employees to its payroll. It has become not only the principal supplier to the world’s electricity industry, but also the world leader in robotics, process automation systems, loco- motives, and air pollution control equipment. With Barnevik’s leadership, two rather sleepy engineering firms were transformed into the world’s top engineering giant.

Barnevik presented to the world a new vision of a Europe without frontiers: a Europe where there would be room for a decentralized, transnational company oper- ating freely across borders. Having con- quered that territory, he went on to explore other continents. As a global citizen, he recognized a window of opportunity in environmental control systems, high speed rail transportation, robotics, and energy in other parts of the world.

To make his global empire work, Barnevik championed the concept of mul- tidomesticity (giving a new meaning to the phrase “think global, act local”), leveraging

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core technologies and global economies of scale without eroding local market presence. He made it clear that although the new giant was a transnational company, it would oper- ate like a local employer with deep roots in the individual countries.

Just as Alfred Sloan of General Motors was the master architect of what used to be the “modern corporation,” a model that held up for many decades, Percy Barnevik has become the designer of a new prototype of organization more in line with the post- industrial age. He recognized the kind of corporation that would be viable in the 1990s and beyond, and he has gone further than any other company president in creating an organization that combines global scale and world class technology with deep roots in the local community. In shaping ABB, Barnevik has become one of the worlds leading indus- trialists.

To translate his vision into reality, Barnevik created a master matrix. In one dimension, ABB is a global network where business area managers around the world make decisions on product strategy and performance without regard to national bound- aries. In the other dimension of the matrix are a large number of traditionally organized national companies deeply entrenched in their respective home markets.

Simultaneously, Barnevik designed the flattest, most decentralized of organizations. He pushed authority, responsibility, and accountability deep down the organization, never allowing more than five people between the CEO and the shop floor. The seriousness of his commitment to this princi- ple is reflected in the size of the ABB profit centers, typically made up of about 50 people. A corps of 250 global executives leads more than 200,000 employees.

Since the merger, ABB has followed a policy of relentless expansion and cost cutting. From the beginning, Barnevik stated his intention of making ABB the lowest cost com- petitor in the industry. In addition, ABB has also pioneered innovative ways of managing cross-border operations. Barnevik foresaw that in a borderless world one of the great prizes would be to break protectionist national power markets. And ABB has acted accordingly, opening markets in Europe, the U.S., and Asia. The company has also become a major investor in the former Comecon countries.

Barnevik has been the catalyst in making ABB into the kind of company it currently is. His hallmarks have been action and speed. He has successfully put together an extremely complex corporate jigsaw puzzle originally dominated by four different national cultures: Swiss, Swedish, American, and German. To do so, he has created an organization built on internal contradictions: a company that is multinational without having a national identity, simultaneously global and local, large and small, centralized and decentralized.

Barnevik’s leadership style has inspired many executives around the globe. His pho- tograph has graced the pages of such influen- tial business magazines as Fortulze, Business Week, and Forbes. Numerous business analysts and professors of management have written lengthy case studies on the ways he has transformed and runs ABB.

What is Barnevik’s philosophy of leadership? What kind of corporate culture is he trying to establish? Where is he taking the company? What kind of person is he? What drives him? What made him the way he is? Answers to some of these questions may go a long way to help us understand what effective leadership is all about.

THE BARNEVIK PHILOSOPHY OF MANAGEMENT

KETS DE VRIES-MR Barnevik, could you say something about the architecture of your global organization? BARNEVIK-The fundamental organizational design that ABB is known for is its extreme decentralization. This obsession with decentralization has been a theme throughout my


whole career. I’ve seen the deficiencies of the big corporation, the dangers of bureaucracy, the effects of the ivory tower where people sit in their rooms, far away from their customers. I’ve seen the lack of engagement, the absence of the creative, entrepreneurial spirit. I’m sure you’ve heard the story of the person coming into a big office who asked, “How many people are working here?” and got the answer, “Half of them.” This may be a worn out joke, but there’s truth behind it.

What I have tried to do is recreate small company dynamism and creativity by building 5,000 profit centers and 1,300 legal entities. I have also made an effort to reduce the layers. I am fully aware, however, of the pros and cons of doing so. Fewer layers mean bigger spans of control and fewer jobs to which one can be promoted. But the advantages lie in communication and feedback, or as I call it, “quickback.” When you are in the process of change, rapid communication is indispensable. We try to make an environment where you can have creative, entrepreneurial people, where you can feel engaged.

You say that the values represented in youv “policy bible” provide the “glue” that keeps the people in your organization together It’s very nice to say this, but how do you get people to internalize those values? There are many different ways we can do that. I would say that the most important thing of all, overshadowing everything else, is to live that way yourself. If you say people development is important, and then don’t develop your own people, you lose credibility. If you talk about speed in action and you procrastinate on certain difficult decisions, you are not believable. So I think that I and the members of the executive committee, and further down, must “walk the talk” as the Americans say. That’s the single most important thing. We must always check that we are living up to what we say.

Whatgets you excited at work? A lot of things. I know I am competitive. Beating the competition for a big project gets me excited; so does breaking into a new industry where we weren’t previously. But what really gives me the greatest satisfaction is seeing young people whom I have promoted succeed. Then you have created something that will outlast an individual transaction. At the same time, I have had some of my biggest disappointments when people fail.

I want my people to constantly test their imagination, their ability to move further. To create this change mentality, this creative spirit, you have to show them that the environment, the competitors, the customers are changing. In order to survive we have to change. You know the expression, “When you are through changing, you are through!”

What do you plan to do to continue to nurture the creative spirit in the company? To continue this momentum, it is important that people in an organization have something to be proud of. It is important that our people can feel pride in something beyond the numbers. For example, if you look at our company now, we have been pioneering investments in Eastern Europe, spearheading East-West integration, I don’t want to claim that we knew more than anyone else, but I was absolutely convinced that Eastern Europe would open up. Many of our people are proud of participating in that process. The same can be said about our work in the environmental field. I would like to create and develop an image of us as helping to improve the world environment. For example, transferring sustainable technology to China or India, where they have a tremendous need to clean up their coal-fired power plants.

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Our employees can look at work like that and see that we contribute something beyond mere shareholder value. Internally, we can pride ourselves on certain environmental improvements without being too bombastic or boastful about them. This is particularly rel- evant for attracting young people to the company. They are by and large not just happy to work for a big company with high profits; they also like to see a purpose that goes beyond numbers. It is important that a company can be perceived as changing the world in a positive way.

I believe that there is a tremendous potential in our people that is not exploited. Take for example the workers. They use only 5 to 10 percent of their brain capacity standing at a machine. Then they go home. There they administer; they organize for the children; they build a summer house. All of a sudden, they seem to be able to do an enormous amount of things. They’re using 90 to 95 percent of their brain. Now, why can’t we move these people into bigger tasks?

We are now experimenting with cutting out a whole layer of clerical supervision to give teams of workers bigger responsibility. I think there is a huge potential here that we haven’t tapped yet. The obstacles to tapping it go back to the roots of the way we run industrial organizations. It all comes out of the Frederick Taylor system: managers do the thinking and the workers do the working. This attitude has to be changed. One doesn’t need a blue collar or a white collar union. We are all in the same boat.

When you open that vista up, all of a sudden there is a whole new avenue for exploiting and developing human potential. Future leaders should be able to stimulate and develop this extra capacity inside their companies to be really successful. However, this type of fundamental change in industrial organizations will take a long time to implement, maybe a generation. Those who start early will also reap the benefits early.

Given your reputation of always being overprepared, do people in the company question some of your ideas? Do they dare to disagree? It’s a difficult question to answer because all executives say, “Oh sure, others disagree.” Even the worst dictators tend to say something like that. Now, I appreciate that my characteristics are sometimes a little bit dominant. At times I can overwhelm people. I’m aware of the risk, sitting in my position, of not getting enough feedback and not having a sufficiently open attitude. Of course, it’s comfortable, whatever position you are in, to have people agree with you. The temptation is always there.

In this organization, for people who know me well, there is absolutely no problem about saying, “You’re wrong. I disagree.“ But of course in an organization this size, there are many people who don’t know me that well. In the Latin countries especially, and maybe in Ger- many, there is a tendency to be a little cautious so as not to offend the top guy. It’s difficult to make people really speak their mind and tell you things openly, particularly unpleasant things.

I can only say that I am aware of the problem, that I work at it. With new people whom I don’t know well, I go out of my way to try to build their confidence so that they don’t worry about that aspect of the conversation. How successful I am in doing that is another matter.

In our organization, with all these different cultures and our global presence, we really have no choice but to create an attitude and an atmosphere where people can speak their minds. When people don’t come out with real objections to certain decisions, it can be catas- trophic for us.... But once a decision is taken, we demand that people stand behind it


whether they like it or not. We don’t want them to sabotage it. But before decisions are taken, people must speak their minds!

Of course, the worst thing you can do when you are trying to create an open atmosphere is to interrupt someone, to be degrading, to show your disapproval. You rather have to do the opposite. You have to say “that’s a very interesting point,” or something of that sort. You have to bear in mind all the time that you must encourage dissenters. You must demonstrate that willingness. Even when someone goes against you, it should not rebound on them in any way. People shouldn’t get the impression that doing so is bad for their career.

What drives you? What gives me a sense of reward is to create something, to make some kind of lasting impact. Things like penetrating new countries, developing and commercializing new technologies, creating new opportunities. I don’t work for the money and the prestige and all that. I guess it’s like a person designing a house. People want to build something, create something that is worthwhile. That’s what it all boils down to.

ACCENTUATE YOUR CHARISMA

What guidelines for managing change in an organization can we draw from these observation and examples? To answer that questions, let’s look first at how these two individuals have functioned as charismatic leaders, then at their actions as organizational architects.

Envisioning

The preeminent requirement of any leader’s role is to formulate and communicate a vision, aligning the workforce behind it. Why is a clearly defined and communicated vision so important for corporate change? To begin to answer this, it is useful to go back to basics to consider the nature of our need to work. Most social systems in developed countries provide adequate support for those who cannot or do not work-so what lies behind our impulse to accomplish a given or self-generated task? An attempt to answer this question was one motivation behind Stud Terkel’s great book of the 197Os, Working. In his introduction he writes:

This book, being about work, is, by its very nature, about violence-to the spirit as well as to the body....It is about a search, too, for daily meaning as well as daily bread, for recognition as well as

cash, for astonishment rather than tor- por; in short, for a sort of life rather than a Monday through Friday sort of dying. Perhaps immortality, too, is part of the quest.

These terms link indivisibly the practical needs of working (making a living, feeding, clothing, and keeping oneself warm) and the psychological-even spiritual-needs that people require work to answer. In fact, if the performance needs of the organization are made to match the psychological needs of the individual-if the organization structures itself as an enabling and holding environment, seizing opportunity and unlocking potential both as an internal dynamic (cultural, psychological, individual) and as a business strategy-ordinary people will behave extraordinarily. Make this equation work, and the change process and rewards should fol- low-and the key to making this equation work is vision.

Most well-known politicians are masters of envisioning, expressing a general dissatisfaction with the status quo and presenting a viable alternative. Through language, similes, metaphors, and ceremonies, they create cap- tivating, magnetic imagery; they build alliances, inspire others, and make their vision reality. For example, Mahatma Gandhi had a vision of an independent India where

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Manfred Kets de Vries holds the Raoul de Vitry d’Avaucourt Chair of Human Resource Management at INSEAD, France. He received an economics degree from the Uni- versity of Amsterdam and an MBA and DBA from the Harvard Business School. He has held professorships at McGill University, the Ecole des Hautes Etudes Commerciales, Montreal, and the Harvard Business School. Kets de Vries’ research interests include leadership, cross-cultural management, career dynamics, organizational stress, entrepreneurship/family business, and the dynamics of corporate transformation and change. Kets de Vries is the author, co- author, or editor of numerous books, includ- ing Power and the Corporate Mind (1975/1985), The Irrational Executive: Psy- choanalytic Explorations in Management (1984), The Neurotic Organization (1984/1990), Unstable at the Top (1988), Prisoners of Leadership (1989), Handbook of Character Studies (1991), Organizations on the Couch (1991), Leaders, Fools and lmposters (1993), and Family Business: Human Dilemmas in the Family Firm. His book Life and Death on the Executive Fast Lane received the Critics’ Choice Award for 1995-1996. He has conducted executive development seminars for numerous organizations in Europe, the U.S., and Asia and serves as a consultant in organizational design/transformation and strategic human resource management at many of the top European and U.S. corporations.

Moslems and Hindus would live together in peace. Martin Luther King had a vision of harmony between blacks and whites. As Pres- ident of the United States, John F. Kennedy had a specific vision of placing a man on the Moon by the end of the 1960s. M&hail Gor- bachev had a vision of a more open Soviet society. Then there were the darker visions of leaders such as Adolph Hitler and Josef Stalin.

In the world of business, the first Henry Ford wanted to build a car for the masses, his particular interest being in helping the farmer (his father being a farmer). Ingmar Kamprad of IKEA founded a company to make afford- able furniture for the common man, and Bill Gates has changed the way people work by making it necessary for everyone to be com- puter literate.

As in the political sphere, if people are to be motivated, if they are to commit themselves to a vision, the mission statement needs to be emotionally engaging. It should stretch the mind of all the company’s employees. It should play on the imagination and stimulate creativity. It is important for leaders to make their vision exciting. It must be inspirational, create a sense of pride, and go beyond the bottom line.

Consider how Richard Branson fosters entrepreneurship. He looks for people with innovative ideas who will start new businesses, people who want to be the best at whatever they are doing, whether it is enter- tainment, communications, airlines, hotels, store management, financial services, or bev- erages; people who have a strong desire to beat the competition. As for Percy Barnevik, he wants to create the worlds number one engineering group.

As these two examples show, to talk about increasing shareholders’ wealth or profit max- imization is not enough. Money is important but not an end in itself. Barnevik and Branson recognize that people like to be proud of something and feel that they have made a meaningful contribution to the world.

A leader’s wish to engage in good works, to look beyond the bottom line, is a very effective way of motivating and challenging people to work. Thus Percy Barnevik says that he


is motivated by a desire to create a better world by generating employment (particularly in Eastern Europe, where he is the largest investor), and to improve environmental conditions by providing clean energy and transportation. For Branson, too, social concern is an important part of corporate philosophy. On many occasions he has put his money where his mouth is. Two instances, among many, come to mind: Virgin’s production of low-priced Mates condoms, in response to the AIDS crisis, and Branson’s bidding for the national lottery franchise in the UK with a promise to donate all profits to charity (a bid that was unsuccessful).

Empowering A differentiating factor of effective leaders is their ability to get the best out of people. They are good at building alliances and creating the commitment that will involve others in their vision. They possess great team- building skills, treating their employees as competent, responsible human beings. They help their employees understand the business and build trust by sharing sensitive information about the company’s performance. They allow them to experiment, to play, to make mistakes.

They want to foster a sense of ownership among their people. They believe strongly that strategic awareness should not be limited to the top echelons of the organization but spread throughout it. This means pushing authority, responsibility, and accountability far down the reporting line and flattening hierarchical structures.

People often talk about empowerment in this context. Effective leaders make empowerment seem deceptively simple. They know how to express expectations of high performance. They also realize that the kind of commitment that makes this possible requires a strong show of confidence. In most instances, empowered employees will do their utmost to perform to those expectations. Enhancing people’s self-esteem will make many perform beyond expectations.

To get the kind of commitment that makes

that possible, a strong show of confidence is needed. And in most instances, empowered employees will do their utmost to oblige. Enhancing people’s self-esteem will make many perform beyond expectations. Empow- erment is a term Napoleon Bonaparte, who declared that every French soldier carried a marshal’s baton in his knapsack, might have felt at home with.

Energizing

In every organization, there is an enormous amount of free-floating aggressive and affectionate energy. Effective leaders know how to channel this energy in the right direction. It is important for aggressive energy to be directed externally. Employees should fight the competition, not each other. It helps to have an enemy to focus on while enacting a mission; it concentrates the mind. “Enemies” help to shape organizational identity and successful companies watch their competitors very closely. Percy Barnevik constantly reminds his people of enemies such as Siemens, General Electric, Alcatel-Ahlstrom, and others, while Richard Branson is masterly in his use of David and Goliath imagery, pitching constantly against powerful adver- saries like British Airways, Coca Cola, or EMI.

As for affectionate energy, that too has to be used appropriately. Every leader, at whatever level, is to some extent a kind of psychi- atric social worker, a container of the emo- tions of his or her subordinates. He or she provides a sense of security, inspires trust and confidence, and creates a safe holding environment.

The way he or she goes about creating this environment distinguishes effective from ineffective leaders. Empathy is critical to the management of energy in organizations. Remember, a CEO is seldom derailed by his or her ignorance of the latest marketing, financial, or production techniques, but fre- quently by a lack of interpersonal skills, a failure to get the best out of the people who do possess such essential information. Emotional intelligence is also a sine qua non for genera- tivity, or the ability to get pleasure from help-

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ing the next generation by, for example, assuming the role of mentor and coach. When leaders lack this quality and are envious of others, they stifle organizational learning and endanger the organization’s future.

BUILD YOUR ARCHITECTURAL SKILLS

The most effective leaders recognize that the art of leadership comes in building the kind of environment where people can be creative and become completely involved in what they are doing. Branson and Barnevik have created organizational structures where people have a sense of control and a feeling of ownership over what they are doing. The envisioning, empowering, and energizing facets of charismatic leadership need the con- crete consolidation of the leader’s architectural skills. While these charismatic qualities address people’s inner theater-the why of work-the architectural concerns (organizational design, and control and reward systems) deal with the external world-the way they work.

Organizational Design

There is a certain dilemma involved in creating an exciting working environment. Larger size means more possibilities, but size can become a serious impediment to performance. Economies of scale are not without serious diseconomies of size. When organizational units become too big, employees become less involved.

Effective leaders minimize the negative aspects of large organizations by eagerly embracing the concept that small is beautiful. These leaders go to great lengths to create a small business atmosphere in their large corporations. They also realize that hierarchical organizations have had their day. Hierarchi- cal structures are out, flat structures are in, encouraging lateral rather than vertical communication. Decentralization and operational autonomy are sine qua nons for high performance organizations.


Percy Barnevik’s aim for ABB is “to be centralized and decentralized, big and small, global and local.” Consequently, he has created a company made up of 5,000 profit centers. Richard Branson spins a new business off an existing one as soon as there are more than 50 people working for it. Branson applies his philosophy religiously: His organization, like ABB, exists as a number of small autonomous units run by self-managed teams made up of individuals who do not have to be continually prodded to do things.

Both Barnevik and Branson look for the kinds of people who set their own standards and rewards, who are eager to learn and know how to adapt, and who possess a high tolerance for ambiguity. Moreover, they go to great lengths to change the mind-set of those people who were not really committed in the past, but were merely going through the motions.

Critical to the design of these organizations is their customer-centeredness. Employees are constantly reminded that only customers can help them to tenure in their organization. The innovative way in which Richard Bran- son runs Virgin Atlantic is a good example. Every effort is made to surprise the customer in a positive way. First class (“upper class”) passengers on Virgin Atlantic have free access to a four-hole putting green at the Virgin Clubhouse and receive an in-flight aromatic relaxation massage. Car service at both ends of the trip is included in the price of the ticket. Branson has also been known to personally meet flights that arrive late or experience other difficulties,

In creative, high performance organizations like Virgin and ABB, customers are not merely an abstraction. All structures and pro- cedures are directed toward providing the best customer service. Again, small business size enhances the possibility of contact and improves the feedback loop. In ABB’s 1994 annual report, Percy Barnevik accounts for his company’s performance record in terms of size:

Our strategy of delegating responsibility to many small profit centers is a

winning one. It puts our people close to customers and lets them see how their decisions and attention to customer needs contribute to ABB’s growth. This, in turn, frees up rich human resources of initiative and energy. We want to achieve management by motivation and goals instead of by instruction and directives....Adopt the right priorities: Customer first, ABB Group second, own profit center third.

Product life cycles are forever shrinking, and speed to market has become increasingly important. Too many companies have invented great products, only to lose out in the process of market introduction. One of the key success factors in Richard Branson’s organization has been his ability to move fast. As he says himself, “I can have an idea in the morning in the bath tub, and have it implemented in the evening.” Speed also has an essential place in Percy Barnevik’s management philosophy. In his policy bible, he states that “it is better to be roughly right than exactly right with respect to speed.” He has made it very clear that it is permissible to make mistakes due to speed. At ABB, failure to act because of a reluctance to make decisions is unacceptable and will lead to dismissal.

Control Systems

Barnevik and Branson know that change is not easy. Their experience implies the need for a structure free from the stifling costs of bureaucratic controls and hierarchical authority. Rules and regulations are mini- mized; it should be possible to bend them; nothing is written in stone. ABB has a sophisticated global matrix structure with enormous fluidity between business area managers and country managers. Virgin resembles a keiretsu organization-a structure of loosely linked companies continuously dividing and reproducing (quite mystifying to outsiders) where employees have the possibility to rewrite their job definitions depending on the kind of new challenges they are prepared to undertake.

Until recently, designing an organization of this type would have been impossible. Being simultaneously big and small, breaking up a large company into a number of small, loosely connected companies while maintain- ing cohesiveness has only become feasible with the revolution in information technology. Sophisticated information systems have become a major force pulling geographically dispersed employees together. It is now possible for top executives to decentralize without the fear of losing control. Naturally, success in these new structures requires a high degree of literacy in modern information and communication technology.

Branson and Barnevik also realize that there are two kinds of glue that will make their loosely structured organizations function effectively. Sophisticated information systems form one kind. The other is a set of shared common values. Effective leaders (implicitly or explicitly) want each organizational participant to share certain values specific to their corporation, values that go beyond their national cultures,

At ABB, these key values are summarized in a “policy bible.” At Virgin, they are more subtly instilled. Everyone, however, is expected to be familiar with the corporate culture of their organization. New recruits are indoctrinated in these values. The values are reaffirmed in workshops, seminars, and meetings. People are expected to internalize these values and behave accordingly, with a positive pay-off: the internalization of corporate values means a greatly reduced need for external controls. To make this work, the selection of individuals who embrace these values becomes crucial. Having high barri- ers to entry can prevent many headaches later on.

Freedom from excessive control does not mean, however, that employees are not held accountable for their performance. Account- ability is driven deep down the organization. It is impossible to be part of a winning institution without distinguishing between excellent and mediocre work. Thus con- structive feedback about performance is an essential and pervasive part of the culture of

WINTER 199.3 19

ABB and Virgin. There is compassion, but there is a limit to excuses.

Reward Systems

Barnevik and Branson also realize that today’s high performers are like frogs in a wheelbarrow: They can jump out at any time. Imaginative human resource management systems have to be found to keep them committed to the organization. Apart from giving these people the opportunity to spread their wings, the company needs to reward their performance with attractive material benefits that go beyond salary increases. Sharing corporate success in the form of stock options, bonuses, or some other profit-sharing plan is an effective way to reward such people. Share-ownership can play an important part in retaining the best people.

Richard Branson has said that he is in the business of making millionaires. He makes it quite clear that he does not want his high performers to leave Virgin to start their own companies elsewhere. He ensures that his key players have the possibility of becoming millionaires under the Virgin umbrella. Of course, this way of rewarding employees can only increase a sense of ownership.

CHANGE AND AFTER

As I wrote at the beginning of this article, the first major challenge for a company in the process of change is to motivate people to function effectively in an unpredictable environment and, at the same time, manage an opposing dynamic of resistance. A second, ongoing challenge is to prove that the organization can build on the skills used in the change process (the ability to analyze a situ- ation, to adapt to the altered logic of a company, and alter behavior to fit a new operat- ing environment) and integrate them into

the continuously changing culture of the organization.

A leader has to be able to give followers a good reason to get out of bed in the morning, and to do that the leader has to have a good reason himself. What is a major motivating force in Richard Branson’s behavior?

I think fun should be a motivator for all businesses. I think the reason we’ve been successful is that we’ve had this great bunch of people around. We’ve done things differently and that’s made life more fun and enjoyable than if we’d taken a slightly more con- servative approach. I‘ve been deter- mined to have a good time (Newsweek, 13 June 1994, p.33).

Branson and Barnevik realize that life is not a rehearsal; on the contrary, it is the real thing. They want to live it to the fullest. Both executives have recognized a basic need existing in every human being-the drive to do new things; the pleasure of exploration. Unfortunately, in many companies, for many employees, this basic need lies dormant. Many executives behave like organizational sleepwalkers. Their liveliness is no longer on the job.

Branson and Barnevik, however, subscribe to the dictum that the challenge of life is to die young-as late as possible. And they do not want to have that experience alone. They want their employees to accompany them on an enterprise that is as much about discovery of themselves as about profit margins-a sort of life in which immortality, in terms of a lasting legacy, is a definite part of the quest.

To order reprints, call 800-644-2464 (ref. number 8930). For photocopy permission, see page 2.


SELECTED BIBLIOGRAPHY

More information about Richard Branson and Percy Barnevik can be obtained from two case studies I have written about them: Percy Barnevik and ABB and Branson’s Virgin: The Com- ing of Age of a Counter-Cultural Enterprise. Two videos (Percy Barnevik and ABB and Virgin: Entrepreneurship in Action) containing additional material are also available that provide excellent footage of these two leaders. On the tape these two executives share their insights on the way they run their businesses. In addition, two books have been written about Richard Bran- son: Richard Branson: Virgin King by Tim Jackson (London: HarperCollins, 1994) and Richard Bran- son, The Inside Story by Mick Brown (London: Michael Joseph, 1988).

Articles and books on change and corporate transformation are too numerous to cite here. An interesting angle, however, is found in the book Discontinuous Change by David Nadler, Robert Shaw, Elise Walton, and associates (San Francisco: Jossey-Bass, 1995). This book is a collection of essays on the dynamics of organizational transformation. The book by Noel Tichy and Stratford Sherman, Control Your Destiny or Someone Else Will: How Jack Welch is Making GE the World’s Most Competitive Enterprise, gives an informative account of the transformation process at GE. I have just co-authored an article on

the change process entitled “Transforming the Mind-set of the Organization: An Owner’s Manual” (Manfred F. R. Kets de Vries and Katharina Balazs, INSEAD Working Paper, 96/81iENT) in which we integrate individual and corporate change processes, conceptualiz- ing the different stages both individuals and organizations have to go through to make the change process work.

A very good description of the successful habits of highly successful companies is done by James Collins and Jerry Porris in their book Built to Last (New York: Random House, 1994). They address the issue of what makes exceptional companies different from others. Although they deemphasize the role of transformational leadership, they stress the importance of “dis- tributed” leadership (leadership throughout the organization) as a factor in truly outstanding companies.

Finally, insights into the psychodynamics of leadership can be found in my book Life and Death in the Executive Fast Lane (San Francisco: Jossey-Bass, 1995). In these essays I describe con- cepts that help to explain the “inner theater” of executives and the qualities that make for global executives.

Studs Terkel’s book Working is published by Pantheon Books, New York (1974).

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