For the past couple of decades, companies have focused on creating strong leaders of business units and influential heads of functions — men and women responsible for achieving results in one corner of an organization. But they have not paid as much attention to a more important challenge: developing leaders who see the enterprise as a whole and act for its greater good. And that perspective has become increasingly necessary as companies seek to provide not just products but broad-based customer solutions.
It is easy to understand why companies emphasized the development of strong unit and functional leaders. Since the 1980s, the dominant view has been that effective organizations are highly decentralized and therefore, in theory, able to respond more quickly to customers. As business units became increasingly autonomous, the leaders who reaped the most praise and attention were bold, independent business builders. The challenge for those in the corporate center was to manage, not to lead, and to be as hands-off as possible in their dealings with those running the businesses or the regions.
But left unchecked, such autonomy can produce an organizational culture defined by a take-it-or-leave-it, product-push mentality. The demise of companies that were icons of their industries, such as Digital Equipment Corp. or Polaroid Corp., is evidence of this danger. These companies were once technology leaders with great products, but the spirit of autonomy that they fostered eventually led to the creation of product silos overseen by powerful leaders. Customers had a choice: They could buy the products on offer or go elsewhere. When other companies began to offer better technologies, the two giants’ products were no longer competitive, and customers fled.
Today, even cutting-edge products are not enough to ensure customer loyalty. Customers are stepping up demands for integrated solutions to their problems. While companies have developed new strategies for meeting those demands, many have yet to change their thinking about what constitutes effective leadership in this environment. Decentralization itself is not the issue. The main point is that solutions strategies cannot be implemented by leaders who have a product-push silo mentality. Until companies recognize this fact, they will be frustrated in their efforts to deliver integrated customer solutions by a gap between their strategies and their capabilities.
It is imperative, then, for companies to be able to identify and develop enterprise leaders — people who can deliver differentiated value by bringing the total resources of their companies to their customers. In order to link strategy to leadership development, they must be able to answer three questions: What are the key elements of the enterprise leader’s job? Why is learning to lead at the enterprise level such a difficult challenge? And what can companies do to identify and develop enterprise leaders?
The Enterprise Leader’s Job
On a simple level, an enterprise leader is anyone accountable for the economic and social welfare of the total enterprise, across divisions, businesses, functions and locations. An enterprise leader might run a business unit or oversee a major function but will make decisions with the entire corporation in mind. In other words, “enterprise leader” is not a job title — the term represents a way of thinking and behaving. Effective enterprise leaders excel at four tasks that may be difficult to quantify but are essential to any company’s ability to compete.
First, enterprise leaders focus organizational attention on the customer, setting priorities and driving out distractions. Second, they build multiple organizational capabilities simultaneously, especially in the areas of strategic competence and organizational character. Third, they reconcile the tensions — between growth and stability, for example — which are embedded in any organization. Finally, they create alignment by building consistency between an organization’s statements of purpose, its processes, and the skills and behaviors required of its people. These four broad tasks encapsulate some of the hardest work that a manager will ever attempt. A closer look at each aspect reveals the challenges facing the enterprise leader. See sidebar.
The Enterprise Leader’s Tasks
Focusing Organizational Attention.
Massive complexity is a fact of life today, but successful enterprise leaders don’t ignore it or run from it. Instead, they search it out and reduce it so that others in the organization can focus on the firm’s customers.
At PricewaterhouseCoopers, enterprise leaders brought order to chaos in order to successfully complete the merger that created the world’s largest professional services firm. In the late 1990s, when Price Waterhouse merged with Coopers & Lybrand, the newly combined company had 165,000 employees and conducted business in more than 120 countries. Demand for the new firm’s services required the company to hire 1,000 professionals per week, on average, in order to keep up. But there was a downside, as within six months clients began complaining to senior executives that PwC’s client knowledge was slipping. The firm’s people were operating without the strategic purpose and cultural compass that they needed to be effective.
PwC’s top 10 executives (the Global Leadership Team) then met with the top 50 senior managers at the next tier to reduce the complexity brought on by so much opportunity. The group’s mantra for the next year was “ruthless prioritization.” PwC’s then-CEO, James Shiro, was advocating an integration strategy to the firm’s partners, but employees at the grass roots didn’t know what “integration” meant for them or what they were expected to do to bring it about. Absent a clear explanation, a generic term like integration could be taken to mean “slow, bureaucratic decision making.”
The new team of senior leaders focused PwC’s businesses on areas in which they could add value that would differentiate the firm from others in the industry. Given PwC’s emphasis on client service, the team made small but important changes to the strategy: PwC would commit to becoming “intelligently integrated,” meaning it would integrate only if and when doing so would provide more value to its clients. The team also worked to repair the organization’s cultural compass. Although the two companies had well-articulated values before the merger, PwC’s senior leaders created a compelling new set of core values that would serve as a code of employee conduct for the merged firm. They rallied the entire organization behind the new direction. Clients stopped grumbling about the lack of focus and client knowledge, and PwC, despite the slumping economy, emerged as the market force envisioned by its leaders when they negotiated the merger.
Companies can be thought of as what they do — as seen in their strategic vision and the way they execute it — and as who they are, as revealed by their organization’s code of conduct and cultural norms. The “doing” aspects of the enterprise leader’s job can be thought of as building strategic competence, while the “being” aspects are a matter of building organizational character. Leaders with an enterprise perspective understand the importance of building strategic competence and organizational character simultaneously.
Consider how the enterprise leadership team at Continental AG in Hanover, Germany, identified and built new organizational capabilities when the company embarked on a large-scale strategic and cultural transformation.
In the mid-1990s, Continental was the world’s fourth-largest tire manufacturer. It was an OEM supplier to many prestigious auto manufacturers and had a vibrant replacement business throughout Europe. But in a fiercely competitive market known for its tight margins, it was only modestly profitable. And the company’s newly appointed CEO, Hubertus von Grünberg, knew that globalization would disrupt regional players such as Continental. He and his enterprise leadership team of 50 decided that the company must transform itself from a European tire manufacturer into something much more complex: a tier-one supplier of high-technology integrated wheel, brake and chassis systems to the global automobile industry. Cross-border strategic alliances and acquisitions would be the key to the accomplishment of this objective.
The obstacles to success were large. Continental had not grown through partnerships or acquisitions, and thus its leadership lacked both the mind-set and skills to carry out the new strategic direction. Recognizing this reality, von Grünberg decided to embark on a massive team-building and capability-building effort. In conflict with his personal style (and level of comfort), he engaged his enterprise leadership team in open dialogue on the challenges facing the company. This was not as simple as it may sound: The monthly meetings were at first very tense — the executives had to learn to trust von Grünberg, and the future direction of the company was at stake. Over time, as it became clear that no one would be punished for being honest, the tension abated and the group’s members came to trust one another.
The leadership group also worked intensively on practical matters, learning how to execute cross-border partnerships and acquisitions, to work across cultural boundaries and to lead cross-border project teams. The company brought in some new executives who had such capabilities and dismissed others who demonstrated that they were unwilling or unable to change.
Within two years, Continental had achieved what it set out to do. After making several critical acquisitions from ITT Automotive and undertaking a series of successful cross-border joint ventures in Indonesia and Eastern Europe, Continental continued to make high-quality tires but was also well positioned to provide systems to the world’s automakers. A central ingredient of the transformation’s success was the willingness and capacity of Continental’s leaders to subordinate the narrower interests of unit and functional leaders and focus attention on doing what was right for the company as a whole and its customers.
It is all too common for a company’s top executives to play up the importance of managing innovation and growth in order to remain competitive. Yet often in that same firm, the environment feels anything but innovative and the focus of attention is on cost containment, not growth. Does that mean the company’s top team is deliberately deceptive or disingenuous? No, but the problem reveals one of the enterprise leader’s most difficult jobs: dealing with the inherent ambiguities that stem from the notion of building strategic competence and organizational character simultaneously.
A couple of years ago, a large manufacturer with a well-developed culture of paternalism and a belief in lifetime employment for its employees spotted an acquisition opportunity — a perfect fit for its growth strategy. The economic benefits of the deal, however, would bear fruit only if the company shed 10,000 jobs soon after the deal was struck. There was no chance to grow organically after the acquisition to salvage those jobs. The analysts eyeing the deal, well aware of the paternalistic nature of the acquiring firm, signaled their uneasiness with the transaction in the absence of major cost cutting beforehand. Even though the manufacturer was healthy and growing, its top management team decided the deal was critical to its future. The company then cut 5,000 of its own employees in order to win the analysts’ approval of the purchase, guarding against a serious erosion of its stock price.
This example highlights the built-in tensions that top executives must wrestle with. In developing strategic capabilities, they have to balance their need to develop a vision of tomorrow with the importance of making decisions that will satisfy customers today. In managing organizational character, they need to build strong cohesive cultures while being prepared to lead dramatic change and reinvention. For the manufacturer, the success of its long-term strategy depended in part on a short-term path of cost cutting and job reductions — a move that was in direct conflict with the company’s longstanding organizational culture. Although the company’s leaders went ahead with the reduction in head count, they eliminated as many jobs as possible through attrition and created outplacement centers for laid-off employees.
Such ambiguities are never easily resolved, but they must not get swept under the rug. The former CEO of British Petroleum (now BP Plc), Lord David Simon, once explained how he thought of these tensions: “It’s very important for me and the other senior leaders here to behave in a manner that is deeply representative of BP’s culture, yet we must also be strangers in our own company.” Only then would he and other top executives be able to make necessary decisions in the company’s long-term interests, even when they were at odds with the organization’s culture. More recently, BP’s current CEO, John Browne, has been quite vocal about reinventing BP as an environmentally friendly company while it continues to explore aggressively for oil. Leadership at the top today requires people who can handle tensions of the type that are embedded in BP’s position.
One can find useful examinations of different aspects of the leader’s role in a variety of books and articles. Some stress how important it is for those at the top to provide their organizations with purpose; others emphasize the need for leaders to form culture or to stimulate innovation or growth. But problems arise if companies treat such topics as stand-alone issues rather than as interlocking components of a system. Effective enterprise leaders are skilled at simultaneously managing five processes in order to create organizational alignment. This systems view of the enterprise leader’s role in creating organizational alignment can be thought of as managing the five M’s: meaning, mind-set, mobilization, measurement and mechanisms for renewal.
In 2002, Canada’s RBC Financial Group had to realign the organization when it added a major new initiative to its shortlist of strategic priorities. Having learned through research that its customers felt it was too focused on products, RBC planned to transform itself into a firm that provided integrated solutions for all its clients’ financial needs. CEO Gordon Nixon referred to the initiative as “implementing cross-platform leverage.” He convened RBC’s Group Council, made up of the company’s top 125 leaders, and asked for their help in creating the organizational alignment needed to turn the new strategy into a reality.
The enterprise leaders first had to acknowledge that there was no shared sense of meaning in the company about the cross-platform strategic initiative. There was no passion for the term and little understanding of what cross-platform leverage would look and feel like if it were operational throughout RBC. The enterprise leadership team met this challenge by shaping a collective definition of what cross-platform leverage would mean for every business and in every function in the company. Next, the team conducted an audit of the company’s culture and mind-set and articulated the behavioral changes that would be needed, first by the team itself and then across the entire organization, to implement the new strategy. The company would have to abandon the strong unit-oriented culture that had been the norm at RBC for decades. The profile of an effective executive at RBC would have to change from that of the strong individual performer to one who mobilized resources across boundaries.
The enterprise leaders also examined which resources they would need to mobilize so that RBC could excel at the new strategy. Processes and IT systems that didn’t support integration had to be replaced with knowledge-sharing processes that facilitated the improvement of client knowledge. The team also took a close look at metrics and incentives. Rewards that had been focused on individual and unit performance were replaced by those that focused on enterprise performance and improvements in client satisfaction. Finally, the team identified mechanisms for renewal — committing to meet every few months, for example, to review progress — which would help RBC avoid complacency.
In less than one year, RBC’s enterprise leadership team reshaped the company’s strategy, changed relationships across divisions and revamped its performance and talent management processes. It successfully brought about the organizational alignment that was needed to change RBC’s capabilities, culture and mind-set to one that was focused on delivering integrated customer solutions.
An Unnatural Act
Having considered the key elements of the enterprise leader’s job, companies then need to ask why developing such leaders is so difficult. Indeed, there are three major obstacles built in to many organizations that make developing enterprise leadership virtually an unnatural act.
The first obstacle can be found in organizational culture, which often favors unit over enterprise leadership. Senior leaders are role models, and the stories they tell and promotions they make build an implicit cultural image of what effective leadership means. In other words, when top teams make icons out of successful unit performers and reward them for their behaviors, they create a powerful disincentive for managers to aspire to behave as enterprise leaders. The cultural imagery of the unit leader as hero makes it very difficult for a new model of leader to emerge.
It takes leadership from the top to break the mold of cultural norms. One of the first things Sam Palmisano did as IBM Corp.’s new chairman and CEO was to change the name of IBM’s Enterprise Leadership Group to the Enterprise Leadership Team. While that may sound trivial, this seemingly minor change sent a clear message that IBM’s culture of celebrating individual contributors and rewarding hero-leaders was coming to an end and would be replaced by a strong emphasis on teamwork.
A second obstacle to developing leaders with an enterprise perspective is the emphasis on specialized expertise in many companies. Several consulting firms contend that the identification, articulation and development of competencies should be the cornerstone of a company’s leadership development efforts. This view is so prevalent that it would be difficult to find a handful of major companies whose leadership initiatives do not have competency frameworks as their foundation. And such frameworks have much to recommend in them. The logic of competencies is linear, illustrating how company strategy is linked to certain organizational capability requirements, which are connected to a set of skills and leadership behaviors that need to be developed in order to execute the strategy.
Yet while competency frameworks provide anchors for understanding leadership development requirements, they have tended to focus on individual rather than team development. The focus on individual development can prevent people from taking the broader view and seeing the company as an interconnected whole, with challenges that cannot be met by expertise in one area or success in one unit. Moreover, an excessive reliance on competencies tends to drive individuals to strengthen their particular expertise rather than to stretch themselves for new challenges, such as making the transition from unit to enterprise leadership. People end up being overwhelmed by an ever-growing list of tasks and skills in which they must demonstrate their competency.
The third obstacle is that contrary to strategic goals, reward systems — like many organizational cultures — often favor the accomplishments of individual units at the expense of corporate success. Imagine a company in which the CEO and top team have articulated an integration-based strategy that will require company leaders to think and act across boundaries and on behalf of the entire enterprise. Now imagine that the company’s reward system offers leaders incentives for achieving unit success, even when they fail to behave as enterprise leaders. Which will win out in the end — a theoretical statement about integration or a powerful incentive system that rewards unit performance?
Senior executives create rewards to motivate employees to pursue the business models established at the top. When those models change, changes to the reward structure often lag behind changes to the strategy. Ironically, under those circumstances, the major problem with the system is that it is effective. Executives who have been rewarded for behaving as unit leaders for years will naturally struggle to behave as enterprise leaders.
Overcoming the Obstacles
Fortunately, companies are not helpless in the face of these impediments to enterprise leadership development. The approach to this issue taken by PwC, Continental, BP, RBC and IBM holds lessons for other organizations. These companies, which differ by industry, size and strategic intent, have at least one thing in common: They focus attention on three ways of grooming individuals to be enterprise leaders.
They create cultures in which leaders are held accountable for having an enterprise perspective.
Top-team commitment is critically important to the development of leaders with an enterprise orientation. CEOs and top executive teams must not only believe in the importance of developing enterprise leaders, they must also do whatever it takes to create a culture of accountability — one that ensures that emerging leaders possess a cross-boundary enterprise perspective.
To create that culture, top executives must develop a well-thought-out point of view on the importance and role of enterprise leadership in the company. The IBM Leadership Framework is a prime example. Accountability-based cultures reward individuals for results, so it is important for companies to make clear that they expect all leaders in the organization to develop future enterprise leaders. This policy should also include consequences for those who fail to cultivate such leaders.
They create opportunities for next-generation enterprise leaders to emerge.
Top executives must reinforce the culture of accountability by giving potential leaders the chance to develop an enterprise view. While that may seem obvious, this critically important step is often avoided on one pretext or another. At RBC, however, division leaders engaged in a widespread crossfertilization of talent to show they supported the company’s strategy. They made key jobs available to high-potential senior executives in order to develop their enterprisewide perspectives.
They install HR processes that support the company’s leadership development philosophies.
Companies that effectively develop enterprise leaders create process infrastructures that support their leadership frameworks and leadership development activities. Such infrastructures combat the “cream will rise to the top” philosophy, in which leaders simply emerge because of their innate talent. They minimize the risk that their pool of enterprise leaders will be too small for lack of enough cream.
These companies differentiate between the skills and behaviors of unit and enterprise leaders. They have talent-tracking processes that spot “high potentials” as quickly as possible. They provide multiple opportunities for those people to receive feedback early in their careers, enabling them to develop as unit or enterprise leaders. And they have career and performance management processes that don’t punish individuals for taking risks. This is important because companies often use the criterion of repeated success as a screen in determining who is, and who isn’t, a high-potential leader, making it risky for individuals to take on roles that might lead to their derailment.
Bridging the Strategy-Capabilities Gap
Many companies are populated with senior executives who are graduates of the leader-as-hero school of leadership. But as customers step up their demands for solutions, those companies will need to change their views on what constitutes effective leadership. Increasingly, tomorrow’s senior executives will need to lead with an enterprise perspective. It will take time to develop these leaders and even more time for them to learn how to come together in teams.
Companies that fail to develop leaders who can work effectively across unit, functional and geographic boundaries will be unable to close the strategy-capabilities gap. But those that work on identifying and developing their next generation of enterprise leaders will be well prepared to deliver on the promise of providing innovative solutions for their customers.