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WHARTON
LEADERSHIP DIGEST
September,
2003, Volume 7, Number 12
CONTENTS
"I think the longer
you are a…supervisor, the harder it is to let go; to let your
constituents… make the decisions. The
hardest part is that you're held accountable.
For 20 years, I always made the decisions and I felt I made the
right decisions. But to turn
it over to an hourly person and say, 'You go ahead and make the this
decision.' I was so afraid they would make the wrong decision that I
wouldn't let them sometimes."
This external leader of
several autonomous work teams at a manufacturing facility well expressed
the ambivalence of many managers who know they ought to let go.
They embrace the concept of empowering subordinates in theory but
remain reluctant to devolve authority in practice.
Vanessa Urch Druskat and
Jane V. Wheeler examined what should be let go by external teams leaders
-- and what should not be. They
did so by entering a large manufacturing plant with 3,500 employees that
had moved toward self-managed work teams five years earlier.
Now, 66 "team advisors" held responsibility for the work
of 300 nine-person work teams.
The team advisors were
themselves not members of the teams. The
researchers identified 10 of these external leaders deemed superior
leaders by virtue of their teams' performance and their reputation among
employees at the plant. Then, the researchers compared the superior external team
leaders' actions with those of average performers.
The investigators found
that, compared with average external team leaders, superior external team
leaders were particularly adept at spanning the boundary between their
team and the rest of the operation. The
superior leaders devoted greater effort in several areas, and in
particular they were proved better at
1) building relations
with both the team and the organization, and developing mutual awareness
between them;
2) acquiring and sharing
real-time information about the team and the organization with both sides;
3) persuading the team
and the organization to appreciate the evolving needs of the other; and
4) empowering the team to
make decisions.
Comments by two external
teams leaders illustrate the difference in posture in this last area
of empowerment:
Average
leader: The team "wanted
to make the decision, but I wanted to make sure they were the right
decisions… you learn a lot over the years."
Superior
leader: "This needed to be their baby. I was there to help them…but they were gonna be much more
pleased with it if they did it themselves."
By implication, the
empowerment of teams requires external leaders who are willing to devolve
their authority to the teams but who are not willing to relinquish their
leadership of the self-managed team.
And the latter requires that they lead across the divide between
the team and the rest of the organization, ensuring that each appreciates,
understands, and collaborates with the other.
Source:
Vanessa Urch Druskat and Jane V. Wheeler, "Managing from the
Boundary: The Effective
Leadership of Self-Managing Work Teams," Academy of Management
Journal, Vol. 46, No. 4, 2003, pp. 435-457.
Profiting
from Uncertainty:
Leadership in an Uncertain Era
 By
Robert Gunther, Gunther Communications
On September 4, 2003, a
group of senior business leaders gathered at the Wharton School in
Philadelphia for a conference on "Profiting from Uncertainty,"
co-sponsored by The Wharton School, Business
Week, and Siebel Systems, Inc. The conference addressed the challenges
of creating strategy and leading organizations in uncertain environments.
Academic and industry presenters offered perspectives on the tools and
approaches needed to profit from uncertainty.
An
Uncertain Environment
The program began with a
consideration of some of the forces driving uncertainty by a panel of Business
Week experts. Michael Mandel, Chief Economist at Business Week, noted that while the terms from physics of
"momentum" and "inertia" have been applied to the
economy, they don't really fit. "We've heard the concept of momentum
applied to the economy, but there are more zigs and zags," he said.
While commentators often see booms and busts, there is far less
predictability than these terms imply. Mandel foresaw two possible
economic futures: 1) a "slow growth Europe future," where there
is more focus on security and less focus on innovation, leading to a
slower pace of growth similar to Europe in the 1990s, 2) a return to
exuberance, building on innovations in information technology,
biotechnology or "whatever is brewing just beneath the surface."
While technology may
contribute to exuberance, it is also a source of tremendous uncertainty,
as seen in the recent increase in computer virus attacks, noted Stephen L.
Baker, Business Week's Senior
Editor for Information Technology. "A lot of people are alert to the
risks of the technology we base our lives upon," he said. "One
of the problems is that our networks and systems are built on buggy and
unsecure applications. This trend is going to weigh down the technology
industry over the next few years."
There is also political
uncertainty. "Washington, as you know, manufactures
uncertainty," said Paul Magnusson, Washington Correspondent for Business
Week. The issues of terrorism, war, the economy and aging baby boomers
are all increasing complexity and placing new stresses on government.
"During the Korean War, we knew what the problem was; it was
Communism," Magnusson said. "Today, it is no longer nations. It
is not someone you can negotiate with. It is terrorism." Increased
financial regulations as a result of corporate scandals are placing
increased burdens on public corporations and adding to the uncertainty of
the economic environment.
Globalization also
contributes to the uncertainty. "You can view globalization in two
ways – one is diversification. The other is that you are a lot more
vulnerable to different forces coming in," Mandel said. Jobs are
moving overseas. "Should we worry about that?" asked Mandel.
"To the degree to which the U.S. continues to innovate, we keep
moving up the technology chain and leaving rungs open at the bottom."
Uncertainty as Opportunity
Paul J. H. Schoemaker,
Research Director at Wharton's Mack Center for Technological Innovation
and author of Profiting from Uncertainty, said business leaders need to change the
way they view uncertainty and the tools and approaches they use to manage
it. "Is uncertainty a threat or opportunity?" he asked. "We
need to try to change our mindsets about uncertainty." He quoted 19th
century banker Nathan Rothschild, who said, "Great fortunes are made
when the canon balls are falling in the harbor, not when the violins play
in the ballroom."
Research shows that
nearly half the profits of business (45 percent) come from industry and
external factors, but managers often see these external factors as out of
their control. While the external environment may be outside their direct
control, by better understanding and preparing for potential changes in
the environment, managers can prepare to create opportunities from this
part of the business that is currently "left to fate,"
Schoemaker said. "It is not that we subjugate uncertainty but that we
navigate it."
Traditional management
tools such as Net Present Value (NPV) analysis or portfolio optimization
are designed for more certain environments, he said. As environments
become more uncertain, managers need to adopt new tools such as scenario
planning, real options analysis and dynamic monitoring.
Human
Limitations
Schoemaker discussed
cognitive research on some of the quirks and foibles of the human mind
that make it difficult for us to deal with uncertainty. These include:
- Limiting
frames: The
assumptions we use to frame challenges can limit our ability to see
changes in the environment, just as General Motors' assumptions about
the automobile market in the 1960s made it difficult to see the
threats of foreign rivals. Like an optical illusion, once we see a
picture in a certain way, it is hard to unlearn that view.
- Overconfidence:
We tend to think we know more than we do, which
Schoemaker demonstrated by an "overconfidence quiz."
Some groups of people such as weather forecasters and
professional bridge players are fairly well calibrated in their
confidence, but the rest of mankind is just "grossly
overconfident and blissfully overconfident," he said. "One
of the reasons we are overconfident is that it makes us feel good.
There is a feeling of control."
- Availability
bias: We
tend to give more emphasis to events that are highly publicized, such
as automobile accidents or homicides, than other causes of death that
are less widely publicized, such as deaths from lung cancer.
- Ambiguity
aversion: We
prefer a known risk to an unknown risk even when the odds are the
same.
Uncertainty
as Opportunity – Developing and Analyzing Multiple Futures
Roch Parayre, Senior
Fellow at Wharton's Mack Center for Technological Innovation, discussed
tools and approaches that managers can use to profit from uncertainty. He
compared these tools to the application of the compass in ancient Venice,
a simple tool that allowed the city state to become a center of global
trade. Parayre described a process for using scenario-based strategic
planning and real options to identify and implement flexible strategies,
and the use of dynamic monitoring to keep the strategy on track as the
world unfolds.
He compared the process
of planning for an uncertain future to packing a ship for a journey that
might end up in either the polar regions or the burning desert. The first
resources to pack are those such as water that are valuable in either
environment. The next set of resources are those that can be flexibly
deployed, such as a blanket that can be used to shield against the icy
wind or sun. The third set of resources represents more risky commitments
to a certain view of the future. "What
are things you can commit to that are going to be robust?" he said.
"For the rest, remain flexible and wait until some of the
uncertainties unfold."
The costs of not
preparing for multiple futures can be high. For example, Encyclopedia
Britannica became so locked in its highly successful model of
publishing print volumes that it failed to adequately recognize and
prepare for a world in which encyclopedias began moving to CD-ROM. The
company understandably didn't want to cannibalize its very profitable
print business for the low-priced CD-ROMs. Its sales dropped 53 percent
from 1990 to 1994, following the introduction of Encarta and other
online versions. "Would
scenario planning have helped these guys?" Parayre asked. "I've
got to believe the answer is 'yes.' The highway of business is littered
with dead bodies of winners who became losers because they didn't have a
model to profit from uncertainty."
Scenario thinking is like
building a "strategy flight simulator," that allows
organizations to prepare in advance to recognize and respond to different
eventualities, he said. Uncertainties such as a rise in computer viruses
create opportunities for companies that can respond to them. "All the
examples we've talked about today had negative consequences, but we have
to start changing our mindsets," Parayre said.
Cantor
Fitzgerald: Preparing for the Unthinkable
On one day on September
11, 2001, Howard W. Lutnick, Chairman and CEO of Cantor Fitzgerald,
L.P., faced the human tragedy of the loss of hundreds of employees
combined with the loss of its headquarters in the World Trade Center and
most of its business. Its advance preparation, a resilient culture and its
renewed purpose to stay in business to assist the families of victims,
allowed the bond trading company to survive the unthinkable shock of the
worst terrorist attack in U.S. history.
After losing more than
600 of its 1,000 employees in the attack, Lutnick gave the remaining staff
the option of shutting down. But they decided to rebuild the business with
a new goal: "the only way we can help our friends' families is if we
rebuild this company for the purpose of taking care of them," Lutnick
said. "That sense of help burned so brightly in the people that we
had working for us." They would devote 25 percent of profits for five
years to the families of victims.
While no one anticipated
an attack of this magnitude, Cantor Fitzgerald had taken some previous
actions that gave it flexibility in rebuilding. After the 1993 attack on
the World Trade Center, they had created triple redundancy of their
information systems so when the systems in headquarters and a location
nearby were both knocked out, they still had a backup. Before the attack,
the company had also invested in building an electronic system to replace
the physical trading pits it used to trade U.S. government bonds. The new
technology was designed to forestall a potential competitive threat. It
was meant to avoid being "Merrill Lynch and get Schwabbed," but
it also gave the company the flexibility it needed to restart its
operations after the terrorist attack. The
terminals for the electronic system, eSpeed, were in place, but customers
had not widely adopted the system. With the loss of most of its key staff,
the new system was quickly adopted and allowed the company to rapidly
rebuild its business. "That's how we were able to live through
September 11," Lutnick said.
Deloitte
& Touche: Strategic Flexibility
Jim Quigley, CEO,
Deloitte & Touche, LLP, quoted Winston Churchill who said "the
future is just one damn thing after another." The accounting industry
has experienced its share of shocks, from consolidations to Enron and
other scandals that brought down Andersen. Quigley
offered several lessons about profiting from uncertainty:
- Maintain
your strategic flexibility:
"Sometimes
the best deal is no deal," he said, noting that they were
initially disappointed when a deal to separate their accounting and
professional services businesses fell through, but it turned out to be
"fortuitous" because it has given the firm increased
flexibility in a turbulent economic and industry environment.
"Give up your strategic flexibility grudgingly," he said.
- Build
agility: He
recommended replacing a "ready, aim, fire" strategy with a
"ready, fire, steer" approach. During
the past two years, with the demise of Andersen, Deloitte and other
firms found many companies seeking to switch accountants. It was a
tremendous opportunity but the company needed the agility to seize it.
- Having
the right people: In
times of change, having the right people and linking them together
with shared values and culture is crucial.
This helps ensure that people do the right thing even if it is
not popular or jeopardizes the short-term interests.
Medtronics:
Building Organizational Agility
Medtronics also faced
tremendous challenges from the 9/11 attacks. "Even though we had
disaster recovery plans, nothing could prepare us when every single
airplane that we use to ship products to hospitals was shut down,"
said Arthur D. Collins, Jr., CEO of Medtronics. "You can plan very
well, but most of the plans you put into place are going to be overtaken
by events." Collins
discussed several issues that are critical for building agile
organizations:
- Culture:
When there is rapid change in the environment, a strong
culture can help keep the company focused and innovative. Medtronics
has built a culture that focuses on speed of decision making and
allows employees to make mistakes. This keeps the organization moving
quickly to seize new opportunities or respond to threats.
- People
and organization: The
company maintains an organizational plan that receives the same
attention as strategic and operating plans. They also break up the
organization into smaller units as they get bigger to keep it nimble.
Finally, they focus on hiring up. "We have an objective to
continue to hire better than we are," Collins said.
- Business
process: They
carefully scrutinize and change business processes. For every process,
they ask: Does the process add value to the organization? "If the
answer is 'no,' we deep six it," Collins said.
Nextel:
Beyond the Field of Dreams
A clear market focus –
concentrating on the business sector with "walkie talkie"
communication – helped Nextel address an environment of tremendous competition
and uncertainty. Partnerships with suppliers and other firms such as
Motorola allowed it to respond to rapid changes in technology. "You do have to build a technology strategy, but to look
beyond three years in technology is difficult," said Tim Donahue,
President and CEO, Nextel Communications, Inc.
The focus on the business
segment allowed the company to avoid the headlong rush into expensive 3G
networks. "They had nothing to do with data streams," Donahue
said. "I don't believe in a "field of dreams," especially
when the field costs $2.5 billion to create. We build it only when we
believe there is a reasonable return."
The company has also
focused on three key areas: people, service and value. It set goals for
100 percent employee satisfaction, 100 percent customer satisfaction and
maximizing shareholder value. While these were not achievable, they pushed
the organization to achieve leadership along these dimensions. While
Nextel is in a technology-driven business, good people are at the heart of
it. "The key reason we have been so successful and continue to be
successful is that I spend an enormous amount of time recruiting," he
said.
Leadership
is More Important
Michael Useem, William
and Jacalyn Egan Professor of Management and director of
Wharton's Center for Leadership and Change Management,
said research shows leadership makes the biggest difference in times of
high uncertainty and rapid change. He
also said that while we often focus on the leadership of the CEO, it is
the leadership of the team that
is most important for success. "The future of the company in an era
of uncertainty and change, depends on your leadership and kind of team you
have assembled," Useem said.
Among the keys to this
leadership in uncertainty are:
- Culture:
Organizations need to build
a culture focused on the job at hand rather than the turbulence of the
environment, the way NASA Flight Director Eugene Kranz told his staff
during the Apollo 13 crisis to "work the problem" and focus
on the systems in the damaged spacecraft that were still working.
- Confidence:
Experiences such as basic training at Quantico can help
build the strong self-confidence that is needed to lead in turbulent
environments.
- Camaraderie:
Teamwork is
critical in responding to threats and uncertainty. "Individuals
on a good team can far outperform what they can do on their own,"
Useem said.
- Courage:
People can learn to be more courageous and the
organization can instill a sense of courage in employees.
- Balancing
overconfidence and pessimism:
The leader in
uncertain environments needs to be able to overcome pessimism and
reign in overconfidence. Great leaders of climbing expeditions, for
example, monitor the pulse of the group. "On bad days, they talk
up the prospects," Useem said. "Equally important, they
guard against overconfidence. On good days, they would urge the others
to be careful and look at the risks."
Uncertainty,
Ethics and the "Good CEO"
When ARAMARK CEO Joseph
Neubauer was recognized as "The Good CEO" in Business
Week, a colleague commented that "it's ironic that doing the
right things to create value is now considered a newsworthy event." Neubauer
stressed the importance of adhering to a set of straightforward rules and
rewarding performance, simple advice that was surprisingly set aside in
the rush of the dot-com bubble. Among these simple rules are:
- Make
decisions based on facts, not wishful thinking.
- Demand
performance and reward it.
- Take
calculated risks.
- Control
your own destiny.
- Keep
your commitments.
- Stay
focused, don't be distracted by fads.
- And,
above all, do everything with integrity.
"Our business model
didn't change during the boom, and it hasn't changed now that the bubble
has burst," he said. "And it won't change if a new bubble
emerges."
With about 50 percent of
the transactions of ARAMARK's outsourced service businesses occurring in
cash, the integrity and consistency of the culture is vital. "That's
well more than $4 billion a year changing hands on the front lines,"
he said. "If we didn't have people with high integrity at every
level, we wouldn't be in business."
Note:
Robert Gunther can be contacted at robert@gunthercommunications.com.
Learning
to Master Uncertainty:
Wharton Executive Education
The Wharton School offers
an array of executive education programs designed to foster the mastery of
uncertainty, including:
Create frames for
examining potential futures and developing strategies for success.
November 11-12, 2003, San Francisco.
Critical
Thinking: Real-World, Real-Time Decisions
Maximize decision-making
processes by developing frameworks for approaching problems, assessing the
uncertainty in situations, and recognizing when you have enough
information. November 10-12,
2003, San Francisco.
Build leadership to
confront uncertainty and master opportunity. Oct.
19-24, 2003 and April 18-23, 2004, Philadelphia.
Copyright
1996-2003, Wharton Center for Leadership and Change Management
University of Pennsylvania.
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