The Successful Leader (Part II)

Published: June 22, 2011 in Knowledge@Wharton

In his new book, The Leader's Checklist, Wharton management professor Michael Useem presents a collection of 15 principles that can help leaders navigate successfully through even the most difficult circumstances. Using such milestone events as the rescue of the 33 Chilean miners in 2010, the collapse of AIG in 2008 and the surrender of the Confederate army at Appomattox in 1865, Useem illustrates the difference between good and bad leadership, and how to achieve one's own personal leadership success. The Leader's Checklist is the first ebook published by Wharton Digital Press. To mark the occasion, the book will be available as a free download at leading retailers until June 28, 2011.

Knowledge@Wharton: Mike, you have written several books on leadership. What was the inspiration for this particular one?

Michael Useem: I became convinced that everybody needs a leader's checklist by virtue of watching leaders in action who didn't have it. They made -- call it "an unforced error," or sometimes a couple of unforced errors. Simply having a piece of paper that says, "Don't forget to honor the room," or "Don't forget to talk about a company strategy," would help people avoid these kinds of mistakes. It really goes back to Atul Gawande's great argument in The Checklist Manifesto. Most people in surgery and most pilots don't make errors. But when they do make an error, it has significant implications. A checklist helps prevent such a mistake.

Knowledge@Wharton: It's catastrophic.

Useem: Yes, catastrophic. Mission critical. And so for that reason, the FAA and military aviation authorities many years ago imposed the Aviator's Checklist. Hospitals in the U.S. and abroad have begun to impose the Surgical Checklist, very similar in import. Because even surgeons -- smart, well-trained, they have done a thousand procedures of a given kind -- they still once in a while do make an error, given all the complexity, stress and fast-moving circumstances they operate under. In surgery, you don't want that to happen. And by implication, you don't want that to happen to a leader who is trying to help everybody understand where the company is going to go in the coming 12 months but forgets to hit all those items on the checklist.

Knowledge@Wharton: You pick out the Chilean mining disaster and rescue, the near collapse of AIG and the ceremonial surrender of the Confederate Army during the Civil War as your three main examples to kick you off. Very briefly, why did you pick those three?

Useem: I think it's very important for people to appreciate why a given item is on the checklist, and to see where it is illustrated by somebody's leadership moment. Or not illustrated, as in the case of AIG. By seeing that, I think we hang on to these ideas. That becomes critical in a leader's checklist, as opposed to an aviator's checklist, in the sense that with a pilot, you can't take off if you don't go through a checklist in modern aircraft. Literally, the aircraft won't go forward if you haven't hit the buttons on the electronic panel.

But in leadership, we have no FAA equivalent. We've got to walk around with this set of ideas ourselves. And my own experience is that people remember, hang on to and are ready to use some of the ideas of the checklist if those ideas are embedded in something very graphic, something very memorable, something very powerful. And just to recall that AIG went belly up back on September 16, 2008, partly because the people who led that firm didn't have a full checklist. That serves as a reminder.

Knowledge@Wharton: So these three examples correlate to specific items on your checklist?

Useem: Yes. At the outset of the book, I identify 12 principles that are pretty obvious as soon as I report them. You've got to have a vision, a strategy, honor the room, say it so it sticks, and so forth. But then I offer arguments to the reader that there are three other principles that are very important, and they don't necessarily stem from some of the research or writings that I review earlier on.

So in the case of AIG, leadership principles were not followed by the CEO of AIG, or by the managing director of AIGFP, the financial products group that led to AIG'd downfall. Keep in mind that the leader's calling is to help people stay confident without being over-confident, to be realistic, to guard against hubris. What happened in the case of AIGFP is it began to insure all these fancy products on the premise that AIG, the parent, would keep its Triple-A Standard & Poor's credit rating. That was vital to the way that AIG operated. But credit agencies do have a habit of down-grading organizations.

Think AIG, think Greece at the moment. Neither the AIGFP managing director nor Martin Sullivan, who was AIG's CEO at the time, really had a rainy-day scenario. There were plenty of signs that down-grading was possible after Bear Sterns. It's in the spring of 2008 that agencies -- in part because they're under a lot of criticism -- are beginning to down-grade many companies. But AIG's top people evidently had no worst-case scenario. "Suppose we get down-graded?" And it was that down-gradingthat put AIG under.

Knowledge@Wharton: So that was their lack of a leadership vision or leadership moment?

Useem: Yes.

Knowledge@Wharton: In terms of the Chilean Mining Minister, what one principle or two principles do you think were demonstrated in that rescue?

Useem: There were many actions that Chilean Mining Minister Laurence Golborne took between August and October of 2010 to bring the 33 trapped miners to the surface. One factor, though, in particular that I emphasize is that -- given his background in retail, not mining -- he didn't bring any technical knowledge of how to mine, let alone how to rescue miners 2,000 feet below. He not only had to get the miners out -- that was a huge engineering challenge -- he also had to manage relations with the government. There were 2,000 full-time reporters on site with plenty of time to find Golborne and ask him questions. And he had 33 families who had a very strong point of view on just about everything he was doing.

So to his credit, he pulled together a team, an extremely diverse team. Leadership is both an individual and a team sport. You can't lead if you don't have a good and diverse team. That was graphically evident back in the Atacama Desert last summer and fall.

Knowledge@Wharton: And what about the Confederate Army having to formally surrender at Appomattox?

Useem: Yes, Robert E. Lee surrendered his army to Union general Ulysses S. Grant, and Grant in turn assigned the organization of a ceremonial surrender three days later to one of his officers, Joshua Lawrence Chamberlain.

Knowledge@Wharton: How was that handled by Chamberlain?

Useem: It was a day of ignominy for Lee's army, the Army of Northern Virginia, 25,000 strong. They surrendered April 9. The "surrender at Appomattox" is the phrase that historians have given us. Meanwhile, though, as Grant signed the document with Lee in a private home, a telegram goes up to Lincoln in Washington. Lincoln, of course, is thrilled. But he also is mindful of what's next.

Knowledge@Wharton: The future of the country now that the war was over.

Useem: Which is reconciliation. And that's a little bit of a bitter pill since, as we know in retrospect, it is just five days before April 14, when the President and Mrs. Lincoln had tickets to Ford's Theatre, where the President was assassinated by John Wilkes Booth.

Lincoln in the White House is thinking, "I've got to start the process of reconciliation." Meanwhile, Grant gives Joshua Lawrence Chamberlain, a one-star non-regular army officer, the almost singular honor of organizing the ceremonial surrender of Lee's army. The formal surrender is all over on April 9. But the ceremonial surrender comes on April 12. Grant says to Chamberlain, "Chamberlain, you're going to be in charge of the informal surrender. You decide what to do. I'm only going to require that you collect the muskets and the flags." So Chamberlain -- in a very unorthodox move -- brings his own 4,000 Union soldiers to attention with what is called "carry arms." The Confederate officers, about to give over their flags and their arms to Chamberlain and who come out of the same military tradition, know that "carry arms" is a mark of great respect.

So Chamberlain, believing that Lincoln probably wants reunification, decides to help reconciliation in his own smaller way. This moment becomes known as the "salute returning the salute" when the Confederate commander, John Gordon, who's marching toward the field with the 4,000 Union soldiers all lined up, sees them "carry arms." He says to his own subordinate officers, "carry arms." The two armies saluted each other, and that leads to the 15 ^th point on the Leader's Checklist. With a foundation of 12 principles, I have added a 13th from AIG, 14th from the miners' rescue in Chilé, and then a 15th from Chamberlain at Appomattox, which is the most important principle of all. It runs through the Jim Collins' book Good To Great, for example. And that is, at the start of the day and at the end of the day, leadership is not about you; it's not about anything in a leadership position -- except the mission and purpose of the organization.

Chamberlain is criticized for saluting the enemy, but arguably it was the right gesture given the mission of the moment.

Knowledge@Wharton: Right. So those are three very important principles that you have just illustrated very well. Which of the other 12 that you start out with -- which is the hardest for a leader to focus on?

Useem: That's an easy question to answer because I've noticed this one missing more often in practice than any of the other 15. I have a phrase I use there to capture it. It's a bit of shorthand: "Honor the room." In a discussion with one person, a team, a class, an off-site meeting, before you get off-stage, take a moment to tell the people you are with -- those who may be ready to follow you -- that you know who they are, that you respect what they're doing and that you're extremely grateful for their hard work upon which you're going to get your job done.

Knowledge@Wharton: You also note in your book that there needs to be customized check lists for distinct times and contexts, including what the company is, what country a business is operating in, what is happening at that moment in time, and so forth. We're experiencing, obviously, the tail end of a recession and a very struggling economy. What would your checklist be for companies trying to get out of that recession and recover?

Useem: There are different ways to answer the question. The way I've chosen to answer it in this particular e-book is to draw upon the thinking of 14 people we interviewed right in the middle of the height of the financial crisis of 2008 and 2009. We went to 14 CEOs and asked them a very simple question: "Look, in light of what you are in the middle of now, what are you doing a little bit differently from what you ordinarily would have done?" The one thing that really stands out -- from among six actions that were somewhat distinctive and really should be seen as add-ons to the checklist -- is the cardinal importance of being clear about what's out there, saying what, in your realistic appraisal of the environment, is the good news and what sometimes is the very bad news. And repeatedly communicating an extremely realistic appraisal, along with an unequivocal re-commitment to what you're trying to do, the purpose and goals of the enterprise.

So something like: "Don't forget that this is why we're on earth, this is our mission, it seems like hard times, here's how hard it is -- but we're going to get through it."

Knowledge@Wharton: Can you name a few of those CEOs who were among the 14?

Useem: We interviewed A.G. Lafley of P&G, for example and Ed Breen, who essentially came in and rebuilt Tyco, cleaned up the mess in one of the most remarkable remakes of all time.

Knowledge@Wharton: When you were researching your book, was there anything that surprised you? You have studied leadership for quite a while, so you must have seen and heard it all. But was there something that was surprising or that was so counter-intuitive that you were shocked by it?

Useem: Here's the most counter-intuitive point of all, which has nothing to do with leadership, but it has implications for it. Several articles published this year in the New England Journal of Medicine compare hospitals that use surgeons' checklists with those that don't. You had to be careful -- different kinds of patients, different kinds of protocols all had to be taken into account. A hospital that does not use a surgeon's checklist has, on average, a rate of mortality of about one percent. But at hospitals that use a surgeon's checklist, required and enforced by the surgeon and sometimes the chief nurse in the room, mortality rates are cut in half.

Knowledge@Wharton: A half of one percent?

Useem: Yes. Not a big deal, unless that happens to be your daughter or son who is in that 50 basis point range.

Knowledge@Wharton: Absolutely.

Useem: I'm actually surprised the reduction was that large. And, by implication, in a study yet to be done, my guess is that a leader who gets out there, pretty consistently applying the 15 most important principles, is going to be materially better for it. I can't prove that now, although intuitively, it seems right. I think that was the most surprising element. That it really does make a difference, especially among seasoned professionals.

Knowledge@Wharton: That raises the question of what proof can you have or can you fall back on to show that the checklist makes a difference. It's fairly subjective and almost anecdotal -- or maybe not. Comparing one hospital to another hospital is a little bit easier than saying this list makes a certain leader into a better one, maybe by saving people's jobs, or whatever.

Useem: It's an amalgam of sources of evidence. To cite one well-known method, Jim Collins in Good To Great takes 11 companies that went from good to great and 11 companies that did not, over five years. What's the difference? One that emerges is that the CEOs of those 11 companies that went from good to great were totally focused on mission, absolutely not focused on their own welfare or getting ahead. There are lots of particular studies out there that get at this facet or that facet, but no study that I know of -- and I haven't done it myself -- has taken all 15 of these separate items. Yet pulling from a range of sources, I've become convinced that these 15 are all mission critical. Which means that you've got to have them all. None is sufficient.

Let's take the number one item -- "having a vision, a strategy and being able to execute around it." I will track down a study that finds that chief executives who are more strategic and more thoughtful about vision do perform more strongly. What I don't have though -- it's a good challenge -- are those involving all 15.

Knowledge@Wharton: If you could name, without any explanation, the top four leaders who are actively leading today, who would they be?

Useem: Indra Nooyi of Pepsi. Steve Jobs at Apple. I am drawn to Laurence Golborne, and I have long standing and continuing great admiration for the man who built Lenovo, Liu Chuanzhi. I picked the four in part because they each illustrate a different part of the spectrum there.

Knowledge@Wharton: I notice, of course, that one of them is a woman. Did you find there any traits or principles that you think are actually more likely to resonate with leaders who are women than with leaders who are men?

Useem: You know, from a research standpoint, no, and even intuitively, no, in observing leaders like Indra Nooyi or Ellen Kullman, who has a very good start in taking over as CEO of DuPont.

Knowledge@Wharton: It's good if we're beyond the point where we have to say "women are different from men in terms of leadership."

Useem: Yes, that's where I am. To make an obvious point, there is more variation within gender than between gender these days. Put that differently -- I think men and women can learn from Indra Nooyi and Ellen Kullman and Laurence Golborne.

Knowledge@Wharton: You note in the beginning of your book that the "animating premise" of The Leader's Checklist is that effective leadership can be learned, and, indeed, should be learned. Does this mean that you're negating the role of gut reaction or spontaneous reaction to events? Can people still be leaders by the seat of their pants, if you know what I'm getting at?

Useem: There is lots of research evidence on that, and a great argument from the author of the book called Blink that intuition is extremely important and vital to have. Gut instinct is a great platform for making good and timely decisions. Having said that, gut instinct, intuition that is not informed by experience, is likely to be a disaster. So when the author of Blink writes as a subtitle, The Power of Thinking Without Thinking, the sub sub-title should be, After Having Digested Prior Experience." And there's just lots of evidence on that.

Knowledge@Wharton: What's an example?

Useem: Probably the best example that comes to mind very quickly here is what we learned from the US Marine Corps. As we watch the officers and the officer candidate school train future Marine Corps officers, the teaching method is for people to get out, act, experience, succeed and fail, and then conduct what they call the "After Action Review." To take it apart -- what went well? What did not go well? And that is, in my view, one of the great avenues for leadership development -- which is to take apart your last day or your last week and reflect on it. After a couple years of doing those "after action reviews," you can say correctly with confidence, "My intuition tells me right now that we ought to be going in this direction and not that direction."

Knowledge@Wharton: So that's informed intuition?

Useem: Yes, informed intuition ... informed by your own and other's experiences.

Knowledge@Wharton: So what is the biggest challenge that our leaders face today?

Useem: It's a really important question because it gets at whether leadership -- and getting your leadership formula right -- is really important. So here's the argument. For people in positions of responsibility organizationally, one of the best predictors of how much impact a given leader will have -- a college president, a corporate manager, a country prime minister -- is the extent to which the company, the university or the country is facing changing or non-changing circumstances, and the extent to which the future is discernable and predictable or not. So, to make that more affirmative and to put it simply: If life looks like it's going to be more uncertain going ahead, you really want to get your leadership formula right. Think Greece as we speak, think companies in some of these tough telecom markets, think the globalization of firms now trying to get into the China or India market. If you're a leader of any of the above, you're facing, in the next five or 10 years, arguably more uncertain and more changing circumstances. If so, it's more critical than ever to get your leadership right. And what does it mean to get it right? You have to apply all 15 principles of the Leader's Checklist. One or five won't do it.

Knowledge@Wharton: What is the 16 ^th principle?

Useem: The one that's not in there.

Knowledge@Wharton: The one that got away.

Useem: This is not meant to dodge your question, but I'm going to answer it in kind of a sideways fashion. As soon as you sit down and look at these 15, it's obvious. There's definitely no rocket science here. If you're going to lead, let's say as a mid-level manager at Google or at GE, you need a 16 ^th and a 17 ^th and an 18 ^th principle, ones that apply to those particular settings. So in the case of GE, it's that unrelenting focus on getting results quarter in and quarter out. You just have to do it. You've got to be really good at that. At Google, it is sustaining intellectual energy and excitement about projects. I wouldn't make those universal, because at some organizations they are not vital. If you operate in India, it's going to be different ones than if you are operating in China.

Knowledge@Wharton: Thanks very much, Mike. It's been great talking with you.

Useem: Thanks to you as well.

Layoffs, pay cuts, and organizational reordering have become widespread realities in the downturn. In this video interview, management professor and author Robert Sutton offers his advice on how to be a good boss in today's difficult climate. Watch the interview or read the transcript below.

Podcast

Good boss, bad times

The Quarterly: We're here today with Bob Sutton from the Stanford Graduate School of Engineering, noted author and specialist on management and organizations. You did an article recently for the Harvard Business Review, "How to be a good boss in a bad economy." Frame the challenge for us.

Robert Sutton: First of all, the article started because it seemed like every executive I know at almost every level was involved in layoffs, pay cuts, the threat of it. So, I was hearing from people everywhere. But the reason it matters and why it's hard to be a good boss in tough times starts with a [principle] I call the "toxic tandem," which I've stolen from a lot of good social psychologists who do experiments.

And it's a combination of two things about power that are very well documented. One is that when people are in positions of power, for better or worse, they often become sort of oblivious to the needs and actions of the people who have less power than them. You can produce this in all sorts of ways-it's very easy to produce in the laboratory. And the other part of the toxic tandem is sometimes called hypervigilance.

Video

The Quarterly: So the spotlight raises on you if you're the boss in tough times.

Robert Sutton: The spotlight raises on you. They're looking at you really closely. So if you think about the toxic tandem, you've got the boss, oblivious, and then the subordinates, even more and more worried. People tend to devote a lot more energy to their boss-or to their board, even, if they're CEOs-to figure out what is going on. And they don't engage as much with the people who are under threat.

And then the other thing about the toxic tandem that bosses really have to keep in mind is that there is a lot of research that shows that when people are looking at the boss and worried about what the boss is doing, they tend to assume the worst. So little, tiny signals get magnified.

I don't think this made it in the article-it's on my blog because it came afterwards. I presented the ideas to a group of executives. And this guy walks up to me and he starts describing his executive vice president and how one of the secretaries walked up to him and said, "When are the layoffs going be?" And he says, "What?" And then she went to explain. She said, "Well, it's an 'interesting shoes' day for you."

What this guy has a reputation of doing is he can't look people in the eye when he's upset about stuff, so he would always be looking at his shoes. They were saying, "The boss is having 'interesting shoes' day." So from just the fact the guy walked around not looking anybody in the eye, she went straight up to him. So that to me is a pretty good sign he was oblivious to that, right?

The Quarterly: So the point here is that when times are tough, that has its own dynamic. But the thing you have to understand as a boss is that they are looking at you. They may have ignored you in good times, they may have paid attention when they needed to, but you're suddenly under the spotlight in a way you haven't been. So what do you do? What do you do to do it right?

Robert Sutton: Well, first of all, one thing I always like to emphasize is that I'm a management theorist. And it's a lot easier to talk about management than to actually do it. So, you know, for readers of the McKinsey Quarterly and other-

The Quarterly: That's your disclaimer, right?

Robert Sutton: But it's not just a disclaimer. It's one of the reasons I talk about management rather than actually do it. I see how hard this is on my various friends who are CEOs and how it just rips their guts out and how much they worry about it. But there is sort of a little recipe that actually goes back to some research I started with my now, I think, 92-year-old mentor, Robert Kahn, in graduate school. The recipe is prediction, understanding, control, and compassion.

The idea of prediction is that if some sort of stress is coming through, it does much less damage to people when they know when they are safe versus when they are threatened. Martin Seligman is the psychologist most heavily associated with this. But a good example of this, and this comes from one of the CEOs I know-the head of a nonprofit. He was describing to me that they knew donations were falling, grants were falling, and their stock portfolio was falling. Things did not look good. And all those things were sort of intertwined and part of the economy.

But his people were very nervous. So what he said to them was, "I promise you there will be no layoffs or pay cuts for 90 days; nothing is going to happen, so you're safe until then," so people wouldn't come to work every day waiting for the other shoe to fall. So that is the kind of thing that gives people some bit of psychological safety. And also they know when to mobilize to worry about their lives.

The Quarterly: So don't overpromise, but at least if you can give a certain window of stability, give it to them-right?

Robert Sutton: Yeah, and I've heard a number of CEOs in other places say that sort of thing. So the next thing is understanding. It's very well documented that, independently of how stressful things are, human beings need to know why things happen. They need some sort of explanation. And there is sort of a challenge there, because if you give them too complicated an explanation, then they just get befuddled and freak out. There is an art to being able to give an explanation that's complicated but not too complicated, so they can follow it. Part of getting rid of the fear is having people understand it.

So that's understanding. The next one is control-if you can give people some control over the way it happens. A good example of this, which I talk about in the article, is some years back-this was when A. G. Lafley came on in about 2000 as CEO of Procter & Gamble, but they still had John Pepper as the chair-and John Pepper described how they learned a lot about closing plants. Procter & Gamble used to sort of sneak out in the middle of the night. But they learned that when they announce it in advance, tell them why, give people all sorts of exit options and places they can have control, and show compassion that-and Procter & Gamble has very good metrics-they would keep more good employees, they would get better press in the community. And the other thing, which was quite important to them, is that sales of the product in the local community would not go down so much.

And to me, the even simpler idea-as one of my friends, Michael Dearing, who used to be an eBay executive, always says-is that there is a difference between what you do and how you do it. It's really quite clear that the worst situation, even if they are announced in advance, is when people go through multiple rounds of layoffs. The best people start leaving. The people who stay work less hard, they have mental health problems.

So to the extent that you can-and of course, in this current environment, predicting what's going to happen is very difficult-but to the extent that you can not put people through multiple rounds of layoffs, you are going to be better off as a boss and also as an employee in all sorts of ways.

The Quarterly: Let me ask you about the "don't"s. Don't, you know, look at your shoes if you are normally an avoider of people when there are bad things coming. But what are some broader don'ts?

Robert Sutton: I think there is a really important subtlety that one of the managers I've talked to-who has worked at probably six or seven firms where she's been involved in layoffs-has really emphasized, which is the rhythms and time span of emotion. And there are two parts of this. The first part is that when you, as a boss or decision maker, are going through this process of trying to decide whether or not to do layoffs, you go through all sorts of emotion. First you get angry, then depressed. But by the time you present it to your employees, it is old news to you and it is new to them. So you sort of have to back off.

There is another thing I was going to emphasize-and this is about taking a longer-term time perspective. The story in the article actually comes from Randy Komisar, and it's about when he worked for a guy named Bill Campbell, who is famous in Silicon Valley for being a coach. Actually, it has been profiled in the McKinsey Quarterly before. Bill was famous for being this real warm, supportive guy. But [Campbell and Komisar] were involved in a startup that was once high flying and eventually sort of wound down. Bill treated everybody so well in the process-both emotionally and then he also went out on quite a limb to try to get people jobs and to sell the company in such a way to save them jobs-that even though the company was just basically winding down, none of the top management team left. And they are all very loyal to him.

That is sort of an extreme case, but I think it is important to remember that it's a long life, and there are some times when companies aren't going to make it. There are some times when you, yourself as a boss, are going to lose your job. People will look back and remember how you dealt with it. And you've also got to deal with your own conscience in the process. I think that's a very important thing [to remember] because everybody sort of focuses on the short-term productivity.

The Quarterly: One last question: how do you deal with the folks who don't get laid off?

Robert Sutton: When they see that it's fair, they are more likely to stay loyal, suffer less psychological damage, and also feel more guilty and work even harder to help you. There is actually this sort of weird, sneaky part of it, which is that if the survivors are treated well, they kind of feel guilty because of that "there but for grace of God go I" sort of phenomenon. In fact, most of all the stuff I said about prediction, understanding, control, and compassion-whether people lose their jobs or not-has an effect on the whole system.

Published: February 16, 2011 in Knowledge@Wharton

Steinbaum recently spoke with Knowledge@Wharton about his book. An edited transcript of the conversation appears below:

Knowledge@Wharton: Your book is about the career-defining moments of top business leaders, so let's start with the most basic question: What is a career-defining moment?

Steinbaum: A career-defining moment is the most important decision that a business leader makes in his lifetime, a decision that defines him as a business person and has the greatest impact on his business life. Sometimes you don't know it's your defining moment until you look back over your entire career. At other times you might know it immediately because it's a result of a crisis or some monumental success.

Knowledge@Wharton: How does a defining moment differ from the countless, very important decisions that a CEO or indeed any business executive may be called upon to make?

Steinbaum: A defining moment has the greatest impact on a person's company. As such, the risks are usually greater, the potential downsides -- if there's a problem -- are usually greater, and the rewards are usually greater.

Knowledge@Wharton: Could we explore this theme by looking at your own experience? Your defining moment came when you were chairman and CEO of Medicare-Glaser, which is one of the largest retail pharmacy chains in the U.S. Could you tell us that story?

Steinbaum: We were a privately held company and we were growing rapidly. We needed funds with which to grow. We had a number of choices, one of which was to go public. While we were considering that option, we had an offer from Pet, a conglomerate on the New York Stock Exchange, to buy our company. We felt that that was the answer to our growth problems because they had the resources to finance our expansion plans. Shortly after Pet acquired Medicare-Glaser, I became a group president and had responsibility for six of their 17 operating divisions. From that vantage point, I had the opportunity to look at management firsthand and how they made decisions. They were very risk averse. As a matter of fact, their culture was one where they would manage problems as opposed to solving them.

My partners and I realized that if we could re-acquire our company, we could implement our growth plans better ourselves. That became my defining moment, approaching Pet with the idea of buying our company back. Needless to say, it was a very tough and prolonged negotiation, but in the end we did re-acquire our company through a leveraged buyout. It was the most important decision I ever made. The result was that our company grew and prospered and we had an impact on the industry itself.

Knowledge@Wharton: How much did the company grow after you took it back from Pet?

Steinbaum: We developed the first chemically-based drug interaction database in the country. This would allow a pharmacist to notify a patient who was on more than one drug if a drug he or she was taking could react with another and adversely affect them. We also started to open health care stores and pharmacies. We formed a network of drug stores throughout the country where people could get prescriptions filled if they didn't have a store in that area. We got very heavily into mail. We formed a joint venture with Santos, which is an HMO headquartered in New York. The result was a company called Express Scripts, which is today the second-largest pharmaceutical benefit company in the country. It fills prescriptions for more than 50 million people today.

Knowledge@Wharton: Turning now to the other 39 CEOs whom you interviewed for your book, how did you go about selecting them?

Steinbaum: Some of them I knew. I knew their backgrounds and that their stories were fascinating. Others were referred to me. After talking to them, I found that they had compelling stories that could provide lessons to be learned by the reader. I felt that these lessons would be invaluable to anyone who was interested in getting into business, or if they were already in business, allow them to move further in leadership roles.

Knowledge@Wharton: Some of the CEOs told you were about career decisions that they made. Could you give us some examples?

Steinbaum: Well, consider Bill Rasmussen, the founder of ESPN. Bill had been the communications director of the New England Whalers hockey team, and he had just gotten fired because they had had a bad season; they literally got rid of everybody. Bill and his son Scott wanted to get involved in doing sports broadcasting in Connecticut. They had a couple problems. One, they had no money. And they had no way of broadcasting the television programming into people's homes.

Bill borrowed $9,000 on his credit card to start ESPN. He made a deal with RCA to rent what they call a transponder, which was a device that would allow him to broadcast into people's homes. The reason he was able to do it was he wouldn't have to pay them until 120 days after he signed the contract. His defining moment came when he made the decision to start a 30-minute sports program called Sports Center. That's what put ESPN on the map. They were able then to strike a deal with Anheuser Busch for $1.3 million to advertize their products. And the rest is history. ESPN went on to become a dramatic success.

Then you've got Sanford (Sandy) McDonnell, the former chairman and CEO of McDonnell Douglas, which is now part of Boeing. His uncle ran the company; it was a one-man-rule type of business. When Sandy took over, he felt that he wasn't capable of making all the decisions alone. He needed other management people with him. So he sought advice from a number of people who talked to him about becoming much more professionally managed. So he moved McDonnell Douglas from a one-person-rule into a professionally managed company. That was his defining moment because he was able to build participative management. It was just a real good decision because it got people involved who had a lot of skills but who previously were not able to implement them.

Knowledge@Wharton: Apart from career choices or career decisions, what other defining moments did the CEOs tell you about?

Steinbaum: Take Richard Mahoney, who was the CEO of Monsanto. Its core business was in trouble and he had to reposition and refocus that company. Monsanto was in the chemical and petrochemical business, and those products became commodity items. Richard developed, through a long-range plan, the ability to get into agriculture, pharmaceuticals and life sciences. In my opinion, that was probably the greatest transformation of an American company in the history of business. It was just that impactful.

Knowledge@Wharton: Over the course of a career, how often might a person be called upon to make these defining decisions? Did any CEOs have to do it more than once?

Steinbaum: Some of them had more than one defining moment decisions. It was a question of which was the most important. Shelly Lazarus is the former CEO of Ogilvy & Mather Worldwide, one of the world's largest public relations and advertising firms. Her defining moment came when she went back to work after the birth of her third child. It continued when she became the chairman of Ogilvy Direct. [Ogilvy Direct, now called Ogilvy One, is the firm's direct-marketing arm.) Her final defining moment came when Ogilvy & Mather had been acquired by a British company. It was a hostile takeover, and the morale was terrible. The company was having all kinds of problems. Lazarus was asked to take over managing that business, which she did -- and she turned everything around and grew that company. She was able to do that as a result of the various steps that she went through to get to that point.

Knowledge@Wharton: I'm glad you mentioned Lazarus. You interviewed both men and women leaders for your book. Did you find any gender-based differences in the ways they identified and dealt with their defining moments?

Steinbaum: No. Most of the women CEOs had families, and they were able to be good mothers and spouses and at the same time run their businesses in a very professional and hard-hitting way. It was very, very impressive.

There's another CEO by the name of David Stewart who is chairman of World Wide Technology. David started with absolutely nothing. He worked for Federal Express; he was their top salesman. David was extremely religious and relied on the Bible and relied on God to make decisions, business decisions. That helped give him the strength and the courage to strike out on his own. Today he owns and runs the largest African-American owned company in the country -- and the most profitable one, I might add. He is a man of deep conviction.

Knowledge@Wharton: Do all defining moments lead to successful outcomes? Or do some of them involve failure?

Steinbaum: There's an example in my book of a company called Falcon, run by Frank Jacobs, who's an honest, honorable man. His business [of making furniture for restaurants] was doing well, but he had an opportunity to make an acquisition, a competitor called Shelby Williams. Unfortunately, just as he made the acquisition, the economy went into a recession.

Jacobs also -- and he readily talks about this -- didn't do the amount of due diligence he should have. As a result, he didn't have the infrastructure in place [to handle the merger well] and a number of other factors came into play. Jacobs ended up losing the company as well as his personal wealth. But what an incredible learning lesson for him! Today he has started another company. It's based in China and he's doing fine. He got up off the floor, he never complained, and he took full responsibility for all his decisions. Quite a man.

Knowledge@Wharton: Of all the stories you heard from different CEOs, which one surprised you the most and why?

Steinbaum: I heard an interesting story from a man by the name of Joseph Plumeri. Plumeri today is chairman and CEO of Willis Group Holdings, the third-largest insurance brokerage firm in the world. He was born on the east side of New York and went to New York Law School. He went to school in the morning to learn the academic side of law, but he needed a job in the afternoon to learn the practical side and also to support himself. The first day of class, he went looking for a job with a law firm.

Plumeri had heard that the really good law firms had three names. So he walked into a building, looked up at the directory and saw three names: Carter, Berlind and Weill. He went upstairs and said to the receptionist, "I'd like to apply for a job." So she sent him down the hall to see a Mr. Weill.

Plumeri walked into Weill's office and Weill said, "What can I do for you? Please sit down." Plumeri said, "Well, I'd like to apply for a job. I go to New York Law School in the morning. I want a job in the afternoon in a law firm to learn the practical side of law." Weill said, "Well, what makes you think you can learn the law here?" Plumeri said, "Well, this is a law firm, isn't it? You have three names." Weill chuckled, and Plumeri was very embarrassed. He sat down on a couch, sort of sank down. As he stood up to leave, Weill said, "No, sit down. You interest me." They spoke, and Weill offered him a part-time job.

Plumeri's first office was a closet, literally a closet. His first job was going to get people's lunch, to get their laundry, to get their cleaning. And Weill turned out to be the legendary Sanford (Sandy) Weill, the person who built Citigroup and Travelers Primerica.

Plumeri's defining moment came when he walked into a brokerage company looking for a job in a law firm. It's the most important decision he ever made, because here's what happened. Eventually Plumeri went on to become CEO and chairman of Travelers Primerica Financial, with responsibility for 150,000 brokers. He also became president of Smith Barney Shearson, and then Shearson Lehman Brothers. He then became chairman and CEO of Citigroup North America, with 450 retail branches. And now he is chairman and CEO of Willis Group Holdings. Plumeri's advice to people is, "Just get up off your duff, go out and do something. Go play in traffic. You never know what'll happen. Look at what happened to me."

Knowledge@Wharton: What advice would you give to a business executive who has to make a career-defining decision? What is the best way to get it right?

Steinbaum: The best way to make a defining-moment decision is to study all the facts, learn everything you can about the circumstances you're in, the pros and cons, the cost-benefit analysis, and then make your decision. It's really got to be thought out.

Through Imagining the Future of Leadership, a symposium at the Harvard Business School and accompanying blog series, expert thinkers gathered to investigate what is necessary today to develop the leaders we need for tomorrow.

Featuring:
Bill George, Professor, Harvard Business School and former Chairman and Chief Executive Officer of Medtronic
Evan Wittenberg, Head of Global Leadership Development, Google, Inc.
Dr. Ellen Langer, Professor, Harvard University
Andrew Pettigrew, Professor, Sïad Business School, University of Oxford
Gianpiero Petriglieri, Affiliate Professor of Organizational Behavior, INSEAD
Carl Sloane, Professor Emeritus, Harvard Business School
Jonathan Doochin, Leadership Institute at Harvard College
Scott Snook, Associate Professor, Harvard Business School and retired Colonel, US Army Corps of Engineers
Daisy Wademan Dowling, Executive Director, Leadership Development at Morgan Stanley

February 01, 2008 Harvard Business Review

The Idea in Brief

From 1999 to 2006, the average tenure of departing chief executive officers in the United States declined from about 10 years to slightly more than eight. Although some CEOs stay a long time, a lot of them find that their stint in the corner office is remarkably brief. In 2006, for instance, about 40% of CEOs who left their jobs had lasted an average of just 1.8 years, according to the outplacement firm Challenger, Gray & Christmas. Tenure for the lower half of this group was only eight months. Some of these short-timers were simply a poor fit and left of their own accord, but many others were ushered out the door because they appeared unable to improve the business's performance. Nobody these days gets much time to show what he or she can do.

So within a few months at most, incoming CEOs and general managers must identify ways to boost profitability, increase market share, overtake competitors-whatever the key tasks may be. But they can't map out specific objectives and initiatives until they know where they are starting from. Every organization, after all, has its distinctive strengths and weaknesses and faces a unique combination of threats and opportunities. Accurately assessing all these is the only way to determine what goals are reasonable and where a management team should focus its performance improvement efforts.

Embarking on this kind of diagnosis, however, can be daunting because there are countless possible points of entry. Your company's operations may span the globe and involve many thousands of employees and customers. Should you start by talking to those employees and customers or by examining your processes? Should you focus on the effectiveness of your procurement or analyze your product lines? Managers often begin with whatever they know best-customer segments, for example, or the supply chain. But that approach is not likely to produce either the thoroughness or the accuracy that the management team and the business situation require.

What's needed instead is a systematic diagnostic template that can be tailored as necessary to an individual business's situation. Such a template has to meet at least three criteria: It must reflect an understanding of the fundamentals of business performance- the basic constraints under which any company must operate. The template must be both comprehensive and focused-covering all the critical bases of the business, but only those bases, without requiring any waste of time or resources on less important matters. And it should lend itself to easy communication and action.

This article presents a template that we think meets these criteria. It is built on four widely accepted principles that define any successful performance-improvement program. First, costs and prices almost always decline; second, your competitive position determines your options; third, customers and profit pools don't stand still; and fourth, simplicity gets results. Along with each principle, we offer question sets and analytic tools to help you determine your position and future actions.

Decisions are the coin of the realm in business. Every success, every mishap, every opportunity seized or missed stems from a decision someone made-or failed to make. Yet in many firms, decisions routinely stall inside the organization-hurting the entire company's performance.

The culprit? Ambiguity over who's accountable for which decisions. In one auto manufacturer that was missing milestones for rolling out new models, marketers and product developers each thought they were responsible for deciding new models' standard features and colors. Result? Conflict over who had final say, endless revisiting of decisions-and missed deadlines that led to lost sales.

How to clarify decision accountability? Assign clear roles for the decisions that most affect your firm's performance-such as which markets to enter, where to allocate capital, and how to drive product innovation. Think "RAPID": Who should recommend a course of action on a key decision? Who must agree to a recommendation before it can move forward? Who will perform the actions needed to implement the decision? Whose input is needed to determine the proposal's feasibility? Who decides-brings the decision to closure and commits the organization to implement it?

When you clarify decision roles, you make the right choices-swiftly and effectively.

The Idea in Practice

The RAPID Decision Model

For every strategic decision, assign the following roles and responsibilities:

Decision-Role Pitfalls

In assigning decision roles:

Ensure that only one person "has the D." If two or more people think they're in charge of a particular decision, a tug-of-war results.

Watch for a proliferation of "A's." Too many people with veto power can paralyze recommenders. If many people must agree, you probably haven't pushed decisions down far enough in your organization.

Avoid assigning too many "I's." When many people give input, at least some of them aren't making meaningful contributions.

The RAPID Model in Action

Decisions are the coin of the realm in business. Every success, every mishap, every opportunity seized or missed is the result of a decision that someone made or failed to make. At many companies, decisions routinely get stuck inside the organization like loose change. But it's more than loose change that's at stake, of course; it's the performance of the entire organization. Never mind what industry you're in, how big and well known your company may be, or how clever your strategy is. If you can't make the right decisions quickly and effectively, and execute those decisions consistently, your business will lose ground.

Indeed, making good decisions and making them happen quickly are the hallmarks of high-performing organizations. When we surveyed executives at 350 global companies about their organizational effectiveness, only 15% said that they have an organization that helps the business outperform competitors. What sets those top performers apart is the quality, speed, and execution of their decision making. The most effective organizations score well on the major strategic decisions-which markets to enter or exit, which businesses to buy or sell, where to allocate capital and talent. But they truly shine when it comes to the critical operating decisions requiring consistency and speed-how to drive product innovation, the best way to position brands, how to manage channel partners.

Even in companies respected for their decisiveness, however, there can be ambiguity over who is accountable for which decisions. As a result, the entire decision-making process can stall, usually at one of four bottlenecks: global versus local, center versus business unit, function versus function, and inside versus outside partners.

The first of these bottlenecks, global versus local decision making, can occur in nearly every major business process and function. Decisions about brand building and product development frequently get snared here, when companies wrestle over how much authority local businesses should have to tailor products for their markets. Marketing is another classic global versus local issue-should local markets have the power to determine pricing and advertising?

The second bottleneck, center versus business unit decision making, tends to afflict parent companies and their subsidiaries. Business units are on the front line, close to the customer; the center sees the big picture, sets broad goals, and keeps the organization focused on winning. Where should the decision-making power lie? Should a major capital investment, for example, depend on the approval of the business unit that will own it, or should headquarters make the final call?

Function versus function decision making is perhaps the most common bottleneck. Every manufacturer, for instance, faces a balancing act between product development and marketing during the design of a new product. Who should decide what? Cross-functional decisions too often result in ineffective compromise solutions, which frequently need to be revisited because the right people were not involved at the outset.

The fourth decision-making bottleneck, inside versus outside partners, has become familiar with the rise of outsourcing, joint ventures, strategic alliances, and franchising. In such arrangements, companies need to be absolutely clear about which decisions can be owned by the external partner (usually those about the execution of strategy) and which must continue to be made internally (decisions about the strategy itself). In the case of outsourcing, for instance, brand-name apparel and foot-wear marketers once assumed that overseas suppliers could be responsible for decisions about plant employees' wages and working conditions. Big mistake.

Clearing the Bottlenecks

The most important step in unclogging decision-making bottlenecks is assigning clear roles and responsibilities. Good decision makers recognize which decisions really matter to performance. They think through who should recommend a particular path, who needs to agree, who should have input, who has ultimate responsibility for making the decision, and who is accountable for follow-through. They make the process routine. The result: better coordination and quicker response times.

Published: September 28, 2011 in Knowledge@Wharton

Making sense of Philadelphia's City Council district map resulting from the 2000 Census is a head-scratching exercise. District 5 is shaped like an armored bulldozer extending its blade to scoop up a piece of District 7. District 10 looks like a lizard, twisting around the Northeast and taking a bite out of District 6. And District 7 doesn't appear to be a district at all, but four or five strung together like beads.

"Many people consider these districts some of the worst in the country," says Steven O. Kimbrough, Wharton professor of operations and information management, who recently participated in a nationwide contest sponsored by Philadelphia geospatial software firm Azavea to draw a better map of the city's districts. One of the issues involved in redistricting is gerrymandering, the practice of drawing district boundaries for political advantage. This makes gerrymandering hard to define precisely: Is it removing the house of a potential opponent from the definition of a district? Is it adding a neighborhood of politically generous campaign contributors to a particular district? Is it gerrymandering to concentrate members of a single ethic group into one district or, conversely, to split them up among many districts?

As Frederic H. Murphy, Kimbrough's fellow team member and a professor of marketing and supply chain management at Temple University's Fox School of Business, testified during the contest, "gerrymandering is like pornography; you recognize it when you see it." A good assumption, and one widely accepted, is that districts should be as compact as possible. They should look more like turtles than snakes (or salamanders); their parts should all be close together, rather than far apart.

Even with the best of intentions, districting problems can be difficult to solve because they are so complex, says Kimbrough, who specializes in computational intelligence. The key to finding the best solution, he suggests, is to start with not one but many good solutions, and let decision makers tweak plans from there. This may sound like common sense, but finding a pool of good solutions is easier said than done with mapping and zoning problems because of the number of variables involved. "It's never been possible to generate multiple good solutions," Kimbrough notes. "The standard methods at best give you a very small number of plans."

Now Kimbrough and a team of researchers say they have found a way to generate multiple high-quality solutions to complex problems. Using a genetic algorithm that mimics evolution and natural selection, they essentially "breed" solutions, creating potentially endless variations from just a few good beginnings. Their method holds implications not just for the drawing of political boundaries, but for a myriad of zoning dilemmas in the business and public sectors -- from mapping out fire districts and streamlining sales regions to discovering a better way to collect trash and design distribution systems.

"The genetic evolutionary approach can find attractive solutions that you are never going to find otherwise," Kimbrough says.

Kimbrough and Murphy teamed up with Nicholas Quintus, a graduate of Temple University's geography and urban studies department, and Ram Gopalan, a professor in the business school at Rutgers Camden, to test their methods in Philadelphia's mapping contest. Dubbed "Team Fred" after Murphy, who assembled the group, they used several different methods to find good solutions to the districting problem ( see Team Fred's approach to the redistricting project here).

One of these methods involved starting with a computer-produced good solution and modifying it by hand, based on trial-and-error and human judgment, in search of the most compact solution, according to the rules of the contest. Another of these methods involved starting with computer-produced good solutions and modifying them by another computer program using a genetic algorithm in search of many -- "a plurality" of -- good solutions. Remarkably, this automated approach discovered 116 legally valid, high quality solutions, none of which broke up any of the existing 66 wards in the city.

Team Fred, like all other teams, was only allowed to submit one plan to the contest. It submitted the manually produced plan, which won in the category of most compact. That sufficed for a win in the contest, but the team notes that many of the 116 plans discovered by the computer are fundamentally better approaches, because they are better at honoring existing neighborhoods.

The best-drawn political districts should satisfy three main criteria, Kimbrough states: Their populations should be about equal; they should be contiguous, meaning they are not split into pieces; and they should be compact. However, political districts also must take into account many ambiguous elements, such as neighborhood identities or natural boundary lines. As a result, districting problems are difficult to solve using mathematical models alone.

"In the end, there are a lot of human judgments that go on here," notes Murphy. "What really is that neighborhood? Can you split the wards?.... Generating one solution is not a good idea because there are all these side issues that you can't represent mathematically. This always happens, whether in political districting or in commercial applications."

A Philadelphia resident, Murphy became interested in the city's districting problem after watching the bitter political infighting in 2001 that led to "one of the most gerrymandered political layouts possible." Knowing that the districts would be redrawn after the 2010 Census, he hoped to find a way to harness modern technology to offer a better solution. "I said, 'Well, the computing power is 100 times more powerful [than before]. Let me see if I can do Philadelphia.'"

But using classic computer models meant deriving one solution at a time. "The computer spits out a solution, and you take it or leave it," Murphy says. "You generate other solutions by putting in other assumptions, but it's a process that doesn't fully inform you of everything that's nearby as a potential solution."

That's where Kimbrough's genetic algorithm came in. Using classic computations, the team created three maps that met a minimum standard of criteria. Kimbrough then used those solutions as "parents" and bred 50 more solutions. Each of those 50 was mutated to have six "children." Kimbrough sorted the results, making the top 50 solutions the "parents" of the next generation. This was repeated for 2,000 generations, and the entire process was repeated several times. "There are about 100 billion possible solutions. Most are pure junk," Kimbrough notes. "The genetic algorithm examined much less than 1% of these 100 billion solutions, but it did so intelligently. Most of the solutions it examined are also junk." But scattered throughout the "family trees" were occasional winners. Kimbrough set aside the best of the best -- less than 1/100 ^th of one percent -- to search for the final cut.

Quintus then played a pivotal role -- turning the strings of numbers into maps using geographic mapping software. Although all the solutions selected by the genetic algorithm met the minimum criteria, not all made sense from a local perspective. Some maps split natural communities or disregarded historical neighborhood identities. "I was looking at every map with my urban studies background and my Philadelphia knowledge," Quintus says. The best maps included "a community of interest aspect to it -- the idea that you're either preserving some true neighborhood boundaries or you're preserving ethnic concentrations, [reflecting] how people identify themselves as a community within the city."

Team Fred's approach could be used for any type of business problem requiring mapping or zoning, according to Kimbrough: It could help cities draw better districts for emergency services such as fire or police. Adding criteria, such as travel time from one side of a district to another, for example, could help a delivery company reorganize to save on gas costs. Trash haulers could find more efficient routes; sales teams could map out better territories. Better police precincts and service districts for other emergency services could be constructed, as could better sales and distribution areas. Travel costs and times can be reduced, benefiting everyone. It would help "any time you have spatialization and you're trying to figure out where to put what."

The two-step approach of starting with multiple high-quality solutions and then narrowing down also puts control back in the hands of decision makers. "This applies perfectly well to business decisions, this philosophy of using computing and mathematical modeling to get a good set of things, recognizing that you don't have everything in there. Then you do the horse trading," Kimbrough says.

That's the beauty of this method, Team Fred suggests: By starting with a large number of high-quality solutions that meet basic criteria, decision makers have a better chance of negotiating some of the finer details that make a difference. "You need the computer because there's so much complexity," Murphy states, but "it's the interaction and the learning from each other that's the critical element."

In today's tech-focused business world, putting human decision makers back in the picture could be the biggest innovation of all. "Quite often in business situations, people are too trusting of the numbers," says Murphy. Team Fred's methodology "involves sophisticated computing, but a process that keeps the human involvement central to coming up with the final solution."