An essay on business leadership

Employees frequently ask their managers for

• objectives, so that our actions over time, in cooperation with the actions of others, achieve some purpose, and
• the priority order of objectives, to help us make tradeoffs between different possible courses of action.

I myself have asked for – and been asked for – prioritized objectives.

Business priorities are part of a larger set of what I generally call rules that influence employee actions. These rules include <ul> <li>corporate policies and procedures,</li> <li>standards of conduct in various professions (especially law, accounting, and medicine)</li> <li>social etiquettes,</li> <li>state and federal laws,</li> <li>political beliefs,</li> <li>work ethic,</li> <li>religious practices and</li> <li>moral values.</li> </ul>

Set aside, for a moment, what the rules actually are, for a particular employee in a particular business setting. If these rules are too few or weak, then employees will follow a subset of these rules and may make up their own to compensate for the rest. The organization loses cohesion as employees pursue their own differing objectives. Lacking the resources to achieve their objectives, they may resort to political scheming to obtain them. The organization may disintegrate into chaos. It certainly fails to meet any business goals that rely on cooperation, cohesion, or communication.

If these rules are too numerous or strong, then individual creativity is stifled. The organization becomes rigid and unable to adapt rapidly to changes in the business environment. If the rules are numerous enough to be redundant, employees see them as lacking value or credibility.

However, as Wolfram has shown, a small number of properly-crafted rules lets an organization exhibit cooperation, creativity, and adaptivity.

Business leaders (who may or may not be titled managers) frequently encounter situations in which a certain set of new policies, procedures, and priorities must be followed for the organization to meet certain business goals. Examples from my own experience include

• adoption of a software development process like Extreme Programming or RUP to improve quality, manage risk, and more accurately predict when features will be delivered
• adoption of a sales methodology like SPIN Selling to increase revenue from new markets
• changes to financial reporting to provide guidance to Wall Street, to forecast sales, and to plan strategy
• reporting and governance changes for compliance with regulations like Sarbanes-Oxley
• changes to marketing activities to ensure consistency of messages, preserve brand integrity, generate sales leads, and maintain a pulse on the market
• adoption of sales-force automation tools to improve pipeline visibility
• adoption of time tracking systems for activity-based costing

The question is, how to get the organization to adopt a new set of rules? For a variety of reasons, and to the incessant chagrin of managers, organizations frequently fail in the wholesale and permanent adoption of a new set of rules. Employees resist change due to fear of the unknown, fear of failure, and the comfort and rewards of the status quo. New initiatives may involve risks to which employees are averse. Rules are sometimes adopted temporarily and then are abandoned as employees turn over, become distracted, or focus on newer, urgent matters. This makes new initiatives look like fads to experienced employees, who are then unwilling to adopt them.

Old habits die hard.

You can’t teach an old dog new tricks.

A bird in the hand is worth two in the bush.</em>

In such circumstances, leaders must institutionalize rules intentionally, one at a time.

Institutionalize

By institutionalize, I mean, make it a habit of the organization, part of “the way things are done,” part of the system.

I recently met a gentleman who inspired me with his passion for education and his commitment to turning around failing businesses through management training. He repeated something that I soon heard from some one else in a different context:

People don’t produce outcomes. Systems produce outcomes.

Now, this may seem logically inconsistent, simply because it is people who form the business systems we are talking about. Hence, they produce (or at least influence) their outcomes.

However, the points to take away from this aphorism are:

• Individuals form relationships with each other. Information, goods, services, and other forms of value flow through these relationships.
• Although an outcome -- good or bad -- may appear to be the responsibility of an individual, the relationships and value flows that the individual is involved in cannot be ignored.
• While a good system may help a failing person succeed, a bad system will guarantee failure for an otherwise successful person.

W. Edwards Deming had similar beliefs about the importance of systems compared with individuals. He focused specifically on teams and their ability to produce quality manufactured products, but his work strongly influenced later programs like Total Quality Management and Six Sigma. These, in turn, have been applied in high-tech and low-tech industries.

The importance of systems, compared to individuals, is driven home when we observe the phenomenon of drug addiction. Addicts who have completed rehabilitation programs frequently suffer from recidivism. (This was nicely illustrated in the movie 28 Days.) This happens because addicts typically return to systems (friendships with fellow addicts, relationships with suppliers, and stressful occupations) that motivated them to resort to drugs in the first place, and supported their addiction. Recidivism may occur despite the addict having a strong desire to stay clean and sober.

Why, then, couldn’t a properly constructed business system support constructive, cooperative behavior? Indeed, why couldn’t it produce such behaviors despite even employees who wish to be destructive or uncooperative? I believe the creation of such systems is the calling of the true business leader.

The true leader not only follows the new rule, but institutionalizes it. The true leader creates a system that ensures the rule is followed by others as time passes and as members of the organization change. This is the type of person Jim Collins, author of Good to Great, called the “clock builder”. This suggests a corollary to the above saying:

People don’t produce outcomes. Systems produce outcomes. And leaders produce systems.

To institutionalize a new rule requires the following:

• Communicate it as the current priority throughout the organization. Otherwise, individuals can claim ignorance as a legitimate reason for not following the rule.
• Establish training and practice to make it easy and natural to follow. Practice should take place in real-world environments as well as in "safe" environments where deficiencies have no consequences but can be corrected. Otherwise, individuals can legitimately claim that they haven't been given a fair chance to learn the rule.
• Monitor levels of compliance and non-compliance. Taken too far, this can result in invasion of personal privacy and creation of suspicious environments. But by restricting monitoring to serve well-known, legitimate business objectives, such controversy can be avoided. Indeed, those employees who are willing to follow the rule may insist on monitoring to help ensure that every one does. An acquaintance who works at Microsoft once told me that his manager sometimes asks his organization, "How will I know that this policy is being followed?" By answering this question, members of the organization automatically agree to non-invasive monitoring in support of business objectives.
• Reward compliance, correct non-compliance, and promptly remove people from the organization who persistently fail to comply. The idea is that organizational incentives and disincentives must support (or at least not undermine) the following of the rule.

These seem to be the critical factors to produce a self-sustaining, critical mass of people following the rule, without outside intervention. I would venture that no rule should be considered for adoption by an organization without a willingness to invest in these critical factors.

Once these factors are established, the rule will become institutionalized. Employees will form their own system to make following the rule easy. The system will ensure the rule is followed without employees having to be consciously aware of it, and may even assure compliance by employees who are opposed to it.

Institutionalization is how the individual leader affects the group in a lasting fashion. It is, I believe, the end to be achieved by means of personal leadership – persuasion, influence, setting an example, and communicating a compelling vision. Anyone who has read the teachers of personal leadership, from Covey to Carnegie, will recognize how critical their lessons are to the process.

Intentionally

Failures don’t plan to fail; they fail to plan. – Harvey MacKay

If the institutionalization process is not pursued intentionally, it is likely to fizzle out or get diverted or co-opted. Being intentional means executing, questioning assumptions, leaving nothing to chance, and following through. The following management pathologies illustrate the difficulty of being intentional:

Micromanagers are those who insist on controlling every detail of their organization’s work. The micromanager frequently justifies this level of control by claiming critical experience or expertise that no one else possesses and that (due to time constraints or lack of proper training programs) cannot be imparted to anyone. The value that flows to such managers is a feeling of power and advantage over subordinates. (Occasionally, the subordinates derive value in being absolved of responsibility.) Micromanagement tends to destroy trust, productivity and morale. Micromanaged employees are repeatedly set up to fail and end up feeling devoid of value. Although the micromanager’s personal productivity may be high, it is still finite. When productivity expectations rise above the micromanager’s capacity, even he becomes demoralized. (My co-workers have heard me say of a micromanager, “Sure, that person can do the work of four others, but what’s he going to do when the objective requires five?”) The micromanager has intent, but pursues his ends by destructive means. He is unable to communicate intent except by imposing stifling control. Charan et. al. discuss this problem in The Leadership Pipeline. A system that rewards heroic personal productivity will tend to produce micromanagers.

Ball-rollers are managers who believe only in “getting the ball rolling”. (They might appropriately be called “place kickers,” who arrive to kick the ball and then leave!) The ball-rollers will typically invest in up-front training, and propaganda at the launch of a new initiative. They assume that once employees are prepared with this training and motivated by the propaganda, every one will use it to the benefit of the organization. These managers fail to recognize the destructive potential of employees who are excluded from the training, don’t complete it, don’t internalize it, or aren’t motivated to live it. Such employees will continue operating in existing systems and cause recidivism among the others. A system that rewards up-front efforts without regard to results will tend to produce ball-rollers.

Related to ball-rollers are re-organizers. These are managers who believe that any major initiative must be accompanied by changes in the formal reporting structure – combining organizations that were separate, separating organizations that were combined, adding roles to the organization, or removing roles from the organization. (Rarely does a manager intentionally shrink his own organization.) Re-organizations are typically successful at broad communication of a new priority. However, in my experience, they fall short on training, monitoring, and revision of incentives and disincentives, and hence fail to institutionalize new initiatives. A system that rewards sweeping changes without regard to results will tend to produce re-organizers.

Ball-rollers and re-organizers may retain intent, but fail to follow through until new initiatives are institutionalized.

In a well-intentioned reaction against micromanagement, many managers (call them un-managers) have adopted a creed of merely hiring “good” people and turning them loose. They provide little or no training or guidance but simply sit back patiently and expect the organization to self-organize productively. I recall one un-manager who claimed that his was the only “trusting” approach. Another went as far as to refer to the principles of complex adaptive systems to justify an utterly hands-off approach. The payoff to such managers is the ability to remain completely free of responsibility or accountability, having shifted it to their subordinates. The un-manager abandons all intent, leaving the definition of the end entirely to his organization. Within the organization, in the absence of guiding intent, tenuous alliances form and factions fight for domination. As Jeffrey J. Fox said, “Rampant office politics is symptomatic of a weak leader.”

I submit that while micromanagers fail to distinguish between leading and doing, un-managers have effectively abdicated leadership.

The true business leader must retain intent. Employees must know exactly what the leader wants. They must be allowed to focus on work that is connected to that end.

The process of instititutionalization proceeds whether the leader communicates intent or not. What I mean is that employees naturally and continually create systems of interaction that serve to optimize their payoffs. A leader who expresses intent can ensure that the systems created – the rules institutionalized – are in furtherance of long-term collective business objectives. In the absence of intent, like weeds in a neglected garden, selfish, short-term, and potentially conflicting rules of individuals have an opportunity to thrive.

The larger the organization is, the more intentional institutionalization must be. Small, effective teams tend to form spontaneously among individuals who happen to follow the same rules naturally. Essentially, tiny organizations form around rules, rather than rules being imposed on them. A leader has an easier time institutionalizing rules in a small organization, too, because communication is high-fidelity and rapid, monitoring is small-scale and localized, and the incentive base is proportionally small. As the organization grows, a completely different set of more formal techniques must be employed to pursue institutionalization intentionally. This, I believe, is a key reason why founding CEOs are frequently replaced early in the growth of a company.

One at a Time

A number of factors inhibit simultaneous institutionalization of a large number of new rules:

• The new rules may overwhelm the cognitive capacity of the employees trying to live by them all. This is especially true if deeply seated habits must be unlearned in favor of the new rules.
• A large number of rules may be perceived as symptomatic of micromanagement, and there may be resistance to adopting them.
• Employees may interpret the rules differently. Their interactions with each other may grow chaotic if differing interpretations clash.
• Factions may form with employees having similar priorities and interpretations. The factions may compete for domination. If factions lack critical resources, they will fail to accomplish organizational goals.

Again, those who feel it is impossible to effectively follow all the rules will resign themselves to the pursuit of selfish aims within the rules they can follow. Hence, I believe, it is important for business leaders to choose one rule and ignore others until it is institutionalized. However, once the self-sustaining, critical mass is established, it becomes possible to introduce a new rule.

Rules may conflict with each other when employees attempt to apply them in contexts that were unanticipated. If rules are institutionalized one at a time, then conflicts between rules are

• easier to predict, because employees throughout the organization can immediately see why the new rule seems contrary to the way they are currently doing things
• easier to resolve, by intentionally building explicit exception-handling procedures into the system, and
• less disruptive to the organization's operation, because it continues to operate on the previously-institutionalized rule(s) while assimilating the new one

Metarules

Throughout this essay, I have only hinted at the necessary qualities of rules. Prospective business leaders may find the following rules about rules – metarules – useful.

1. Take care to balance specificity and generality in crafting rules. Rules that are too general ("Think!") provide insufficient guidance to be effective and may conflict with rules being established by others. Rules that are too specific smack of micromanagement and bureaucracy ("Fill out this form if you wish to move the image by more than four pixels.").
2. Be careful establishing rules that depend on other rules having been institutionalized. For example, don't bother generating productivity forecasts if absenteeism is a poorly-understood problem.
3. Having some rules is critical for organizational cohesion and cooperation.
4. Having a large number of rules tends to diminish the adaptability and creativity of the organization, in addition to demanding a large investment in institutionalization.
5. Ensure that the rules are relevant and inclusive to all members of the organization. Otherwise, segments of the organization will be marginalized. These segments may develop a superiority complex, thinking they are "above the rules," or an inferiority complex, thinking they are not part of the core team.

Conclusion

The true business leaders are those who institutionalize rules intentionally, one at a time. They successfully employ personal leadership skills to build organizations that achieve collective, long-term business objectives. By institutionalizing rules, they ensure that a persistent, self-sustaining, critical mass of individuals continues to pursue the organization’s objectives. By retaining intent, they avoid the pathologies of management, weeding out destructive systems before they can rise to dominance. By institutionalizing rules one at a time, they ensure focus, smooth operation, and a solid foundation for change.