WHY ARE LEADERS IMPORTANT?

A number of management theorists don’t buy the argument that leadership is the key factor in determining an organization’s success. They assert that a winning culture, or efficient work processes, or any number of other ancillary attributes are the sine qua nons for success. I agree with them that those things are important. But leadership takes precedence over everything else. One reason leadership takes precedence is that leaders are the people who decide what needs to be done and the ones who make things happen. Just about everyone knew long before the 1960s that many Americans were being denied basic rights and freedoms, but it took a Martin Luther King Jr. and a handful of other determined leaders to bring about the civil rights movement. In the 1960s in Detroit, poor children were starving because their parents couldn’t afford to buy them food. But it took a Father Bill Cunningham and Eleanor Josaitis to start focus: HOPE, a feeding program that they expanded into a full-scale community organization that has trained over a thousand local residents to become highly paid and highly sophisticated machinists. It’s true that one person alone can’t change the world, or even a moderate-sized organization. It takes the concentrated energy, ideas, and enthusiasm of many people. But without a leader, the movement doesn’t get started in the first place, or it quickly dies for lack of direction or momentum. Without leaders, good results are a matter of random chance, and therefore unsustainable. Another reason that leadership takes precedence over the contributions of culture and management tools is that it’s the leaders who create the cultures and use the tools. The management theorists who assert that corporate culture not leadership is the key that determines the success of an organization originally based their arguments on studies of the Japanese automakers and technology companies that took U.S. markets by storm in the 1970s and early 1980s. They bolstered their case by pointing to the strong cultures that made such U.S. companies as Hewlett-Packard, General Electric, IBM, and Xerox leaders in their fields. It’s an attractive theory, in part because it holds out to non-leaders the hope that they can attain excellence if they can only get themselves into the right culture. But the lesson that they draw from the examples is not the right one. These successful cultures didn’t just spring up by themselves and start shaping their members. As Professor Edgar Schein of MIT’s Sloan School of Management has clearly shown, corporate culture is developed at the birth of an organization by its leaders.2 Folksy Sam Walton, with his down-home, we’re-all-in-this-together attitude, created a family of “associates” (as Wal-Mart store personnel are called), all dedicated to low prices and good service. Tom Watson, with his strict dress codes and company songs, fashioned IBM into a triumphal army. Watson figured that you couldn’t be the world’s No. 1 company unless you thought you were, so from day one, he established an image of success.

As long as a culture fits the marketplace, it succeeds, but when the external realities change, the culture has to change as well. That’s where the proponents of cultural determination go astray. They argue that good cultures will mend themselves. But that’s simply not true. At certain critical stages, radical cultural shifts are needed, and without leadership, they just don’t happen. IBM’s buttoned-down army was a perfect vehicle to quickly establish dominance in the fledgling computer industry. But by the 1980s, it was a drag. Under John Akers and other home-grown managers, the army lumbered along, missing opportunity after opportunity and losing market share to faster, more agile competitors such as Compaq, Dell, and (until the early 1990s) Apple. Now, not only has IBM had to bring in a new CEO from outside the company, but the new CEO, Lou Gerstner, had to hire key managers from outside the company to run finance, accounting, human resources, strategy, the consumer division, and for other key posts.

General Electric’s culture is often cited as a paragon of successful durability, and its production of Jack Welch is held up as the proof. But the truth is that Reginald Jones selected Welch to succeed him as CEO because Welch was a radical deviant from the prevailing culture. Welch was an entrepreneurial player who spent his early formative years in GE’s Plastics Division scoring successes by avoiding, thwarting, or manipulating GE’s rigid corporate bureaucracy. He knew the stifling effects of the old, incremental, overly analytic, internally focused, arrogant, don’t-rock-the-boat culture. So when he became CEO, he immediately set about replacing it with a new externally focused culture that prizes speed, radical change, and constructive conflict. His history as CEO is a story of selecting and developing leaders who, with him, have ripped apart the old culture and continually regenerated the company. Another school of management theorists who disdain leaders and who are rapidly disappearing over the horizon are the reengineers. Reengineering came on the scene as its close cousin the total quality movement peaked. Both of these have very solid conceptual ideas and useful techniques. Unfortunately, their reputations have become tarnished because they were applied too often by the wrong people, by non-leaders. There is a multibillion-dollar consulting industry in the world today that thrives largely on the fact that most managers don’t want to lead. When non-leaders try to apply total quality management or reengineering, they call in the consultants because, first of all, they don’t know what to do, and, second, they are afraid of the tough part, the execution. But this, of course, dooms the effort. If the people inside the company don’t know what to do or are afraid to do it, the consultants aren’t likely to come up with an appropriate and effective plan. And there’s absolutely no way that even if the outsiders did, against the odds, come up with a good plan, it could be implemented without solid leadership on the inside, from the people who live there every day. I recently uncovered a $60 million expenditure in a Fortune 50 company to reengineer the organization, where the results were a disaster. The turf battles were worse than before, teamwork did not exist, and neither layers of management nor unproductive work had been removed. And management couldn’t figure out why operations hadn’t improved.

In the small number of cases, such as Motorola, AlliedSignal, Compaq, and GE, where the tools of total quality and reengineering have been wielded by real leaders, the results have been phenomenal. During Larry Bossidy’s first year at AlliedSignal, all 105,000 employees were trained in total quality. Productivity, which had been growing at about 2%, grew on average 5.6% annually over the next five years. But more often than not, TQM and reengineering never get anywhere near the desired finish line. When I started to work with Ameritech in 1991, there were 100 full-time quality facilitators and 5,000 quality groups. As current CEO Dick Notebaert recalls, “We used to spend days of time going through the process, but we weren’t really interested in results. We had celebrations about the process; ‘You just made it to step four in a seven-step process. Let’s celebrate. Then Bill Weiss named Notebaert and three others to form a new top leadership team. They got rid of all the full-time facilitators, sending most of them back to real jobs adding value. Then they gave the 5,000 quality groups 90 days to deliver financially measurable results or be killed. Guess what? When Ameritech looked closely, only about 10% of them could point to any financial results or any hope of financial results. The rest had gotten lost in the morass of quality tools. In some cases, enormously painful reengineering have set ailing companies on the road to good health by realigning work processes and eliminating unnecessary tasks. In other, all-too-frequent instances, the effort was called reengineering but involved nothing more than wholesale firings that resulted in “corporate anorexia.” They destroyed people’s lives and communities and only left the companies less able to compete in the marketplace and weaker than ever. A survey by the American Management Association found that only 45% of downsized companies reported any increase in operating profits. In almost all the cases, whether successful or not, the radical surgery was necessary because managers in the past had failed to exercise the leadership needed to refocus the company and make smaller cuts sooner.