6
Invert the Focus of Your Leadership Team
We may have all come on different ships, but we’re in the same boat now.
—Martin Luther King Jr.
When Eli Lilly unveiled a massive transformation effort in 2009 in the midst of plunging profitability, the headline news was that the pharma giant, founded in 1876, was recommitting to its historical purpose: creating therapies and cures that make life better for people around the world. Lilly referred to its situation as the “Years YZ” crisis. This was a reference to an earlier tough time known internally as “Year X”—that was 2001, when the patent on Prozac, the company’s blockbuster antidepressant drug, had run out. In 2009, Lilly was facing an even bigger challenge, as patent protection was about to expire on four drugs that accounted for 40 percent of the company’s revenue. Institutional investors were skeptical about the transformation plan, but Lilly stated that it would not seek a “mega-merger” with another pharma company or reduce R&D spending, as several of its global rivals were doing. Then-CEO John Lechleiter said, “We are going to innovate our way out of this problem.”
Dave Ricks, the current CEO, explains: “The bet was about our own innovation. There is nothing as good as this business if you can invent a new substance that can affect the arc of human health. That’s the best business in the world—and when you do it well, it also creates a lot of noneconomic value everywhere.”
That the company was recommitting to its historical identity doesn’t mean that it did not have to transform. On the contrary. The company’s late-stage innovation pipeline was running dry; R&D efforts were unfocused; time-to-market was one of the slowest in the industry; too many decisions were delegated up to the CEO; incentives were misaligned; and costs were out of control, especially given the looming drop in revenue. Lechleiter, the CEO who would be responsible for transforming the company, had been COO for three years before moving into the top job in early 2008, so he was fully aware of the severity of the situation. In fact, the previous CEO had retired early to leave his successor enough time to find a solution.1
Key to the transformation that Lilly was going to undertake was a change in operating model and a drastic repositioning of Lilly’s top leadership team. Lechleiter created five business units—diabetes, oncology, biomedicines, emerging markets, and animal health—instead of relying on the company’s previous functional model. This change was meant to enable more collaboration focused on specific health outcomes in each of those therapeutic areas. The change also allowed for faster decision-making that focused more on customers. In addition, the company created a Development Center of Excellence to increase the speed and efficiency of the development of new products.
The top team underwent massive change, too. Up until 2009, the top team was known as the Policy Committee, and nine of the thirteen members represented functions, while only three—the heads of Research & Development, Manufacturing & Quality, and Global Pharma operations—had operational responsibilities. The imbalance seemed to be both a symptom and a cause of the strategic and operational shortcomings that had led to the YZ crisis. In line with the new operating model, Lechleiter set up a newly named Executive Committee and added the heads of the five new business units to the team, while reducing the number of leaders with functional responsibilities to five. Overall, eight of the thirteen members of the Executive Committee were new to that team, and two had been hired from the outside.
The change in the committee’s focus and energy was dramatic. “The dynamic completely flipped,” says Stephen Fry, head of HR. “On the old committee, the majority of people believed their job was to be the checks and balances to people who were actually leading the business. The new committee had a majority of people who had P&Ls and operational responsibility, and the discussion in the room became much more business-execution-oriented, and that led to an ability to execute like we had never executed before.”
The mix of backgrounds of the top team members also changed dramatically, creating a powerful combination. Lechleiter had a background in science and deep experience in drug development, which positioned him well to lead the push for more innovation. The business unit presidents had extensive commercialization experience. They were chosen for their political skills, their ability to balance decisiveness with the loss of power experienced by others, and their deep understanding of the entire value chain that would help them drive commercial success. “We’re fortunate that we had people who were ready to take on these roles, particularly since we had been accustomed to developing people to lead functional areas like sales and marketing, not to run a whole business,” commented Mark Ferrara, vice president of Talent Management.2
Lechleiter was looking for leaders who could shake things up—especially around innovation—and found one in Daniel Skovronsky, who had joined the company in 2010 when Lilly acquired Avid Radiopharmaceuticals, which he had founded six years earlier. He had no experience in Big Pharma and, initially a skeptic about the YZ transformation, he looked at Lilly’s R&D operations with fresh eyes. Eighteen months into the next-generation development initiative, the team tasked with significantly reducing time to market of new drugs held one of its quarterly updates to the CEO. “I raised my hand,” Skovronsky recalls, “and said, ‘So, if I understand your presentation correctly, you’re saying our goal is to be among the slowest in the industry, and we’re not achieving that goal?’ That was a very disruptive thing to say and led to me getting a job to be one of the people to help fix the problem.”
Lechleiter, indeed, chose Skovronsky as one of two leaders of what became a highly successful transformation of the company’s innovation activities. “One lesson I learned was, don’t complain about something unless you want to be the guy to fix it,” Skovronsky says. Today, Skovronsky is Lilly’s chief scientific officer and president of Lilly Research Laboratories and also has responsibility for global business development.
Skovronsky remembers the CEO giving him a piece of paper on which he had typed up a couple of things about what was wrong with development at Lilly: “I still have that paper folded up in my desk. John [Lechleiter] asked me not to show it to anyone, so I haven’t shown it to anyone. But it became my blueprint for shaking things up. In a way it was obvious stuff, but it was important for me to have that mandate from the CEO to change things.” He adds, “We probably don’t tell people very often, ‘You’re here to shake it up.’ ”
Lechleiter worked hard to find the right balance between having business unit presidents focus on managing their own units and having the top team drive the agenda of the company together. Because business units faced very different situations—emerging markets were still experiencing strong growth, whereas biomedicines needed deep restructuring, since that’s where almost all patent expirations were going to hit—it was important to have some leaders focused on growing their businesses while others could focus on turnaround. Getting the balance right helped the team increase the speed and customer focus of decision making: while Lechleiter was still the decision maker for key operating questions, he was no longer the single point at which all business unit decisions were made. To make sure that leaders “put team Lilly before their own unit,” explains Fry, “we kept executive incentives linked to total performance rather than business unit results. That helped leaders make the right execution decisions consistent with our strategy.”
At the same time, Lilly changed the physical layout of the offices at headquarters. “There were some thirty corporate people sitting together,” says Fry,
The BU heads sat with operations, manufacturing sat somewhere else, the head of R&D went back and forth. The whole place had wood paneling everywhere. Most people had their own toilet in their office. The dynamic was incredible. Someone would tell me, “Tell Mr. X this.” And I would say “You sit next to him, why don’t you go talk to him?” We no longer have that now. If there’s something that needs to happen, we go sort it out. And it was almost an immediate flip. It is amazing how the new top team composition and the physical layout of the offices forced that collaboration.
A key decision on who was going to be responsible for which parts of R&D greatly increased collaboration across the company. The top team had gone on an off-site in 2009 to figure out what to do. Michael Overdorf, Lilly’s former chief strategy officer, remembers: “John [Lechleiter] encouraged his direct reports to discuss advantages and disadvantages. There was a full-on debate in the room. And then, at the end, John just said, ‘Okay, everybody has poured concrete around their positions, and no one is budging. So this is what I get paid to do. I’m drawing this, and we’re done.’ And the meeting was over. No more debate. I think John even kept that flip chart. It was his stake in the ground. That was the bet we were going to make.”
Lechleiter’s decision gave business units responsibility for R&D right after phase 2 (preclinical research)—before that, phase 3 (clinical research) had still been managed by the companywide R&D unit. This significantly changed the dynamics because once business unit leaders owned part of R&D, they got a better appreciation for some of the challenges and the investment needs. It also increased Lilly’s focus on commercial impact, pushing leaders to make decisions earlier if they saw that something wasn’t going to be a major product. And probably most importantly, it brought shared ownership and accountability. When a business unit leader was forced to decide whether they’d put their next dollar into an R&D project or into preserving a sales rep, the answer would be R&D.
The team needed to take many tough decisions and put many stakes in the ground—and they had many heated debates. Dave Ricks, who had been president of biomedicine before becoming CEO, remembers, “We didn’t always see things the same way. In fact, mostly we didn’t. One disadvantage of the business unit model is that you naturally see the world through your own lens. Someone running a high-growth business and someone running a shrinking business do see things differently, so there was a natural tension. But I think amongst the inner core group of people, there was not really a doubt that we were going to get this done.” Skovronsky adds, “I was skeptical at first. What got me on board, eventually, was the recognition that we had a leadership team that was committed to making this strategy work, and that, with the right people and the right resources, we would actually be able to execute on our innovation strategy.”
As the initial transformation plan promised, Lilly continued to invest in R&D. Between 2007 and 2016, R&D spending as a percentage of sales increased from 19 percent to 25 percent, and the pipeline began to generate new drugs—ten launches in five years. “They’re not all great,” says Skovronsky, “but six or seven will be blockbusters, and that doesn’t happen by chance. That’s the result of a systematic approach to building an innovation capability.”
By 2016, with its revivified R&D operations, refocused organizational structure and leadership team, and leaner footprint, Lilly was firmly back on a path of profitable growth. Over the next five years, the stock price tripled. Fry reflects on the impact of the transformation: “I think all the foundation for who we are today was set during YZ. Sticking to that innovation strategy against all the external advice allowed us to have the hand of cards that we now have. And so I think today’s success was all built on that transformation.”
Transforming will require you, like Lilly, to address your leadership team—who’s on it, what they focus on, and how they lead. Just as your company needs a strategic effort to build the right differentiating capabilities to create value, your team will need to build the leadership competencies needed to enable this new form of value creation. (See “Is Your Leadership Team Leading?”)
Working in a capabilities-based way is not how most leaders have grown up—and the transition isn’t going to be easy. That’s why you will need to carefully consider what kind of leadership competencies you really need. And your leadership team will need help managing the many demands of your current businesses while also negotiating the major choices and changes in behavior needed to create value in the future.
Our research identified three significant actions that help leadership teams drive the transformation to a digitally powered, capabilities-driven organization:
- Establish the top team required to shape your future. Your reimagined place in the world requires you to rethink what roles, skills, and backgrounds are needed to deliver the capabilities you’ve chosen to focus on. What roles do you need to balance traditional business units and functions with the new capability-aligned and outcome-oriented teams? Who can help you get insight into the key issues from a market, customer and technology perspective? Who can challenge your thinking and bring in new perspectives needed to reimagine the future?
- Shift your leadership team’s focus toward driving the transformation, not just responding to today’s demands. Your leadership team will need to fully own and embrace the transformation. At the same time, it has to keep the organization focused to deliver today. What structures and mechanisms will allow you to ensure the urgent does not overwhelm the important?
- Take ownership for how your leadership team collaborates and behaves. With creating value in the beyond digital world requiring such a high degree of collaboration, your own behaviors will need explicit attention and care so you can build the culture that will inspire your organization’s collective success.
Is Your Leadership Team Leading?
We like to challenge leadership teams to think through whether they spend their time together really leading the company. Consider the following questions to judge whether you and your team make the most of your time together to position your company for success:
- How much of your time is spent on running the day-to-day versus shaping the future?
- How much of your time is spent reacting to what the organization brings versus what the leadership team should be driving?
- How often do your strategic discussions lead you to making the hard choices about your company’s future?
- When your team spends time on strategy, do you focus on the external environment or the bold choices that your organization must make?
- How much time is spent on reviews of actions after the fact versus on proactively shaping actions and a direction?
- How often do you ask people to come back with more detailed proposals because your team doesn’t quite have the energy or the clear vision that allows you to be decisive?
- How often do you spend time discussing in whose area of responsibility an issue falls and who should go tackle it?
- How often do you work together with your colleagues on an issue?
- How well do you know your colleagues in your leadership team? Do you get the feeling that your colleagues care about your success, and do you care about theirs?
You may be surprised by the result. Some teams find that more than half of their time is spent in rather unproductive ways; but much more importantly, they find they aren’t dedicating the energy to the transformation that will position them for success in the beyond digital age.
You will certainly have to work on these areas simultaneously, as they reinforce each other. You may not get everything perfectly right on the first take, including how you establish the team itself. This will take effort and may be a focus for some time, as a high-performing leadership team will make the journey ahead much more inspiring and impactful.
Establish Your Top Team Based on the Right Skills Mix
The first task is to take a hard look at whether you actually have the right team for the job that needs to be done. When you look at the capabilities that you need to leverage, enhance, or build, you will probably conclude that you need to add nontraditional leadership roles to your team (and likely eliminate some older ones). In fact, we have seen an explosion of C-suite titles and new roles in recent years. Think about chief innovation officers who lead teams of people with backgrounds in R&D, engineering, marketing, customer insights, product management, and IT to improve how a company launches products or services. Or, chief quality officers or chief sustainability officers who change how work is done across all company functions. Or, chief analytics officers, chief behavioral officers, chief brand officers, chief customer officers, and chief design officers. What’s important, however, is not the titles, but that these roles focus on building and scaling up the capabilities required to deliver on your value proposition, rather than on running traditional single functions or P&Ls. Some companies have taken first steps in this direction, but, in many organizations, these roles don’t go far enough and don’t translate into the outcomes-oriented organization we discussed in the last chapter. If building customer relationships is a capability on which you seek to differentiate yourself, you may need a role on the leadership team that can own how you manage the entire life cycle of a customer’s experience—not a person who is responsible for the selling or customer service processes.
You will also need to incorporate your ecosystem in your new set of roles. In the old world, where ecosystem was often equated with suppliers, the head of procurement was usually in charge of bringing potential issues to the attention of the top team. In this ecosystem-enabled era, however, your leadership roles need to map to responsibility for capabilities, both inside the organization and outside your own four walls in the larger ecosystem. Microsoft, for example, put in place a Corporate Vice President, One Commercial Partner, to simplify the engagement between partners and Microsoft’s own sales organization and to enable partners to effectively serve customers.2 This isn’t just a fancy title. The creation of such a very senior role reflects the importance of the ecosystem to the execution of the company’s value proposition and ensures that the ecosystem is represented in decision making.
Getting to a capabilities-based leadership model does not have to be done in one shot via a major reorganization; however, one of the most frequent mistakes leaders talk about is not moving fast enough on key positions. Some roles can work as part of a transition, but the more that roles are aligned to your reimagined place, the better. And if you conclude that you need a chief digital officer or chief analytics officer for a transition period, make sure you don’t set them up as “pirate ships” that exist outside the core structure for building and exploiting your capabilities—but integrate them tightly with the actual work of your company.
Leaders often struggle to remove scope from an existing leader—new capability roles wind up being too weak to drive transformation, or there are simply too many roles to allow for clear accountability. Your leadership team should reflect the balance of the new organizational construct we described in the last chapter—market- and customer-facing P&Ls, strong cross-functional teams based on capabilities and oriented to outcomes, and narrower functional areas.
The roles you choose to have on your leadership team send a signal to the organization, to customers, to your ecosystem partners, to investors, and to potential employees about the strategic destination you have chosen and about how you are transforming to achieve that future. Apple’s creation of the chief design officer position in 2015, for example, signaled to the organization (and, in fact, the world) the outstanding importance that design has for Apple and helped make the point that it is an organizational capability, not just a trait of the founder’s genius. Creating the role greatly helped Apple attract the world’s best designers, from the fashion industry and elsewhere, and produced one of the most differentiating capabilities that Apple ever built.
Once you’ve determined the roles you need on your leadership team, you can proceed to filling them with the right people. You will most certainly need leaders who have a deep understanding of what technology can do for you, and you will need leaders who have different backgrounds, experiences, and ways of working than those you may have traditionally sought.
In the past, leaders often hired chief information officers because they felt uncomfortable dealing with technology. Leaders were “outsourcing” the company’s digital challenges and opportunities. It should be obvious by now that this isn’t a sustainable model. Given how central technology is to your value creation, every leader needs to embrace digital. Every leader needs to understand how technology is changing the world around them; and how they can use technology to improve what they offer customers; how they develop, produce, and deliver products and services; how they engage customers, and so on, so that their company can deliver on its future place in the world. Not every leader will need to be able to program a bot, and not everyone on your team will need to be a digital native—though you may need a few of those, too—but having that understanding of what technology can do—and do for your capabilities, in particular—is a prerequisite for every successful leader today. What does that mean for people on your current team who do not have that technology understanding? We’d argue that if they don’t recognize the need to become digitally savvy and show no interest in developing that skill set, then they may not be the leaders who will lead your company to a successful future.
Digital savvy, of course, is not all you need in your leaders. As described in chapter 5, the capabilities-based organization you are building is inherently more complex and integrated than the traditional functional model most companies have relied on in the past. You will need leaders with a broad range of skills, experiences and perspectives to make this organization work. You will need people who can see problems and opportunities from a completely different angle. You will therefore need to seek people who look, think, feel, and act differently than your organization does today and be open to—and encourage—being challenged. What all this adds up to is that you will need a much more diverse set of leaders to lead you through this transformation.
There is ample evidence that diverse teams perform better.3 Researchers at the University of Michigan, for example, found that diverse groups can solve problems better than a more homogenous team of greater objective ability.4
However, what we’re talking about here goes beyond the typical corporate diversity initiatives—we challenge you to be strategic about the backgrounds and experiences you seek so that the leadership team represents the future the company is transforming to. You will need team members with experiences in different fields, who have worked with different ecosystems, and who understand the different capabilities, technologies, channels, and transformational approaches you will be deploying. You will need leaders who have demonstrated that they can build and scale up the capabilities you are seeking to perfect. Industry boundaries are blurring, and you need leaders with the best talents, regardless of the industry in which they gained their core experiences. For example, the health-care industry is rapidly morphing into an amalgam of traditional health care, consumer products, and Silicon Valley high-tech companies as the field becomes more personalized and technology-enabled. This means challenging traditional thinking with capabilities from the traditional B2C consumer products and retail domain and marrying those strengths with the technical innovation of designers from Silicon Valley. It’s not easy to find a single individual who can blend all these capabilities, so you often have to bring people with different backgrounds, life experiences, and skills together and help them harmonize into a single chorus. The very nature of the transformation ahead calls for a bold group that will challenge each other with new ideas and thinking, and diversity is becoming table stakes in our view if you want to solve tomorrow’s challenges.
You also need to seek out team members whose experiences reflect the diverse voices of your total ecosystem—including the customers you will be seeking to serve, your workforce, and your partners. Very likely, these voices will include different gender identities; national, racial, and ethnic backgrounds; abilities; and economic and educational backgrounds. Some companies have even started to include leaders from some of their ecosystem partners into their management committees, to more meaningfully engage with those partners.
Here’s how Carla Kriwet, former chief business leader of Connected Care at Philips, described her leadership team:
Sixty percent of my leadership team is new. We have many positions that didn’t exist before, like the innovation leader or the marketing leader at cluster level, or the chief medical officer or the Connected Care communication leader. We now have twelve different nationalities on my team. It sometimes feels like the United Nations, but I think it’s critically important because health-care systems are so different across countries. If you have a team full of Americans who think of Europe like one US state, that won’t work because health-care systems and reimbursement models are very different. If you only have Europeans, and they don’t understand how the large hospital chains in the US work and what their issues are around cybersecurity and safety, that won’t work either. I need people on my leadership team who naturally can connect. And therefore, one of the top requirements for people to join my leadership team was that they needed to have lived in different countries. Not to have had a production site in China among their responsibilities, or to know a supplier in India, but to actually have lived there so they know what the cultural differences mean.
You will also need to actively look for leaders on your team who exhibit the behaviors you have defined as critical: people who know how to lead via influence and encouragement rather than relying on their positional authority; people who are not concerned with the power, size, and budget of their areas but are instead focused on delivering outcomes; people who have the courage to acknowledge that they do not have all the answers and instead seek answers from their teams; people who can truly engage others around the purpose of what you’re trying to achieve, and people whose purpose is as much tied to delivering incredible outcomes as it may be to achieving their own personal success. Perhaps this could mean that your next leader will be a former ninth-grade teacher who had to manage an unruly classroom, or a pastor who had to listen to the complaints and worries of parishioners and help them chart a path forward. The leader of the future does not have to be cut from a single cloth from an MBA or engineering school.
To be clear, we aren’t suggesting running a corporate diversity initiative that makes for a colorful page in your annual report or making these changes out of purely altruistic motives or a sense of social commitment. Those motives may form a part of your thinking (and we would strongly encourage you to include them). But you need to be equally clear that you are creating voices for your much more complex ecosystem and putting together the best team with a mix of sensibilities who will help enrich your capabilities system.
As Hitachi, for example, started transforming from a diverse product-driven conglomerate into a solutions provider focused on social innovation businesses to create value (see chapter 2), top leaders realized they would need to completely reconfigure Hitachi’s leadership team, aiming for more diversity and types of experience. To lead the transformation, they brought in a new set of executives with restructuring expertise, external perspective, and the willingness to sacrifice sacred cows. “What your team has to do is to introduce more diversity in the Executive Committee,” Chief Strategy Officer Mamoru Morita recalls then-CEO Takashi Kawamura saying. “Look at the makeup of the Executive Committee right now. They’re all in their fifties or sixties and have worked at Hitachi their whole lives. They all think the same way and say the same things. That’s where things go wrong.” So Hitachi brought in new talent. Nakanishi, for example, who succeeded Kawamura as president, and later as CEO, had a wider set of experiences than most Hitachi executives; he had earned a master’s degree in computer engineering at Stanford and been away from headquarters for several years, working first as head of Hitachi Europe, then Hitachi Global Storage Technologies in the United States. Although Hitachi’s leadership team is still dominated by Japanese executives, several non-Japanese executives were appointed to senior roles. Alistair Dormer, from the United Kingdom, was named executive officer of the railway systems business in 2015 and later became EVP leading the mobility sector. In 2018, Brice Koch, from Switzerland, was named president and CEO of Hitachi Automotive Systems (Hitachi Astemo since 2021).
Hitachi puts a lot of emphasis on becoming more attractive as an employer for non-Japanese managers. Its 2020 acquisition of ABB Power Grids under CEO Toshiaki Higashihara was an important milestone. “With the addition of ABB’s thirty-six thousand power-grid employees, Hitachi now has more non-Japanese than Japanese employees in the group,” says Morita. “It will give Hitachi opportunities to accumulate global business experience and will give all employees much greater opportunities for thinking with a global mindset in day-to-day operations. Global job opportunities for our employees will be much more plentiful, which is good for people development.”
Shift Your Leadership Team’s Focus toward Driving the Transformation, Not Just Responding to Today’s Demands
A CEO once described a fundamental shift they made in how they managed their work: “I used to spend all of my time responding to other people’s issues—through email, meetings, the entire day was making decisions related to what others provided. One day, I recognized that the only way to lead the company was to do the work I feel was required for the organization to move forward.”
Time is the top team’s scarcest resource. What is the top team going to focus on, and how is it going to make sure that the urgent does not overtake the important? Given the amount of change ahead of you, it is even more important now for your leadership team to be very deliberate about how it sets its agenda to make sure it drives the transformation, rather than let the agenda be driven by requests coming from the organization.
Leadership teams will always need to manage two distinct agendas: running the business on a day-to-day, quarter-by-quarter basis and building for the future that you’ve committed to. Philips’s CEO Frans van Houten explains: “We talk about the need to both ‘perform and transform.’ If you only transform but don’t perform, you have no here-and-now. If you only perform but don’t transform, you have no future. Therefore, in our scorecards we measure both. In our reviews, we talk about both. And the targets that I give to all my executives, there are always some transform objectives.”
Top team members need to put sufficient horsepower around each of these goals to make sure the longer-term questions don’t fall prey to the short-term need for firefighting. Some companies create a separate group to manage a strategic transformation distinct from operations. Usually, these groups share many members and may even include individuals who aren’t part of the top team to infuse new thinking. However, even in these cases, the top team is still accountable for the transformation and for the performance of the transformation team.
The topics you’ll need to work through can be structured along the imperatives described in this book: you will need to reimagine your company’s place in the world, determine how to build privileged insights into the customers you care about, develop your ecosystems, re-architect your organization and culture to deliver business outcomes, reposition your leadership team, and reinvent the social contract with your people.
Setting the agenda of the team is one of the most important levers for the CEO. That’s why CEOs will not want to delegate agenda setting but rather drive the thinking behind this important task. Make room to think boldly about the future and translate that thinking into the everyday. Some companies make reviewing the progress in building the company’s differentiating capabilities a standing item on their meeting agenda, reflecting its importance and complexity. Others have separate, periodic meetings focused solely on the transformation.
Frans van Houten considered the organization of his Executive Committee off-site meetings so important that he took care of it himself. Recalls CFO Abhijit Bhattacharya, “There’s of course a lot of preparation required for those top team off-sites. For the first two boot camps, Frans drove the whole preparation of the entire trip himself. There’s no external agency involved; we only have one facilitator who watches us and gives us input in case we are missing something. The program is really leader-led—it’s a huge investment we make.”
Your role as a member of the leadership team does not stop with making these big choices about differentiation—you will also need to make sure that these important choices get executed. You will need to get your hands dirty working through the details of how to implement the various measures and how to make sure that what the organization builds adds up to a coherent whole.
Finally, you should hold yourself and your team accountable to spending the time and energy leading the way ahead. Consider metrics as simple as how much of your senior leadership agenda is spent on the strategic and transformational topics, or you can pulse the organization more broadly to gauge their independent perspective for how well you as a team are driving forward. Such tools and insights help ensure that you make the most of your leadership team.
Take Ownership for How Your Leadership Team Collaborates and Behaves
As part of having reimagined your company’s place in the world, you will have identified a significant problem your company is going to help solve. Resolving such a massive problem can’t be driven by one or two people only—it requires a level of shared accountability and collaboration that most companies do not have today.
Most companies typically experience a lot of competition in their top ranks: competition for the top job in some cases, but more often just competition for who’s managing the strongest P&L or whose function contributes most to those P&Ls. This individualist thinking, while rewarded in many modern corporations because it drives individual accountability, won’t help you transform your company. But once leadership teams recognize the magnitude of the task ahead and once they have the individuals who can think in the new way, collaboration becomes much easier. You therefore must get everyone on the top team aligned around an understanding of why your company needs to change, the place in the world you’re aiming for, and the differentiating capabilities you will need to get there. Everyone on the team needs to wholeheartedly own the transformation program and see their personal objectives and agendas tied to its success.
What if some people can’t seem to get on board? They either need to get on board quickly, or the ship needs to sail without them. As Eli Lilly’s Stephen Fry remembers, “There were a few people we had to let go, people who were completely opposed to the new way of running the company, who were completely opposed to the idea of business units because it was taking away part of their power. Letting those leaders go was critical for us being able to get on with the business units having more decision-making input and accountability.”
Creating ownership around the vision isn’t enough. You must then create a shared purpose for your leadership team. Have them define their remit: Why does the team exist? What big issues are they here to solve? When defining that remit, the team will need to be convinced—or will need to convince themselves—that their most important task is to lead the company through this transformation and that success will depend on the collaboration of team members rather than on the sum of individual functions or P&Ls. Top team members also need to align around the fact that they are gathering not to approve or reject proposals that are brought to them, like justices or legislators, but to work as a team of executives to create value as a team.
Philips’s CEO Frans van Houten recounts, “I started to take my executive committee to off-sites—you could call them journeys in nature. I had already done that in earlier years, and what I like very much about these kinds of trips is that the egos become a little bit smaller when you’re out in the nature. You leave your phones behind. You’re forced to actually transact with each other. In the first couple of years, we took the executive committee on these off-sites in order to have the difficult discussions, but also the personal reflections. What are we here to achieve? What does success look like? But also: Why are you here? Do you want to be here? And, if you are here, can you change your tune in how you transact with each other?”
Satya Nadella, who became Microsoft CEO in 2014, was also clear that he needed “the senior leadership team … to become a cohesive team that shared a common world-view.” As he writes in his book Hit Refresh,
For anything monumental to happen—great software, innovative hardware, or even a sustainable institution—there needs to be one great mind or a set of agreeing minds. I don’t mean yes-men and yes-women. Debate and argument are essential. Improving upon each other’s ideas is crucial.… But there also has to be high-quality agreement. We needed a senior leadership team (SLT) that would lean into each other’s problems, promote dialogue, and be effective. We needed everyone to view the SLT as his or her first team, not just another meeting they attended. We needed to be aligned on mission, strategy, and culture.5
You will then need to become more specific and work with leadership to define how they need to behave to help the organization transform. Addressing how your team behaves is not about leaders liking each other and agreeing. It is about establishing behaviors that allow everyone to be effective—to put issues on the table, solve problems together, come to decisions quickly, and feel committed to each other’s success.
The Covid-19 crisis has reminded leaders across the globe that their leadership teams must be able to act quickly and effectively. The crisis demonstrated that, under immense pressure, these teams can, in fact, step up and lead in collaborative, decisive, outcome-oriented ways. Instead of tasking some committee with developing recommendations for their workforce or their supply chains, they put their collective insights, perspectives, and experiences together and solved those big, truly cross-company issues as one team. If any reader has been the victim of a corporate cybercrime, the imperative for leadership to work together and make decisions is similarly obvious. Perhaps leaders so far haven’t perceived quite the same urgency around addressing the larger challenges they face in a world moving beyond digital and haven’t therefore stepped up to drive the transformation with the same energy, dedication, and rigor.
Philips’s leaders stress showcasing the desired behaviors they want to cascade down throughout the organization. Recalls CFO Bhattacharya,
When we started our culture journey, we said, “Anything that happens in the company is a reflection of the culture we set around the executive committee.” The implications of that, in terms of accountability, are huge. For example, when I did my self-evaluation for my midyear performance appraisal, I put myself as “partially meets” on “customer first,” not because I don’t visit customers or because I fail to follow a customer issue I’m aware of till it’s completely resolved. But if I am the CFO and I have influence over IT, global business services, and finance, and it’s still difficult for customers to do business with Philips, then I should take a big part of that responsibility personally. So I put myself as “partially meets.” And I did the same for my direct reports as well.
Equally important to defining the right behaviors is creating mechanisms that ensure you’re actually going to exhibit them. You have to be deliberate; you can’t just leave the mechanisms to chance. Many teams therefore agree to call each other out for doing things they said they were no longer going to do, or explicitly grant each other permission to ask for help.
At Microsoft, Jean-Philippe Courtois recalls, “We are challenging ourselves every day whether we have the growth mindset we need. I tell myself whether I have a fixed mindset or growth mindset, and I know my moments. I try to keep myself honest and to encourage my team pushing me after some pretty bad behavior, to tell me: ‘JPC, that was not the best of your growth mindset.’ ”
Philips’s Frans van Houten emphasizes authentic feedback as well:
During our off-sites, we always do speed-dating around feedback to make sure we give enough feedback and also to show how much fun it is and how much energy you get from it. So, if you have fifteen minutes between the end of the program and dinner start, you will need to look for two people and tell them what you really appreciate and what would help them grow in their role. We said you need to do at least five a day. It’s as simple as that. And then you see people actively looking for who they haven’t yet talked to. And it gets them into the habit of thinking about what they should tell their colleagues, what they’ve observed. It really just helps institutionalize feedback a little bit, in a fun way. We all have these forums and overengineered two-pagers. Whereas, very often, that human connection and feedback on one or two essential things is far more important.
Building trust is an essential element of enabling the team’s effectiveness. People need a way—even when they don’t agree—to have faith in the process and align around the team’s decisions. This trust also allows you to build a culture of testing boundaries and “failing fast”—acknowledging that it’s okay to fail as long as you learn from it. Building this trust may require you to revisit how you define “success.” Is success based on how many people one manages, and on financial and operational results alone? Or are there other measures, like how much you share talent and how much you collaborate? Other companies build trust via top team interventions, wilderness trips, or asking leaders to explicitly work together on particularly challenging and important tasks.
When Frans van Houten became CEO of Philips, he inherited a team where, as he said, “everyone was used to running their own ship. What I needed, however, was an executive committee with interdependent members—not dependent, not independent, but interdependent. We needed to work together and have the right, robust dialogues in order to then reach common conclusions and pursue common goals.” Van Houten was one of these true believers in wilderness trips. His CFO, Abhijit Bhattacharya, remembers:
Frans has taken his Executive Committee on a boot camp every year since 2015. These are not five-star trips—no, they are very basic. You live in tents. You share a room. You are walking in the wilderness for days. They put you physically deep outside your comfort zone, and mentally, as well. The first trip started in Las Vegas. All we were told is “Block that week and buy a plane ticket to Las Vegas.” That was all. When we landed, we got a first message saying, “Now find your way to this hotel.” And then in the hotel, they took our bags, laptops, phones, everything. Pairs of two of us were given a limousine, we were told to get into the car, and the driver just took you. We went from place to place, with no clue as to what we were going to do and how long it was going to take. At some point, we all met for dinner. We were back in the hotel past 1 a.m. and found ourselves sharing rooms. These are all small things, but every single step of the way was something that you are not used to.
While all these mechanisms usually do improve collaboration, we’ve hardly seen a measure as effective as getting pairs of executives to work together on solving corporate-wide issues. After all, the saying goes, “It’s easier to act yourself into a new way of thinking than to think yourself into a new way of acting.” The executives get to know one another better, learn to better understand the drivers of success and potential limitations of areas outside their daily sphere of influence, and see the power of having different perspectives come together in a true collaborative solution. Then they can share the satisfaction of having solved a big, complicated problem. And you will have no shortage of such challenges as you find your place and transform. Think carefully about which problems can and should be given to small groups of your leaders, bringing both the right skills and an opportunity to build a new model of collaboration and trust.
The new kind of leadership that you will establish among your top team will have to be cascaded down so you build leadership muscle throughout the organization. Top-down leadership is necessary, but never sufficient. Leaders need to engage “outside the lines” with teams that need to collaborate across the organization. A transformation like the one that lies ahead of you can’t be undertaken by the company’s top team alone. You need leadership to happen at any level. Given the pace of innovation in a world beyond digital, you need to build that companywide leadership capability that will allow you to move at the speed at which things move in the market.
Don’t underestimate the time and effort it takes to engage leaders throughout the organization and build this leadership muscle. Stewart McCrone, Philips’s head of Strategy, M&A and Partnerships, admits, “We were a bit naive in how easy and quick it would be to get the next couple of layers of people engaged and on board. We started off in good faith with some good material and some off-sites, but changing a company this size—and even changing twelve hundred leaders—is a much more involved, continuous, complicated, repetitive push than you may think.”
If you ask CEOs who transformed their company about their biggest regret, you often hear them talk about not having been decisive enough about repositioning their leadership team. They regret having spent too much time and energy on trying to get one or many team members on board, energy that they ended up not having for other priorities and that often did not even yield the desired outcome.
Your transformation effort won’t succeed unless you activate your leadership. Failing to do so—and do so quickly—will be a costly mistake. Succeed, and you will have a powerful and rewarding team that is ready to truly take on the challenging work ahead.