CHAPTER TWELVE
THE CAPABLE LEADER
In this book, we’ve made the case for coherence as the essential advantage of your company. We’ve illuminated the importance of mindfully choosing a way to play that is backed by a competitively differentiating and mutually reinforcing system of capabilities. And we’ve illustrated how companies align their product and service fit to these elements to create and sustain the right to win. We’ve looked at the process for a capabilities-driven strategy, the organizational changes that enable that strategy, and the approach you can take to growth, acquisitions, and expenses. There is one final ingredient critical to your success: your own coherent leadership.
One of our models of coherent leadership is former Procter & Gamble CEO A. G. Lafley, who is credited with driving P&G’s remarkable performance comeback in the 2000s, and was (among many other honors) named the Academy of Management’s Executive of the Year in 2007. But at the start of his tenure, he was not regarded with such acclaim. Indeed, Lafley has often spoken with humor about the stomach-lurching, 50 percent drop in the price of P&G stock the morning he was announced as CEO in March 2000:
[It] was a loss of nearly $50 billion in market capitalization. P&G leaders were lying low. Heads were down. Competitors were on the attack. P&G business units were blaming headquarters, and headquarters was blaming business units. Employees were calling for heads to roll. Retirees—who had just lost half their retirement nest eggs—were madder than hatters. Analysts and investors were surprised and angry . . . After 15 days on the job, I lowered growth goals to what I felt was a realistic and sustainable level—and the stock dropped another $3.85!12
Leaders on a journey to coherence will no doubt empathize. The path inevitably involves some similarly difficult moments, especially as people realize how much has to be cut back to keep the focus intact. Lafley describes P&G’s remarkable comeback in terms of choice and persistence. “Most importantly,” he told the Academy of Management in his award acceptance speech, “we’ve built discipline into the rhythm of the business. It’s human nature to want to avoid choices. But strategy is all about choices. And making and sticking with those choices is the responsibility of leadership.”
We agree. Your job, as a leader, is grounded in your ability to compel the organization to choose: to make choices yourself, to empower and teach others to choose, and to give them a framework with which to make better choices on an ongoing basis. Be willing, as Michael Porter puts it, “to teach others in the organization about strategy—and to say no.”2 If your organization like most, that won’t be easy. It’s natural for businesspeople to want to expand into adjacent markets, to extend their turf, to manage downside risks by hedging, and in general to stay unfocused. These instincts breed incoherence.
Capable leaders are neither confused nor confusing. They say “no” clearly to incoherent requests, and say “yes” even more clearly when they remind the organization what the destination looks like and the value of getting there. They know how to find the simplicity at the other side of complexity. Coherence becomes their greatest ally in articulating the logic for how the enterprise will win—and generating passion for getting there throughout the organization.
As a leader, you will have to be deliberate about the way you set and stick with your priorities. You have made hard choices about a way to play, the specific capabilities you will invest in, and the products and services that fit (and don’t fit). You are forgoing growth opportunities that do not mesh with your capabilities system. Your whole company will reap great benefits from coherence, but perhaps not right away. You will need to make more tough decisions as you go along, and you will be compelled to set an example of “living coherently” over the following months and years. Your own behavior will inevitably become a model for the alignment of strategy and execution that you wish to see around you.
The same is true for the other senior leaders of your company: help your direct reports see why changing their own behavior is important. Some of them may no longer have core roles now that the rules have changed, and you may need to find ways to bring them on board, give them new positions, or encourage them to go elsewhere. Leaders tell us surprisingly often that the hardest part of their job is managing their relations with other senior people; they feel caught between the desire to empower others and the temptation of seizing the reins and making most of the strategic decisions themselves. This conflict itself may be a sign of incoherence; without a clear way to play and a common sense of what adds value, most top managers will naturally pursue conflicting priorities. Conversely, when the destination is advertised and the path to it is evident, people embark on the journey willingly and with clarity, and the results achieved are orders of magnitude greater.
As we said in chapter 3, Mahatma Gandhi’s famous quote, “We need to be the change we wish to see in the world,” can be your starting point for change.3 People will look to you to stand by and sustain the commitment you have made. Focus on the opportunities that you know will produce results. Be careful not to appear as if you are hedging your bets. If you don’t have the visceral confidence that you are on a good path, then you may not be on the right journey, because it’s very easy to be seduced by nagging doubts into the kind of incoherence that undermines the whole effort.
There may be times, of course, when the results you expect aren’t forthcoming (although in our experience, this doesn’t happen very often). Something may be wrong with your strategic choice or, more likely, with your execution (such as the development of your capabilities system) or with your time frame. Don’t suddenly shift gears; rather, explore the reasons why things have gone sour, establish a rationale for what you will do next, and shift in a way that preserves your focus. Make sure people always know where the company is going and why, and that you are still committed to the goals of creating value and establishing your essential advantage.
The same kind of clarity is needed when you communicate your strategy—inside or outside the company. Build your case on a clear and logically consistent framework. You’re going to have a different story to tell—to Wall Street, to your board, to regulators, to employees, to union leaders if you have them, and to all other constituents. Explicitly talk about your company’s way to play, the market where you compete, your goals, and the capabilities system that will support those goals.
You don’t have to be a great communicator to lead a capabilities-driven strategy, as long as you can talk clearly. Learn to distill your directives into simple, direct statements of your intent. Most organizations betray their incoherence in the way people talk. If you are clear about your strategy and direction and consistent in the way you operate, these attributes will be more important than charisma. Establish practices, incentives, and discussions that help your company’s people move toward coherence. Don’t organize the process by yourself; convene a working group (the core team, as described in chapter 10), and broaden that group as the scale of your efforts expands. When people see sustainable success, you won’t have difficulty recruiting them to this effort; they’ll want to be associated with it.
John Barth, the former chairman and CEO of Johnson Controls, Inc. (JCI), is another model of leadership. For many years, he was a steady hand in moving his company toward coherence. In the early 1980s, he joined the firm as part of its acquisition of Hoover Universal (the auto seat business). At that time, JCI was a sleepy business with $300 million in annual revenues.4 Barth and the rest of the JCI leadership team turned it into a powerhouse components company, generating more than $34 billion annually by the time he retired as chairman and CEO at the end of 2007.5
JCI’s direction was rooted in foresight: in a solid understanding that the auto industry in Detroit and Japan was changing. Cars and trucks were getting more complex, and components manufacturers would have to compensate. Barth and his colleagues took the necessary steps ahead of time to divest businesses that no longer fit (such as plastics) and invest more in the capabilities that they would need.
As he focused on this strategy, Barth cultivated lieutenants, enlisting their support in leading the whole organization forward. Acting as a counselor to all, he treated them individually with discretion and varying degrees of bottom-line responsibility. In 1996, when JCI bought Prince, a highly regarded auto interior design company, Barth made a point of identifying and retaining Prince’s best managers. As a result, the JCI–Prince deal is recognized as one of the few successful mergers in post–World War II automotive history.
Capable leaders, like Lafley, Barth, and many others, are inspiring. They have learned to generate excitement and inspiration in a world of ruthless choice. Their own jobs become more enjoyable. They are not deluged by disjointed, ad hoc events. They have the enviable role of leading a group of purposeful, creative people who are used to winning in the marketplace and who understand why they are successful. When they go, they leave behind a company that is stronger, more capable, and more coherent than it was before; a company with a solid way to play and a capabilities system that enables people to grow; a company that is primed to create value, wealth, and quality of life for decades to come. In business, this is the most powerful legacy.