Book Excerpt

FRAMINGHAM (05/01/2000) - Reprinted from Shaping the Adaptive Organization:

Landscapes, Learning and Leadership in Volatile Times by William E. Fulmer (Amacom, 2000, $29.95) If they want to succeed, companies need to walk the fine line between stability and change, what consultant and educator William E. Fulmer terms the "edge of chaos." The reality, however, says Fulmer, is that most companies are intensely uncomfortable being anywhere near that edge and for that reason are struggling in today's complex environment, where change is rapid and success is uncertain.

Fulmer, a senior fellow and senior vice president of the Executive Development Center at Harvard Business School, asserts in his new book, Shaping the Adaptive Organization: Landscapes, Learning and Leadership in Volatile Times, that companies must accept the paradox that the only permanent business reality is change. Borrowing from the language of biology and evolution, he details how companies that adapt survive.

How fit, or successful, a company will be, in Fulmer's view, depends on its adaptive skills in three areas. First, an adaptive organization understands its competitive space, or "landscape," and is able to measure that landscape's "ruggedness," or its risks and opportunities. Second, an adaptive organization is, at heart, a learning organization, one that stays in touch with customers and rewards innovation. Third, the leadership of an adaptive organization demonstrates that it not only welcomes change but nurtures it. An organization with these three L's--landscape, learning and leadership--will be able to embrace change and function effectively in today's exhilarating and frightening economy. In Chapter 10, "Leadership in a Complex Environment," Fulmer discusses 10 activities with which corporate leaders can create an environment of success in their companies.

Leadership on a rugged landscape seems to require constantly working to shape an environment where change always is possible and usually is occurring. But it is an environment that also is finely balanced between surprise and order. When 3M's CEO talks about the foundation of 3M being innovations and stability, he is describing, in organizational terms, the edge of chaos--a mixture of stability and flexibility, a compromise between order and surprise.

Using different language but describing a similar balancing act, [Intel Chairman] Andy Grove talks about the importance of an organization being able to deal with debate and disagreements over an uncertain future, but also being able to rein in chaos and pursue a "determined march." The determined march and the environment of chaos are the equally important sides of the leadership coin. In an interesting choice of words, Grove describes an organization that can balance such qualities as a "powerful adaptive organization."

I am convinced that the role of a business leader in the 21st century will be to create and nurture an environment that allows the organization to operate at the edge of chaos, a place where fitness can be at its highest. To successfully lead in this type of environment requires a nontraditional view of leadership.

Rather than the hero as a lone figure trying to control the organization or drive the record-breaking car, the leader will be a catalyst and facilitator.

In this chapter I identify 10 activities that leaders of large organizations can emphasize to help shape a coherent environment that can handle constant and significant change and thereby achieve breakthroughs. Many are applicable to small organizations but are especially applicable to larger, more complex organizations.

1 BUILD AND MANAGE A NETWORK OF PERSONAL RELATIONSHIPS. Just as business organizations need to have a network of relationships with other key agents on their landscape, so business leaders of established organizations need a network of relationships if their tenure at the top is to be successful.

Building and maintaining this network of relationships involves more than just establishing relationships with direct reports. It includes establishing relationships with people throughout the organization as well as carefully chosen outsiders who can help people in leadership positions achieve their organization's goals. It may involve building relationships with people already in the organization, but it also may require replacing people who may not be as helpful in the future as they will need to be. People more in tune with the challenges of the future may have to be added to the network.

[Harvard Business School professor John] Kotter found that the best managers ask, encourage, cajole, praise, reward, demand, manipulate and generally motivate others with great skill in face-to-face situations. He also found that they rely more heavily on indirect influences than less capable managers who are more likely to rely on a more narrow range of influence techniques and apply them with less finesse. In other words, effective leadership is a very subtle process of building and utilizing a network of agents throughout the organization.

2 STUDY THE LANDSCAPE. Although the future cannot be predicted at the edge of chaos, one thing is clear from the work that has been done on complex systems--there are patterns of behavior. That does not mean that they are easily seen at any point in time. It does, however, mean that many companies need to devote more resources and more CEOs need to devote their time to trying to understand the landscape on which their organizations operate. A key role of leadership in an adaptive organization is to be a student of the landscape.

Such leaders have to be honest about what they see around them. What are the developments, patterns and trends among our competitors, both current and potential? What about our customers? Or our suppliers? What might they mean for us and our current strategy? How can we use these insights not only to respond to changes but to shape the future in our favor? Leaders need to ask themselves and others, "What if?"

In Silicon Valley, it is not uncommon for leaders to take short sabbaticals so that they can gain new perspectives. Grove talks about supplementing "management by walking around," which was an early Silicon Valley practice, with "management by reading around." He believes that surfing through a high volume of electronic communications leads to the occasional random insight that may help him gradually reposition Intel's strategy.

How can leaders help people understand what their landscape is like if the leaders cannot see what is happening--internally and externally--to the organization? Leaders need to be constantly exposed to insiders and outsiders who can help them better understand their landscape.

3 SET HIGH EXPECTATIONS. For senior business leaders, increasingly detailed agendas are being replaced with much shorter agendas. Often they take the form of broad goals or targets and these goals frequently are stretch goals. GE was one of the first organizations to institutionalize the idea of stretch goals.

According to [GE Chairman and CEO] Jack Welch, stretch means moving beyond being as good as you have to be--making a budget--to being as good as you possibly can be--setting impossible goals and going after them. He adds, "If you do know how to get there, it's not a stretch target."

More and more, corporate leaders seem to be adopting stretch goals. In 1992, Boeing's CEO set a stretch goal of reducing the cost of manufacturing a plane by 25 percent by 1998 and reducing the time needed to build a plane from 18 months in 1992 to 8 months in 1996. In 1993, Hewlett-Packard vowed to go from a marginal PC maker to a top-five player by 1997. By 1997, it was the world's number-three supplier of PCs, and in September of that same year announced its goal of being number one in four more years.

For stretch goals to work it is essential that the leader believes the goals are attainable. According to Marc Seriff, America Online's cofounder and first head of technology, "In a little company everybody's got to believe. But there needs to be somebody who believes no matter what. That was Steve [Case]. Steve believed from the first day that this was going to be a big deal."

4 LET GO. Perhaps the hardest suggestion I will make in this chapter to many business leaders is to let go. In the words of an executive at 3M, "Managers must set goals, then get out of the way." On a rugged landscape leaders have to trust that the people in the system will do good things more often than not. On a rugged landscape I believe a top-down, command-and-control system generally will do more harm than allowing people at lower levels to make some mistakes--especially in an organization with capable people.

Getting out of the way can be a very scary thing to do at first. Many traditional executives see it as giving up power and control. I believe that it actually increases the power inherent in the system and that the leaders never had the real control that many thought they had.

Intuit's cofounder, Scott Cook, describes a way of visualizing an organization where top management gets out of the way: "I think of an organization not as a hierarchical triangle but as a circle with the leaders in the middle and the customers scattered around the perimeter. As the circle gets bigger, the leaders become subtly insulated from the customers. So I think the role of the leaders in a growing organization is to push the decision-making and control out to the edges as much as possible."

This is similar to Sam Walton's philosophy that helped lead Wal-Mart to fundamentally change the retailing landscape. When Walton was building Wal-Mart into the leading retailer in the United States, he often talked of "servant leadership." He saw the role of the leader as one of providing workers with whatever they needed to serve the customer in the stores--merchandise, capital, information, inspiration--and then getting out of the way.

5 BE AVAILABLE. Getting out of the way does not mean abdicating responsibility.

The leader of a firm on a rugged landscape has to be available to help others, especially customers and employees.

The technology community is filled with executives who reflect this. Eric Schmidt, the chairman and CEO of software maker Novell, reportedly met with more than 25,000 customers and flew more than 200,000 miles during a recent 12-month period. Sometimes being available is as simple as asking questions or sharing information. According to [former] Hewlett-Packard Chairman Lewis E.

Platt, "I don't create business strategies. My role is to encourage discussion of the white spaces, the overlap and gaps among business strategies, the important areas that are not addressed by the strategies of individual HP businesses." Other times it is as simple as listening to people and letting them know how to reach you when they need help. UUNET's CEO rejected the idea of a security door to the executive suites because he wanted employees to be able to visit him anytime. Jerry Kalov, CEO of Cobra Electronics, has a phone extension that is not screened by anyone, and it is given only to employees.

6 CHOOSE THE MEASURES ON WHICH TO FOCUS. What does your organization measure most carefully? Many companies spend an inordinate amount of time developing and studying traditional financial measures. Yet, according to The Conference Board's research director for corporate governance and strategy, traditional measures do not capture key business changes until it is too late. They reflect divisional, not cross-functional, processes within a company; and often they fail to cope with hard-to-quantify assets such as intellectual capital.

Too often leaders forget that financial numbers are an abstraction, not reality. Furthermore, they often give an illusion of precision. They also are historical and can blind leaders to future changes. When American Express was experiencing a competitive crisis in the early 1990s, one of its executives commented, "Our return on equity had been in excess of 20 percent a year for decades. The attitude was, 'Who can argue with those numbers?'" I find that a rapidly changing landscape requires organizations to have simple measures. Leaders at companies such as Microsoft and GE certainly support this view. I like Welch's: According to him, "Too often we measure everything and understand nothing. The three most important things you need to measure in a business are customer satisfaction, employee satisfaction and cash flow."

I do not mean to suggest that traditional financial measures are unimportant.

They may not be particularly helpful in leading the organization, but they are very important to outsiders.

7 COMMUNICATE A DIRECTION. An organization needs to have a clear direction. A key role for any leader, but especially the CEO of a large, established organization, is to be able to articulate the business direction and goals clearly to interested parties, both internal and external to the organization.

This ability to communicate a clear direction is essential at all levels of leadership, even at the level of project leader. According to Pamela Lopker, the president of QAD, a developer and supplier of integrated business software and services, "I've never had a project completed successfully where someone couldn't articulate what they were doing." She adds, "If someone can't explain to me what they are doing very simply, and show me milestones between now and when they finish it, I just don't believe them."

At Sony in the late 1980s, Akio Morita, chairman and cofounder of Sony, saw one of his roles as being the company philosopher. He believed that, particularly in a highly technical enterprise, philosophy was needed to place technical developments within the entire texture of modern social existence: "The philosopher must see technology in its human context so as to guide the aims of engineering."

Ideally, leaders should go beyond just helping people understand the direction, whether it is the overall business direction or the technology direction. They should help others in the organization understand what is happening around them, for example, understand their landscape.

Good leaders do not have to be great speakers or even have outgoing personalities. They do, however, have to find a medium whereby they can effectively communicate the message that they think is at the heart of the organization's direction, whether business direction, technology vision or the landscape. They need to actively look for a variety of ways that are effective for them to communicate, both by words and deeds, what the important dimensions of the business are.

The more forums management can hold, the better. According to an employee I interviewed at a telecommunications company, "If you just had one mechanism, somebody would miss that meeting or they would miss that channel of communication, so I think redundancy is important." Because his organization utilized numerous forums, he didn't "hear a lot of complaints from people [complaints such as], 'Hey, I didn't hear about that.'" Employees come and go, people forget and circumstances change. If the direction is not communicated clearly and often, people in the organization will get lost in fairly short order.

8 BE DECISIVE. Debate and study have to lead to action. I was impressed with advice given to Frederick Smith, the CEO of Federal Express, when he was serving in Vietnam. A sergeant reportedly told him, "Lieutenant, there are only three things you gotta remember: shoot, move and communicate." For me, one interesting aspect of this advice is that survival begins with action.

Decisions have to be made before things start to happen.

Many business writers and leaders have explored the importance of values in a modern organization. A clearly understood set of values is vital to an organization on a rugged landscape. When surrounded by great uncertainty, people find it very helpful to know what the organization believes in, even if they do not always know what the next actions will be. Articulated values are meaningless, however, unless they are consistently reflected in hard decisions.

On rugged landscapes leaders have to be decisive. More and more, difficult decisions will have to be made faster and with less information than most leaders would like. Over the years I have had the experience of using case studies with various groups of MBAs and executives. In virtually every group there are people who say, "I can't make a decision about this case because I don't have enough information." Business leaders on rugged landscapes never have all the information they would like to have. Yet for their companies to be successful they have to make big decisions and increasingly do it quickly.

There are some significant advantages to rapid decision making. For one, you are more likely to stay ahead of the competition. Intel's new president and CEO, Craig Barrett, while acknowledging the risks associated with spending billions of dollars on new chip plants, stresses, "If we didn't we couldn't possibly reap the benefits. The worst thing we can do is stop too soon and let someone else pass us."

Marc Andreessen, formerly the CTO of Netscape, sees another advantage: "One of the advantages of moving quickly is if you do something wrong you can change it. What technologies tend to do is they tend to make a lot of mistakes, but then we go back and aggressively attack those mistakes--and fix them. And you usually recover pretty quickly."

This willingness to make quick decisions and then improve on them needs to be found not only at the top of the organization but throughout. Several years ago, I had the opportunity to spend some time with managers and executives of a successful supplier to the automobile industry that had implemented a quality program that had dramatically improved the company's performance on many dimensions, including financial. When a plant manager was asked about his role, he talked about the importance of being willing to make a decision and move on:

"Keep the parade moving--don't stand there and do nothing. Even if you don't know what impact the move is going to make, record it, let people know what is going to happen and march on." As he acknowledged, if it turns out that there are problems with the decision, correct them as best you can and move ahead.

9 PREPARE A SUCCESSOR. Often the true test of a leader is what happens after he or she leaves the organization. Too few leaders seem willing to take the time to prepare either the successor or the organization to accept the successor.

The changing of the guard at Cisco Systems and Intel seemed to go so smoothly that little public notice was taken. When in April 1998 Grove announced he no longer would serve as CEO and promoted Intel's president to the job, the stock market hardly responded. When John Morgridge, CEO of Cisco Systems, surprised his board by announcing his intention to retire, he recommended his replacement--John Chambers. According to the retiring CEO, "When Chambers took over, Cisco never lost a beat. That's how the company was able to stay ahead."

There are reports that Welch spends more than 30 percent of his time on questions of GE management development and has his company spending approximately $800 million a year on training and leadership development--almost half of what it spends on R&D. In recent years he has described the issue of succession as an obsession for him. "It's on my mind constantly. Finding the right person is the most important thing I can do for the company." One of the things that often seems to characterize leaders of fit organizations on rugged landscapes is that they do not choose successors in their own image. It is hard to imagine two CEOs more different in personality, style and background than Reg Jones and Jack Welch. Intel's new CEO is described as a laconic metallurgist whereas Grove was described as "Mr.

High-Output Management." Sony's new president was a marketing executive and is viewed as more of a software person than a hardware person--the first such candidate in Sony's history to lead the company. He sees himself as totally different from his predecessor. Strong leaders seem to choose their successor for his or her perceived ability to deal with the emerging landscape.

10 ACT WITH URGENCY AND ENERGY. On a rugged landscape, leaders have to convey an almost constant sense of urgency. This usually requires a high level of energy. I was struck by an analyst's description of Juergen Schrempp, cochairman of DaimlerChrysler: "He is so full of energy, you feel you should ground yourself before you touch him." It is similar to descriptions I have heard applied to the leadership of leading technology companies. For example, according to Fortune, Chambers of Cisco "is in overdrive all the time, on a sales call that never ends." HP's new president and CEO, Carleton Fiorina, has been described by her predecessor as having energy and sparkle that cannot help but be noticed.

In my opinion, Jack Welch personifies many of the qualities that will be needed in the CEO of a large corporation in the early part of the 21st century. With all of the changes and the impressive performance that Welch brought about at GE in the first few years of his tenure, when asked, with hindsight, what would he have done differently, like Grove, he emphasized speed of action--"move faster."

"In hindsight," he added, "if there's a criticism [at GE], it was too evolutionary. It was perceived on the outside as revolutionary, but if you want to criticize what the hell went wrong, I didn't do it fast enough.... It took us a decade to do a lot of the things we had to do."

Welch, too, talks about always being scared. He also talks about the importance of being "on the lunatic fringe" and coming to work every day on the razor's edge. He seems to use that sense of fear to energize himself and others. He even speaks of his role as being an energizer. He believes, "You've got to be live action all day. And you've got to be able to energize others." He also wants his managers to be the same way: "They have to have enormous energy and the incredible ability to energize others. If you can't energize others, you can't be a leader."

Successful leaders of large organizations operating on rugged landscapes rarely will be the traditional lone figure, single-handedly making the difference.

Rather, they will be catalysts or facilitators who can speed up reactions or influence the interactions of others so that growth can occur. Leaders who play this role have, I believe, a far better chance of helping their organizations adapt to a rapidly changing world. The 10 activities discussed in this chapter are some of the most important ways that leaders of large, complex organizations can help shape an adaptive organization.

Copyright 2000 by William E. Fulmer. Reprinted by permission of Amacom, a division of American Management Association International, New York City. All rights reserved.

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