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Leadership Development is an Oxymoron

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Short term performance vs. long term power

As I’ve written in earlier blogs, the single biggest challenge facing CEOs and other C-Suite leaders in well-established companies is how to find the right balance between funding the businesses they have versus making significant enough investments in next generation businesses so they can deliver material revenues and profits to the company. Said another way, this challenge pits the demand to deliver short term quarterly earnings against the desire to create long term market power. This framework and concept has been one that my brother, Geoffrey, and I have been developing together and sharing with senior leadership teams for the past several years. Even after numerous discussions and use case examples, it still tops the list as the toughest set of decisions they confront year in and year out.

Power generates performance but performance consumes power

The big aha moment for senior leadership occurs when they realize that while power generates performance, performance consumes power. This means that if the company continues to overweight investments in current businesses so as to deliver short term performance, it will eventually liquidate the company’s long term power to grow.

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Then how should senior leaders make those internal investment decisions to enhance competitive performance on both fronts?

First, by understanding that decision making that optimizes short term performance and quarterly earnings is about management, while decision making that increases the company’s future power to grow is about leadership.

And second, by understanding the different skills and capabilities necessary to move from a management mindset to a leadership mindset.

Deciding between knowns and unknowns

In most cases, all the necessary data for a manager to make a performance-based decision is available and it’s a matter of assessing and comparing “known options” and selecting the one that has the best potential to deliver the desired short term results. By contrast, in many cases all the necessary data is not available to a leader who is trying to decide what new business opportunity has the greatest potential to improve the company’s long term growth prospects.

Leadership development is really management development in disguise

Most well-established companies have put together elaborate leadership development programs designed to identify their high potential managers and develop them into future company leaders. These programs include everything from:

  • The Company’s Values and Code of Conduct
  • Leadership skills and capabilities assessments  eg: Myers Briggs
  • University based development programs
  • Offsite leadership team building exercises
  • Job rotations

While a number of these programs help aspiring managers acquire broad skills and knowledge, in most cases all the practical examples and exercises are designed to help them make better management decisions not leadership decisions. Some of you reading this may be thinking – “so what’s wrong with that?”

What’s wrong with that is that the emphasis on management training, under the guise of leadership development training, only reinforces a silo based organizational structure. And silo-based decisions are primarily made within SBU’s and major support functions rather than across the enterprise. This results in management decisions that favor short term results trumping leadership decisions that favor long term growth.

I’ll give you an example of that in one word: Microsoft. For thirteen years they’ve been making these silo-based decision tradeoffs, and for thirteen years they’ve failed to launch a material next generation business and the market has kept the company’s stock flat during that time period.

How does a company break out of this management decision-making stranglehold?

The easy answer would be to say that the CEO is ultimately responsible for all major leadership decisions. In some cases, such as Apple’s extraordinary performance in the last decade (they successfully launched 3 next generation businesses that all delivered material new revenue and profits to the company), the primary driver of that performance was the company’s CEO, Steve Jobs. But in most organizations, the CEO needs to rely on input from a number of senior leaders who bring industry, market and customer experience and expertise to the table.

The hard answer then is to improve the quality of the decision-making process and not rely on the illusory promises of leadership development programs.

Based on our work with clients, here are four suggestions for how companies can change their leadership decision making processes:

1.  Review and evaluate all next generation business opportunities the quarter before the company begins its annual planning and budgeting process. The reason for this is that if you allow next generation business opportunities to compete directly for resources with established businesses, the former always loses out to the latter.

2.  Launch only one new business at a time. The biggest mistake well-established companies make in this arena is they spread their resources over multiple opportunities ensuring that no one will have sufficient support and funding to produce material returns.

blog 8 image 13.  Run each next generation business like a startup with a dedicated business development SWAT team who are compensated solely for getting the business to scale. The reason for this approach is that most well-established companies’ ability to support a new business opportunity that hasn’t produced material revenues and profits will stop after 24 to 36 months.

4.  Allocate a significant portion of all the discretionary bonus of each member of the senior leadership team to the success of the new business. If not, they will have no incentive to provide resources and support for the new effort.

Following these four suggested process steps for leadership decision making is no guarantee of success, but it sure increases the odds of success over trying to develop leadership decision making skills and capabilities in a classroom or an executive retreat.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

Crossing the Chasm in the Belly of a Whale: How Well-established Companies Can Adopt New Rituals to Successfully Launch New Businesses

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A Little History:

In 1991, my brother Geoffrey wrote his first book called Crossing the Chasm which provided a framework along with models and tools to help technology startups successfully launch and scale new products and services into the high tech market. Twenty two years later, it is still the bible for most startups in Silicon Valley and elsewhere and is taught in many of the major business schools around the country. Who says longevity doesn’t count for something in this always on, always frenetic, 24/7 world we live in today?
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Back in 1991, the primary challenge for hi-tech startups was to “break into” established markets that were populated by well entrenched competitors with long standing customer relationships. But as Clay Christensen taught us in his seminal book, The Innovator’s Dilemma, the skillful introduction of disruptive innovation ( products, services and technology ) could be used to get into established markets, mostly at the low end of the price/value scale, and then move up from that beachhead into  higher price, higher margin offers.

Today the challenge for well-established companies is to fight their legacy cultures and behaviors to “break out of” mature, slow growing markets and get into higher growth, higher margin next generation markets.

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Some Lessons Learned:

So what you may be asking has all this history taught us? Besides the obvious confirmation that:

  • Most successful well-established companies are much slower to adapt to new disruptive changes than they should be
  • It is very difficult for well-established companies to find the right balance between delivering short term earnings and investing in their long term power to grow

Well, from my perspective, one of the most interesting things we’ve learned over the past decade is just how challenging it is for well-established companies to successfully deploy market tested models and tools for startups to onboard and scale next generation businesses within their organizations and cultures. We call this challenge “Crossing the Chasm in the Belly of a Whale.”

One only needs to look at how painful and time consuming it has been for large companies to successfully adopt and integrate large ERP and CRM software tools into their organization. I have personally heard from numerous C-Level executives how those experiences caused their “will to live meter” to go to zero more times than they could count. Simply put, cultural habits and behaviors good or bad are very hard to break unless you can identify and adopt some “new rituals” to change them.

New Rituals to Help Successfully Launch New Businesses:

So here are some suggested new rituals, for you to consider that will enable your company to successfully launch and scale next generation businesses that can deliver material new revenue and profits to the mother ship?

1.  Identify who are the “early adopters” within your company’s senior leadership team and deploy them as the “next generation business champions.” There is nothing harder than trying to get a senior executive whose business unit is responsible for delivering a substantial portion of the company’s current earnings and profits to divert his or her attention away to starting a new business.

2.  Separate all the strategic discussions and resource allocation decisions about next generation business opportunities and have them the quarter before you start your annual planning and budgeting process. Bring the senior leadership team together and ask them to address this fundamental question: “Is it possible for us to onboard a net new earnings engine into this enterprise this year or not?”

3.  Since there is no definitive data about the future, you will need to use frameworks and vocabulary to clearly define what the most promising new business opportunities are and what level of resource commitment is necessary to get them started. Believe it or not, the fundamental models, tools and vocabulary from Crossing the Chasm are still one of the most effective ways to work through this process and achieve the desired outcome while still residing in the belly of a whale.

  • They will help you know where your new business resides in the product/service adoption lifecycle
  • Which will help you deploy the appropriate marketing and business development tools to scale your business
  • They will enable you to clearly define the target audience for the new business
  • Which will allow you to create a “compelling reason to buy” your offer as differentiated from competitive offers
  • They will allow you to assess whether you need partners and allies to deliver a “whole product or solution”
  • Which will allow you to put together a complete business partner ecosystem/value chain that will give you market dominance

4.  Like the whale, any large, well-established company has embedded behaviors and actions that have been developed to survive and prosper at the expense of smaller competitors. As such, there is “massive internal resistance” to moving resources away from current well-tested businesses to fund the launch of new untested businesses. As such, you need to re-assess how you incent and motivate your key business leaders so you can move from a “consumption comp plan to a replenishment comp plan.”

5.  Lastly, you will need to have the courage of your convictions in order to stay the course as you drive your new business to its “tipping point.” This means that you cannot apply short term business performance metrics to your new business, and you need to stand firm in the face of both internal and external opposition when it doesn’t deliver immediate returns. If you can successfully drive the business against the market’s resistance to its tipping point, when it flips to embracing your offers, it will literally pull you into a market leadership position.

I am in no way suggesting that the process of installing and embracing “new rituals” into a well-established company is easy or a guarantee for success. But I am suggesting that it beats the daylights out of sticking with old habits just because that’s the way the whale has always behaved.