Culture Truly Matters

How ambidextrous is your organization? If you want it to be around for awhile, the answer should be “Very.” Take a look at this recent article, written by Marina Krakosvky and reprinted by Quartz.com.

The one thing that makes a company last forever

By Marina Krakovsky, Stanford Graduate School of Business June 5, 2013

IBM’s survival tactic: innovative thinking. AP Photo/Focke Strangmann

All companies hit rough patches from time to time. But only a few manage to survive decade after decade—some of them in a form that bears no resemblance to the original organization. Nokia began in 1865 as a riverside paper mill along the Tammerkoski Rapids in southwestern Finland. In the late 1880s, Johnson & Johnson got its start by manufacturing the first commercial sterile surgical dressings and first-aid kits. And in 1924, the founder of Toyota came out with his company’s first invention—an automatic loom.

What explains the longevity? Stanford Graduate School of Business professor Charles O’Reilly calls it “organizational ambidexterity,” the ability of a company to manage its current business while simultaneously preparing for changing conditions. “You often see successful organizations failing, and it’s not obvious why they should fail,” O’Reilly says. The reason, he says, is that a strategy that had been successful within the context of a particular time and place may suddenly be all wrong once the world changes.

Staying competitive, then, means changing what you’re doing. But the change can’t be an abrupt switch from old to new—from print to digital distribution, say, or from selling products to selling services—if that means abandoning a business that’s still profitable. Hence the call for ambidexterity. You can’t just choose between exploiting your current opportunities and exploring new ones; you have to do both. And the companies that last for decades are able to do so time and time again.

O’Reilly’s work builds on that of other organizational scholars who have noted the value of a two-pronged survival strategy. In a seminal paper published in 1991, Stanford professor James March wrote about the need for organizations to do two things at once, and articulated the challenge. “Both exploration and exploitation are essential for organizations,” March wrote, “but they compete for scarce resources.” That means organizations that try to do both face difficult trade-offs, choosing one only at the expense of the other. Harvard professor Clayton Christensen went a step further, pointing out in The Innovator’s Dilemma in 2011 that the very things that make an organization successful today will actually work against it as conditions change. It’s not just that resting on your laurels is tempting, or that managers are blind to the changes around them. Rather, innovation can easily seem like a threat to a business that is already working well.

When Christensen wrote The Innovator’s Dilemma, he saw no way out, O’Reilly says, except to spin out the innovative part of the organization. According to that approach, the best way for Wal-Mart Stores Inc., for example, to cope with the advent of internet retailing was to continue to focus on its brick-and-mortar stores and to spin off website Walmart.com as a separate company, as it did in 2000.

But a spinoff doesn’t really solve the problem, O’Reilly says, because it doesn’t help Wal-Mart make money in the long run. A better way, his research suggests, is to run the mature business alongside the newer business under the same organization—but, crucially, to do it in a way that makes smart use of the organization’s resources.

A good model is the way in which Wal-Mart is rolling out its Express stores, the much smaller alternatives to the company’s behemoth supercenters and among its best hopes for continued growth. This venture, which is moving in on the turf occupied by the likes of CVS and Walgreen, seems likely to pay off, O’Reilly says, because Wal-Mart’s senior managers aren’t merely moving into a new, related business; they’re leveraging “the strengths of the mother ship” to do so. For Wal-Mart, those strengths are in real estate, purchasing, logistics, and information technology—all capabilities that will be useful in the drugstore business, too.

Christensen, O’Reilly says, now sees ambidexterity as the solution to the innovator’s dilemma, but not everybody does. The idea that organizations can reshape themselves to adapt to change runs counter to a decades-old tradition in organizational studies that says, in effect, that organizational survival is a matter of luck. That school of thought, influenced by evolutionary theory and known as organizational ecology, holds that the companies that survive today are products of natural selection. These organizations have the right features to thrive in their current environment, organizational ecologists say, but sooner or later, the environment is bound to change. And if it changes in ways that favor a different set of traits, the argument goes, an individual business can’t adapt any more than a zebra can change its stripes.

That view is too fatalistic, O’Reilly believes, because it ignores managers’ power to learn and change. If Wal-Mart is continuing to grow while Sears is in decline, it’s because Wal-Mart’s leaders are deliberately doing the right things.

O’Reilly and his colleagues, especially his close collaborator Michael Tushman, of Harvard Business School, have found what some of those things are. Above all, an ambidextrous organization needs a leader with an “overarching vision,” or clarity about why different businesses within the organization are important. But their research also shows that problems arise when other senior managers disagree with that vision. Therefore, the leader must also “make sure that everybody is singing off the same hymnal,” O’Reilly says.

Managers must make sure their organizations actually align with that vision, as well—a difficult feat, given that different business units’ cultures and incentives might be tugging them in different directions.

The best leaders manage to pull it off. One example is Glen Bradley, who in the early 1990s led Ciba Vision, a maker of contact lenses that was losing ground to Johnson & Johnson. Johnson & Johnson had the economies of scale to defeat Ciba Vision in the market for conventional lenses, so Bradley redirected his organization’s resources toward developing innovations, such as contacts that people could wear while sleeping. At the time, the concept of extended-wear contact lenses was to conventional contacts what digital photography had been to Kodak’s film business: If successful, many feared, the new product would kill the old one.

To make clear why the old business should support the exploratory projects, Bradley crafted a new vision for the entire company: “Healthy Eyes for Life,” a statement whose breadth conveys the idea that the company should pursue whatever technologies and opportunities they had to promote healthy eyes. To forestall conflicts over resources, he set up a separate organization for each project, each with its own research and development, marketing, and finance group, and each headed by a leader given free rein to create the right culture to meet that organization’s goals.

At the same time, Bradley wanted to make sure the new projects benefited from the expertise of the old business, so he put all of them under the control of a single executive, who knew the old business and had the personal relationships to facilitate sharing across divisional boundaries. Bradley also revamped the company’s incentive systems, to reward managers mainly for the performance of Ciba Vision as a whole. Thanks to these efforts, the new project teams became remarkably productive: Besides new types of contact lenses, Ciba Vision successfully introduced a drug to fight eye disease and pioneered a manufacturing process that greatly reduced the cost of making lenses. In the first 10 years after Bradley’s move to ambidexterity, the company’s annual revenues grew from $300 million to more than $1 billion.

Ciba’s experience shows that with deft ambidextrous leadership, an underdog can stand up to a powerful rival. But Johnson & Johnson could have done what Ciba did. We often think of large organizations as lumbering bureaucracies incapable of swift change, a notion perpetuated by highly visible David-and-Goliath stories in business. (Think Netflix trouncing Blockbuster, which had years to respond to the little company with the red mailers.) In fact, large companies are often better-positioned for ambidexterity than small ones, O’Reilly says, because one bad bet won’t wipe them out. “If you’re a small company, you place all your chips on this one thing, whereas a large organization can do lots of experiments,” he explains.

IBM, an organization that O’Reilly has studied extensively (and for which he and Tushman have consulted), is a case in point. In 2000, the company’s leaders, acknowledging that running their existing businesses with incremental improvements wasn’t enough to grow revenue, launched a project to foster more exploration. Called Emerging Business Opportunities, the initiative might sound like just another stuffy big-company acronym. But reading O’Reilly’s descriptions of the EBOs makes them look almost like startups within Big Blue, with each reporting to a division head and to the head of new growth opportunities—somewhat the way entrepreneurs remain accountable to their funders. Like actual startups, some of these organizations failed to bear fruit. But there were enough of them (seven in the beginning) that in the first five years alone, the EBOs added $15.2 billion to IBM’s top line, O’Reilly and his colleagues report, or more than twice as much as acquisitions did.

A recent study by O’Reilly and colleagues suggests that while IBM’s experience was extraordinary, the company does have something in common with other thriving organizations. The researchers looked specifically at what type of corporate culture was associated with growth in revenue and net income, and found that more adaptive cultures, or ones that emphasized speed and experimentation, did much better. “A culture that says, ‘We don’t have all the answers; we’ve got to try these experiments’—that’s the type of culture that promotes ambidexterity.”

What determines the ideal balance between exploration and exploitation is one of the big open questions in the research on ambidextrous organizations. It’s safe to say, though, that the right amount of experimentation has much to do not only with a company’s resources, but also with the pace of change in its industry. “If the industry isn’t changing rapidly, doing 100 experiments is unproductive and expensive. But if you don’t do experiments, you’re likely to be in trouble if the industry is changing.”

This piece was originally published by the Stanford Graduate School of Business and has been reprinted with permission. Follow the school on Twitter at @StanfordBiz

Marina Krakovsky is a Bay Area writer whose work has appeared in Discover, the New York Times Magazine, Scientific American, Slate, Stanford Magazine, and the Washington Post.

Gary Hamel on the Value of Syndicating Leadership

If leadership is needed everywhere in the organization, is it possible that the problem is not that there is a lack of leaders, but instead that there are organizational structures that limit the opportunity of others to lead? Even more importantly, is it possible that change is so difficult in many organizations because, by the time a problem is evident enough to be addressed at the top, it is already to late to get in front of it?

med-th-garyhamel-420x236.ashxI had the opportunity to hear Gary Hamel speak a number of years ago and was impressed by his thought leadership and his practicality. The author of Competing for the Future and Leading the Revolution has always been a futurist who has challenged the status quo.

Along with McKinsey,the Harvard Business Review, and his colleagues at the London Business School, Hamel has created the Management Innovation Exchange to offer a platform for sharing ideas and examples of leading throughout the organization. Through that venue, the HBR/McKinsey Leadership Challenge has been created for the best disruptive idea or practice in syndicating leadership. Click on those links to discover more about the prize and the challenge.

A final word about what is exciting to me regarding this approach. Traditionally we academics go off into a lab or an office, do surveys, and try to find something meaningful to share in regards to management theory. The approach of the Leadership Challenge is to reach out to those places where positive action is taking place, and make it available for the rest of us.

Here is a link to a quick but fascinating interview with Gary Hamel regarding this approach: Interview with Gary Hamel

John Kotter on Management and Leadership

managers leadersAs some of you have been subscribers for awhile, you know my take on the argument of the difference between managers and leaders. For the most part, it’s a difficult, and in my opinion useless, argument because it confuses what one does with who one is.  Our language gets us stuck since there is manager vs leader, managing vs leading, and management vs leadership. Those people who are most informed, or who are students in my classes, will argue that John Kotter makes a distinction between managers and leaders. While that may have been the case with some of his initial writings, his intent I believe has always been about the action of management and leadership.

I hope to have Dr. Kotter on one of my future “All Things Leadership” podcasts, but in the meantime, consider his comments that were published in the Harvard Business Review earlier this year:

by John Kotter|11:00 AM January9, 2013

A few weeks ago, the BBC asked me to come in for a radio interview. They told me they wanted to talk about effective leadership — China had just elevated Xi Jinping to the role of Communist Party leader; General David Petraeus had stepped down from his post at the CIA a few days earlier; the BBC itself was wading through a leadership scandal of its own — but the conversation quickly veered, as these things often do, into a discussion about how individuals can keep large, complex, unwieldy organizations operating reliably and efficiently.

That’s not leadership, I explained. That’s management — and the two are radically different.

In more than four decades of studying businesses and consulting to organizations on how to implement new strategies, I can’t tell you how many times I’ve heard people use the words “leadership” and “management” synonymously, and it drives me crazy every time.

The interview reminded me once again that the confusion around these two terms is massive, and that misunderstanding gets in the way of any reasonable discussion about how to build a company, position it for success and win in the twenty-first century. The mistakes people make on the issue are threefold:

Mistake #1: People use the terms “management” and “leadership” interchangeably. This shows that they don’t see the crucial difference between the two and the vital functions that each role plays.

Mistake #2: People use the term “leadership” to refer to the people at the very top of hierarchies. They then call the people in the layers below them in the organization “management.” And then all the rest are workers, specialists, and individual contributors. This is also a mistake and very misleading.

Mistake #3: People often think of “leadership” in terms of personality characteristics, usually as something they call charisma. Since few people have great charisma, this leads logically to the conclusion that few people can provide leadership, which gets us into increasing trouble.

In fact, management is a set of well-known processes, like planning, budgeting, structuring jobs, staffing jobs, measuring performance and problem-solving, which help an organization to predictably do what it knows how to do well. Management helps you to produce products and services as you have promised, of consistent quality, on budget, day after day, week after week. In organizations of any size and complexity, this is an enormously difficult task. We constantly underestimate how complex this task really is, especially if we are not in senior management jobs. So, management is crucial — but it’s not leadership.

Leadership is entirely different. It is associated with taking an organization into the future, finding opportunities that are coming at it faster and faster and successfully exploiting those opportunities. Leadership is about vision, about people buying in, about empowerment and, most of all, about producing useful change. Leadership is not about attributes, it’s about behavior. And in an ever-faster-moving world, leadership is increasingly needed from more and more people, no matter where they are in a hierarchy. The notion that a few extraordinary people at the top can provide all the leadership needed today is ridiculous, and it’s a recipe for failure.

Some people still argue that we must replace management with leadership. This is obviously not so: they serve different, yet essential, functions. We need superb management. And we need more superb leadership. We need to be able to make our complex organizations reliable and efficient. We need them to jump into the future — the right future — at an accelerated pace, no matter the size of the changes required to make that happen.

There are very, very few organizations today that have sufficient leadership. Until we face this issue, understanding exactly what the problem is, we’re never going to solve it. Unless we recognize that we’re not talking about management when we speak of leadership, all we will try to do when we do need more leadership is work harder to manage. At a certain point, we end up with over-managed and under-led organizations, which are increasingly vulnerable in a fast-moving world.

Dr. John P. Kotter is the Konosuke Matsushita Professor of Leadership, Emeritus at Harvard Business School and the Chief Innovation Officer at Kotter International, a firm that helps leaders accelerate strategy implementation in their organizations.

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Does Your Competency Model Include Leadership?

What Drives PromotionWhat drives the identification, development and promotion of leaders in your organization? Is it actually the person’s ability to lead? For many organizations, the leadership qualities of a candidate for promotion or hiring may be a small part of the consideration, but the real focus is the competence of the leader in whatever technical area is represented. This is especially true in middle level positions as individual’s rise to higher levels of leadership responsibility, in many cases because they are the best technically at what they do.

Author and consultant Mike Myatt, in a recent post on Forbes, argues,

We live in a time that has moved well beyond competency driven models, yet organizations still primarily use competency-based interviews, competency-based development, competency-based performance reviews, and competency-based rewards as their framework for doing business. It remains the best practices mentality that rules the day, when we’re long overdue for a shift to next practices.

I have also been railing about this practice for a long time, but in reality, what are we asking organizations to do? Hasn’t the expert earned the right for the higher position by working harder and having greater competency than those are her? Is there anybody else who can better advise the troops and ensure the work is done well than the person who is the best at it?

Here’s the problem. It’s not that organizations promote the highly competent to leadership positions, it’s that they don’t develop these folks as their career is coming together to be managers and leaders. As an MBA professor I can say that there are some skills and ideas of which a person can be made aware in a classroom setting, but the way to develop a leader is to give them space to USE these ideas to create their own leadership competency. You can’t become a great sales person without selling anything, and you can’t become a great leader without leading.

Developing leadership is a long-term proposition and should begin earlier in a person’s career than most organizations start to push for it. Classes, workshops and real hands-on opportunities can be offered early in the career of a competent employee. This doesn’t have to be expensive as some of the greatest learning comes from being mentored and having the opportunity when it arises to develop leadership skills. A small amount of intent on developing leadership earlier in the careers of your employees can have tremendous pay offs in the end.

CEO New Years Resolutions-2013

Given the nature of today’s economy, the apparent permanence of uncertainty regarding the “fiscal cliff,” and the ongoing wringing of hands and pessimism spewing from our television sets and other media, one might think that today’s business leaders are on their last legs. Several articles I’ve read lately have asked whether the age of the entrepreneur is over and have speculated that America’s prosperity may have run its course.

Download CEO New Year's Resolutions 2013

Download CEO New Year’s Resolutions 2013

Don’t mention any of that if you speak to those who responded to this year’s “CEO New Year’s Resolutions Report” which I author and publish with Northwood University.  As I have done for the last few years, I interviewed 50 CEOs of various companies to find out what they were resolving for 2013. These CEOs represent profit and non-profit companies of all sizes with a range of industries and experience.

This year’s CEOs are ready for growth and risk-taking again. You can tell that lessons have been learned as the tone overall is one of prudence, but optimism. These leaders are well aware of the uncertainty in the marketplace but are also aware that they are the ones who will make their own future. They are focusing their strategy, developing their people and giving back to the community.

Take a look at this year’s report and let me know what you think. Feel free to pass it along to others as well. And if you are a CEO and would like to be on the list for next year you can send me a note and I’ll follow up with you then.

Should We Rethink the Promise of Teams? — HBS Working Knowledge

Teamwork is changing in an environment where more people are working remotely or are less consistently in touch with those on whom they depend to get the work done. Nonetheless, teamwork is still an effective tool for creativity and synergy in organizations large and small. In a recent issue of Harvard Business School’s “Working Knowledge,” Professor Jim Heskett looks at some of the these factors in recent research on team work.

We live in the age of transparency, open work spaces, co-location, and collaboration. An entire generation is being prepared to enter workplaces like this, organizations that reward extroverts who show initiative in stepping forward to shape the nature of the conversation of work and the ideas it generates.

The work they do will be carried out in groups ranging from assigned teams to fluid groups engaged in what Harvard Business School Professor Amy Edmondson, in the recent book ‘Teaming: How Organizations Learn, Innovate, and Compete in the Knowledge Economy, calls “teaming,” defined as “coordination and mutual adjustment during episodes of interdependent work.”

Teaming is a process by which participants and entire organizations learn and innovate while carrying out day-to-day assignments. Increasingly, Edmondson maintains, coordination and collaboration are occurring in temporary groups requiring teaming skills, rather than in traditional stable, well-designed teams that rely on managers’ abilities to form and lead them.

Leading business schools honor such behavior. At Harvard Business School, one of the first things new MBA candidates experience is introduction to their pre-selected Learning Team, whom they will work on an almost daily basis through much of at least one year. It’s an essential element of a program that places special emphasis on, and rewards, verbal contributions to classes as well as leadership of teamwork both inside and outside the classroom.It is not an environment that rewards introverts.(Most conversations between faculty and failing MBA students are about helping the students overcome their fears of engaging in classroom discussion, to improve the frequency of their classroom contributions.)

Teams comprising both extroverts and introverts, particularly those with diverse backgrounds, have been shown to have a lot of creative potential if managed properly. But Cain’s argument is that, as a society, extroversion is encouraged, developed, and recognized in so many ways that introverts—with their abilities to work alone, sometimes focusing on complex problems, not relying on feedback from others—may have fewer opportunities to shape creative solutions.

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