Broad Strokes: Five Key Leadership Lessons From Billionaire Eli Broad

May 222012
 

Rick Wartzman

In his latest column for Forbes.com, Drucker Institute Executive Director Rick Wartzman writes about billionaire Eli Broad and his new book, The Art of Being Unreasonable.

When Peter Drucker died in 2005, Wartzman recounts, Broad “was among those who lavished praise on him, noting that the legendary management writer’s insights ‘seemed rather simple but, in fact, were very profound.’

“Today,” Wartzman adds, “the same thing might well be said of Broad, the founder of two Fortune 500 companies, an internationally renowned art collector and museum patron, and a celebrated philanthropist and civic leader. In his new book . . . Broad shares his own principles for success—nearly all of which are positively Drucker-like.”

Wartzman says that “scores of leadership, management and life lessons are sprinkled throughout” Broad’s book, but five are “especially powerful.” They are:

  1.  Forget conventional wisdom.

  2.  Don’t assume you know what business you’re in.

  3.  Try being second once in a while.

  4.  Delegate like crazy.

  5.  Beware of grand success.

The See-Through Organization

May 032012
 

Here’s this month’s piece from neuroeconomist Paul Zak. For those who might dismiss some of our thinking as the “soft side” of management, Paul puts “hard science” behind it.

I read a fascinating interview recently with Rich Barton, the co-founder of several companies that endeavor to make information as widely available as possible: Zillow (on real estate), Expedia (on travel) and Glassdoor (on salaries). Not surprisingly, Barton, who also sits on the board of the lawyer- and doctor-review website Avvo, is a big fan of transparency.

“What I tell people is, if it can be . . . known it will be known,” Barton says.

But Barton’s efforts have been directly largely at the external marketplace. How about internally? How transparent should companies be with their own employees?

My research shows that there are several levels of transparency to consider. The most basic is being clear on the organization’s goals, as well as the goals of each business unit. Greater transparency occurs when the reasons behind these goals are made clear—for example, how they contribute to an organization’s financial health or core purpose.

As Peter Drucker wrote: An “organization has to be transparent. People have to know and have to understand the organization structure they are supposed to work in. This sounds obvious— but it is far too often violated in most institutions (even in the military).”

Radical transparency goes even further; it opens up the financials—everything from profit-and-loss statements to people’s salaries—for everyone, including employees and outsiders, to see.

Few companies have reached the radical transparency level, but those that have swear by it. Whole Foods Market is one. It even pays employees to take a basic accounting course so they can understand the quarterly P&L they receive. Another is the Brazilian machinery maker Semco. The company has few job titles, and everyone sets his or her own salary and knows the salaries of others. Managers are chosen by a vote of the managed, and the role of manager is rotated regularly.

Yet how much transparency should your organization have? Neuroscience can provide a guide. My laboratory experiments show that when intentions are clear and someone is shown trust, the recipient’s brain releases a molecule called oxytocin. And when oxytocin is high, so is the desire to pitch in to help the team.

Distrust, on the other hand, causes the brain to mount a defensive attack—especially in men—that manifests as spiteful and sometimes destructive actions.

These findings indicate that a minimum level of transparency is needed to remove distrust for most employees. From there, you can experiment with going deeper, trusting employees with information once held in private and then gauging their reactions. Think of this as crowd-sourcing your decisions—or just treating your employees as the sentient human beings they are.

Paul Zak is the director of the Center for Neuroeconomics Studies at Claremont Graduate University and the author of  The Moral Molecule.

Joe’s Journal: We Get the Behavior We Reward

Apr 172012
 

“If a company is to obtain the needed contributions, it must reward those who make them. Decisions on people and especially its promotions affirm what an organization really believes in, really wants, really stands for. They speak louder than words and tell a clearer story than any figures.”

—Peter F. Drucker

In 1975, Steven Kerr wrote an influential article in The Academy of Management Journal titled “On the Folly of Rewarding A While Hoping for B.” In this piece, Kerr provides examples of reward systems that actually encourage the opposite behavior of what management desires.

The illustrations in the article are typical of those I have witnessed during my career, and they are the reason I’ve spent so much of my time working, teaching and conducting research in the field of management control systems, where rewards play a prominent role.

We often hear nowadays that “command and control systems” are obsolete in our age of empowerment, and that is true to a certain extent; informal systems now dominate formal ones in many organizations, especially those that are knowledge-based. But the central aspect of rewarding behavior to achieve the results we want has not changed, and it will not change in the future.

Indeed, this is the vital point of leverage that Peter Drucker identifies in the quote above. People take careful note of how they and their colleagues are actually rewarded and penalized in an organization—regardless of what their human-resource manuals may say.

Who is promoted? Who is fired? What criteria actually seem to be at work in the organization? Is it performance or is it politics than matters most? These are the true controls of the organization that direct behavior.

People will work against their best interest, but not as a general rule. Organizations often find this out the hard way when they try to downsize. If they do it in a way that respects the contributions people have made to the organization, others will see that and, although it’s not easy, most of the employees who remain will understand that these decisions were necessary. If, on the other hand, these decisions are made in a way that is disrespectful of people and their service, it will not only damage those affected directly but also adversely influence the future behavior of others. These decisions thus “speak louder than words.”

What is the solution? Our system of measurements ought to be in alignment with the way we really treat people in our organizations. Otherwise, our rewards will misdirect behavior. We can say what we want about integrity and virtue, but it is the way we treat people that shows whether leaders have it or not.

—Joe Maciariello

Mastering Motivation

Apr 162012
 

When it’s time to recycle, that regular old garbage pail can look mighty appealing: no rinsing, no sorting, no hassle.

This upsets Canadians, however. So, in a worthwhile Canadian initiative, researchers led by Katherine White of the University of British Columbia have looked at what it takes to persuade people to put things into the right bins.

A report from the Stanford Graduate School of Business summarizes some of the findings. For instance, “if you’re going to keep giving people bad news in order to motivate them, it’s best to offer them concrete steps” about what to do. Otherwise, “focus on good news and pair it with the broader philosophy of why the action is important.”

That last notion certainly would have resonated with Peter Drucker, who felt that employees need to understand why they are doing something and how it relates, in a concrete way, to the organization’s greater purpose.

Illustration credit: Gary Neill

As we’ve noted briefly before, Drucker in his book Concept of the Corporation pointed to the example of a World War II aircraft plant whose employees were displaying “bad morale” and doing “slipshod work.” The problem turned out to be, according to Drucker, that the “workers had never seen any of the planes they were producing, had never found out where the part they worked on fitted, and had never been told how important this part was to the total functioning of the place.”

So a big bomber got brought in for employees to see. “The workers were invited to inspect it, to sit in it and to bring their wives and children along,” Drucker recounted. “When finally they were shown the part they were making in the bomber, and its importance was explained to them by a crew member, the bad morale and unrest disappeared at once.”

In other words, these workers suddenly got the benefits of clarity, concreteness and purpose—all of which are essential to provide if you want something from someone. “Communication . . . always makes demands,” Drucker wrote in Technology, Management, and Society. “It always demands that the recipient become somebody, do something, believe something. It always appeals to motivation.”

What do you find helpful when it comes to persuading people to behave a certain way?

Moving Mindshare

Apr 042012
 

Put your best people on the most promising things.

That’s the simple sounding, but often overlooked, rule laid down by Andreas Kramvis, the CEO of Honeywell Performance Materials and Technologies, in a recent interview with McKinsey Quarterly.

“Most people think that reallocation only means the reallocation of capital,” Kramvis notes. “I also like to think about the reallocation of people and mindshare.” It’s difficult to reorient people, Kravis adds, but it’s well worth it. “Moving your best managers, researchers, salespeople, and so on from low-growth or failing businesses to areas with higher growth and profit potential can be one of your most effective levers as a business leader,” he adds.

As much as any words we’ve read in a while, Kramvis’s could slip into a book by Peter Drucker without changing so much as a comma. “Assignment control is the key to the productivity of the skilled worker,” Drucker wrote in Managing in Turbulent Times. “It requires that they are assigned to opportunities, and those opportunities are the right ones for them.”

This means taking employees away from products and programs that have run their course, while getting the entire organization “to perceive in the new an opportunity rather than a threat.”

As we’ve noted, there is always a huge temptation to put top talent on fixing problems. But whenever a company does that, it’s sure to “squander its best resources on things it should never have been doing or should no longer do,” Drucker warned in Managing in a Time of Great Change. “As a result, it will lack the resources, especially capable people, needed to exploit the opportunities that arise when markets, technologies and core competencies change.”

“To be change leaders,” Drucker added, “enterprises . . . have to starve problems and feed opportunities.” In the end, there’s nothing better to feed them than your very best people.

How often does your business reallocate people to the highest-opportunity areas?

Uncommon Sense

Mar 212012
 

What really sets a company apart from the pack?

Writing in the latest issue of MIT Sloan Management Review, Jules Goddard, Julian Birkinshaw and Tony Eccles assert that “visionary leadership, a unique corporate culture and a distinctive set of core competencies” are all well and good, but “a company’s beliefs—or what we refer to as its ‘uncommon sense’—are often the most critical source of differentiation.”

What we especially appreciate about this article is that the authors credit Peter Drucker with this insight, noting his writings on what he called the Theory of the Business. Nevertheless, they note, “while many recognize that beliefs form the platform for actions and capabilities,” it us up to managers to “generate a distinctive belief system—their uncommon sense—and translate it into action.”

Drucker indeed believed in the importance of a Theory of the Business, which he defined as a “set of assumptions as to what [the] business is, what its objectives are, how it defines results, who its customers are, what the customers value and pay for.” In Drucker’s view, what linked a theory of business to concrete results was strategy.

“Strategy converts this Theory of the Business into performance,” Drucker wrote in Management Challenges for the 21st Century. “Its purpose is to enable an organization to achieve its desired results in an unpredictable environment. For strategy allows an organization to be purposefully opportunistic.”

What Drucker also stressed was that a Theory of the Business had to extend beyond the ranks of top management. “The Theory of the Business must be known and understood throughout the organization,” Drucker counseled in Managing in a Time of Great Change. “That is easy in an organization’s early days. But as it becomes successful, an organization tends increasingly to take its theory for granted, becoming less and less conscious of it.”

Illustration credit: James Lillis

If managers don’t ensure that everyone in the organization understands the Theory of the Business, then subordinates tend to devise their own Theories. And that invariably leads to trouble. “Every one of these men bases his decisions on some, if only vague, Theory of the Business,” Drucker wrote in Management: Tasks, Responsibilities, Practices. “Every one assumes that certain kinds of results are wanted and that other kinds are not particularly desirable.”  Absent coordination, Drucker added, “these subordinates “will pull in different directions without even being aware of their divergences.”

What companies do you feel have an especially clear and effective Theory of the Business?

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