When I went to college, I embraced “freedom” over “leadership” – which loosely translated for me into drinking as much beer as possible, as frequently as possible, and not really getting involved in anything beyond a fraternity. When I got to business school, I regretted that I had not participated in the plethora of leadership opportunities college life presented and I committed to addressing all my college leadership failures in two years at business school. I dove head first into as many leadership positions as possible, only to be faced with the reality of trying to “lead” a group of my peers over which I had absolutely no power.
This was the start of my struggle to define leadership. All company managers and leaders must wrestle with this same issue. Are you among the great leaders? What is leadership? What makes leaders great at what they do? Why should you care? Because without knowing what leadership is and how to be a leader, then how can you ever be a successful leader?
What is Leadership?
Leadership has become a catch-all phrase, interpreted many different ways, often without precision. I embrace two similar definitions of leadership. Kevin Kruse, one of the most read Forbes contributors and author of four books on leadership, defines leadership as: “…a process of social influence, which maximizes the efforts of others, towards the achievement of a goal.” Geoff Smart defined it similarly in his 2012 article in Fast Company “A great leader helps a group of people identify what they want and how to get it, and then influences that group, free of coercion, to take coordinated action to achieve the desired outcomes.”
Authority or power does not make you a leader. Leadership has nothing to do with hierarchy or having a bunch of employees or direct reports. It is not style specific. Using power and authority to force action makes you a “boss,” not a “leader”. Inspiring leaders motivate others to achieve goals and outcomes they could not achieve on their own. Leadership is about empowerment of others. It is about getting a group of other people to work towards a goal that they themselves have embraced. This is why true leaders achieve great things – they empower others to heights they could not achieve alone.
An outstanding business leader needs six critical pillars to lean on
Pillar 1: A Leader Defines a Clear Vision
“Management has a lot to do with answers. Leadership is a function of questions. And the first question for a leader always is: ‘Who do we intend to be?’ Not ‘What are we going to do?’ but ‘Who do we intend to be?’ – Max DePree
A leader provides a vision for others to rally around. A vision answers the question of why – why are we here trying to accomplish this goal? Why are we doing what we are doing, and what is it we need to do, to answer the why? Vision provides motivation and direction. Take two amazingly successful companies – Nike and Starbucks. Nike’s mission is “To bring inspiration and innovation to every athlete in the world.” If you work at Nike and face a decision – say to introduce the newest primeknit material or save 15 cents on a purchase, doesn’t this mission make it clear what to do? Similarly, Starbucks mission was defined by Howard Schultz after he purchased the company in 1987 – “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” Starbucks now has over 23,043 locations, allowing people around the globe to be inspired and nurtured through coffee, free wifi, free workspace and clean bathrooms.
Notice these missions provide clear direction on why the companies and the teams show up at work everyday. I would add two subtleties related to vision: Vision is about what you have control of, not about others (competitors, suppliers, etc). Leaders need to embrace being different – if you are the same as everyone else, you need to be better than everyone else. If you are different, you simply need to compete with yourself.
Pillar 2: Leaders Know How to Assess People
I used to roll my eyes when I watched CEO after CEO being interviewed saying “We are the best because of our people.” Turns out all those CEOs were right, and I was wrong. A business is the sum of its people and how they work together. Without the best people, you lose. As my father, a extremely successful entrepreneur and avid boxing fan says, “If I have Muhammad Ali on my team, what good does it do you to have George Foreman on your team even if he is second best – you still lose.” But how do you get Muhammad Ali on your team? You must be excellent at finding a Muhammad Ali, or more simply put, in finding and assessing people.
Peter Thiel, the billionaire first investor in Facebook and co-founder of the multibillion dollar unicorn Palentir, is a clear example of how important it is to be able to assess people and how building a great team is a key pillar of leadership. Thiel first gained fame as the co-founder of Confinity in 1998, which most of us know by its milestone product that eventually became the company’s name – Paypal. The PayPal team he assembled with Max Levchin created multiple billionaires and a slate of hugely successful companies. The PayPal mafia includes Elon Musk (founder of Tesla Motors and SpaceX, and Chairman of SolarCity), Steve Chen and Chad Hurley (co-founders of Youtube.com), Reid Hoffman (founder of Linkedin.com), David Sacks (founder Geni.com and Yammer), and a long list of others.
Pillar 3: Leaders Identify and Implement Incentives that Encourage Intrinsic Behavior
Once you have a vision and the team to implement it, it is essential to motivate that team with appropriate incentives. Incentives drive behavior. However, structuring the right incentives is difficult and requires great skill. As my former boss and mentor Michael Mauboussin highlights in his January 12, 2011 piece “Blaming the Rat”, the difficulty in giving incentives in this day and age is that most jobs are no longer defined by a series of clear steps (“algorithmic tasks”) like assembling a product on a manufacturing line.
Rather, most work now has a much higher component of requiring employees to experiment to solve the issues they face (“heuristic tasks”) – think introducing a new product to market or choosing the right marketing message. Almost all of us face a combination of both of these in our daily jobs – some tasks that are simply process follow throughs and others that are creative, experimental undertakings. So our incentives have to ensure they reward this experimental process.
How do you motivate and incentivize employees to succeed in this iterative process? According to Dan Pink, best-selling author of Drive, the key is in understanding this area. The key incentives in the modern age are autonomy and intrinsic motivation. The best way to foster this is through the “Four T’s”: task, time, technique and team.
Tasks: Employees must be free to choose their tasks. Pink cites the famous examples of 3M’s post-it notes being discovered in the 15% of time a week employees were given to work on a task of their choosing, and that half of Google’s offerings over time (including Gmail) were discovered in the 20% of time Google’s employees are allowed to work on their own tasks.
Time: Employees must be rewarded for their results (output) rather than time (input). What gets done is what matters, not how much time is worked.
Technique: Tell employees what needs to get done, not how to do it. I like Antoine de Saint-Exupery said “If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.”
Team: Give employees as much flexibility in possible in choosing teammates.
Pillar 4: A Leader Executes on the Ground, All the Time
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” – Sun Tzu
“Execution is a specific set of behaviors and techniques that companies need to master in order to have competitive advantage. It’s a discipline of its own.” – Ram Charan and Larry Bossidy, Execution
A leader not only knows why something needs to be done, and what needs to be done, but has the ability to put in place the appropriate processes, tools and culture to fuel execution. The actual act of implementing the vision through appropriate tactics is essential to being a great leader.
Military master George Patton serves as an inspiration on execution, leading his troops to great victories in North Africa, Sicily and on the Western Front and famous for saying “A good plan violently executed now is better than a perfect plan executed next week.” In a period of only 10 months, his armor and infantry moved rapidly through six countries – France, Belgium, Luxembourg, Germany, Czechoslovakia and Austria. He crossed six major rivers and a number of smaller rivers, and killed or disabled over 500,000 Nazis and captured over 750,000. He out-blitzed the inventors of Blitzkreig.” It is this kind of execution required to succeed in both the battlefield and in business.
Pillar 5: A Leader Must Know How to Allocate Capital
The market rewards companies that deliver outstanding returns on capital. In 1990, McKinsey published “Valuation: Measuring and Managing the Value of Companies,” which showed that a company’s stock price was driven by its return on capital. In his 1994 annual meeting, Warren Buffett stated capital allocation is one of the two or three most important jobs of a CEO. Will Thorndike’s book “The Outsiders” outlines eight CEOs who generated returns 20 x that of the S&P by focusing on four things, three of which were related to capital allocation (per share value, allocating capital, cash flow over earnings). The decisions around capital allocation are even more important as internal financing represented more than 90 percent of the source of total capital for U.S. companies from 1980-2014 (Mauboussin). The evidence is clear – returns on capital and managing capital efficiency are critical to driving value; therefore, it is essential to be able to allocate capital in order to be a successful leader.
Pillar 6: A Leader Must Avoid Catastrophic Risk
I define risk management very simply – keeping a company out of fatal trouble. A leader can successfully execute on the other five pillars, yet end up a failure if they do not avoid catastrophic risk. We are all enamored by the various leadership stories around successful leaders who persevered in the face of failure – from Abraham Lincoln going bankrupt twice, to Thomas Edison’s famous 10,000 attempts at the light bulb, to Michael Jordan being cut from his high school basketball team, to Bill Gates dropping out of Harvard, to Stephen King’s Carrie being rejected by 30 publishers, the list goes on and on. This is not the risk I speak of. Instead, the great leader is more like a ship’s captain who must ensure you don’t beach the ship on rocks. To be a great leader in business, your business must survive.
I aspire every day to these things. “A leader is a dealer in hope” said Napoleon Bonaparte. I hope that this blueprint of six pillars serves to give you the hope that it gives me – that it is possible to define and work towards being a great leader. If not, well…we can always go back to our college ways and grab that beer.
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