The Leadership Challenge
- “Diversity in counsel, unity in command.”
- —Cyrus the Great
On September 5, 2006, Ford Motor Company shocked the automobile industry by announcing the hiring of Alan Mulally as the company’s CEO. Bill Ford, 49-year-old great-grandson of the firm’s legendary founder, remained as Ford’s executive chairman. Many people expressed surprise that Bill Ford would relinquish the title of chief executive. Perhaps even more astonishing to many observers, Ford had reached outside the industry to hire its new chief executive. Mulally came from Boeing, where he had spent his entire 37-year career. The three large American automakers generally had not hired CEOs from outside the industry. Ford had challenged the conventional wisdom and staked the firm’s entire future on this bold choice.1
Ford Motor Company stood at the precipice of disaster when it hired Mulally. Referring to America’s “Big Three” automakers, he noted bluntly, “These three companies have been slowly going out of business for eighty years.”2 Ford registered a pretax operating loss of $15 billion in 2006, the largest in the firm’s proud and storied history. Ford closed numerous plants throughout the United States, and it cut tens of thousands of jobs. The firm even mortgaged most of its assets, including the vaunted blue oval logo, to raise $25 billion in capital. Those funds would finance the restructuring costs and product development investments required to save the company. That audacious decision ultimately provided Ford enough liquidity to survive the global economic downturn without a government bailout.
Mulally moved quickly to change Ford’s strategy. He wanted to focus on the core Ford brand. Therefore, he divested the company’s money-losing luxury brands—Jaguar, Aston Martin, Volvo, and Land Rover. He invested heavily in a lineup of new, more attractive, and energy-efficient vehicles. Mulally began to leverage Ford’s global assets more effectively to build those vehicles. He could not believe that Ford had different versions of each model around the world, with costly and unnecessary duplication of effort. He pushed the company to build multiple models on the same platform, with a high percentage of common parts in order to capitalize on global economies of scale.
Mulally set out to transform Ford’s culture to enable the successful execution of his turnaround plan. He inherited a management team rife with infighting and rivalry. Executives worked in silos and did not share information freely with colleagues in other areas. People did not speak candidly about the problems facing the company, and they resisted sharing bad news with the chief executive. Robust and constructive dialogue did not characterize the executive team’s decision-making process. When conflict did occur, it often proved highly dysfunctional.
When Mulally arrived at Ford, he instituted the “business plan review” process. Each Thursday morning, his top management team, consisting of roughly 15 senior executives, would gather around a circular table in the Thunderbird Room at Ford’s corporate office for several hours. Each executive posted color-coded charts on the wall to update the team on the situation in his or her area of responsibility. Red indicated a problem, yellow meant caution, and green signified that good progress was being made on a particular issue. Mulally wanted complete transparency, and he wanted the team to work together to address key challenges.
In the past, a division head had often met privately with the CEO to make key decisions regarding his or her area. Silo thinking permeated the organization. Now the entire team made crucial decisions together. Everyone had input on key strategic choices, regardless of who might have primary responsibility for a particular issue. Mulally explained, “Everyone with a stake in the outcome is included in the decision-making process....Problems are discussed candidly and the entire team is enlisted to help find solutions.”3
Ford’s new chief executive always seemed to have a smile on his face, but he did not tolerate the dysfunctional behaviors that plagued the top management team in the past. He established clear ground rules for those crucial Thursday morning meetings. Mulally described “working-together behaviors” that would enable more effective collaborative decision making. Executives could not bring smart phones to the meetings. He did not want constant distractions and interruptions. They could not overwhelm others with “encyclopedic briefing books” or bring aides to the meetings. He wanted the group to stay manageable in size. Executives could not engage in side conversations when others were speaking or presenting. No one could put down others or engage in personal attacks. People had to support their positions with facts and data. Mulally explained the consequences for those who would not abide by the new ground rules: “If you can’t do it or don’t want to do it or it’s too hard, that’s okay. You’ll just have to work someplace else.”4
The business plan review process hit an early bump in the road, though. Although Mulally stressed the importance of transparency and candid dialogue, his team could not shake its longstanding fears about speaking up. Week after week, the Thursday morning meetings took place, and amazingly, no one presented a “red” project. The new boss could not believe it. How could his team present such a rosy picture when the firm had lost $15 billion in 2006?5
Then a critical set of events transpired at one Thursday morning meeting. Mark Fields, head of North American operations, faced a production problem with the new Ford Edge vehicle. The hydraulic lift gates did not work properly on many vehicles. Fields knew that an eagerly anticipated new product launch would not transpire as planned. He told his team, “We are not going to ship a vehicle before it is ready. We just can’t. We have to delay it. I’m going to have to call it a red.”6 Fields would become the first executive to walk into a Thursday morning meeting with a red dot on his weekly progress report. He braced for the reaction from the new boss as well as his peers.
When Fields presented his progress report, he could feel the tension in the air. The new CEO had preached the importance of accountability ever since he had arrived at Ford. He had stressed the importance of disciplined execution of a focused plan. Would he bring down the hammer on his top manufacturing executive? How upset would he become?
After an awkward silence, Mulally stood up from his chair. Then he began clapping. He didn’t just clap politely. He applauded vigorously. Mulally turned and addressed Fields, “Thank you, Mark, for the transparency. Mark, that is great visibility. Now, is there any help you need from any member of the team?”7 People began to offer suggestions and assistance. A constructive discussion ensued. In the past, executives might have engaged in the blame game. Now they rushed to help. Soon the Edge launch got back on track.
During the next few Thursday morning meetings, the climate began to change. Mulally observed that the charts began to look like a “beautiful rainbow,” with red dots mixed in there among the yellows and greens.8 Joe Laymon, head of human resources, noted, “Alan has a way of making it safe to speak up.” Mulally preached the importance of problem solving rather than finger pointing. He stressed the importance of admitting mistakes, learning from them, and working together to fix the problem. He would tell them, “So-and-so has a problem. He’s not the problem. Who can help him with that?”9 The new boss preached a new message of collective accountability: “The important thing is that we’re all accountable to each other. You are accountable to the team, and the rest of the team is here to help you.”10
Gradually, the climate at Ford began to change. The team began to engage in much more candid and constructive dialogue while grappling with crucial decisions. Fields noted, “A picture was worth a thousand words, and that picture was Alan clapping.”11 Indeed, Mulally told that story many times, as did many of his top executives. As they retold the story repeatedly, a strong message went out to the entire organization: Ford’s culture would no longer be the same.
By January 2013, Ford had made significant progress on its turnaround plan. After rejecting a government bailout, Ford posted a small profit in 2009. The firm generated more than $8 billion in pretax profit in 2011 and resumed dividend payouts for the first time in five years. By the fall of 2012, the company had posted positive profits for 13 straight quarters. Mulally certainly did not consider the turnaround effort complete. Ford still had major work to do, but the company had come back from the brink of disaster.
Alan Mulally did not simply make better decisions than his predecessors at Ford. He changed the way that decisions were made. Mulally reshaped the climate, the norms, and the decision-making process. He created a new environment where people felt more comfortable speaking up. Mulally recognized that candid dialogue leads to higher-quality decisions. Discussions and debates need to be constructive, though. Prior to his arrival, personal friction and personality clashes had characterized many discussions among senior executives at Ford. Mulally reshaped the decision-making process by establishing new ground rules and norms for the senior team. The team gathered in a new forum, which emphasized collective problem solving and shared accountability rather than silo thinking. He wanted and even demanded rigorous debate, but he strove to keep that conflict constructive. In the pages that follow, you will learn how to reshape the way that decisions are made in your organization, much as Mulally has done at Ford.
Conflict and Consensus
On April 20, 2010, a series of explosions rocked the Deepwater Horizon oil rig, causing a massive oil spill in the Gulf of Mexico. In February 2003, the Columbia space shuttle disintegrated while reentering the earth’s atmosphere. In May 1996, Rob Hall and Scott Fischer, two of the world’s most accomplished mountaineers, died on the slopes of Everest, along with three of their clients, during the deadliest day in the mountain’s history. In April 1985, the Coca-Cola Company changed the formula of its flagship product and enraged its most loyal customers. In April 1961, a brigade of Cuban exiles invaded the Bay of Pigs with the support of the U.S. government, and Fidel Castro’s military captured or killed nearly the entire rebel force. Catastrophe and failure, whether in business, politics, or other walks of life, always brings forth many troubling questions. What alternative choices could BP and its partners have made that might have prevented the massive oil spill in the Gulf of Mexico? Why did NASA managers decide not to undertake corrective action when they discovered that a potentially dangerous foam debris strike had occurred during the launch of the Columbia space shuttle? Why did Hall and Fischer choose to ignore their own safety rules and procedures and push forward toward the summit of Mount Everest, despite knowing that they would be forced to conduct a very dangerous nighttime descent? Why did Roberto Goizueta and his management team fail to anticipate the overwhelmingly negative public reaction to New Coke? Why did President John F. Kennedy decide to support a rebel invasion, despite the existence of information that suggested an extremely low probability of success?
We ask these questions because we hope to learn from others’ mistakes, and we do not wish to repeat them. Often, however, a few misconceptions about the nature of organizational decision making cloud our judgment and make it difficult to draw the appropriate lessons from these failures. Many of us have an image of how these failures transpire. We envision a chief executive, or a management team, sitting in a room one day making a fateful decision. We rush to find fault with the analysis that they conducted, wonder about their business acumen, and perhaps even question their motives. When others falter, we often search for flaws in others’ intellect or personality. Yet differences in mental horsepower seldom distinguish success from failure when it comes to strategic decision making in complex organizations.
What do I mean by strategic decision making? Strategic choices occur when the stakes are high, ambiguity and novelty characterize the situation, and the decision represents a substantial commitment of financial, physical, and/or human resources. By definition, these choices occur rather infrequently, and they could potentially have a significant impact on an organization’s future performance. They differ from routine or tactical choices that managers make each and every day, in which the problem is well defined, the alternatives are clear, and the impact on the overall organization is rather minimal.12
Strategic decision making in a business enterprise or public-sector institution is a dynamic process that unfolds over time, moves in fits and starts, and flows across multiple levels of an organization.13 Social, political, and emotional forces play an enormous role. Whereas the cognitive task of decision making may prove challenging for many leaders, the socio-emotional component often proves to be a manager’s Achilles’ heel. Moreover, leaders not only must select the appropriate course of action, they need to mobilize and motivate the organization to implement it effectively. As Noel Tichy and Dave Ulrich write, “CEOs tend to overlook the lesson Moses learned several thousand years ago—namely, getting the ten commandments written down and communicated is the easy part; getting them implemented is the challenge.”14 Thus, decision-making success is a function of both decision quality and implementation effectiveness. Decision quality means that managers choose the course of action that enables the organization to achieve its objectives more efficiently than all other plausible alternatives. Implementation effectiveness means that the organization successfully carries out the selected course of action, thereby meeting the objectives established during the decision-making process. A central premise of this book is that a leader’s ability to navigate his or her way through the personality clashes, politics, and social pressures of the decision process often determines whether managers will select the appropriate alternative and implementation will proceed smoothly.
Many executives can run the numbers or analyze the economic structure of an industry; a precious few can master the social and political dynamic of decision making. Consider the nature and quality of dialogue within many organizations. Candor, conflict, and debate appear conspicuously absent during their decision-making processes. Managers feel uncomfortable expressing dissent, groups converge quickly on a particular solution, and individuals assume that unanimity exists when, in fact, it does not. As a result, critical assumptions remain untested, and creative alternatives do not surface or receive adequate attention. In all too many cases, the problem begins with the person directing the process, as their words and deeds discourage a vigorous exchange of views.
Barry Rand, CEO of AARP, once said, “If you have a yes-man working for you, one of you is redundant.”15 In many firms, though, CEOs do not hire people who lack courage or backbone. They do not identify sycophants during the hiring process. Instead, many leaders transform normal hard-working people into yes-men by virtue of the climate they create. Powerful, popular, and highly successful leaders hear “yes” much too often, or they simply hear nothing when people really mean “no.” In those situations, organizations may not only make poor choices, but they may find that unethical choices remain unchallenged. As BusinessWeek declared in its 2002 special issue on corporate governance, “The best insurance against crossing the ethical divide is a roomful of skeptics....By advocating dissent, top executives can create a climate where wrongdoing will not go unchallenged.”16
Of course, conflict alone does not lead to better decisions. Leaders also need to build consensus in their organizations. Consensus, as we define it here, does not mean unanimity, widespread agreement on all facets of a decision, or complete approval by a majority of organization members. It does not mean that teams, rather than leaders, make decisions. Consensus does mean that people have agreed to cooperate in the implementation of a decision. They have accepted the final choice, even though they may not be completely satisfied with it. Consensus has two critical components: a high level of commitment to the chosen course of action and a strong, shared understanding of the rationale for the decision.17 Commitment helps to prevent the implementation process from becoming derailed by organizational units or individuals who object to the selected course of action. Moreover, commitment may promote management perseverance in the face of other kinds of implementation obstacles, while encouraging individuals to think creatively and innovatively about how to overcome those obstacles. Common understanding of the decision rationale allows individuals to coordinate their actions effectively, and it enhances the likelihood that everyone will act in a manner that is “consistent with the spirit of the decision.”18 Naturally, consensus does not ensure effective implementation, but it enhances the likelihood that managers can work together effectively to overcome obstacles that arise during decision execution.
Commitment without deep understanding can amount to “blind devotion” on the part of a group of managers. Individuals may accept a call to action and dedicate themselves to the implementation of a particular plan, but they take action based on differing interpretations of the decision. Managers may find themselves working at cross-purposes, not because they want to derail a decision but because they perceive goals and priorities differently than their colleagues. When leaders articulate a decision, they hope that subordinates understand the core intent of the decision because people undoubtedly will encounter moments of ambiguity as they execute the plan of action. During these uncertain situations, managers need to make choices without taking the time to consult the leader or all other colleagues. Managers also may need to improvise a bit to solve problems or capitalize on opportunities that may arise during the implementation process. A leader cannot micromanage the execution of a decision; he needs people throughout the organization to be capable of making adjustments and trade-offs as obstacles arise; shared understanding promotes that type of coordinated, independent action.
Shared understanding without commitment leads to problems as well. Implementation performance suffers if managers comprehend goals and priorities clearly but harbor doubts about the wisdom of the choice that has been made. Execution also lags if people do not engage and invest emotionally in the process. Managers need to not only comprehend their required contribution to the implementation effort, they must be willing to “go the extra mile” to solve difficult problems and overcome unexpected hurdles that arise.19
Unfortunately, if executives engage in vigorous debate during the decision process, people may walk away dissatisfied with the outcome, disgruntled with their colleagues, and not fully dedicated to the implementation effort. Conflict may diminish consensus, and thereby hinder the execution of a chosen course of action, as Figure 1.1 illustrates. Herein lies a fundamental dilemma for leaders: How does one foster conflict and dissent to enhance decision quality while simultaneously building the consensus required to implement decisions effectively? In short, how does one achieve “diversity in counsel, unity in command?” The purpose of this book is to help leaders tackle this daunting challenge.
Figure 1.1. The effects of conflict and consensus