What Leaders Really Do

A doser examination of eath of these

activitieswill help clarify the skillslead-

ers need.

HARVARDBUSINESSREVIEW

Setting a Direction Versus

Planning and Budgeting

Since the function of leadership is to

produce change, settingthe direction of

that change is fundamental to leader-

ship. Settingdirection isnever the saIne

as planning or even long-termplanning,

although people often confuse the two.

Planning is a management process, de-

ductlve in nature and designed to pro-

duce orderly resuIts,not change.Setting

a direction is more inductive. Leaders

gather a bmad range of data and look

for patterns, relationships, and linkages

that help explain things. What's more,

the direction-setting aspect of leader-

ship does not produce plans; it creates

vision and strategies. These describe a

business, technology, or corporate cul-

ture iDterms of what it should become

over the long term and articulate a fea-

Bibleway of achievingthis goal.

Most discussionsof visionhave a ten-

dency to degenerate into the mysticaL

The implication is that a visioni5some-

thing mysterious that mere mortals,

eventaIented ones, couldnever hope to

have. But developing good business di-

rection isn't magic. It is a tough, some-

times exhausting process of gathering

and analyzing information. People who

articulate such visionsaren't magicians

but broad-based strategie thinkers who

are wiIlingto take risks.

Nor do visionsand strategies have to

be brilliantly innovative;in tact, someof

the best are not. Effective business vi-

sionsregularlybave an a1mostmundane

quaIity,usually consisting of ideas that

are already weIlknown. The particular

combination or patteming of the ideas

may be new, but sometimeseven that is

not the case.

For example, when CEOJan Carlzon

articulated his vision to make Scandi-

navian Airlines System (SAS)the best

airline in the world for the frequent

businesstraveler,be wasnot saying any-

thing that everyone in the airline in-

dustry didn't aIready know. Business

travelers fiy more consistently than

~

~0~

z0

~

~

other market segments and are gen-

erally willingto pay higher cales.Thus,

focusing on business customers offers

an airline the possibility of high mar-

gins, steady business, and considerable

growth. But in an industry known more

for bureaucracy than vision, no com-

pany had ever put these simple ideas

together and dedicated itseIf to imple-

menting them. SASdid, and it worked.

What's crucial about a vision is Dot

ifs originality but how weIlit serves the

interests of important constituendes-

customers, stockholders, employees-

and how easily it tan be translated into

a realistic competitive strategy. Bad

visions tend to ignore the legitimate

needs and rights of important constit-

uencies - favoring, say,en1ployeesover

customers or stockholders. Or they are

strategicallyunsound. When a company

that bas never been better than a weak

in an industry suddenly

competitor

starts talking about becoming number

one, thaï is a pipe dream, not a vision.

One of the most frequent mistakes

that overmanaged and underled corpo-

rations mate is to embrace lon~term

planning as a panacea for their tact of

direction and inability to adapt to an

increasinglycompetitive and dynamic

business environment. But snch an

approach misinterprets the nature of

direction setting and can DeveTwork.

Long-term planning Is always time

consuming.Whenever something nnex-

pected happens, plans have to be re-

done. ln a dynamic business environ-

ment, the unexpected olten becomes

the norm, and long-term planning eau

become an ertraordinarily burdensome

activity.That is whymost successfulcor-

porations limit the tlme trame of their

planning activities. Indeed, some even

comider "long-term planning" a contra-

diction ln terms.

BREAKTHROUCH LEADERSHIP DECEMBER 2001

5

BEST OF HBR .What Leaders Really Do

PAG.N°328

SETTING A DIRECTION:

Lou Gerstner

at American Express

When Lou Gerstner

became president ofthe

Travel Related Services

(TRS) aTmatAmerican

Express in 1979.the unit

was fadng one of Its blggest

challenges in AmEx's13o-year

history. Hundreds of banks

were offering or planning to ln-

troduce credit cards through Visa

and MasterCard that would compete

with the American Express card. And more than two

dozen financial service firms were coming into the

traveler's checks business. ln a mature marketplace,

thls increase ln competition usually reduces mar-

gins and prohibits growth.

8ut that was not how Gerstner saw the business.

8efore joining American Express,he had spent five

yeaTs as a consultant ta TRS,analyzing the money-

losing travel division and the increasingly competi-

tive tard operation. Gerstner and his team asked

fundamental questions about the economics. mar-

ket, and competition and developed a deep under-

standing of the business. ln the process, he began

ta craft a vision ofTRS that looked nothlng like a

13o-year-oldcompany in a mature industry.

Gerstner thought TRS had the potential

ta be-

corne a dynamic and growing enterprise. despite

the onslaught of Visa and MasterCard competition

trom thousands of banks. The key was to fucus on

the global marlcetplaœ and, specifically, on the

relatlvely affluent customer Amerlcan Express had

been traditionally servlng with top-of-the-llne

products. 8yfurther

segmenting this market,

aggressively developing a broad range of new

products and services, and investing to increase

productivity and ta lower costs, TRS could provide

the best service possible to customers who had

enough discretionary income to boy many more

services from TRS than they had in the pasto

Within a week of his appointment, Gerstner

brought together the people running the card

organization and questloned ail the principles by

which they conducted their business. ln particular,

he challenged two widely shared beliefs-that

the

division should have only one product, the green

tard, and that this product was limited in potential

for growth and innovation.

Gerstner also moved quidly to develop a more

entrepreneurial culture, to hire and train people

who would thrive in il, and to clearly communicate

to them the overall direction. He and other top

managers rewarded Intelligent risk taking. To

make entrepreneurship easier, they dlscouraged

unnecessary bureaucracy. They also upgraded hir-

Ing standards and created the TRS Graduate Man-

agement Program, which offered high-potential

young people special training, an enriched set of

experiences, and an unusual degree ofexposure to

people ln top management. To encourage risk

taking among ail TRS employees. Gerstner aIso

established something called the Great Performers

program ta recognize and reward truly exceptlonal

customer service, a central tenet

tion's vision.

in the organiza-

These incentlves led quicklyto new markets,

products, and services. TRSexpanded its overseas

presence dramatically. By1988,AmExcards were

issued in 29 currencies (as opposed to onty 11a

decade earlier). The unit also focused aggresslvely

on two market segments that had historically Te-

œived little attention: college students and women.

ln 1981,TRS combined its càrd and travel-servlce

capabilities to offer corporate clients a unified sys-

tem to monitor and control travel expenses. And by

1988,AmExhad grown to become the fifth largest

direct-mail merchant

in the United States.

Other new products and services included 9o-day

insurance on ail purchases made with the ArnEx

card, a Platinum American Expresscard, and a re-

volving creditcard known as Optima. ln 1988,the

company also sw/tched to image-processing tech-

nology for billing, produclng a more convenlent

monthly statement for customers and reducing

billing costs by 25".

As a result ofthese innovations, TRS's net income

increased a phenomenal 500'16between 1978 and

1987-a compounded annual rate of about 18'J6.

The business outperforrned many so-called high-

tech/high-growth companies. With a 1988 return

on equity of 289&.it also outperformed most low-

growth but high-profit businesses.

6

HARVARD BUS1NESS REV1EW

PAG.N°329

What Leaders Really Do . BEST OF HBR

tially complex decisions. A company

must choose a structure of jobs and le-

porting relationships, staff it with indi-

viduals suited ta the jobs, provide train-

ingforthose whoneed it,communicate

plans to the workfurce,and decide how

muchauthorityto delegateand te whom.

Economie incentives aIso need te be

constructed to accomplish the plan,

as weil as systems ta monitor its im-

plementation. These organizational

judgments are much like architectural

dedsions. It's a question of fit within

a particular context.

just because they are understood. An-

other big challenge in leadership efforts

is credibiJity- getting people ta believe

the message.Many things contribute to

credibility:the track record of the per-

son deliveringthe message,the content

of the message itself, the communica-

tor's reputation for integrity and trust-

woJ;1hiness,and the consistency be-

tweeD words and deeds.

.

Finally, aligning leads ta empower-

ment in a way that organizing rarely

does. One of the reasons some organi-

zations have dlfficultyadjustingto rapid

The idea of getting people moving in the

same direction appears to be an organizational

problem. But what executives need to do is not

organize people but align them.

Aligning is different.

It is more of a

communications challenge than a design

problem. Aligning invariably involves

ta1king ta many more individuals than

organizing does. The target population

can involve not only a managers

subor-

dinates but a1so bosses, peers, staff in

other parts of the organization, as weIl as

suppliers, government officiais, and even

customers. Anyone who can help impIe-

the vision and strategies or who

ment

is relevant.

tan block implementation

Trying to get people ta comprehend a

future is aIso

vision of an alternative

challenge of a com-

a communications

from orga-

pleteJy different magnitude

nizing them te fulfill a short-term plan.

It's mucb like the difference between a

football quarterback attempting te de-

scribe to bis team the next two or three

plays versus bis trying to explain to them

a totaUy new approach to the gaIne to be

used in the second ha1f of the season.

Whether delivered with many words

or a few carefully chosen symbols, sncb

messages are Dot necessarily acœpted

changes in markets or tecbnology is

that so many people in those compa-

nies fuelrelativelypowerless.They have

learned from experience that even if

they .correctly perceive important ex-

ternal changes and then initiate appro-

priate actions, they are vulnerable ta

someone higher up who does Dot like

what they have doue. Reprimands can

take many different

faIms: ~That's

against policy:' or "We tan'! afford it,"

or "Shut up and do as you're told."

Alignment helps overcome this proh-

lem by empowering people in at least

two ways. First, wben a clear sense

of direction bas been communicated

throughout an organization, lower-level

employees tan initiate actions without

the same degree of vulnerability.Aslong

as their behavior is consistent with the

vision,superiorswillhavemore difficuIty

reprimanding them. Second, because

everyone is aiming at the same target,

the probabillty1Sless that one persan's

initiative will be stalled when it cornes

into confiict with someone eIse's.

7

ln a company without direction, even

short-tenn planning can become a black

hole capable of absorbing an infinite

amount of time and energy. With no vi-

sion and strategy to provide constraints

around the planning process or to guide

.it, every eventuality

a plan.

Under these circumstances, contingency

cao go on forever, draining

planning

time and attention from fur more essen-

deserves

tial activities, yet without ever providing

the clear sense of direction that a com-

needs. After awhile,

pany despeiately

managers

cynical,

inevitably become

and the planning process can degenerate

into a highly politicized game.

Planning works best not as a substi-

rote for direction setting but as a com-

plement

planning

to it. A competent

process serves as a useful reality check

activities. Ukewise,

on direction-setting

a competent

proœss

provides a locus in which planning can

then be realistica1ly carried out. It helps

clarify what kind of planning is essential

and what kind is irrelevant.

direction-setting

Aligning People Versus

Organizing

and Staffing

A central feature of modem organiza-

tiens is interdependence, where no one

bas complete autonomy, where most

employees are tied to many others by

their work, technology, management

systems. and hierarchy. These linkages

present a special challenge when orga-

nizations attempt

ta change. Unless

many individuals line up and move to-

gether in the same direction,people will

tend to full aUaver one another. Th eJ[-

ecutiveswho are overeducated in man-

agement and undereducated in leader-

ship, the idea of getting people moving

in the same direction appears to be an

organizational problem. What execu-

tives need to do, however, is not orga-

nize people but align them.

Managers..organize"te create human

tan implement plans as

systems that

precise1yand efficientlyas possible.'J.Yp-

ica1Iy,this requires a number of poten-

BREAKTHRO\JGH LEADERSHIP DECEMBER 2001

BEST OF HBR . What

leaders Really Do

PAG.N°330

AliGNING PEOPLE:

Chuck Trowbridgeand BobCrandallat Eastman Kodak

Eastman Kodakentered the

Once a month, Crandal! and ail those who

copy business ln the early

19705,concentrating on

technically sophlsticated

machines that sold, on

average, for about

$60,000 each. OVerthe

nex! decade, thls busi-

ness grew to nearly

$1billion ln revenues.

But costs were high, prof-

its were hard ta find, and

problems were nearly every-

where.ln 1984, Kodak had to

write off$4O million in inventory.

Most people at the company knew

there were problems, but they cou Idn't agree

on howto solvethem.So in hÎsfirsttwo

months as general manager ofthe new copy

products group, established in 1984,Chuck

Trowbrldge met with nearly every key person

inside hls group, as weil as with people else--

whereat Kodakwhocouldbe importantta the

copier business. An especially crucial area was

the engineering and manufacturing organiza-

lion, headed by Bob Crandal!.

Trowbridge and Crandall's vision for engi-

neering and manufacturing was simple: to

become a world-class ma nufactu ring opera-

tion and to create a less bureaucratie and

more decentralized organization. Still, thls

message was difficult to convey because It

was such a radical departure from previous

communications, not oRly in the copy prod-

ucts group but throughout most of Kodak. 50

Crandal! set up dozens ofvehicles to empha-

sile the new direction and align people to it

weekly meetings with his own 12direct reports;

monthly"copy product forumsH in which a

different employee from each of his depart-

men15 would meet with him as a group; dis-

cussions of recent improvemen15 and new

projects ta achleve still better results; and

quarterly HState of the DepartmentH meetings,

where his managers met with everybody in

their own departmen15.

reported

ta him would also meet with 80 to 100

people from some area of his organization

to

discuss anythlng they wanted. To align his

biggest

which supplied one-third of the parts used ln

Kodak Apparatus Division,

supplier-the

design and manufacturing-he

agers met with the top management

group over lunch every Thursday.

ofthat

later, he

and his man-

created a format ca lied "business meetings;'

where hls managers meet with 12 to 20 people

on a specifie topie, such as inventary or master

scheduling. The goal: to gelaI! ofhis 1,500 em-

ployees

focused business

meetings

in at leastone

each year.

ofthese

Trowbridge

ten communication

and Crandall

also enlisted writ-

in their cause. A four- to

eight-page MCopyProduets

Journal" was sent

ta employees

"Dialog Letters" gave employees

nity to anonymously

once a month.A program called

the opportu-

of Crandall

ask questions

and his top managers

reply. But the most visible and powerfuJ written

and be guaranteed

a

comm!Jnications werethe

hallway near the cafeteria,

charts.ln

a main

these huge charts

vividly reported the quality, cost, and delivery

results for each product, measured

targets. A hundred

difficult

of these charts were scattered throughout

manufactuTing

area, reporting

the

quality leveis

smaller versions

against

and costs for spedfic work group5.

Results ofthis

Intensive alignment

process

began to appearwithln

more surfaced after a year. These sucœsses made

six months,

and still

the message more credible and helped gel more

people on board. Between 1984 and 1988, quality

on one of the main product

nearly 100-f0ld. Defects per unit went from 30

lines increased

line went down nearly 24'!6.Deliveries

to 0.3. Over a three-year period, costs on another

product

on schedule increased from 82'16ln 1985ta 95'16

in 1987.lnventory

levels dropped by over 50')6

between 1984 and 1988, even though the volume

of products was increasing. And productivity,

measured

more than double<! between 1985 and 1988.

in unl15 peT manufacturing

employee,

8

HARVARD BUSINESS IŒVII

PAG.N°331

leaders Really Do . BEST OF HBR

What

Motivation and inspiration energize people)

not by pushing them in the right direction but

by satisfying basic human needs.

ulate the organization'svisionin a man-

ner that stresses the values of the audi-

ence they are addressing.Thismakes .

the work important to those individu-

ais. Leaders also regularly involve peo-

ple in deciding how to achieve the or-

ganization's vision (or the part most

relevant to a particular individual).This

givespeople a sense of controLAnother

important motivational technique isto

support employee efforts to realize the

visionby providing coaching,feedback,

and IOlemodeling,thereby helpingpeo-

ple grow professionally and enbancing

their self-esteem. FinaIly,good leaders

recognize and reward success, which

not only givespeople a sense of accom-

pHshmentbut a1somakes them feellike

they belong to an organization that

cares abont them. When ailthis is done,

the work itself becomes intrinsically

motivating.

The more that change characterizes

the more

the business environment,

that

leaders must motivate people to

provide leadership as well. When fuis

works,it tends to reproduce leaderslûp

across the entire organization, with

people occupying multiple leadership

fOIesthroughont the hierarchy. This is

higb1y valuable, because coping with

change in any complex business de-

mands initiatives from a multitude of

people. Nothing lesswill wark.

Of course, leadership from many

sources does not necessarily converge.

Ththe contrary,it can easilyconflict.For

multiple leadership fOIesto work ta-

gether, people's actions must be Cafe-

fully coordinated by mechanisms that

differ from those coordinating tradi-

tional management fOIes.

Strong networks of informaI rela-

tionships-the kind round in companies

with heaIthy cultures- help coonlinate

leadership activities in much the same

way that formai structure coordinates

managerial activities.The keydifference

is that informaI networks can deal with

the greater demands for coordination

associated with nonroutine activities

and change. The multitude of commu-

nication channels and the trust among

the mdividualsconnected bythose chan-

fielsallow for an ongoing processof ac-

commodation and adaptation. When

contticts arise among roles, those saIne

relationships help resolve the conflicts.

Perhaps most important, this processof

dialogue and accommodation can pro-

duce visions that are linked and com-

patible instead ofremote and competi-

tive. AlIthis requires a great deal more

communication than is needed to coor-

dinate managerial roles, but unlike for-

maI structure, strong informai networks

tan handle il.

InformaI relations of some sort exist

in ail.corporations. But tao olten these

networks are eUber very weak -some

people are weil connected but MOstare

not -or they are highly fragmented-a

strong network exists inside the mar-

keting group and inside R&D but not

across the two departments. Such net-

works do not support multiple leader-

ship initiatives weIl. ln fact, extensive

informai networks are so important that

if they do not exist,creating them has to

be the fucus of activity early in a major

leadership initiative.

Creating a Culture of Leadership

Despite the increasing importance of

leadershipta businesssuccess,the on-the-

job experienœs of most people actually

seem to undermine the development of

the attributes needed for leadership.

Nevertheless, some companies have

consistently demonstrated an ability to

People Versus

Motivatlng

Controlling and Problem Solving

Since change is the function of leader-

ship, being able to generate bighly en-

for coping

ergized behavior is important

with the inevitable barriers

to change.

Just as direction setting identifies an ap-

propriate path for movement and just as

effective alignment gets people moving

down that path, successful motivation

ensures that they will have the energy to

overcome obstacles.

According to the logic of manage-

ment, contrai mechanisms compare sys-

tem behavior with the plan and take ac-

ln a

tion when a deviation is detected.

well-managed factory, for example, this

means the planning proeess establishes

sensible quality targets,

the organizing

process builds an organization that can

achieve those targets, and a contrai pro-

cess makes sure that quallty lapses are

spotted immediately, not

in 30 or 60

clays, and corrected.

For Saille of the saille reasons

that

is so central

to management,

control

highly motivated or inspired behavior is

almost irrelevanl. Managerial processes

must be as close as possible to fail-safe

and risk free. That means!bey cannot be

dependent

on the unusual or bard to

obtain. The whole purpose of systems

and structures is to help normal people

who behave in normal ways to complete

routine jobs successfully, day after day.

It's not exciting or glamorous. But that's

management.

Leadership

is differenl. Achieving

grand visions always requires a burst of

energy. Motivation and inspiration en-

ergize people, not by pusbing them in

the right direction

as control mecha-

nisms do but by satisfying basic human

needs for achievement,

a sense of be-

longing, recognition, seIf-esteem, a feel-

ing of control over one's life, and the

ability to live up to one's ideals.. Such

touch us deeply and e1icit a

feelings

response.

powerful

Good leaders motivate people in a

variety of ways. First, they always artic-

8REAKTHROUGH LEADERSHIP DECEMBER 2001

9

BE$T OF HBR .What

leaders Really Do

PAG,N"332

MOTIVATING PEOPLE:

Richard N icolosi at Procter & Gambie

For about 20 yeaTS after

foundlng in 1956, Procter &

Gamble's

paper products

Its

division had experienced

for its

Uttle competition

high-quality,

reasonably

priced, and well-marketed

consumer

goods. Bythe

lare

19705, however,

the market posi-

tion ofthe division had changed,

New competitive

thrusts

hurt P&G

badly. For example,

industry

analysts

share for disposable

mld-1970S to 52% ln 1984,

that

diapers

estimate

the company's market

fell from 75'16ln the

That year, Richard Nicolosl came 10 paper prod-

ucts as the assodate general manager, after three

yeaTs in P&G's smaller and faster moving soft-drink

business. He found a heavily bureaucratie and cen-

tralized organizatlon that was overly preoccupied

with internai functional goals and projects.Almost

ail information about customers came through

highly quantitative market research. The technical

people were rewarded for cost savings, the commer-

cial people focused on volume and share, and the

two groups were nearly at war with each other.

During the late sommer of 1984,top manage-

ment announced that Nieolosi would become the

head of paper products ln October, and by August

he was unofficially running the divlsion.lmmedi-

ately he began to stress the need for the division to

become more creative and market driven, Instead of

just trying to be a low-cost producer. "1had ta maice

it very clear,. Nlcolosllater

reported, "that the fuies

of the game had changed.u

The new direction Included a much greater stress

on teamwork and multiple leadership foies. Nicolosi

pushed a strategy of using groups 10 mana'ge the di-

vision and its specifie products.ln October, he and

his team designated themselves as the paper division

"boardu and began meeting first monthly and then

weekly. ln November, they establlshed "category

teams"ta manage thelr major brand groups (Iiice

diapers, tissues, towels) and started pushing respon-

sibility down ta these teams. "Shun the Incrementai,"

NJcolosistressed, "and go for the leap."

ln December, Nicolosi selectively involved him-

selfin more detall in certain activities. He met with

the advertising ageney and got to know key creative

people.Heaskedthe marketingmanager of diapers

to report directly ta him, e"liminating a layer Jn the

hierarchy. He talked more to the people who were

woricing on new product development projects.

InJanuary 1985.the board announced a new

organizational structure that included net only cate-

gory teams but alsonew-brandbusinessteams, By

the spring, the board was ready to plan an important

motivationaleventta eommunicatethe new paper

products vision to as many people as possible. On

in

June 4.1985, ail the Cincinnati-based personnel

paper plus sales district managers and paper plant

managers-severa!

in

the local Masonic Temple. Nicolosi and other board

members described their vision of an organization

where "each of us is a leader." The event was video-

taped, and an edited version was sent 10 ail sales

offices and plants for everyone to see.

thousand people in ali-met

Alithese activities helped create an entrepreneur-

lai envlronment where large numbers of people

were motivated ta reallze the new vision. Most inno-

vations came from people dealing with new prod-

ucts. Ultra Pampers, first introdueed ln February

1985,took the market share 'ofthe entire Pampers

product

break-even ta positive. And wlthin only a few months

of the introduction of luvs Delux in May1987,mar-

ket share for the overall brand grew by 150'J6.

line from 40'J6ta 58'Koand profitability from

Other employee initiatives were oriented more

taward a functional area, and some came from the

bottom of the hierarchy.ln the spring of1986, a few

of the division's secreta ries, feeling empowered by

the new culture, developed a secr...