30 Sep 2017

By Doug Ready and Alan Mulally

To successfully lead major organizational transformations, executives need to align purpose, performance, and principles within their companies. Doing so isn’t easy — and requires mastery of a wide range of leadership skills.

In recent years, we have come to believe that it is increasingly important for business leaders to learn how to build companies that are simultaneously purpose-drivenperformance-focused, and principles-led. We developed this point of view from two quite different perspectives: One of the authors is an academic and adviser to C-suite executives on building enterprise leadership capability, and the other is an executive, board member, and CEO coach who, as CEO and president of Ford Motor Co. from 2006 to 2014, led a successful turnaround at that company.

At a time when the pace of change in business is faster than ever, we believe that building organizations with these three characteristics is no longer a choice. Being performance-driven is clearly essential to success; continuous disruption, rapid technological innovation, and turbulence require that today’s leaders build agile organizations with resilient employees in order to achieve superior performance.

But focusing on results alone is not enough. Demographic, cultural, and technological changes have led to a workforce that demands a set of operating principles characterized by core values such as transparency, trust, inclusion, and real-time collaboration to help guide behaviors and decision-making in companies.  Finally, studies have shown that millennials are deeply motivated by corporate social responsibility and a compelling sense of purpose.  Together, these forces make the case that companies that fail to aspire to align purpose, performance, and principles will also fail to attract the best talent. Furthermore, to achieve the kind of transformations that today’s fast-moving economy often requires of businesses, executives need engaged, committed employees who have opportunities to contribute their knowledge. Purpose and principles can help engage employees in support of high performance.

About the Research

What brought the two authors together is an unorthodox yet powerful research protocol. One of us (Doug Ready) has conducted applied research on developing leadership capabilities in next-generation organizations, conducting hundreds of interviews and working with organizations around the world. The other (Alan Mulally) has successfully led large, complex organizations (Ford Motor Co. and Boeing Commercial Airplanes) through periods of change. For more than two years, Ready and Mulally have merged their experiences and thinking and led inquiries into what it takes to build robust, next-generation organizations and prepare the leaders who will guide them. Ready’s contributions include conducting dozens of interviews with senior leaders from companies in Asia, Europe, and North America; he asked them about the factors they viewed as critical in building next-generation leadership capability. Mulally’s contributions come not only from his own experience as a CEO but also from reaching out to CEOs and academics to engage in a dialogue on next-generation leadership effectiveness and organizational transformation.

Aligning Purpose, Performance, and Principles

What does it take to align purpose, performance, and principles? Consider the examples of two business leaders who took on that challenge: Dave McKay of Royal Bank of Canada (RBC) and Isadore Sharp of Four Seasons Hotels Ltd.

Articulating a Sense of Purpose at RBC

In 2014, Dave McKay was appointed chief executive officer and director of the board of Toronto-based Royal Bank of Canada, a leading financial services company. At the time of his appointment, McKay had several critical strategic and operational priorities: growing RBC’s emerging businesses, revitalizing some mature businesses, and preparing employees to take on the challenges of the emergence of digitization as a core element of the bank’s business model.

But there was something else important on McKay’s agenda — something that had less to do with the bank’s bottom line, at least in the short run. McKay felt that, despite an enviable record of financial performance and a set of core values that guided managerial decision-making, RBC lacked a compelling statement of its core purpose. The new CEO read an article that one of us had written several years earlier that illustrated how some companies had harnessed a sense of purpose to forge a powerful collective ambition to lead them through difficult transformations. He felt this was needed to inspire employees to take on the bank’s new challenges as a team.

McKay’s desire to make RBC’s purpose explicit was initially met with a healthy dose of skepticism from some senior leaders. Shouldn’t the bank focus on its strategic and operational challenges first? Shouldn’t it continue its digital transformation and then perhaps senior management and employees would be more open to embracing the “softer issues”? But McKay pressed on and persuaded the top executive team and key stakeholders to embrace the process. The leadership team started to hold dialogue sessions, asking a few simple but powerful questions: Why does RBC really exist as an enterprise? Is it just to make money? Whom do we really go to work for every day? What gap would there be in the world if we didn’t exist?

Employees responded positively to these questions and to being asked to help shape RBC’s purpose statement.  The results included a considerable uptick in employee engagement and a higher percentage of employees understanding and identifying with RBC’s strategic direction.

Creating a Performance-Driven Culture at Four Seasons

At Four Seasons, Isadore Sharp faced a different challenge in the summer of 2008: He was pondering his next move to save his iconic Toronto-based company, Four Seasons Hotels Ltd. “Issy,” as he is known by many, had founded Four Seasons in 1960 and built the Four Seasons brand around his vision of creating one of the world’s premier hospitality businesses as well as around a set of guiding principles that involved treating others with dignity, respect, and professionalism.  This values-based business model served Sharp and Four Seasons well; the brand’s reputation grew, and Four Seasons hotels were able to command among the highest rates in the industry.

But when the global financial crisis started to unfold in 2007 and deepen in 2008, the high-end business-travel market dried up considerably, and the company’s business model was seriously threatened. The power of the Four Seasons brand and its high margins had covered up a number of performance gaps and operational inefficiencies, and the recession brought those problems under a glaring spotlight.

Sharp and his management team knew they had to make some radical decisions. However, they didn’t run from their powerful sense of purpose. In fact, Sharp and his top leaders doubled down on emphasizing the importance of the company’s mission and core values to employees. But they made it clear that it was time to also place a premium on achieving the company’s financial and operational performance objectives by instilling discipline in managerial decision-making, cutting spending, and reducing its workforce — something unheard of in the Four Seasons family. Management made the tough call to build a high-performance culture by making key staff changes and reducing the company’s cost structure — thereby helping Four Seasons return to its industry leadership role within a few years. The leadership team thus added a heightened performance focus to a company that had long been grounded in purpose and principles.

A Complex Challenge

When we look at these two brief examples, we begin to see the threads that must be woven together to form companies that are simultaneously purpose-driven, performance-focused, and principles-led. On the surface, the aspiration to align purpose, performance, and principles seems rather simple and straightforward. One might ask a series of questions: “Who doesn’t want to work for a purpose-driven enterprise?” “Who doesn’t want to work for a company that consistently achieves high performance?” “Who doesn’t want to work for a company that has a strong set of core values and guiding principles?” But to see how complex the challenge really is, a more telling question to ask is: “Who works for a company today that is consistently purpose-driven, performance-focused, and principles-led?” The first set of questions would most likely yield responses that are unanimously positive, while the question about the current status of one’s employer might yield a far lower positive-response rate.

It is quite simple for executives to say they aspire to build companies that are simultaneously purpose-driven, performance-focused, and principles-led. But it is remarkably difficult to actually achieve that. We and other researchers have cited the challenges facing leaders in trying to reconcile the tensions between purpose and profits.   In fact, in speaking to thousands of managers around the world, we have never had even one person state that this is an easy venture. Why is it so hard to realize this ambition?

The answer has to do with embracing the reality that in companies, as in life, people see events and actions through different lenses and sometimes with conflicting goals. For example, if you’re Dave McKay at RBC, you spend a good deal of your time on cross-enterprise matters. You try to fit the puzzle pieces of the bank together. It’s your job. However, a mid-to-senior-level manager at the bank’s retail division has a more limited scope and sense of context — he doesn’t consider thinking and behaving with broader enterprise considerations in mind as part of his job. As a consequence, the retail manager hears the call for cross-business collaboration yet knows that his bonus is tied to hitting the performance targets for his unit. In this example, performance targets are clashing with collaboration, a core value that the CEO is conveying as important to the bank.

Similarly, in the case of Four Seasons, consider a property managing director who had grown up in a company that literally treated her like a member of the family and spared no expense to fulfill the company’s purpose of being the premier luxury provider in the hospitality industry. All of a sudden, she was being told to cut costs and reduce head count to achieve new performance standards. In that situation, purpose and principles were clashing with the newly articulated, urgent focus on performance.

We use these two examples because they reflect the real problems facing clear-minded, well-intentioned leaders in successful organizations. There is no immunity from hard-wired tensions, even in the best of companies.

What Transformation Requires of Leaders

How can executives align purpose, performance, and principles so that they can lead their organization through major changes? Both our research and our experience suggest that task requires a particular set of skills and mindsets.  It also requires the leader and his or her management team to commit to a relentless process of rigorous implementation.

The Skills and Mindsets Transformation Leaders Need

To guide their companies through periods of major change, senior executives must combine traditional leadership skills with five mindsets that help them balance a series of tensions inherent in leading organizations through complexity.

SKILLSMINDSETS
Crafting compelling storiesUrgency and patience
Building collective leadershipCollective leadership and individual accountability
Driving innovation and growthDevelopmental coach and relentless performance driver
Aligning metrics and rewardsPerpetual student and inspiring teacher
Creating a talent factoryHumble servant and bold change catalyst

Five Essential Leadership Skills

Exceptional transformation leaders bring a particular set of competencies to the challenge of shaping and integrating a company’s purpose, vision, strategy, and guiding principles. They establish the discipline to execute, to learn from their mistakes, and to continuously refine the efficacy of their companies’ execution efforts. Our research and experience has led us to identify five core skills that are essential for such leaders.

  1. They tell compelling stories. Great transformation leaders understand the power of a story well told.   They don’t dwell on the past, but they appreciate the importance of linking their companies’ heritage to its desired future state and then framing their organizations’ current challenges as the bridge between the two. That’s why McKay strongly believed that his organization needed to craft a powerful purpose statement to complete RBC’s transformation story. He believed that by crafting a powerful purpose statement together with the bank’s employees, employees’ commitment to customer centricity and dedication to RBC’s principles would grow considerably.
  2. They build a collective leadership capability. No matter how smart, accomplished, or charismatic they are, transformation leaders understand that they will achieve their objectives only through mutual accountability and collective ownership of their companies’ future challenges. They also understand that high-value employees want to take part in a leadership capability that is distributed throughout the organization rather than concentrated only in the C-suite.   Transformation leaders don’t tolerate petty “siloed” behavior but instead call for cross-boundary know-how exchange, cultivating a positive climate of mutual reliance.
  3. They install disciplined processes to drive innovation and growth. At Four Seasons, Sharp and his management team knew they had a capability gap between their company’s current performance and its future potential, but they hadn’t installed the rigorous processes and discipline to manage that gap. So when the financial crisis hit, they were unprepared to drive deep change. They were a purpose-driven, principles-led company without a deliberate emphasis on building a high-performance culture. But Sharp and his team soon learned that requiring crisp execution of their company’s strategy was good not only for its bottom line but also for customers, because a high-performing Four Seasons enabled the company to reinvest profits into enhanced quality and services, thus reinforcing its core purpose.
  4. They align promises made with metrics and rewards. If we looked at all the companies we have advised or led, we’d argue that the biggest danger that threatens a company’s ability to sustain a major business transformation is a lack of trust among employees about whether the CEO and top executive team have the managerial courage and will to see the transformation through. When a leader lays out a vision of a collaboration-based business model, that leader had better reward collaborative behavior and offer negative consequences for siloed, zero-sum behavior. Great transformation leaders align their messaging with a series of metrics, milestones, and rewards that are consistent with those messages.
  5. They build vibrant talent factories. A company with a vibrant, forward-looking talent strategy has a built-in engine for growth, revitalization, and renewal.   Such a talent strategy will include the scanning capability to examine skills requirements in a turbulent economic environment. It will have the capacity to turn that scanning capability into an effective talent-acquisition strategy. The strategy will ensure that the organization’s culture and climate is inclusive, collaborative, and high-performing. It will provide ample opportunities for network cultivation to employees, who in today’s world insist on such an environment. Continuous, just-in-time learning will be the norm.

Mastering Dualities: Five Essential Mindsets

Possessing the leadership skills outlined above is essential, but insufficient to bring about transformational change. We have seen leaders who tell great stories, have execution plans and metrics in place, and have installed a sophisticated human capital strategy, yet still have not been able to move their organizations to a higher plain. The reason for this has little to do with the story not taking hold, or deficient plans and metrics, or having a professional yet misguided human capital system.

The reason is simpler. It has to do with the tone, approach, and sense of perspective executives bring to the table when leading major organizational change initiatives. Managing the complexities of building organizations that are simultaneously purpose-driven, performance-focused, and principles-led requires not only the skills we’ve identified above but also the mindset of a leader and leadership team who understand that the world is rarely clearly defined. It requires leaders who see the forest and the trees, who see complexity not in a zero-sum manner but rather through the yin and yang lenses of dualities.

So, in addition to the skills (what great transformation leaders do), we have identified five dualities that make up the mindsets (how they go about actually doing it) we believe executives must master to lead their organizations through major change.   We provide examples of each below; in addition, in a sidebar, one of the authors (Alan Mulally) describes how he embraced the five dualities while leading a successful turnaround at Ford.

Leading a Transformation at Ford

When I left my job as executive vice president at Boeing and accepted the job as CEO of Ford Motor Co. in 2006, Ford was in trouble. Demand for its products was decreasing, and Ford had been losing money and market share. The company’s cost structure was not competitive; it had overcapacity and was running out of cash.

1. Urgency and Patience

Most CEOs and top executive teams take pride in being decisive, with a get-it-done-now attitude. So imagine telling such a group that their business transformation is going to take a minimum of three years to take hold. Most executives will state emphatically that they don’t have three years: They want this done now. Wise transformation leaders, however, combine that sense of urgency to get moving with the patience it takes to gather the right stakeholders together, seek their input, look for the systemic problems that might run deep into the cultural fabric of the organization, and address the root causes of the blockage rather than the surface factors.   Patience doesn’t mean that one acts slowly but, rather, deliberately, with a sense of context and perspective.

2. Collective Leadership and Individual Accountability

Most leaders understand the conceptual promise of building a collective leadership capability, but few bring that perspective to work every day. Effective transformation leaders understand that collaboration is less a management technique than it is a leadership philosophy. It’s a belief characterized by statements such as “When we commit to working together, we lay the foundation for winning together.” But these leaders also know that to win together, each individual must accept accountability for delivering excellence.

3. Developmental Coach and Relentless Performance Driver

Great coaches know that developing expertise takes practice and time for the lessons learned to result in more-natural, repeatable behaviors. They take on the challenge knowing that positive change will often not come immediately, but they are there to lend a helping hand and guidance when needed. At the same time, leaders must be demanding by establishing ambitious performance standards and holding both the team and the individuals on it accountable. They also know that sometimes those whom they are coaching are not going to be able to make the transition from acceptable to exceptional performer, and they are prepared to make the tough calls to remove underperforming individuals from the team.

4. Perpetual Student and Inspiring Teacher

Larry Fink, the cofounder, chairman, and CEO of New York-based asset management firm BlackRock Inc., is fond of calling himself a perpetual student. Recent research  finds that one indication of effective CEOs is their capacity to continuously gather important information on customers, competitors, their organizations’ cultural climate, and the external environment by asking high-quality questions. Fink is no exception. He is highly skilled at getting to the root of a problem first by asking penetrating questions and then asking further questions of those around him concerning how to best solve the problems identified.   Yet, while Fink is a superb student, there is also no better representative to teach BlackRock’s guiding principles or to use the company’s powerful purpose statement as a learning vehicle for building passion and commitment among employees.

Are You a Game-Changing Leader?

It’s not easy to be the kind of executive who can successfully lead an organization through major changes. Reflect on the 10 questions below to see if you are on your way to becoming that kind of game-changing leader.

5. Humble Servant and Bold Change Catalyst

When we’ve seen leaders tell their companies’ stories, those stories are often filled with emotional moments. We hear about the relationship between a pharmaceutical company’s purpose statement and a patient being cured of cancer, or why safety is now a guiding principle at an oil company after a CEO had to attend the funeral of a company worker who died from a lapse in the company’s safety procedures. When authentic, these emotional connections matter deeply to a company’s leaders and its employees. The leaders of such companies bring a sense of deep humility, service, and stewardship to their roles. Perhaps ironically, that sense of service is often what motivates these leaders to be bold change catalysts when they feel that such action is warranted. They are not driving deep change and revitalization to build their personal brands but to bring a sense of vitality and freshness to the companies they feel honored to serve. Through that sense of deep belief in their companies’ purpose and principles comes the drive to catalyze change to boost performance — because the company, its employees, its customers, and its shareholders deserve nothing less.

A New Perspective on Leadership

In the face of rapid change and increasing digitalization, many leaders of established, successful companies are finding themselves and their organizations falling suddenly behind — and that is an unaccustomed, uncomfortable feeling. Senior executives need to not only summon the courage and the will to transform their organizations for a new era but also be prepared to embrace a different way of doing business.

To succeed in leading organizational transformations, executives need a new mindset — a fresh way of looking at their industries, their businesses, their customers, and the best way to deliver differentiated value to customers. The biggest challenge is to embrace a different style of leadership.

Leaders of large, complex organizations can gain this new perspective by embracing the embedded tensions they face. Executives must learn to reconcile these tensions by mastering a series of conflicting yet complementary dualities: urgency and patience; collective and individual accountability; coaching and driving performance; student and teacher; and humility and boldness. Leaders who can master those dualities skillfully will be well-equipped to build organizations that are purpose-drivenperformance-focused, and principles-led — and then to guide those organizations to new successes in an ever-changing business environment.

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This content was originally published by MIT Sloan Management Review. Original publishers retain all rights. It appears here for a limited time before automated archiving. By MIT Sloan Management Review

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