Leaderonomics

Great leaders make great calls

What makes a good leader? Should a good leader be strict or lenient? Ambitious or moderate? Servant or master? If your answer is all of the above, you are probably right. But what makes a good leader great?

A great leader knows when exactly to be strict or lenient. When to serve, and when to lead. When to see the big picture, and when to go into the details. A great leader knows when to make the right judgment calls.

Throughout our lifetime, we make thousands of judgment calls. Some are trivial, like what type of clothes to buy. Some are monumental: whom to marry and which career path to take. The ability to make good judgments impacts the quality of our lives.

In fact, the consequences and importance of our judgment calls are magnified exponentially as we take on bigger leadership roles as it impacts the lives of others as well. How critical judgment calls are can be summed up in this: With good judgment, little else matters. Without good judgment, nothing else matters.

To delve deeper into the topic of judgment and decision making, we delve into a book written by Noel M. Tichy and Warren G. Bennis, entitled Judgment: How Winning Leaders Make Great Calls. Both Tichy and Bennis have spent decades studying and teaching leadership, and have advised top CEOs such as Jack Welch and Howard Schultz.

According to Tichy and Bennis, judgment is a contextually informed decision-making process that covers three main areas:

• Judgment about people

• Judgment about strategy

• Judgment in time of crisis

Leadership judgments can be broken down into a three-phase process:

How does a leader make good judgments?

1. Preparation – What happens before the leader makes the decision

2. The call – What does the leader does while making the decision that makes it the right one

3. Execution – What the leader must look after to make sure the judgment call translates into the right result

People judgment calls

Judgment calls about people are usually the most complex and critical ones that leaders have to make. People judgments are the basis for good strategic and crisis judgments. At the end of the day, it is the people that make things turn out well or otherwise.

In any organisation or team, the first priority is to always get the right people on the team, then set the strategy and be ready for the inevitable crises.

Welch, well known for his track record in hiring and developing thousands of leaders during his tenure as CEO at General Electric (GE), estimated that when he started off as a manager, he only got about 50% of his people calls right. After 20 years at the end of his career, he thought he still got as much as 20% wrong.

So how do the world’s best leaders make the right people calls? Let’s take A.G. Lafley’s hiring of key executives as the CEO of Procter and Gamble (P&G) as an example. Within the first two years as CEO of P&G, Lafley replaced more than half of the company’s top 30 key executives because he realised that many of them didn’t have the right mindset or attitude to take on the tough calls that needed to be made.

So, he replaced them with those who were better suited to the task. The outcome was nothing short of amazing. P&G’s earnings and stock price climbed more than 58%.

One of the biggest calls Lafley made early on was to pick someone to be in-charge of the baby care business. His selection of Deb Henretta, someone with no expertise in the area of baby care, surprised a lot of people. Upon further research, it is clear that Lafley’s judgment call was made through the three-phase process.

In the preparation phase, Lafley had to sense and identify the problem that needed solving.

The sensing part was easy because baby care was one of P&G’s core businesses, and it was struggling. P&G’s Pampers was the market leader at 65%, till it launched a new technology – shaped diapers.

Instead of using the technology on Pampers, it introduced Luvs, which also became a huge success. Instantly, it became a self-cannibalising mistake.

Pampers’ market share dropped to 25%, while Luvs held about 30%. Huggies came right up in the middle with an improved shaped diaper. P&G’s dominance in the baby care market was diluted. It had two successful brands, but neither was as successful as Kimberly-Clark’s Huggies.

Once Lafley identified the need for a total transformation of the baby care business, he framed the issue as a leadership issue. He needed a new leader with new strategies.

Lafley was now into the call phase. He took in all the advice he got, and responded to his colleagues’ concerns directly and respectfully. As a result, those who opposed the decision to hire Henretta could no longer visibly resist his decision to choose her for the job.

Having made the judgment call, Lafley then moved into the third and final stage of the process: Execution. Lafley understood that making the call was part of a longer process and he needed to be persistent in maintaining his support of Henretta during the execution phase. So, he made himself available to even coach and mentor Henretta.

He only declared Henretta’s victory after there was indisputable evidence of her success as a leader. Henretta ultimately became group president for Asia.

Strategy judgment calls

One of the many critical roles a leader plays in an organisation is to make the correct strategy calls. Every leader is expected to lead the organisation to success. So when the current strategy isn’t steering the organisation to where it is supposed to be, it is the leader’s job to find a new path.

Bad strategy calls may not be as fatal as bad people judgment calls, but the results can be quite detrimental to an organisation as well. Take the case of Dell in early 2007 when Dell hit a crisis due to poor strategic judgment calls.

Then CEO, Kevin Rollins, was blamed for missed strategic judgments, for not making a timely judgment to change the strategy at Dell to face the surging competitiveness from Hewlett-Packard (HP).

Results showed Dell’s stock declining over 45% while HP’s rose 90%. HP was on the rebound and caught Dell and Rollins by surprise. Rollins was ultimately forced to resign.

Michael Dell has since then brought in new talent, all key people judgments, but whether or not Dell will able to compete with companies such as HP, Lenovo or Acer depends on how well Dell exercises good strategic judgment.

In contrast, Jeff Immelt’s huge success at GE can be credited to his great strategy judgment calls. When Immelt succeeded Welch in 2001, he not only had big shoes to fill (GE was the most valuable and competitive enterprise in the world) but had to make a host of critical judgment calls.

Immelt decided he had to transform GE into a technology growth company. He wanted to make GE a better and more energising place to work. Immelt said, “My job is to lead GE in a new set of circumstances and a new world. Post 9/11, it is a different world. The job of the leader is to do the job of leadership in the time you are in.” After 9/11, the economy of the world witnessed slower growth and more volatility. The United States entered into recession, followed by Europe and Japan in decline.

Immelt’s strategy judgment calls in the preparation phase were based on his ability to foresee a global environment with slower growth, and to envision a route to success for GE through merging markets.

With the information that he had, he made the call and concluded that developing countries needed to build infrastructure for power, water, energy and transportation, whereas in the developed countries, the best opportunities are in the health care, energy saving, and environmentally-friendly product sectors.

Immelt decided that growth through innovation was his No.1 priority at GE so he went on the execution phase by investing heavily into research and development.

The strategy judgment call made by Immelt resulted in two straight years of organic revenue growth of two to three times gross domestic product, global revenue almost doubling from US$40bil in 2000 to US$75bil in 2006, consistent double-digit earnings growth of 10% from 2001-2006, and GE’s net income almost doubled since 2001.

Crisis judgments

Bad calls during an organisation’s time of crisis are not any more or any less likely to be fatal to the organisation than bad people and strategy calls.

The only difference is that in times of crisis, any disastrous consequences caused by bad calls in those moments usually come by very quickly. The fact remains that all organisations face crises at one time or another. Crises not handled well, can destroy a business.

In March 1989, the Exxon Valdez, a huge oil tanker went aground in Alaska and spilled 11 million gallons of oil in an environmentally sensitive area, while the captain was drunk and asleep.

The oil spill killed over half a million birds, 4,500 sea otters, 14 killer whales, and damaged other sea creatures in the region.

Lawrence Rawl, then CEO of Exxon, was the one who made very bad judgment calls during the crisis. Instead of taking ownership of the problem, he opted instead for the opposite. He did not go to the scene until two weeks after the spill.

In fact, he even went on television to say that he was unfamiliar with the latest plans for the clean-up because as CEO, it was not his responsibility to read up on the reports. Instead, he blamed the media for making too big of a deal of the spill.

There was never an apology. As a result, it cost Exxon US$5.3bil in lawsuits, the largest punitive damages ever assessed for corporate irresponsibility.

One case that exemplifies great crisis leadership is the Tylenol poisonings in 1982. Seven people died after taking Tylenol capsules that were laced with potassium cyanide. The tampering of the medicine happened out of the control of Johnson & Johnson (J&J), but the company and its leader, James Burke, stepped in almost immediately to take ownership of the problem.

J&J distributed warnings to hospitals and distributors and halted Tylenol production and advertising. It issued a nationwide recall and pulled all of the product off the shelves (an estimated 31 million bottles with a retail value of over US$100mil), and offered full refunds for anyone who wanted to return bottles already purchased.

Because of its quick and responsive efforts, it was able to save the brand as well as preserve the integrity of the company. The media applauded J&J with positive coverage for its handling of the crisis. An article in the Washington Post said, “Johnson & Johnson has effectively demonstrated how a major business ought to handle a disaster”.

So, why do some leaders deal with crises better than others? Even when hit with totally unpredictable events, why do some leaders respond better than others? The answer is simple. Those who are able to deal with crises better are the ones who can anticipate crises.

Good judgment made during a crisis is somewhat similar in process to judgments made in less-stressed conditions. There is the preparation phase, the call phase, and the execution phase.

The difference here is that the preparation phase needs to be done before the crisis occurs. An effective leader is one that prepares for a crisis even before he or she knows what kind of crisis will occur.

Character and courage

In order to sustain good judgment, a leader must have character and courage. Character provides a leader with the moral compass, and courage produces the results.

Good leaders with character have or set clear standards. They take responsibility and hold nobody but themselves accountable, and they value self-respect more than public esteem. Courage is required to maintain standards in the face of obstacles or crises.

Jim Hackett of Steelcase was faced with a business judgment that had far greater implications than he could have known at the time.

Steelcase started selling cubicle panels with floor-to-ceiling walls that were exchangeable. The product met with huge success, until it stumbled across the issue with fire retardants. There was not one universal fire code or standard to follow, and the standards varied across different states.

So, how fire-retardant was the new product? How far off the mark was it? Hackett’s character determined the answer. His courage chartered a course for Steelcase that few would have taken.

Steelcase recalled all the panels and replaced them with ones that met stricter fire codes, which cost them US$40mil. In that process, Hackett and all of Steelcase’s executives lost their bonuses. The day of reckoning came on Sept 11, 2001.

When the airplane hit the Pentagon that morning, the product that was behind that wall was the new Steelcase panels that had been exchanged to meet stricter fire codes. It was determined later that with all the jet fuel and fire, the fire could have spread further if not for the new Steelcase panels.

Character without courage is meaningless, but courage without character can be, and often is, dangerous.

At the end of the day, the most important factor for a leader to make good judgments is the commitment to be a learner. It is only through lessons learnt from past experiences that a leader learns how and when to make the right calls. The commitment for continuous learning takes time, humility, and relentless willingness to “look in the mirror”.

Good leaders also know the importance of investing in the leadership development of others, especially the team surrounding the leader. In every situation, the duality of making yourself better while teaching and developing those around you is the key to good leadership.